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FOREX GLOSSARY

forex glossary

 

Here are some of the most common terms used in FOREX trading.

 

 

- A -

 

Adjustment  - Official action normally occasioned by a change either in the internal economic policies to correct a payment imbalance or in the official currency rate. 

Aggressive - Traders and/or price action are acting with conviction.
 

 

Arbitrage - The simultaneous purchase or sale of a financial product in order to take advantage of small price differentials between markets. 

 

Asian central banks  - Refers to the central banks or monetary authorities of Asian countries. These institutions have been increasingly active in major currencies as they manage growing pools of foreign currency reserves arising from trade surpluses. Their market interest can be substantial and influence currency direction in the short-term. 

Asian session  - 23:00 – 08:00 (Tokyo). 

 

Ask Price - Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote — e.g. EUR/USD 1.1965 / 68 — means that one euro can be bought for 1.1968 UD dollars

 

At best  -An instruction given to a dealer to buy or sell at the best rate that can be obtained. 

At or better  - An order to deal for a specific price or better. 

Aussie - Also, "Oz" or "Ozzie"; refers to the AUD/USD pair.

 

- B -

 

Balance of trade - The value of a country's exports minus its imports.

 

Bar Chart — A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information — the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.

 

Base Currency — is the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. For example, in the quote — USD/JPY 112.13 — US dollars are the base currency, with 1 US dollar being worth 112.13 Japanese yen.

 

Bearish / Bear market - Negative for price direction; favoring a declining market. For example, "We are bearish EUR/USD" means that we think the Euro will weaken against the dollar.

Bears - Traders who expect prices to decline and may be holding short positions. 

 

Bid Price — is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote — e.g. EUR/USD 1.1965 / 68 — means that one euro can be sold for 1.1965 UD dollars.

 

Bid/Ask Spread — is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.

BOC - Bank of Canada, the central bank of Canada. 

BOE - Bank of England, the central bank of the UK. 

BOJ - Bank of Japan, the central bank of Japan. 

Bollinger bands - A tool used by technical analysts. A band plotted two standard deviations on either side of a simple moving average, which often indicates support and resistance levels. 

 

Broker — the intermediary between buyer and seller. Most FOREX brokers are associated with large financial institutions and earn money by setting a spread between bid and ask prices.

 

Bullish / Bull market - Favoring a strengthening market and rising prices. For example, "We are bullish EUR/USD” means that we think the Euro will strengthen against the dollar. 

Bulls - Traders who expect prices to rise and who may be holding long positions. 

Bundesbank - Germany's central bank. 

Buy -Taking a long position on a product. 

 

- C -

 

Cable -The GBP/USD pair. ”Cable” earned its nickname because the rate was originally transmitted to the US via a transatlantic cable beginning in the mid 1800's when the GBP was the currency of international trade. 

CAD - The Canadian dollar, also known as Loonie or Funds. 

 

Candlestick Chart — A type of chart used in Technical Analysis. Each time division on the chart is displayed as a candlestick — a red or green vertical bar with extensions above and below the candlestick body. The top of the extension shows the highest price for the chart division and the bottom of the extension shows the lowest price. Red candlesticks indicate a lower closing price than opening price, and green candlesticks indicate the price is rising.

 

CBs
Abbreviation referring to central banks. 

Central bank  - A government or quasi-governmental organization that manages a country's monetary policy. For example, the US central bank is the Federal Reserve and the German central bank is the Bundesbank. 

CFDs - A Contract for Difference (or CFD) is a type of derivative that gives exposure to the change in value of an underlying asset (such as an index or equity). It allows traders to leverage their capital (by trading notional amounts far higher than the money in their account) and provides all the benefits of trading securities, without actually owning the product. In practical terms, if you buy a CFD at $10 then sell it at $11, you will receive the $1 difference. Conversely, if you went short on the trade and sold at $10 before buying back at $11, you would pay the $1 difference. 

Chartist - An individual, also known as a technical trader, who uses charts and graphs and interprets historical data to find trends and predict future movements. 

Choppy - Short-lived price moves with limited follow-through that are not conducive to aggressive trading. 

 

Commission - A fee that is charged for buying or selling a product. 

Commodity currencies  - Currencies from economies whose exports are heavily based in natural resources, often specifically referring to Canada, New Zealand, Australia and Russia. 

 

Consolidation - A period of range-bound activity after an extended price move. 

 

Cross Currency — A currency pair that does not include US dollars — e.g. EUR/GBP.

 

Currency Pair — Two currencies involved in a FOREX transaction — e.g. EUR/USD.

 

Current Balance - The value of all exports (goods plus services) less all imports of a country over a specific period of time, equal to the sum of trade and invisible balances plus net receipt of interest, profits and dividends from abroad.

 

- D -

 

Day Order

An order that if not executed on the specific day is automatically canceled.

 

Day trader
Speculators who take positions in commodities and then liquidate those positions prior to the close of the same trading day. 

Day Trading
A Day Trading deal is a currency exchange deal which renews automatically every night at 22:00 (GMT time) starting the day the deal was made and until it ends. The deal ends in one of the following events:
1.Termination initiated by you.
2.The day trading rate has reached the Stop-Loss or Take Profit rate you predefined.
3.The deal end date.
As long as the deal is open, it is charged a renewal fee every night at 22:00 (GMT time).


Day trading - Making an open and close trade in the same product in one day. 

Deal - A term that denotes a trade done at the current market price. It is a live trade as opposed to an order. 

 

Deal Ticket - The primary method of recording the basic information relating to a transaction.

Dealer  - An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. 

Dealing spread - The difference between the buying and selling price of a contract. 

Defend a level  - Action taken by a trader, or group of traders, to prevent a product from trading at a certain price or price zone, usually because they hold a vested interest in doing so, such as a barrier option. 

Deficit - A negative balance of trade or payments. 

Delisting - Removing a stock’s listing on an exchange. 

