Forex glossary of terms
Forex glossary - B
Back Office - Refers to the administrative arm of financial service companies, who carry out and confirm financial transactions. Duties include, accounting, settlements, clearances, regulatory compliance and record maintenance.
Back to Back - (1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency.
Backwardation (see also Contango) - A term often used in commodities or futures markets to refer to markets where shorter-dated contracts trade at a higher price than longer-dated contracts. Plotting the prices of contracts against time, with time on the x-axis, shows the commodity price curve as sloping downwards as time increases.
Balance/Account Balance - The net value of an account.
Balance of Payments - A record of all transactions made by one particular country with others during a certain time period. It compares the amount of economic transactions between a country and all other countries. This includes trade balance, foreign investments, and investments by foreigners.
Balance of Trade - Net flow of goods (exports minus its imports) between two countries.
Band - The range in which a currency is permitted to move. A system used in the ERM.
Bank for International Settlements - The BIS is an international organization fostering the cooperation of central banks and international financial institutions. Essentially, the BIS, located in Basel, Switzerland, is a central bank for central banks. It monitors and collects data on international banking activity and promulgates rules concerning international bank regulation.
Bank Line - Line of credit granted by a bank to a customer, also known as a " line".
Bank Notese - Bank notes are paper issued by the central or issuing bank and are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted, in some counties, into FX. Bank notes are normally priced at a premium to the current spot rate for a currency.
Bank Rate - The rate at which a central bank is prepared to lend money to its domestic banking system.
Bar Chart - On a daily bar chart each bar represents one day's activity. The vertical bar is drawn from the day's highest price to the day's lowest price. Closing price and opening price are represented by ticks on the bar.
Barrier Option - A family of path dependent options whose pay-off pattern and survival to the expiration date depend not only on the final price of the underlying currency but also on whether or not the underlying currency breaks a predetermined price level at any time during the life of the option. See Down and Out call/put, Down and in call/put, Up and out call/put, Up and in call/put.
Base Currency - In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the 'base' currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.
Base Rate - A term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Top quality borrowers will pay a small amount over base.
Basis - The difference between the cash price and the futures price.
Basis contract - A forward contract in which the cash price is based on the basis relating to a specified futures contract.
Basis Point - Measure of a bond's yield equal to 1/100th. A 1% change in yield is equal to 100 basis points and 0.01% is equal to one basis point.
Basis Price - The price expressed in terns of yield maturity or annual rate of return.
Basis Convergence - The process whereby the basis tends towards zero as the contract expiry approaches.
Basis Trading - Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.
Basket - A group of currencies normally used to manage the exchange rate of a currency. Sometimes referred to as a unit of account.
Bear - Investor acting on the belief that prices or the market will decline.
Bear Market - Any market that exhibits a declining trend. In the long run they have a down turn of 20% or more.
Bear spread - A vertical spread involving the sale of the lower strike call and the purchase of the higher strike call, called a bear call spread. Also, a vertical spread involving the sale of the lower strike put and the purchase of the higher strike put, called a bear put spread.
Bearish key reversal - A bar chart formation that occurs in an uptrending market when the day's high is higher, low is lower and close is below the previous day's. Can signal an upcoming downtrend.
Bear trap - A bear trap occurs when prices break below a significant level and generate a sell signal, but then reverses direction and hence invalidate the sell signal. Bear traps serve as opportunities for reversal traders, whereas trend/momentum traders will suffer losses due to the change in direction.
Benchmarking - A benchmark is a reference point. Benchmarking in financial risk management refers to the practice of comparing the performance of an individual instrument, a portfolio or an approach to risk management to a pre-determined alternative approach.
Bid - The price an investor is willing to pay for an asset.
Bid/Ask Spread - The difference between the bid and the ask price.
Bid Price - Bid is the highest price that the seller is offering for the particular currency at the moment; the difference between the ask and the bid price is the spread. Together, the two prices constitute a quotation; the difference between the two is the spread. The bid-ask spread is stated as a percentage cost of transacting in the foreign.
Big Figure - Refers to the first number to the left of the decimal point in an exchange rate quote, which changes so infrequently that dealers often omit them in quotes.
Bilateral Clearing - A system used where foreign currency is limited. Payments are usually routed through the central banks, and sometimes require that the trade balance is equaled every year.
