FCM
See Futures Commission Merchant.
Federal Deposit Insurance Corporation
A regulatory agency of the created to oversee that bank deposits are insured against bank failures. It was created in 1933 to restore
confidence in the banking system. It insures up to US $100,000 per banking institution.
Federal Reserve/Fed
The central bank of the United States,
responsible for monetary policy.
Fixed Exchange Rate
When the exchange rate of a currency is not allowed to fluctuate against another, i.e. the exchange rate remains constant. Typically, under
fixed exchange rate regimes, currencies are allowed to fluctuate within a small margin. Fixed exchange rate regimes require central bank
intervention to maintain the fixed rate.
Fixed Interest Rate
An interest rate used for loans, mortgages and bonds that remain at the same rate throughout the period.
Flat/Square
To either have no positions or positions that cancel each other out.
Floating Rate Interest
An interest rate that is allowed to adjust with the market. The opposite of a fixed interest rate.
Foreign Exchange (Forex)
The buying and selling of currencies.
Foreign Currency Effect
Refers to how changes in the exchange rate affect the return on foreign investment.
Forward Contract
A deal in which the price for the future delivery of a commodity is set in advance of the delivery. The Forward rate is obtained by adding
the margin to the spot rate. It is used to hedge against adverse fluctuations in the exchange rate that can affect amount of profit or loss
at that future date.
Forward Points
Refers to the pips that were added to or
subtracted from the current exchange rate to obtain the forward price/rate.
Future Rate Agreements (FRAs)
FRAs are agreements that
are made that allow for borrowing and lending at a constant interest rate for a specified period in the future.
Front Office
Refers to the sales personnel (trading and other business personnel) in a financial company.
Fundamental Analysis
The analysis of economic indicators
and political and current events that could effect the future direction of financial markets.
Futures Commission Merchant
A Futures Commission Merchant engages in futures and options transactions. An FCM has a role in the futures market that is similar to that of
a broker in the securities market.
Futures (Financial Futures)
Future contracts that commit both sides to an exchange/transaction of financial instruments, currencies or commodities at a future date and a
predetermined price. Future contracts are similar to forward contacts, but future contracts can be traded in the futures markets. Can be used
to hedge or speculate against the value of the asset at the expiry date.
G
GTC (Good-till-Cancelled)
Refers to an order given by an investor to a dealer to buy or sell a security at a fixed price that is considered “good” until the
investor cancels it.
H
Hedge/Hedging
Strategy to reduce the risk of adverse price movements on one's portfolio and to protect against the volatility of the
market. Hedging typically involves selling the good forward or taking a position in a related security. Hedging becomes more
prevalent with increased uncertainty about current market conditions.
High/Low
Refers to the daily traded high and low price.
I
Inflation
Refers to the increase in prices (price level) and wages over time that decrease purchasing power. It is calculated
from changes in the price index, usually a consumer price index or a GDP deflator.
Initial Margin
The percentage of the
price of a security that is required for the initial deposit to enter into a position. The Federal Reserve Board
requires a minimum of 50% initial margin. For futures contracts, the market determines the initial margin.
Interbank Rate
The rate at which the
major banks (Deutsche, Citibank, Bank of Tokyo) trade in foreign exchange.
Interest Parity
Theory that says that the difference in interest rates across countries should be equal to the difference between the
forward and spot rate.
Interest-Rate Swaps
The process of changing the form of debts held by banks or companies, in which they trade debts/loans fixed rates for
floating rates (or vice versa) in another country.
Interest-Rate Swap Points
The interest rate can be determined through the difference in the bid and offer price of an exchange rate. If you are
looking at the EUR/USD exchange rate and the offer price is higher than the bid price, than Europe's interest rates
are higher than US interest rates.
ISDA (International Swaps and Derivatives
Association)
Organization defining the terms and conditions for trade in derivatives.
FOREX INCOME