Delivery - A trade where both sides make and take actual delivery of the product traded. 

Delta Hedging - A method used by option writers to hedge risk exposure of written options by purchase or sale of the underlying instrument in proportion to the delta.

 

Delta Spread - A ratio spread of options established as a neutral position by using the deltas of the options concerned to determine the hedge ratio.

 

Delta - The ratio between the change in price of a product and the change in price of its underlying market. 

Department of Communities and Local Government (DCLG) UK house prices

A monthly survey produced by the DCLG that uses a very large sample of all completed house sales to measure the price trends in the UK real estate market. 

 

Depo - Deposit

Depreciation
The decrease in value of an asset over time. 

Derivative  - A financial contract whose value is based on the value of an underlying asset. Some of the most common underlying assets for derivative contracts are indices, equities, commodities and currencies. 

Devaluation  - When a pegged currency is allowed to weaken or depreciate based on official actions; the opposite of a revaluation. 

Discount rate - Interest rate that an eligible depository institution is charged to borrow short-term funds directly from the Federal Reserve Bank. 

Divergence - In technical analysis, a situation where price and momentum move in opposite directions, such as prices rising while momentum is falling. Divergence is considered either positive (bullish) or negative (bearish); both kinds of divergence signal major shifts in price direction. Positive/bullish divergence occurs when the price of a security makes a new low while the momentum indicator starts to climb upward. Negative/bearish divergence happens when the price of the security makes a new high, but the indicator fails to do the same and instead moves lower. Divergences frequently occur in extended price moves and frequently resolve with the price reversing direction to follow the momentum indicator. 

Divergence of MAs  - A technical observation that describes moving averages of different periods moving away from each other, which generally forecasts a price trend. 

Dividend - The amount of a company’s earning distributed to its shareholders – usually described as a value per share. 

DJIA or Dow  - Abbreviation for the Dow Jones Industrial Average or US30. 

Dove - Dovish refers to data or a policy view that suggests easier monetary policy or lower interest rates. The opposite of hawkish. 

Downtrend  - Price action consisting of lower-lows and lower-highs. 

DXY$Y - Symbol for US Dollar Index.

 

 

- E -

 

ECB - European Central Bank, the central bank for the countries using the Euro. 

Economic indicator - A government-issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc. 

End of day order (EOD)

An order to buy or sell at a specified price that remains open until the end of the trading day, typically at 5pm / 17:00 New York. 

 

EFT - Electronic Fund Transfer.

 

EMS - European Monetary System.

 

EMU - European Monetary Union.

 

EOE - European Options Exchange.

 

ERM - Exchange Rate Mechanism.

 

EST/EDT  - The time zone of New York City, which stands for United States Eastern Standard Time/Eastern Daylight time. 

ESTX50 - A name for the Euronext 50 index. 

 

EURO - The currency of the Eurozone. 

European Monetary Union (EMU) - An umbrella name for the group of policies that aims to coordinate economic and fiscal policies across EU Member States. 

European session  - 07:00 – 16:00 (London). 

 

Exotic - A less broadly traded currency.

 

Expiration Date
(1) Options - the last date after which the option can no longer be exercised.
(2) Bonds - the date on which a bond matures.

 

Expiration Month - The month in which an option expires.

 

Expiry Date - The last date on which an option can be bought or sold.

 

Expiry Date - The last day on which the holder of an option can exercise his right to buy or sell the underlying security.

 

Exposure - The total amount of money loaned to a borrower or country. Banks set rules to prevent overexposure to any single borrower. In trading operations, it is the potential for running a profit or loss from fluctuations in market prices.

 

 

- F -

 

Factory orders - The dollar level of new orders for both durable and nondurable goods. This report is more in depth than the durable goods report which is released earlier in the month. 

Fair value - The difference between the price of a derivative contract and the underlying cash market price. Fair value means there are no arbitrage opportunities between the two prices. 

Fed - The Federal Reserve Bank, the central bank of the United States, or the FOMC (Federal Open Market Committee), the policy-setting committee of the Federal Reserve. 

 

Federal Reserve System - The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership of the Fed is compulsory for banks chartered by the Comptroller of Currency and optional for state chartered banks.

 

First In First Out (FIFO) — refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.

 

Fiscal Policy - Use of taxation as a tool in implementing monetary policy.

 

Fixed Exchange Rate - Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention by the central bank.

 

Fixing - A method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies particularly for establishing tourist rates . The system is also used in the London Bullion market.

 

Fix

One of approximately 5 times during the FX trading day when a large amount of currency must be bought or sold to fill a commercial customer’s orders. Typically these times are associated with market volatility. The regular fixes are as follows (all times NY): 
5:00am - Frankfurt
6:00am - London
10:00am - WMHCO (World Market House Company)
11:00am - WMHCO (World Market House Company) - more important
8:20am - IMM
8:15am - ECB

 

Flat/Square - Where a client has not traded in that currency or where an earlier deal is reversed thereby creating a neutral (flat) position. example: you bought $500,000 then sold $500,000 = FLAT .

 

Float
(1) see Floating exchange rate.
(2) Cash in hand or in the course of being transferred between banks

(3) Federal Reserve Float arises from the system where cheques sent to the Federal Reserve Banks are credited sometimes in advance of the depositing bank loosening the reserve.

 

Floating Exchange Rate - When the value of a currency is decided by the market forces dictating the demand and supply of that particular currency.

 

Floor
(1) An agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time. 

(2) A term for an exchanges trading area (cf. screen based trading), normally the trading area is referred to as a pit in the commodities and futures markets.

 

FOMC - Federal Open Market Committee, the committee that sets money supply targets in the US which tend to be implemented through Fed Fund interest rates etc.

 

Foreign Exchange (FOREX, FX) — Simultaneously buying one currency and selling another.

