Market terms Glossary

Simple definitions to international markets trading terminology.

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


Sterling bonds issued in the UK by foreign institutions.


A person who believes that prices will rise.

Bull Market

A market characterised by rising prices.


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.

Break Out

In the options market, undoing a conversion or a reversal to restore the option buyer's original position.

Break Even Point

The price of a financial instrument at which the option buyer recovers the premium, meaning that they make neither a loss nor a gain. In the case of a call option, the break even point is the exercise price plus the premium.


The recording of a transaction outside the country where the transaction is itself negotiated.

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.

Binary Options

A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money.

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.

Big Figure

Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting. For example a quote of "30/40" on dollar mark could indicate a price of 1.5530/40BIS: Bank of International Settlement.

Bid Price

Bid is the highest price that the seller is offering for the particular currency/commodity 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 foreign exchange.


A person who believes that prices will decline.

Bear Market

A market in which prices decline sharply against a background of widespread pessimism (opposite of Bull Market).


A group of currencies normally used to manage the exchange rate of a currency. Sometimes referred to as a unit of account.


The difference between the cash price and futures price.

Basis Trading

Taking opposite positions in the cash and futures market with the intention of profiting from favourable movements in the basis.

Basis Price

The price expressed in terms of yield maturity or annual rate of return.

Basis Point

One per cent of one per cent.

Basis Convergence

The process whereby the basis tends towards zero as the contract expiry approaches.

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.

Base Currency

The currency in which the operating results of the bank or institution are reported.

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.

Bank of England

Central Bank of the United Kingdom.

Bank Rate

The rate at which a central bank is prepared to lend money to its domestic banking system.

Bank Notes

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.


The range in which a currency is permitted to move. A system used in the ERM.

Balance of Trade

The value of exports less imports. Invisibles are normally excluded, and is otherwise referred to as mercantile or physical trade. Figures can be quoted on FoB/ FaS, customs cleared, or FoB export.