· Arbitrage – The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.

· Around – Dealer jargon used in quoting when the forward premium/discount is near parity. For example, “two-two around” would translate into 2 points to either side of the present spot.

· Ask Rate – The rate at which a financial instrument if offered for sale (as in bid/ask spread).

· Asset Allocation – Investment practice that divides funds among different markets to achieve diversification for risk management purposes and/or expected returns consistent with an investor’s objectives.

· Back Office – The departments and processes related to the settlement of financial transactions.

· Balance of Trade – The value of a country’s exports minus its imports.

· Base Currency – In general terms, the base currency is the currency in which an investor or issuer maintains its book of accounts. In the FX markets, the US Dollar is normally considered the ‘base’ currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro and the Australian Dollar.

· Bear Market – A market distinguished by declining prices.

· Bid Rate – The rate at which a trader is willing to buy a currency.

· Bid/Ask Spread – The difference between the bid and offer price, and the most widely used measure of market liquidity.

· Big Figure – Dealer expression referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. “30/35″.

· Book – In a professional trading environment, a ‘book’ is the summary of a trader’s or desk’s total positions.

· Broker – An individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. In contrast, a ‘dealer’ commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.

· Bretton Woods Agreement of 1944 – An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies.

· Bull Market - A market distinguished by rising prices.

· Bundesbank – Germany’s Central Bank.

· Cable – Trader jargon referring to the Sterling/US Dollar exchange rate. So called because the rate was originally transmitted via a transatlantic cable beginning in the mid 1800′s.

· Candlestick Chart – A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

· Central Bank – A government or quasi-governmental organization that manages a country’s monetary policy. For example, the US central bank is the Federal Reserve, and the German central bank is the Bundesbank.

· Chartist – An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.

· Clearing – The process of settling a trade.

· Contagion – The tendency of an economic crisis to spread from one market to another. In 1997, political instability in Indonesia caused high volatility in their domestic currency, the Rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the ‘Asian Contagion’.

· Collateral – Something given to secure a loan or as a guarantee of performance.

· Commission – A transaction fee charged by a broker.

· Confirmation – A document exchanged by counterparts to a transaction that states the terms of said transaction.

· Contract – The standard unit of trading.

· Counterparty – One of the participants in a financial transaction.

· Country Risk – Risk associated with a cross-border transaction, including but not limited to legal and political conditions.

· Cross Rate – The exchange rate between any two currencies that are considered non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/JPY quote would be considered a cross rate, whereas in UK or Japan it would be one of the primary currency pairs traded.

· Currency – Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

· Currency Risk – the probability of an adverse change in exchange rates.

· Day Trading – Refers to positions which are opened and closed on the same trading day.

· Dealer - An individual who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.

· Deficit – A negative balance of trade or payments.

· Delivery – An FX trade where both sides make and take actual delivery of the currencies traded.

· Depreciation – A fall in the value of a currency due to market forces.

· Derivative – A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument.

· Devaluation – The deliberate downward adjustment of a currency’s price, normally by official announcement.

· Economic Indicator – A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

· End Of Day Order (EOD) – An order to buy or sell at a specified price. This order remains open until the end of the trading day which is typically 5PM ET.

· European Monetary Union (EMU) – The principal goal of the EMU is to establish a single European currency called the Euro, which will officially replace the national currencies of the member EU countries in 2002. On Janaury1, 1999 the transitional phase to introduce the Euro began. The Euro now exists as a banking currency and paper financial transactions and foreign exchange are made in Euros. This transition period will last for three years, at which time Euro notes an coins will enter circulation. On July 1,2002, only Euros will be legal tender for EMU participants, the national currencies of the member countries will cease to exist. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, italy, Spain and Portugal.

· EURO – the currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU).

· European Central Bank (ECB) – the Central Bank for the new European Monetary Union.

· Federal Deposit Insurance Corporation (FDIC) – The regulatory agency responsible for administering bank depository insurance in the US.

· Federal Reserve (Fed) – The Central Bank for the United States.

· Flat/square – Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.

· Foreign Exchange – (Forex, FX) – the simultaneous buying of one currency and selling of another.

· Forward – The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.

· Forward points – The pips added to or subtracted from the current exchange rate to calculate a forward price.