 

FRA40 - A name for the index of the top 40 companies (by market capitalization) listed on the French stock exchange. FRA40 is also known as CAC 40. 

 

Front Office - The activities carried out by the dealer, normal trading activities.

 

FTSE 100 - The name of the UK 100 Index. 

 

Fundamental Analysis — Analysis of political and economic conditions that can affect currency prices.

 

Futures Contract - A contract traded on a futures exchange which requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments a specified future month, if not liquidated before the contract matures.

 

Futures Exchange-Traded Contracts - They are firm agreements to deliver (or take delivery of) a standardized amount of something on a certain date at a predetermined price. Futures exist in currencies, money market deposits, bonds, shares and commodities. They are traded on an exchange with the clearing corporation gauranteeing the contract and moreover the trade is done on a mark to market basis.

 

- G -

 

G10
G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

 

G5
The five leading industrial countries - US, Germany, Japan, France, UK.

 

G7
The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

 

Gamma - The rate at which a delta changes over time or for one unit change in the price of the underlying asset.

 

Gap / Gapping

A quick market move in which prices skip several levels without any trades occurring. Gaps usually follow economic data or news announcements. 

 

GMT

Greenwich Mean Time - The most commonly referred time zone in the forex market. GMT does not change during the year, as opposed to daylight savings/summer time. 

 

GNP Deflator - Removes inflation from the GNP figure. Usually expressed as a percentage and based on an index figure.

 

GNP Gap
The difference between the actual real GNP and the potential real GNP. If the gap is negative an economy is overheated.

Going long  -
The purchase of a stock, commodity or currency for investment or speculation – with the expectation of the price increasing. 

Going short  -
The selling of a currency or product not owned by the seller – with the expectation of the price decreasing. 

Gold (Gold's relationship)  - Commonly accepted that gold moves in the opposite direction of the US dollar. The long-term correlation coefficient is largely negative, but shorter-term correlations are less reliable. 

 

GTC "Good Till Cancelled"
An order left with a dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client.

 

Gold Standard

The original system for supporting the value of currency issued. This system was in vogue before 1973 when the fixed exchange rates were prevalent.

 

Greenback - Nickname for the US dollar. 

 

Gross Domestic Product - Total value of a country's output, income or expenditure produced within the country's physical borders.

 

Gross National Product - Gross domestic product plus " factor income from abroad" - income earned from investment or work abroad.

 

Guaranteed stop - A stop-loss order guaranteed to close your position at a level you dictate, should the market move to or beyond that point. It is guaranteed even if there’s gapping in the market. 

 

 

- H -

 

Handle

Every 100 pips in the FX market starting with 000. 

 

Hard Currency

A currency whose value is expected to remain stable or increase in terms of other currencies.

Hawk - hawkish

A country's monetary policy-makers are referred to as ‘hawkish’ when they believe that higher interest rates are needed, usually to combat inflation or restrain rapid economic growth or both. 

Head and Shoulders -  A pattern in price trends which chartist consider indicates a price trend reversal. The price has risen for some time, at the peak of the left shoulder, profit taking has caused the price to drop or level. The price then rises steeply again to the head before more profit taking causes the the price to drop to around the same level as the shoulder. A further modest rise or level will indicate that a further major fall is imminent. The breach of the neckline is the indication to sell.


Hedge

A position or combination of positions that reduces the risk of your primary position. 

 

Hedging - A hedging transaction is one whose main aim is to protect an asset or liability against a fluctuation in the foreign exchange rate rather than profit from the exchange rate fluctuations.

Hit the bid - To sell at the current market bid. 

HK40 / HKHI - A name for the Hong Kong Hang Seng Index.

 

 

- I -

 

ICCH
International Commodities Clearing House Limited, a clearing house based in London operating world wide for many futures markets.

 

Illiquid
Little volume being traded in the market; a lack of liquidity often creates choppy market conditions. 

 

IFEMA
International Foreign Exchange Master Agreement.

 

IMF

International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term and encourage liberalization of exchange rates. The IMF helps its members to tide over the balance of payments problems with supplying the necessary loans.

 

IMM
International Monetary Market part of the Chicago Mercantile Exchange that lists a number of currency and financial futures.

 

INDU
Abbreviation for the Dow Jones Industrial Average. 

Industrial production

Measures the total value of output produced by manufacturers, mines and utilities. This data tends to react quickly to the expansions and contractions of the business cycle and can act as a leading indicator of employment and personal income data. 

Inflation
An economic condition whereby prices for consumer goods rise, eroding purchasing power. 

Initial margin requirement
The initial deposit of collateral required to enter into a position. 

 

IOM
Index and Options Market part of the Chicago Mercantile Exchange.

 

IPI
Industrial Production Index. A coincident indicator measuring physical output of manufacturing, mining and utilities.

 

IPO
A private company’s initial offer of stock to the public – short for Initial Public Offering. 

Interbank rates 
The Foreign Exchange rates which large international banks quote to each other. 

Interest
Adjustments in cash to reflect the effect of owing or receiving the notional amount of equity of a CFD position. 

Intervention
Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates. 

Introducing broker
A person or corporate entity which introduces accounts to a broker in return for a fee. 

INX
Symbol for S&P 500 Index. 

 

ISDA (International Securities Dealers Association
Organization which foreign currency exchange banks have formed to regulate inter-bank markets and exchanges.

 

Implied Rates
The interest rate determined by calculating the difference between spot and forward rates.

 

In-the-Money

A call option is in-the-money if the price of the underlying instrument is higher than the exercise/strike price. A put option is in-the-money if the price of the underlying instrument is below the exercise/strike price.

 

Inconvertible Currency

Currency which cannot be exchanged for other currencies either because it is forbidden by the foreign exchange regulations or the currency witnesses extreme volatility that it is not perceived to be a safe haven for parking the funds.

 

Indicative Quote
A market-maker's price which is not firm.

