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Home  >  Additional info  >  Forex terms' list  >  Forex glossary - P

Forex glossary - P

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

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

Parabolic SAR (Stop and Reversal) - Functioning best in trending markets, Parabolic SAR specifies where traders should place their stops. If Parabolic SAR is above the market rate, the recommendation is to short; if it is below, the recommendation is to go long. The specific point on the chart where the Parabolic SAR lies is and indication of where the stop should be.

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.

Pegging - When a country fixes the exchange rate to another country's currency, usually to achieve price stability. Most countries that peg their currencies do so against the US dollar or the Euro.

Performance bond - Funds that must be deposited by a customer with his or her broker, by a broker with a clearing member or by a clearing member with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the Exchange as a whole. Previously referred to as margin.

Performance bond call - A demand for additional funds to bring the customer's account back up to the initial performance bond level whenever adverse price movement has caused the account to go below the maintenance. Previously referred to as a margin call. See Maintenance performance bond.

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.

Pip (Points) - The smallest amount an exchange rate can move, typically .0001.

Plaza Accord - The September 1985 agreement between the United States, Japan, Germany, France, and the United Kingdom to weaken the dollar. Named after the New York hotel where the deal was struck.

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.

Point and figure chart - A graph of prices charted with x's for price increases and o's for price decreases, used by the chartist for buy and sell signals.

Political Business Cycle - A theory that explains changes in the economy as a result of political tactics before and after elections. To gain voter support politicians will often expand the economy prior to elections and implement reforms just after the elections to avoid punishment by the polity.

Political Risk - The potential for losses arising from a change in government policy or due to the risk of expropriation (nationalisation by the government ).

Position - The netted total exposure in a given currency. A position can be either flat or square ( no exposure), long, (more currency bought than sold), or short ( more currency sold than bought).

Position trader - A trader who takes a position in the market and might hold that position over a long period of time.

PPI - Producer Price Indices. See wholesale price indices.

Premium - (1) The amount by which a forward rate exceeds a spot rate. (2) The amount by which the market price of a bond exceeds its par value. (3) Options, the price a put or call buyer must pay to a put or call seller for an option contract. (4) The margin paid above the normal price level.

Price - value of a bond; when a bond is sold, the price is usually close to par value but it fluctuates after it is sold in the secondary market

Price order - An order to sell or buy at a certain price or better.

Price Transparency - Refers to the degree of access to information regarding bids and offers and respective prices. Ideally, every investor/trader would have equal access to all information.

Primary dealers - a group of banks and securities firms that have an agreement to buy and sell Treasuries directly with the Federal Reserve Bank of New York

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 Taking - The unwinding of a position to realize profits.

Pure hedger - A person who places a hedge to lock in a price for a commodity. He or she offsets the hedge and transacts in the cash market simultaneously.

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 breakeven - See Breakeven.

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

Put option - An option granting the right, but not the obligation, to sell a futures contract at the stated price prior to the expiration of the option.

Put profit/loss - For a long put, equal to the put value minus the premium. For a short put, equal to the premium minus the put value.

Put/Call Ratio - Calculated by dividing the number of put options traded by the number of call options traded for a particular asset, the put/call ratio offers Explanation into expectations of the options market. For currency put/call ratio look at the IMM data which comes out every week at the CME website.

Put value - At expiration, equal to the strike price minus the futures price.

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