· Fundamental analysis – Analysis of economic and political information with the objective of determining future movements in a financial market.

· Futures Contract- An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts – ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.

· Good ‘Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.

· Hedge – A position or combination of positions that reduces the risk of your primary position.

· Inflation – An economic condition whereby prices for consumer goods rise, eroding purchasing power.

· Initial margin – The initial deposit of collateral required to enter into a position as a guarantee on future performance.

· Interbank rates – The Foreign Exchange rates at which large international banks quote other large international banks.

· Leading Indicators – Statistics that are considered to predict future economic activity.

· LIBOR – The London Inter-Bank Offered Rate. Banks use LIBOR when borrowing from another bank.

· Limit order – An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 102.00/05, then a limit order to buy USD would be at a price below 102. (ie 101.50)

· Liquidity – The ability of a market to accept large transaction with minimal to no impact on price stability.

· Liquidation – The closing of an existing position through the execution of an offsetting transaction.

· Long position – A position that appreciates in value if market prices increase.

· Margin – The required equity that an investor must deposit to collateralize a position.

· Margin call – A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer.

· Market Maker – A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument.

· Market Risk – Exposure to changes in market prices.

· Mark-to-Market – Process of re-evaluating all open positions with the current market prices. These new values then determine margin requirements.

· Maturity – The date for settlement or expiry of a financial instrument.

· Offer – The rate at which a dealer is willing to sell a currency.

· Offsetting transaction – A trade with which serves to cancel or offset some or all of the market risk of an open position.

· One Cancels the Other Order (OCO) – A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.

· Open order – An order that will be executed when a market moves to its designated price. Normally associated with Good ’til Cancelled Orders.

· Open position – A deal not yet reversed or settled with a physical payment.

· Over the Counter (OTC) – Used to describe any transaction that is not conducted over an exchange.

· Overnight – A trade that remains open until the next business day.

· Pips – Digits added to or subtracted from the fourth decimal place, i.e. 0.0001. Also called Points.

· Political Risk – Exposure to changes in governmental policy which will have an adverse effect on an investor’s position.

· Position – The netted total holdings of a given currency.

· Premium – In the currency markets, describes the amount by which the forward or futures price exceed the spot price.

· Price Transparency – Describes quotes to which every market participant has equal access.

· Quote – An indicative market price, normally used for information purposes only.

· Rate – The price of one currency in terms of another, typically used for dealing purposes.

· Resistance – A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.

· Revaluation - An increase in the exchange rate for a currency as a result of central bank intervention. Opposite of Devaluation.

· Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change.

· Risk Management – the employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.

· Roll-Over – Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.

· Settlement - The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.

· Short Position – An investment position that benefits from a decline in market price.

· Spot Price – The current market price. Settlement of spot transactions usually occurs within two business days.

· Spread – The difference between the bid and offer prices.

· Sterling – slang for British Pound.

· Stop Loss Order – Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor’s position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.

· Support Levels – A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

· Swap – A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.

· Technical Analysis – An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.

· Tomorrow Next (Tom/Next) – Simultaneous buying and selling of a currency for delivery the following day.

· Transaction Cost – the cost of buying or selling a financial instrument.

· Transaction Date – The date on which a trade occurs.

· Turnover – The total money value of all executed transactions in a given time period; volume.

· Two-Way Price – When both a bid and offer rate is quoted for a FX transaction.

· Uptick – a new price quote at a price higher than the preceding quote.

· Uptick Rule – In the U.S., a regulation whereby a security may not be sold short unless the last trade prior to the short sale was at a price lower than the price at which the short sale is executed.

· US Prime Rate – The interest rate at which US banks will lend to their prime corporate customers

· Value Date – The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.

· Variation Margin – Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.

· Volatility (Vol) – A statistical measure of a market’s price movements over time.

· Whipsaw – slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

· Yard – Slang for a billion.

1. Leverage: The first advantage to this type of trading is that there is leverage. Basically, an individual who wishes to make profits, yet reduce the overall amount of risk that is involved can do so by simply placing a deposit that is relatively small down on a contract that is actually quite large in nature. For example, if an individual had $50.00 that they wanted to use in order to acquire $1,000.00 worth of trade in some type of currency, they could easily do so. This means, if a loss occurred, it would not be the $1,000.00 that is lost, but it would mean that the $50.00 was lost. Many will use programs designed for Forex Trading that allow them to even further protect their investment.