 

Indirect quote
Where the foreign currency is a variable amount and the domestic currency is fixed at one unit.

 

Inflation
Continued rise in the general price level in conjunction with a related drop in purchasing power. Sometimes referred to as an excessive movement in such price levels.

 

Info Quote
Rate given for information purposes only.

 

Initial Margin

The deposit required by the Broker before a client can trade/transact a deal to have some cushion in the event of default by the party.

 

Interbank Rates

The forex rates large international banks quote to other large international banks. Normally the public and other businesses do not have access to these rates.

 

Interest Rate Risk
The potential for losses arising from changes in interest rates

 

Interest Rate Swaps

An agreement to exchange interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. The principal amount is notional as at the end of the tenure only cash flows related with the interest payments (whether payment or reciept) are exchanged.

 

Intervention
Action by a central bank to effect the value of its currency by entering the market.

 

Intra Day Limit
Limit set by bank management on the size of each dealer's Intra Day Position.

 

Intra Day Position - Open positions run by a dealer within the day. Usually squared by the close.

 

 

- J -

 

Japanese economy watchers survey

Measures the mood of businesses that directly service consumers such as waiters, drivers and beauticians. Readings above 50 generally signal improvements in sentiment. 

Japanese machine tool orders
Measures the total value of new orders placed with machine tool manufacturers. Machine tool orders are a measure of the demand for companies that make machines, a leading indicator of future industrial production. Strong data generally signals that manufacturing is improving and that the economy is in an expansion phase. 

 

J Curve
A term describing the expected effect of a devaluation on a country's trade balance. It is anticipated that import bills rise before export orders and receipts increase.

JPN225
A name for the NEKKEI index.

 

- K -

Keep the powder dry
To limit your trades due to inclement trading conditions. In either choppy or extremely narrow markets, it may be better to stay on the sidelines until a clear opportunity arises.

 

Kiwi
Slang for the New Zealand dollar.

 

Knock-ins 

Option strategy that requires the underlying product to trade at a certain price before a previously bought option becomes active. Knock-ins are used to reduce premium costs of the underlying option and can trigger hedging activities once an option is activated. 

Knock-outs 

Option that nullifies a previously bought option if the underlying product trades a certain level. When a knock-out level is traded, the underlying option ceases to exist and any hedging may have to be unwound.

 

 

- L -

 

LDC
Less developed countries, often used with respect to secondary debt market.

 

LIBOR (London Inter Bank Offer Rate)

British Bankers' Association average of interbank offered rates for dollar deposits in the London market based on quotations at 16 major banks. Effective rate for contracts entered into two days from date appearing.

 

LIFFE
London International Financial Futures Exchange.

 

Lay Off
To carry out a transaction in the market to offset a previous transaction and return to a square position.

 

Last dealing day
The last day you may trade a particular product. 

Last dealing time
The last time you may trade a particular product. 

 

Leading Indicators
Statistics that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

 

Leads and Lags

The effect on foreign trade payments of an anticipated move in the exchange rate, normally a devaluation. The importers speeden up the payment for the imports and exporters delay receiving payment for the exports.

 

Level
A price zone or particular price that is significant technically or based on reported orders/option interest. 

Leverage
Also known as margin, this is the percentage or fractional increase you can trade from the amount of capital you have available. It allows traders to trade notional values far higher than the capital they have. For example: leverage of 100:1 means you can trade a notional value 100 times greater than the capital in your trading account.* 

Leveraged names 
Short-term traders, referring largely to the hedge fund community. 

 

Leverage or Margin

The ratio of the value of a transaction to the required deposit. A common margin for FOREX trading is 100:1 — you can trade currency worth 100 times the amount of your deposit.

 

Liability
Potential loss, debt or financial obligation. 

LIBOR 

The London Inter-Bank Offered Rate. Banks use LIBOR as a base rate for international lending. Limit Order — An order to buy or sell when the price reaches a specified level.

 

Limits / Limit order

An order that seeks to buy at lower levels than the current market or sell at higher levels than the current market. A limit order sets restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 117.00/05, then a limit order to buy USD would be at a price below the current market, e.g. 116.50. 

Liquid market
A market which has sufficient numbers of buyers and sellers for the price to move in a smooth manner. 

Liquidation 
The closing of an existing position through the execution of an offsetting transaction. 

Liquidity
The ability of a market to accept large transactions with minimal to no impact on price stability. 

London session 
08:00 – 17:00 (London). 

Long position 

A position that appreciates in value if market price increases. When the base currency in the pair is bought, the position is said to be long. This position is taken with the expectation that the market will rise. 

Longs
Traders who have bought a product. 

Loonie 
Nickname for USD/CAD. 

 

Lot

The size of a FOREX transaction. Standard lots are worth about 100,000 US dollars.

 

 

- M -

 

Macro
The longest-term trader who bases their trade decisions on fundamental analysis. A “macro” trade’s holding period can last anywhere from around 6 months to multiple years. 

Manufacturing production

Measures the total output of the manufacturing aspect of the Industrial Production figures. This data only measures the 13 sub sectors that relate directly to manufacturing. Manufacturing makes up approximately 80% of total Industrial Production. 

 

Major Currency — The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.

 

Make a Market
A dealer is said to make a market when he quotes both the bid and offer prices at which he stands ready to buy and sell.

 

Margin
The required collateral that an investor must deposit to hold a position. 

Margin call 
A request from a broker or dealer for additional funds or other collateral on a position that has moved against the customer. 

 

Margin

Collateral that the holder of a position in securities, options, Forex or futures contracts, has to deposit to cover the credit risk of his counterparty. Other definitions to MARGIN, used in other areas are:
(1) Difference between the buying and selling rates, also used to indicate the discount or premium between spot or forward.
(2) For options, the sum required as collateral from the writer of an option.
(3) For futures, a deposit made to the clearing house on establishing a futures position account. 
(4) The percentage reserve required by the US Federal Reserve to make an initial credit transaction.

