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Glossary

Not sure what a trading term means? Search below to find the answer.

Analysis Terms

Autocorrelation

The correlation between changes in a single variable over different time periods. If a price is negatively autocorrelated, a move down in one period would suggest a move up in the next, and vice versa. If it were positively autocorrelated, a move down would suggest a move down in the following period as well, and vice versa.

Bollinger Bands

Technical analysis tool used to measure the highness or lowness of the price relative to previous trades, consisting of three bands: middle band (simple moving average), upper band (given number of standard deviations above the middle band), and lower band (given number of standard deviations below the middle band).

Candlestick chart

Type of chart that uses shaded bars to indicate trading range (i.e. high and low price) as well as the opening and closing prices for consecutive time periods.

Contract (Lot)

Type of chart that uses shaded bars to indicate trading range (i.e. high and low price) as well as the opening and closing prices for consecutive time periods.

Cyclical

Stock/securities that move with the economy, gaining if the economy booms and losing if the economy weakens.

Divergence

Describes the phenomenon whereby a technical indicator and corresponding price chart don't yield the same peaks/bottoms. It usually indicates trend 'exhaustion'.

Economic Indicator

Statistic that seeks to proxy current economic growth and stability. Economic indicators fall into three categories: leading, lagging and coincident.

Elliot Wave Theory

Principle that collective investor psychology (or crowd psychology) moves from optimism to pessimism and back again. These swings create patterns, as evidenced in the price movements of a market at every degree of trend, over durations that range from minutes to decades.

Equilibrium

Price level/range that seems to represent a balance between demand and supply for a given currency pair.

Face Value

Price level/range that seems to represent a balance between demand and supply for a given currency pair.

Fibonacci Numbers

Sequence of numbers in which each successive number is the sum of the two previous numbers. Fibonacci numbers are used in financial/currency markets to develop trading algorithms, applications and strategies. The four most common forms are the Fibonacci fan, Fibonacci Arc, Fibonacci Retracement and the Fibonacci Time Extension.

Fundamental Analysis

The analysis of economic indicators and political and current events that could effect the future direction of financial markets. Opposite of Technical Analysis.

Historical Volatility

Volatility in the underlying asset price, rate or return over a specific period in the past. It is used to check whether the implied volatility of an option is expensive by historical standards.

Illiquid

Security or currency that is not traded actively.

Inflation

Refers to a general rise in the price level of goods and services, measured by a price index, which leads to a decrease in the purchasing power of money.

Implied Volatility

The derived volatility of an asset calculated indirectly from options prices.

J-Curve

Refers to the trend of a country's trade balance following a devaluation or depreciation. A higher exchange rate initially means imports are more expensive, making the current account worse (a bigger deficit or smaller surplus).

Maintenance (Margin)

Minimum margin ratio above which margin account balances must remain. Falling below will trigger a margin call, whereby a customer will be requested to either deposit funds or sell securities in order to return the maintenance margin to an acceptable level.

Mean Reversion

Theory and observed phenomenon whereby prices and returns eventually move back towards their long-term averages.

Moving Average Convergence/Divergence (MACD)

Technical analysis indicator that shows the difference between a fast and slow exponential moving average of closing prices.

Oscillator

Technical analysis indicator that varies over time within a band (above and below a center line, or between set levels), used to discover short-term overbought or oversold conditions.

Parity

The condition whereby an option's value in the market is the same as its intrinsic value.

Quantitative Analysis

The development and application of mathematical and statistic models towards investing and trading.

Rally

A sustained rise in asset prices.

Rate Differential

Difference between two countries' benchmark interest rates, often used as a basis for forecasting exchange rates.

Rate of Return

The percentage of gained or lost on an investment relative to the amount of money invested.

Relative Strength Index (RSI)

A technical indicator that measures the velocity and magnitude of directional price movement by comparing upward and downward close-to-close movement. Referred to as a momentum oscillator.

Simple Moving Average (SMA)

Technical analysis indicator commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends or cycles, that gives equal weight to all data points.

Stochastic Oscillator

Technical analysis tool designed to compare the closing price of a currency to its price range over a given time period.

Systematic Risk

The risk that derivatives permit the transmission of risk across previously unrelated markets, thus making it more likely that a large shock in one will be transmitted to others.

Technical Analysis

Broad approach to forecasting the future direction of prices through the study of past market data, primarily price and volume. It may also employ models and trading rules based on price and volume transformations.

Total Return Swap (TRS)

Provides the buyer with the economic performance of the reference obligation – i.e. the coupon or interest from the reference obligation together with any capital gains – in return for a predetermined funding cost. The buyer will be required to pay any capital losses

Undervalued

When a currency is trading below purchasing power parity or other valuation metric.

Valuation

The process of estimating the value of an asset or currency.

Yield

Return on an investment, usually expressed in percentage terms.

Yield Curve

Statistical method for normalizing data points around the mean.

Z-Score

Graph plotting the interest rate of a given issuer (most commonly the US Treasury) for a range of different maturities.

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