Binary Options - A binary "call" (or "step up") is like a standard European call option except that the pay off at expiry is fixed at one unit of the counter currency, if the call expires in the money.
Black-Scholes Model - An option pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined by Black for options on futures. It is widely used in the currency markets.
Blowoff volume - An extraordinarily high volume trading session occurring suddenly in an uptrend signaling the end of the trend.
Bollinger Bands - An indicator that allows users to compare volatility and relative price levels over a period time. This indicator consists of three bands designed to encompass the majority of a security's price action - a simple moving average in the middle; an upper band 2 standard deviations away from the simple moving average (usually set to a time frame of 20); and a corresponding lower band that is also 2 standard deviations away from the moving average. Since the band width is a function of standard deviation, assets with greater volatility will have wider bands.
Bonds - Bonds are debt instruments used to raise capital, which are issued for periods greater than one year. Bondholders are loaning money (investing in debt) to companies and governments, at the end of which they will be paid a specified interest rate. Bond prices are inversely related to interest rates, as interest rates rise, bond prices fall. There are numerous types of bonds, including treasury bonds, notes, and bills; municipal bonds and corporate bonds.
Book - Recording of the total positions held by a trader or desk.
Booked - The recording of a transaction outside the country where the transaction is itself negotiated.
Boris - Slang for Russian trading.
Breakaway gap - A gap in prices that signals the end of a price pattern and the beginning of an important market move.
Breakeven - The point at which an option buyer or seller experiences no loss and no profit on an option. Call breakeven equals the strike price plus the premium. Put breakeven equals the strike price minus the premium.
Break Even Point - The price of a financial instrument at which the option buyer recovers the premium, meaning that he makes neither a loss or gain. In the case of a call option, the break even point is the exercise price plus the premium.
Break Out - In the options market, undoing a conversion or a reversal to restore the option buyer's original position.
Bretton Woods Accord (1944) - This accord established a fixed exchange rate regime, whose aim was to provide stability in the world economy after the Great Depression and the WWII. This accord fixed the exchange rates of major currencies to the US dollar and set the price of gold to $35. The accord required central bank intervention to maintain the fixed exchange rates. The US Central Bank was required to exchange dollars for gold, which eventually let to the demise of this system, when the demand for the dollar declined, as well as the gold reserves, forcing Nixon to stop the exchange of dollars for gold, effectively ending the system in 1971.
Broker - An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.
Brokerage - Commission charged by a broker.
Brokerage house - A firm that handles orders to buy and sell futures and options contracts for customers.
BUBA - Bundesbank, the reserve bank of Germany.
Bull - Investor who expects markets or prices to rise.
Bull Market - A market where prices are rising or are expected to rise.
Bull spread - A vertical spread involving the purchase of the lower strike call and the sale of the higher strike call, called a bull call spread. Also, a vertical spread involving the purchase of the lower strike put and the sale of the higher strike put, called a bull put spread.
Bullish key reversal - A bar chart formation that occurs in a downtrending market when the day's high is higher, low is lower and close is above the previous day's. Can signal an upcoming uptrend.
Bull Trap - The opposite of a bear trend; occurs when indicators suggest for an uptrend, but the market reverses its momentum and begins to fall again.
Bulldogs - Sterling bonds issued in the UK by foreign institutions.
Bundesbank - Central Bank of Germany.
Butterfly Spread - (1) A futures butterfly spread is a spread trade in which multiple futures months are traded simultaneously at a differential. The trade basically consists of two futures spread transactions with either three or four different futures months at one differential.(2) An options butterfly spread is a combination of a bear and bull spread trade in which multiple options months and strike prices are traded simultaneously at a differential. The trade basically consists of two options spread transactions with either three or four different options months and strikes at one differential.
Buy a bounce - A recommendation to instigate a long trade if the price bounces from a certain level.
Buy break - A recommendation to buy the currency pair if it breaks the current level specified.
Buy On Opening - To buy at the beginning of a trading session at a price within the opening range.
Buy stops above - A recommendation to enter the market when the exchange rate breaks through a specific level. The client placing a stop entry order believes that when the market's momentum breaks through a specified level, the rate will continue in that direction.
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