 

Marginal Risk
The risk that a customer goes bankrupt after entering into a forward contract. In such an event the issuer must close the commitment running the risk of having to pay the marginal movement on the contract.


Market capitalization
The total value of a listed company – share price multiplied by the number of shares issued. 

Market maker 
A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial product. 

Market order
An order to buy or sell at the current price. 

Market risk 
Exposure to changes in market prices. 

Mark-to-market 
Process of re-evaluating all open positions in light of current market prices. These new values then determine margin requirements. 

Maturity
The date for settlement or expiry of a financial product. 

Medley report 
Refers to Medley Global Advisors, a market consultancy that maintains close contacts with central bank and government officials around the world. Their reports can frequently move the currency market as they purport to have inside information from policy makers. The accuracy of the reports has fluctuated over time, but the market still pays attention to them in the short-run. 

 

Minor Currency — The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.

 

Models 
Synonymous with black box. Systems that automatically buy and sell based on technical analysis or other quantitative algorithms. 

MoM
Abbreviation for month over month, which is the change in a data series relative to the prior month's level. 

Momentum
A series of technical studies (e.g. RSI, MACD, Stochastics, Momentum) that assesses the rate of change in prices. 

Momentum players
Traders who align themselves with an intra-day trend that attempts to grab 50-100 pips.

 

- N -

 

NAS100
A name for the NASDAQ 100 index. 

Net position 
The amount of currency bought or sold which has not yet been offset by opposite transactions. 

New York session 
8:00am – 5:00pm (New York time). 

 

Nostro Account

A foreign currency current account maintained with another bank. The account is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.

 

Nostro Account

A foreign currency current account maintained with another bank. The account is used to receive and pay currency assets and liabilities denominated in the currency of the country in which the bank is resident.

 

No touch 
An option that pays a fixed amount to the holder if the market never touches the predetermined Barrier Level. 

NYA.X
Symbol for NYSE Composite Index.

 

- O -

 

Off-Shore

The operations of a financial institution which although physically located in a country, has little connection with that country's financial systems. In certain countries a bank is not permitted to do business in the domestic market but only with other foreign banks. This is known as an off shore banking unit.

 

Offer
The rate at which a dealer is willing to sell the base currency.

 

Offered
If a market is said to be trading ‘offered’, it means a pair is attracting heavy selling interest, or offers. 

 

Official Settlements Account

A US balance of payments measure based on movement of dollars in foreign official holdings and US reserves. Also referred to as reserve transaction account.

 

Offsetting transaction
A trade that cancels or offsets some or all of the market risk of an open position. 

 

Old Lady
Old lady of Threadneedle Street, a term for the Bank of England.

 

On top
Attempting to sell at the current market order price. 

 

One Cancels the Other (OCO)

Two orders placed simultaneously with instructions to cancel the second order on execution of the first.

 

One touch

An option that pays a fixed amount to the holder if the market touches the predetermined Barrier Level. 

 

Open order 
An order that will be executed when a market moves to its designated price. Normally associated with Good 'til Cancelled Orders. 

 

Open Position

An active trade that has not been closed.

 

Option Class
All options of the same type - calls or puts -listed on the same underlying instrument.

 

Option Series
All options of the same class having the same exercise/strike price and expiration date.

 

Option
A derivative which gives the right, but not the obligation, to buy or sell a product at a specific price before a specified date. 

Order 
An instruction to execute a trade. 

Order book
A system used to show market depth of traders willing to buy and sell at prices beyond the best available. 

 

Out-of-the-Money
A put option is out-of-the-money if the exercise/strike price is below the price of the underlying instrument. A call option is out-of-the money if the exercise/strike price is higher than the price of the underlying instrument.

 

Outright Deal
A forward deal that is not part of a swap operation.

 

Outright Forward
Foreign exchange transaction involving either the purchase or the sale of a currency for settlement at a future date.

 

Outright Rate
The forward rate of a foreign exchange deal based on spot price plus forward discount/premium.



Over the counter (OTC) 

Used to describe any transaction that is not conducted via an exchange. 

 

Overnight Limit
Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.


Overnight position 
A trade that remains open until the next business day.

 

- P -

 

PPI

Producer Price Indices. See wholesale price indices.

 

Package Deal
When a number of exchange and /or deposit orders have to be fulfilled simultaneously.

 

Paid
Refers to the offer side of the market dealing. 

Pair 
The forex quoting convention of matching one currency against the other. 

 

Par
(1) The nominal value of a security or instrument.
(2) The official value of a currency.

 

Parities
The value of one currency in terms of another.

 

Parity
(1) Foreign exchange dealer's slang for your price is the correct market price.
(2) Official rates in terms of SDR or other pegging currency.


Paneled
A very heavy round of selling. 

Parabolic

A market that moves a great distance in a very short period of time, frequently moving in an accelerating fashion that resembles one half of a parabola. Parabolic moves can be either up or down. 

Partial fill
Where only part of an order has been executed. 

Patient
Waiting for certain levels, or news events to hit the market before entering a position. 

Personal income

Measures an individual’s total annual gross earnings from wages, business enterprises and various investments. Personal income is the key to personal spending, which accounts for 2/3 of GDP in the major economies. 

Permitted Currency

It means a foreign currency which is freely convertible i.e a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies and for which a fairly active and liquid market exists for dealing against the major currencies.

 

Pips
The smallest unit of price for any foreign currency, pips refer to digits added to or subtracted from the fourth decimal place, i.e. 0.0001. 

 

Point
(1) 100th part of a per cent, normally 10,000 of any spot rate. Movement of exchange rates are usually in terms of points.
(2) One percent on an interest rate e.g. from 8-9%.
(3) Minimum fluctuation or smallest increment of price movement.


Political risk
Exposure to changes in governmental policy which may have an adverse effect on an investor's position. 

