Forex glossary of terms
Forex glossary - C
Cabinet Trade or cab - A trade that allows options traders to liquidate deep out-of-the- money options by trading the option at a price equal to one-half tick.
Cable - A term used in the foreign exchange market for the US Dollar/British Pound rate.
Cable Transfer - Telegraphic transfer of funds from one centre to another. Now synonymous with inter bank electronic fund transfer.
Call - An option to buy a commodity, security or futures contract at a specified price any time between now and the expiration date of the option contract. See Option
Call breakeven - See Breakeven
Call Option - A call option confers the right but not the obligation to buy stock, shares or futures at a specified price.
Call profit/loss - For a long call, equal to the call value minus the premium. For a short call, equal to the premium minus the call value.
Call value - At expiration, equal to the futures price minus the strike price of the call.
Candlestick Charts - Identical to a bar chart in the information conveyed, but presented in an entirely different visual context. The candlestick encapsulates the open, high, low and close of the trading period in a single candle.
Cap - A cap is a financial contract giving the owner the right but not the obligation to borrow a pre-set amount of money at a pre-set interest rate with a pre-set maturity date.
Capital Account - Juxtaposition of the long and short term capital imports and exports of a country.
Capital Markets - Markets in which capital (stocks, bonds, etc.) are traded. Usually for medium or long term investing.
Car - A loosely used term to describe contract quantities.
Carry - The interest cost of financing securities or other financial instruments held.
Carry-Over Charge - A finance charge associated with the storing of commodities (or foreign exchange contracts) from one delivery date to another.
Carry Trade - An investment position of buying a higher yielding currency with the capital of a lower yielding currency to gain an interest rate differential.
Cash commodity - The actual physical commodity as distinguished from a futures contract.
Cash price - Current market price of the actual physical commodity. Also called "spot price."
Cash - normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries which rely for foreign exchange services on these markets because of time zone preference i.e. Latin America. In Europe and Asia, cash transactions are often referred to as value same day deals.
Cash and Carry - The buying of an asset today and selling a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future.
Cash sales - The sale of commodities in local cash markets such as elevators, terminals, packing houses and auction markets.
Cash settlement - Final disposition of open positions on the last trading day of a contract month. Occurs in markets where there is no actual delivery.
CBOE - Chicago Board Options Exchange.
CBOT or CBT - Chicago Board of Trade.
CD - Certificate of Deposit.
Central Bank - A central bank provides financial and banking services for a country's government and commercial banks. It implements the government's monetary policy, as well, by changing interest rates. Reserve Bank of India is the central bank of India which performs the role of maintaining orderly conditions in the forex market by intervention through various instruments like cash reserve ratio, bank rate, open market operations and moralsuation.
Central Rate - Exchange rates against the ECU adopted for each currency within the EMS.Currencies have limited movement from the central rate according to the relevant band.
Certificate of Deposit (CD) - A negotiable certificate in bearer form issued by a commercial bank as evidence of a deposit with that bank which states the maturity value, maturity rate and interest rate payable.CDs vary in size with maturities ranging from a few weeks to several years. CDs may normally be redeemed before maturity only by sale on the secondary market but may also be redeemed back to issuing bank through payment of a penalty.
CFTC - Acronym for the Commodity Futures Trading Commission as created by the Commodity Futures Trading Commission Act of 1974. This government agency currently regulates the nation's commodity futures industry.
Channel - An upwards or downwards trend whose boundaries are marked by two straight lines. A break above/below the channel lines signals a potential change in the trend.
CHAPS - Clearing House Automated Payment System.
CHIPS - The New York clearing house clearing system. (Clearing House Interbank Payment System). Most Euro transactions are cleared and settled through this system.
Chartist - Refers to a technical analyst or one who analyses charts/graphs and data to uncover potential trends.
Chooser Option - An option that gives the buyer the right at the choice date (before the option's expiry) to choose if the option is to be a call or a put.