2. Liquidity: Because the Forex Market is so large, it is also extremely liquid.
This means that with a click of a mouse you can instantaneously buy and sell at
will. You are never ‘stuck’ in a trade. You can even set the online trading
platform to automatically close your position at your desired profit level (limit
order), and/or close a trade if a trade is going against you (stop order).

3. Standard Beginning Trader: The next advantage to working in trades that are on the Forex Market is that it is perfect for the standard beginning trader. While the stock market typically takes a lot to get started when it comes to trading, having just a few hundred dollars can be a great start for the individual who wishes to get started in the Forex market

4. 24 HRS: From Sunday evening to Friday Afternoon EST the Forex market
never sleeps. This is very desirable for those who want to trade on a part-time
basis, because you can choose when you want to trade–morning, noon or night.

5. ‘MINI’ Trading: One might think that getting started as a currency trader
would cost a lot of money. The fact is, it doesn’t. Online Forex Firms now offer
‘mini’ trading accounts with a minimum account deposit of only $200-$500 with
no commission trading. This makes Forex much more accessible to the average
individual, without large, start-up capital.

6. Easy to Obtain Access: Lastly, it is easy to enter the business of Forex online day trading. At present, there are many companies offering online accounts, which can be set up with just a few clicks of the mouse. These online accounts can be easily linked to your bank account as they often have a client base from all over the world. As such, it would be relatively easy for you to set up a Forex online trading account even if your bank is one of the lesser well-known ones in the financial world. This means a relative ease of access for anyone interested in Forex online day trading.

Moreover, participation in Forex online day trading allows potentially large rewards to be reaped by the mature sophisticated investor. Forex trading involves taking on a comparatively higher amount of risk, especially when set against other financial products such as bonds, which often have lower risk. Yet, it is such risk which allows for greater financial rewards to be reaped by the seasoned investor. It is relatively difficult to make large sums of money through investing in bonds. However, it is very much possible to achieve high returns through Forex trading. As a well-informed investor, the potential returns open to you with Forex trading is relatively high. Of course, such rewards can only be reaped through painstaking effort at mastering the art of market analysis and a keen sense of judgment.

War: War can severely affect how a currency is traded on the forex market. The forex market looks at world events as starts for long-term trends that will affect the positive and negative trends of the currencies of various countries. If a country has engaged in war, it could go positively or negatively, depending on the situation and the countries involved. Countries that are seen in a good light because of the war may see their currency traded positively. Those who are at a disadvantage, or are seen in a negative light, will see their currency traded negatively, in a downward trend. Either way, war can seriously change the way currencies are traded.

Peace: With that being said about war, those who trade on the forex market also take note of peace and peaceful countries. The countries that stay peaceful in times of war are often seen as stronger countries. They are seen as stable because they are staying out of the war and out of any conflict. Forex traders look for stable countries when the currency they have is in an unstable one to be sure that they do not lose out on their investments.

Allies: The allies that a country can have can seriously affect how their currency is traded. When people have investments in a particular currency on the forex market, they may look to the allies of a country for other investments; allies are seen to be strong together, and can be seen as a good fit for those looking to dabble into other currencies.

Enemies: The enemies that a country can have can also affect how the forex market deals with them. Countries that have powerful enemies may see their currency dip, as investors are not willing to take a risk on an unstable country that could be considered weak. Investors tend to look to the relationships between countries and currencies to try and play the forex market to get the best return on their investment. If a country has powerful enemies, they may not be seen as a safe investment.

Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country’s currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation’s economy. For example, trade deficits may have a negative impact on a nation’s currency.

Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency.

Economic growth and health: Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country’s economic growth and health. Generally, the more healthy and robust a country’s economy, the better its currency will perform, and the more demand for it there will be.

Political conditions: Internal, regional, and international political conditions and events can have a profound effect on currency markets. For instance, political upheaval and instability can have a negative impact on a nation’s economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

Productivity of an economy: Increasing productivity in an economy should positively influence the value of its currency. It affects are more prominent if the increase is in the traded sector