Portfolio
A collection of investments owned by an entity. 

Position
The net total holdings of a given product. 

Premium
The amount by which the forward or futures price exceeds the spot price. 

Price transparency
Describes quotes to which every market participant has equal access. 

 

Prime Rate
(1) The rate from which lending rates by banks are calculated in the US.
(2) The rate of discount of prime bank bills in the UK.

 

Principal
A dealer who buys or sells stock for his/her own account.


Profit
The difference between the cost price and the sale price, when the sale price is higher than the cost price. 

Pullback
The tendency of a trending market to retrace a portion of the gains before continuing in the same direction. 

Purchasing managers index (PMI)
An economic indicator which indicates the performance of manufacturing companies within a country. 

Purchasing managers index services (France, Germany, Eurozone, UK)

Measures the outlook of purchasing managers in the service sector. Such managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries and inventories. Readings above 50 generally indicate expansion, while readings below 50 suggest economic contraction. 

 

Purchasing Power Parity

Model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country after adjusting for the changes in the price due to the change in exchange rate. Also known as the law of one price.

 

Put Call Parity
The equilibrium relationship between premiums of call and put options of the same strike and expiry.


Put option
A product which gives the owner the right, but not the obligation, to sell it at a specified price.

 

- Q -

Quote

An indicative price. The price quoted for information purposes but not to deal.

 

Quote Currency

The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.

 

Quantitative easing
When a central bank injects money into an economy with the aim of stimulating growth. 

Quarterly CFDs
A type of future with expiry dates every three months (once per quarter).

 

- R -

 

Rally
A recovery in price after a period of decline. 

Range
When a price is trading between a defined high and low, moving within these two boundaries without breaking out from them. 

Rate 
The price of one currency in terms of another, typically used for dealing purposes. 

RBA
Reserve Bank of Australia, the central bank of Australia. 

RBNZ
Reserve Bank of New Zealand, the central bank of New Zealand. 

Real money 

Traders of significant size including pension funds, asset managers, insurance companies, etc. They are viewed as indicators of major long-term market interest, as opposed to shorter-term, intraday speculators. 

Realized profit / loss 
The amount of money you have made or lost when a position has been closed. 

 

Recession
A decline in business activity. Often defined as two consecutive quarters with a real fall in GNP.


Reserve Currency
A currency held by a central bank on a permanent basis as a store of international liquidity, these are normally Dollar, Deutschemark, and Sterling..

 

Reserves

Funds held against future contingencies, normally a combination of convertible foreign currency, gold, and SDRs. Official reserves are to ensure that a government can meet near term obligations. They are an asset in the balance of payments.

 

Resistance level
A price that might act as a ceiling. The opposite of support. 

Retail investor
An individual investor who trades with money from personal wealth, rather than on behalf of an institution. 

Retail Price Index
Measurement of the monthly change in the average level of prices at retail, normally of a defined group of goods.


Retail sales
Measures the monthly retail sales of all goods and services sold by retailers based on a sampling of different types and sizes. This data provides a look into consumer spending behavior, which is a key determinant of growth in all major economies. 

Revaluation
When a pegged currency is allowed to strengthen or rise as a result of official actions; the opposite of a devaluation. 

Rights issue

A form of corporate action where shareholders are given rights to purchase more stock. Normally issued by companies in an attempt to raise capital. 

Risk
Exposure to uncertain change, most often used with a negative connotation of adverse change. 

 

Risk Premium
Additional sum payable or return to compensate a party for adopting a particular risk.


Risk management
The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk. 

Rolling over
The substituting of a far option for a near option of the same underlying stock at the same strike/exercise price.


Rollover 

A rollover is the simultaneous closing of an open position for today's value date and the opening of the same position for the next day's value date at a price reflecting the interest rate differential between the two currencies. In the spot forex market, trades must be settled in two business days. For example, if a trader sells 100,000 Euros on Tuesday, then the trader must deliver 100,000 Euros on Thursday, unless the position is rolled over. As a service to customers, all open forex positions at the end of the day (5:00 PM New York time) are automatically rolled over to the next settlement date. The rollover (or swap) adjustment is simply the accounting of the cost-of-carry on a day-to-day basis.

 

Round trip 
A trade that has been opened and subsequently closed by an equal and opposite deal. 

Running profit / loss
An indicator of the status of your open positions; that is, unrealized money that you would gain or lose should you close all your open positions at that point in time. 

RUT
Symbol for Russell 2000 Index.

 

- S -

 

SEC
Securities and Exchange Commission. 

Sector
A group of securities that operate in a similar industry. 

Sell
Taking a short position in expectation that the market is going to go down. 

 

Selling Rate
Rate at which a bank is willing to sell foreign currency.


Settlement Date
It means the business day specified for delivery of the currencies bought and sold under a forex contract.

 

Settlement

The process by which a trade is entered into the books, recording the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another. 

SHGA.X
Symbol for Shanghai A Index. 

Short position
An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short. 

Short squeeze 
A situation in which traders are heavily positioned on the short side and a market catalyst causes them to cover (buy) in a hurry, causing a sharp price increase. 

Short-covering 
After a decline, traders who earlier went short begin buying back. 

Shorts
Traders who have sold, or shorted, a product, or those who are bearish on the market. 

Sidelines, sit on hands

Traders staying out of the markets due to directionless, choppy, unclear market conditions are said to be ‘on the sidelines’ or ‘sitting on their hands’. 

Simple Moving Average (SMA)

A simple average of a pre-defined number of price bars. For example, a 50 period daily chart SMA is the average closing price of the previous 50 daily closing bars. Any time interval can be applied. 

 

SITC
Standard International Trade Classification. A system for reporting trade statistics in a common manner.


Slippage
The difference between the price that was requested and the price obtained typically due to changing market conditions. 

Slippery
A term used when the market feels like it is ready for a quick move in any direction. 

