Glossary of Terms

At the money 

At the money is a term used in options trading, used to define the proximity of an underlying asset’s price to the figure at which it can be bought or sold (known as its strike price).

Barriers 

Barriers are used in derivatives to either knock-in or knock-out contracts. Knock-in is a barrier that creates a new contract. Knock-out is a barrier that cancels a contract.

Basis Point 

A basis point is a unit used in trading to describe movements in interest rates or other percentages. It is equal to one hundredth of one percent, or 0.01%.

Derivative 

A derivative is a financial product that enables traders to speculate on the price movement of assets without purchasing the assets themselves 

Expiry 

The last date an option can be exercised. If the option is exercised the currencies will be delivered/settled 2 business days later. 

FCA 

The FCA, or Financial Conduct Authority, is the United Kingdom’s financial regulatory body. 

Foreign Exchange 

Foreign Exchange is how market participants convert one currency to another. It can variously be referred to as Forex, FX, or currencies. 

Forward Contract 

The exchange of one currency for another currency at a specified exchange rate, for a specified amount, at a specified date in the future. 

Forward Points 

The difference, in basis points terms, between the spot rate and the forward rate. 

Forward Rate 

The rate at which a forward contract can be booked. 

Call 

A call is a type of option that gives the purchaser the right, but not the obligation, to buy a certain market at a certain price (called the strike price) before its expiry date.

Hedge 

A hedge is an investment or trade designed to reduce your existing exposure to risk. The process of reducing risk via investments is called 'hedging'. 

Initial Margin 

The initial deposit a client must post to protect the broker from the risk of default. 

Interest Rates 

The amount that a lender charges to a borrower for the loan of an asset, usually expressed as a percentage of the amount borrowed. 

In the Money 

An options contract is in the money if it has intrinsic value. For example, a call option is in the money when the spot price is greater than the strike price of the option.

Margin Call Agreement 

A legal agreement defining the credit terms between the broker and its client. The agreement covers the offer of a trading line and an initial or variation margin levels.

NYC 

An Acronym for New York Cut. This is the standardised time for OTC options expiries. 10am New York time. 

Options 

An option is a financial instrument that offers you the right – but not the obligation – to buy or sell an asset when its price moves beyond a certain price with a set time period.

Order 

An order is a request sent to a broker or trading platform to make a trade on a financial instrument. 

Market 

Markets are a medium through which assets are traded, with their value determined by supply and demand. 

Out of the Money 

Out of the money is the point at which it is an option contract will not be executed as it has no intrinsic value. Exercising an out of the money option will result in a trading loss.

Participating Forward 

A foreign exchange contract that allows the holder to benefit from favourable exchange rate movements for a predefined percentage of the total amount in exchange for a less favourable forward  rate than an outright forward. 

Premium 

The initial cost to purchase a vanilla option. 

Profit and Loss 

Profit and loss refer to the financial returns or losses from any business enterprise or trade. 

OTC 

OTC stands for over the counter and refers to a trade that is not made on a formal exchange. 

Puts 

Puts are a variety of option that give the purchaser the right, but not the obligation, to sell an asset at a certain price before the option expires. 

Quote 

The quote is the price at which an asset was last traded, or the price at which it can currently be bought or sold. 

Risks 

Risks are the ways in which an investment can end up losing you money. 

Settlement 

The date on which the exchange of assets takes place. 

Settlement Date 

The date on which trade settlement occurs. 

Spot Rate 

The exchange today of one currency for another currency at a specified exchange rate and specified amount.. 

Spread 

Spread is the difference in price between the buy (bid) and sell (offer) prices quoted for an asset. 

Strike 

In options trading, the strike is the price at which a contract can be exercised, and the price at which the underlying asset will be bought or sold. It is also known as the strike price.

Vanilla 

A term used for generic, non-exotic options with no barriers associated with them. 

Variation Margin 

The money which must be deposited with the broker to ensure against default in the event of your contract losing value during the contract’s life. 

Volatility 

A market’s volatility is its likelihood of making major, unforeseen short-term price movements at any given time.