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| Terminologies of Foreign Exchange |
1. Pip: the minimum unit of exchange rate change. Based on market environment, a pip is usually 2. Spread: difference between Offer price and Ask price in weighing market fluidity. Normally, the smaller the swap point is, the stronger the fluidity is. For example, 1.5460-1.5450=10 points (pts). 3. Margin: used to ensure contract implementation and as guarantee when loss occurs in transaction. Its amount is 2.5% ~5% of transaction value. It is returned when client has evened up. Loss is deducted from margin. 4. Contract Value: the minimum currency amount in every transaction. We provide customers with multiple contract value selections and allow you to select proper contract value according to your preference and situation. 5. Leverage Ratio: decides the amount of Margin needed. For example, 100:1 means an amount of 1/100 of Contract Value is needed as Margin. 6. Ask (Offer) Price: an Ask price of a designated currency in a foreign exchange transaction contract or cross currency transaction contract. Bargainer can buy base currency at this price. In quotation, it is usually on the right hand side. For example, in USD/CHF 1.0168/73, the Ask price is 1.0173, meaning you can buy 1USD with 1.0173CHF. 7. Hedging: also called Locked Position. It refers to open a contract of the same amount on the opposite direction based on the current transaction. It is usually used in gloomy market situation to maintain gained profit or to avoid potential risk under certain loss through counter-operation. 8. Overnight Interest: When a transaction is put off to the next value day, delay happens. Any delay of foreign currency position causes hedging or price difference between selling or buying. This price difference is decided by the Overnight Index Average of the bank. If investors have currencies with higher interest rates, then price difference on currency interest rate can be gained when foreign exchange part is extended. 9. Fast Fluctuating Market: In instant foreign exchange transaction market, price fluctuation is vast-scale. This phenomenon is called “Fast Market Fluctuation”. Various reasons lead to this, including economic data reports, unbalance between buying and selling. When the speed of market fluctuation is very fast, interval will occur in quotation and spread will grow bigger. Price interval occurs when the last price rises or declines fast, producing a new price; during the process there are no other prices. 10. Position: a market stipulation that promises the initial position of a foreign currency transaction contract. The buyer of foreign exchange contract is called long position, which is at a gain position; the seller of foreign exchange contract is called short position, which is at a fall position. 11. Short Position, Sell Short: sell certain amount of currency or option contract at current market price when bargainers estimate drop in prices in the future foreign exchange market and buy later when prices drop to make up to position, gaining differential profit through selling at high prices and buying at low prices. This is a trading mode of selling after buying. 12. Long position, Buying：buy certain amount of currency at current price when bargainers estimate rise in prices in future foreign exchange market and hedge the position of the contract at higher prices after a certain period of exchange rate rising to gain profit. This is a trading mode of buying after selling. 13. Close position: To even up through selling (or buying) same amount of currency as that bought (or sold) earlier. 14. Margin Call: short form MC. It occurs when the available margin is 0. Evening up will be compulsory for all positions. |