Sloppy
Choppy trading conditions that lack any meaningful trend and/or follow-through. 

SNB 
Swiss National Bank, the central bank of Switzerland. 

 

SOFFEX
Swiss Options and Financial Futures Exchange, a fully automated and integrated trading and clearing system.

 

Soft Market
More potential sellers than buyers, which creates an environment where rapid price falls are likely.


Sovereign names
Refers to central banks active in the spot market. 

Spot market
A market whereby products are traded at their market price for immediate exchange. 

 

Spot Next
The overnight swap from the spot date to the next business day.


Spot price 
The current market price. Settlement of spot transactions usually occurs within two business days. 

Spot trade
The purchase or sale of a product for immediate delivery (as opposed to a date in the future). Spot contracts are typically settled electronically. 

Spot
(1) The most common foreign exchange transaction.
(2) Spot refers to the buying and selling of the currency where the settlement date is two business days forward.

 

Spread
(1) The difference between the bid and ask price of a currency.
(2) The difference between the price of two related futures contracts.
(3) For options, transactions involving two or more option series on the same underlying currency.


Square
Purchase and sales are in balance and thus the dealer has no open position. 

SPX500
A name for the S&P index. 

 

Stable Market
An active market which can absorb large sale or purchases of currency without having any major impact on the interest rates.

 

Stagflation
Recession or low growth in conjunction with high inflation rates.

 

Standard and Poors (S&P)
A US firm engaged in assessing the financial health of borrowers. The firm also has generated certain stock indices i.e. S&P 500.

 

Sterilization
Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the forex market.


Sterling
Nickname for GBP/USD. Also known as Pound or British Pound. 

Stock exchange
A market on which securities are traded. 

Stock index

The combined price of a group of stocks - expressed against a base number - to allow assessment of how the group of companies is performing relative to the past. 

Stop loss hunting 

When a market seems to be reaching for a certain level that is believed to be heavy with stops. If stops are triggered, then the price will often jump through the level as a flood of stop-loss orders are triggered. 

Stop order
A stop order is an order to buy or sell once a pre-defined price is reached. When the price is reached, the stop order becomes a market order and is executed at the best available price. It is important to remember that stop orders can be affected by market gaps and slippage, and will not necessarily be executed at the stop level if the market does not trade at this price. A stop order will be filled at the next available price once the stop level has been reached. Placing contingent orders may not necessarily limit your losses. 

Stop entry order

This is an order placed to buy above the current price, or to sell below the current price. These orders are useful if you believe the market is heading in one direction and you have a target entry price. 

Stop loss order
This is an order placed to sell below the current price (to close a long position), or to buy above the current price (to close a short position). Stop loss orders are an important risk management tool. By setting stop loss orders against open positions you can limit your potential downside should the market move against you. Remember that stop orders do not guarantee your execution price – a stop order is triggered once the stop level is reached, and will be executed at the next available price. 

Stops building 
Refers to stop-loss orders building up; the accumulation of stop-loss orders to buy above the market in an upmove, or to sell below the market in a downmove. 

Straddle
The simultaneous purchase/sale of both call and put options for the same share, exercise/strike price and expiry date.

 

Strike price
The defined price at which the holder of an option can buy or sell the product. 

 

Strip
A combination of two puts and one call.

 

Structural Unemployment
Unemployment levels inherent in an economic structure.


Support
A price that acts as a floor for past or future price movements. 

Support levels

A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance. 

Suspended trading
A temporary halt in the trading of a product. 

Swap
A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate. 

 

Swift
Society for Worldwide Inter-bank Financial Telecommunication is a clearing system for international trading.


SWISSIE- Swissy
The nickname for USD/CHF.

 

- T -

 

T-Bill
Treasury Bill.

 

TIBOR
Tokyo Inter-bank Offered Rate.

 

TIFFE
Tokio International Financial Futures Exchange.

 

T/P
Stands for “take profit.” Refers to limit orders that look to sell above the level that was bought, or buy back below the level that was sold. 

Takeover
Assuming control of a company by buying its stock. 

Technical analysis
The process by which charts of past price patterns are studied for clues as to the direction of future price movements. 

 

Technical Correction
An adjustment to price not based on market sentiment but technical factors such as volume and charting.


Technicians or Techs
Traders who base their trading decisions on technical or charts analysis. 

Ten (10) yr.
For example: US 10-year note – US government issued debt which is repayable in ten years. 

Terms of Trade
The ratio between export and import price indices.

 

Theta
A measure of the sensitivity of the price of an option to a change in its time to expiry.

 

Thin Market
Illiquid, slippery, or choppy market environment. A light volume market that produces erratic trading conditions. 

Thirty (30) yr.
For example: UK 30-year gilt – UK government issued debt which is repayable in 30 years. 

Tick (size)
A minimum change in price, up or down. 

Time to maturity
The remaining time until a contract expires. 

Tokyo session 
09:00 – 18:00 (Tokyo). 

Tomorrow next (Tom/Next)
Simultaneous buying and selling of a currency for delivery the following day. 

Trade balance

Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken. 

Trade Date
The date on which a trade occurs.

 

Trade size
The number of units of product in a contract or lot. 

Trading bid 
A pair is acting strong and/or moving higher; bids keep entering the market and pushing prices up. 

Trading halt
A postponement to trading that is not a suspension from trading. 

Trading heavy 
A market that feels like it wants to move lower, usually associated with an offered market that will not rally despite buying attempts. 

Trading offered 
A pair is acting weak and/or moving lower, and offers to sell keep coming into the market. 

Trading range

The range between the highest and lowest price of a stock usually expressed with reference to a period of time. For example: 52-week trading range. 

Trailing stop
A trailing stop allows a trade to continue to gain in value when the market price moves in a favorable direction, but automatically closes the trade if the market price suddenly moves in an unfavorable direction by a specified distance. Placing contingent orders may not necessarily limit your losses. 