Clearing - Refers to the settlements/confirmations of trades.
Clearing House - An adjunct to the CME responsible for settling trading accounts, clearing trades, collecting and maintaining performance bond funds, regulating delivery and reporting trading data.
Close - The period at the end of the trading session. Sometimes used to refer to the closing range.
Close a Position (Position Squaring) - Refers to getting rid of a position, either by buying back a short position or selling a long position.
Closed Position - A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.
Closing Purchase Transaction - The purchase of an option identical to one already sold to liquidate a position.
Closing range - The high and low prices, or bids and offers, recorded during the period designated as the official close. See Settlement price.
CME - Chicago Mercantile ExchangeCock Dates (see broken dates).
Coincident Indicator - An economic indicator that generally moves in line with the general business cycle such as industrial production.
Collar (see also Range Forward; Risk Reversal) - A combination of options in which the holder of the contract has bought one out-of-the money option call (or put) and sold one (or more) out-of-the-money puts (or calls). Doing this locks in the minimum and maximum rates that the collar owner will use to transact in the underlying at expiry.
Comex - Commodity Exchange of New York.
Commission - For futures contract, the one-time fee charged by a broker to cover the trades you make to open and close each position, payable when you exit the position. Also called round-turn. Commissions on options are usually half on initiation and half on liquidation.
Commitment - When a trader or institution assumes the obligation to accept or make delivery on a futures contract.
Commodity exchange - An organization that formulates rules and procedures for the trading of futures and options on futures contracts, provides physical facilities for trading and/or access to electronic trading technologies, and oversees trading practices.
Commodity Swap - A contract in which counterparties agree to exchange payments related to indices, at least one of which (and possibly both of which) is a commodity index.
Compound Option - An option on an option, the dates and price of such option being fixed.
Confirmation - A written document verifying the completion of a trade/transaction to include such things as date, fees or commissions, settlement terms and the price.
Confirmation on a chart - A subsequent indicator or chart pattern, following an initial alert to a trade opportunity, which serves to legitimize the initial alert. Confirmation of a trade is believed to reduce the risk associated with that trade.
Contagion - Term used to describe the spread of economic crises from one country's market to other countries within close geographic proximity. This term was first used following the Asian Financial Crisis in 1997, which began in Thailand and soon spread to other East Asian economies. It now is used to refer to the recent crisis in Argentina and its effects on other Latin American countries.
Contango (see also Backwardation) - A term often used in commodities or futures markets to refer to markets where shorter-dated contracts trade at a lower 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 upwards as time increases.
Continuation - Represents an extension of the trend. The trend continues to have momentum, and hence it moves onwards without reversal.
Contract - An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future (See Futures contract).
Contract Expiration Date - The date on which a currency must be delivered to fulfill the terms of the contract. For options, the last day on which the option holder can exercise his right to buy or sell the underlying instrument or currency.
Contract Month - The month in which a futures contract matures or becomes deliverable if not liquidated or traded out before the date specified.
Convertible Currency - Currencies that can be exchanged for other currencies or gold.
Convexity - A financial instrument is said to be convex (or to possess convexity) if the financial instrument's price increases (decreases) faster (slower) than corresponding changes in the underlying price.
Correction - The term used for the rationale that a directional movement would have a partial reversal due to the fact that momentum tends to "overshoot" itself; hence there will be a "correction" of the trend to bring the asset back to a fairer market valuation.
Correlation (see also Arbitrage) - Correlation is a statistical measure describing the extent to which prices on different instruments move together over time. Correlation can be positive or negative. Instruments that move together in the same direction to the same extent have highly positive correlations. Instruments that move together in opposite direction to the same extent have highly negative correlations. Correlation between instruments is not stable.
Correspondent Bank - The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e.g. to facilitate the transfer of funds. In the US this often occurs domestically due to inter state banking restrictions.
Cost of Carry - The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.
