Market terms Glossary

Simple definitions to international markets trading terminology.


Put Option

A put option confers the right but not the obligation to sell currencies, instruments or futures at the option exercise price within a predetermined time period.

Put Call Parity

The equilibrium relationship between premiums of call and put options of the same strike and expiry.

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.

Profit Taking

The unwinding of a position to realise profits.

Principal

A dealer who buys or sells stock for his/her own account.

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.

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.

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).

Political Risk

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

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.

Pip

See point. (0.0001 of a unit).

Permitted Currency

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.

Pending Order

An order to perform a Day Trading deal at a rate pre-defined by the customer, when and if such rate comes up in real market time. The pending rate is superior to the existing rate at the time of reservation. The reservation order lasts for a period defined by the customer, and is associated by the necessary collaterals to facilitate the potential Day Trading deal, when and if activated, under the pre-defined terms. Also referred to as a ‘limit’ order.

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.

Parities

The value of one currency in terms of another.

Par

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

Package Deal

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

PPI

Producer Price Indices. See wholesale price indices.