 

Tranche
A portion of a deal or structured financing, specifically used for borrowings from the IMF.


Transaction cost
The cost of buying or selling a financial product. 

Transaction date 
The date on which a trade occurs. 

 

Transaction Exposure
Potential profit and loss generated by current foreign exchange transactions

 

Transaction
The buying or selling of securities resulting from the execution of an order.


Trend 
Price movement that produces a net change in value. An uptrend is identified by higher highs and higher lows. A downtrend is identified by lower highs and lower lows. 

Turnover
The total money value or volume of all executed transactions in a given time period. 

Two-way price 
When both a bid and offer rate is quoted for an FX transaction. 

TYO10
Symbol for CBOE 10-Year Treasury Yield Index.

 

 

- U -

 

Ugly
Describing unforgiving market conditions that can be violent and quick. 

UK100
A name for the FTSE 100 index. 

UK average earnings including bonus/ Excluding bonus
Measures the average wage including/excluding bonuses paid to employees. This is measured QoQ from the previous year. 

UK claimant count rate
Measures the number of people claiming unemployment benefits. The claimant count figures tend to be lower than the unemployment data since not all of the unemployed are eligible for benefits. 

UK HBOS house price index
Measures the relative level of UK house prices for an indication of trends in the UK real estate sector and their implication for the overall economic outlook. This index is the longest monthly data series of any UK housing index, published by the largest UK mortgage lender (Halifax Building Society/Bank of Scotland). 

UK jobless claims change
Measures the change in the number of people claiming unemployment benefits over the previous month. 

UK manual unit wage costs
Measures the change in total labor cost expended in the production of one unit of output. 

UK OIL*
A name for Brent Crude Oil. 

UK producers price index input
Measures the rate of inflation experienced by manufacturers when purchasing materials and services. This data is closely scrutinized since it can be a leading indicator of consumer inflation. 

UK producers price index output
Measures the rate of inflation experienced by manufacturers when selling goods and services. 

Underlying
The actual traded market from where the price of a product is derived. 

 

Under-Valuation
An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.


Unemployment rate
Measures the total workforce that is unemployed and actively seeking employment, measured as a percentage of the labor force. 

University of Michigan's consumer sentiment index

Polls 500 US households each month. The report is issued in a preliminary version mid-month and a final version at the end of the month. Questions revolve around individuals’ attitudes about the US economy. Consumer sentiment is viewed as a proxy for the strength of consumer spending. 

Unrealized gain/loss 

The theoretical gain or loss on open positions valued at current market rates, as determined by the broker in its sole discretion. Unrealized Gains/Losses become Profits/Losses when the position is closed. 

Uptick
A new price quote at a price higher than the preceding quote. 

Uptick rule
In the US, a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed. 

US30
A name for the Dow Jones index. 

US OIL*
A name for WTI Crude Oil. 

US prime rate 
The interest rate at which US banks will lend to their prime corporate customers. 

 

- V -

 

Value date

Also known as the maturity date, it is the date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. 

Value Spot

Normally settlement is for two working days from the date the contract is entered into. Value Today Transaction is executed for same day settlement; sometimes also referred to as "cash transaction".

 

Vanilla

A simple option whose terms and conditions do not include any provisions other than exercise style, expiry and strike. To compare with exotic options which have additional terms.


Variation margin
Funds traders must hold in their accounts to have the required margin necessary to cope with market fluctuations. 

Vega
Expresses the price change of an option for a one per cent change in the implied volatility.

 

Velocity of Money

The speed with which money circulates or turnover in the economy. It is calculated as the annual national income: average money stock in the period.


VIX or Volatility index

Shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely-used measure of market risk and is often referred to as the "investor fear gauge." 

Volatility 
Referring to active markets that often present trade opportunities.

 

Vostro Account

A local currency account maintained with a bank by another bank. The term is normally applied to the counter-party's account from which funds may be paid into or withdrawn, as a result of a transaction.

 

- W -

 

Wedge chart pattern

ùChart formation that shows a narrowing price range over time, where price highs in an ascending wedge decrease incrementally, or in a descending wedge, price declines are incrementally smaller. Ascending wedges typically conclude with a downside breakout and descending wedges typically terminate with upside breakouts. 

Whipsaw 
Slang for a highly volatile market where a sharp price movement is quickly followed by a sharp reversal. 

 

Wholesale Money
Money borrowed in large amounts from banks and institutions rather than from small investors.


Wholesale prices
Measures the changes in prices paid by retailers for finished goods. Inflationary pressures typically show earlier than the headline retail. 

Working day

A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both (all relevant currency centers in the case of a cross) are open.

 

World Bank
A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.


Working order
Where a limit order has been requested but not yet filled. 

 

Writer
The seller of a position. Also known as the grantor of the trade. "Writing a Currency" is to sell it.


WSJ
Stands for The Wall Street Journal.

 

 

- X -

 

XAG/USD
Symbol for Silver Index. 

XAU/USD
Symbol for Gold Index. 

XAX.X
Symbol for AMEX Composite Index.

 

 

- Y -

 

Yard
A billion units. 

Yield
The percentage return from an investment. 

 

Yield Curve

The graph showing changes in yield on instruments depending on time to maturity. A system originally developed in the bond markets is now broadly applied to various financial futures. A positive sloping curve has lower interest rates at the shorter maturities and higher at the longer maturities. A negative sloping curve has higher interest rates at the shorter maturities.

YoY
Abbreviation for year over year. 

Yuan
The Yuan is the base unit of currency in China. The Renminbi is the name of the currency in China, where the Yuan is the base unit.

 

 

- Z -

 

Z-Certificate

Certificate issued by the Bank of England to "discount houses" in lieu of stock certificates to facilitate their dealing in the short dated gilt edge securities.

 

Zero Coupon Bond
A bond that pays no interest. The bond is initially offered at a discount to its redemption value.

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