Cost of Living Index - Broadly equivalent to Retail Price Index or Consumer price.
Counterparty - The customer or bank with which a foreign exchange deal is executed.
Counterparty Risks - Foreign Currency Inter-bank Exchange (FOREX) instruments are Positions (Buys and/or Sell) between the Client and its Counterparty and, unlike exchange-traded foreign exchange instruments which are, in effect, guaranteed by a clearing organization affiliated with the exchange on which the instruments are traded, are not guaranteed by a clearing organization. Thus, when the Customer purchases an OTC foreign exchange instrument, it relies on the Counterparty from which it has purchased the instrument to fulfill the contract. Failure of a Counterparty to fulfill a Position could result in losses of any prior payment made pursuant to the Positions well as the loss of the expected benefit of the transaction.
Country Risk - Factors that affect currency trading unique to the specific country include political, regulatory, legal and holiday risks.
Coupon - (1) On bearer stocks, the detachable part of the hide behind nominee status. Certificate exchangeable for dividends.(2) Denotes the rate of interest on a fixed interest security.
Coupon Value - The annual rate of interest of a bond.
Cover - (1) To take out a forward foreign exchange contract.(2) To close out a short position by buying currency or securities which have been sold.
Covered Interest Rate Arbitrage - An arbitrage approach which consists of borrowing currency A, exchanging it for currency B, investing currency B for the duration of the loan, and, after taking off the forward cover on maturity, showing a profit on the entire set of deals. It is based on the theorem of interest rate parity (one of the key theoretical economic relationship) which says that the return on a hedged foreign investment will just equal the domestic interest rate on investments of identical risk. When the covered interest rate differential between the two money market is zero, there is no arbitrage incentive to move funds from one market to another.
Cover on a bounce - A recommendation to exit trades on a bounce out of a support level.
Cover on approach - A recommendation to exit trades for profit on approach to a support level.
CPI - Consumer Price Index. Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages.
CPSS - Committee on Payment and Settlement Systems.
Crawling Peg (Adjustable Peg) - An exchange rate system where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency. The official rate may be changed from time to time.
Credit Checking - Before making a large financial transaction, it imperative to check whether the counterparty has enough available credit to carryout/honor the transaction. Credit checking refers to the process of verifying that counterparty has enough credit. The check is initiated after the price has been determined.
Credit Netting - Agreements that are made to avoid having to continually recheck credit, usually established between large banks and trading institutions.
Credit spread - An option spread in which there is a net collection of premium.
Cross Rate - Refers to the exchange rate between two countries' currencies. Cross rates usually refer to pairs quoted that do not include the domestic currency. For example, in the US, the EUR/JPY rate would be called a cross rate.
Cup with Handle - Named after the resemblance the formation on the chart bears to a cup and handle, this pattern offers Explanation into where a bullish trend can begin. Once the pattern begins to curve upward and reaches the cup line, the asset is believed to be bullish and set for a rise.
Currency - Notes and coins issued by the central bank or government, serving as legal tender for trade.
Currency Basket - Various weightings of other currencies grouped together in relation to a basket currency(e.g. ECU or SDR). Sometimes used by currencies to fix their rate often on a trade weighted basket.
Currency board - a strict form of commitment to a fixed exchange rate in which the domestic currency is fully backed by a foreign hard currency. Domestic monetary authorities establish a fixed exchange rate to the foreign currency and stand ready to exchange the local currency for the foreign one at this established rate, allowing for full convertibility between the domestic and anchor currencies.
Currency (Exchange Rate) Risk - Risk associated with drastic changes/fluctuations in exchange rates in which one could incur a major loss.
Currency peg - an example of a fixed exchange rate in which the value of the domestic currency is fixed to a hard currency or a commodity. Domestic monetary authorities pledge to defend the pegged value of their currency.
Current Account - The net balance of a country's international payment arising from exports and imports together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.
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.
Cycle - The set of expiration dates applicable to different classes of option.
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