Glossary And Foreign Exchange Terms (A – B)

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Glossary And Glossary And Foreign Exchange Terms (A – B)

A

Accumulation swing index (ASI) An oscillator based on the swing index (SI.) A buying signal is generated when the daily high exceeds the previous SI significant high, and a selling signal occurs when the daily low dips under the significant SI low.

American style currency option An option that may be exercised at any valid business date throughout the life of the option.

Arbitrage A risk-free type of trading in which the same instrument is bought and sold simultaneously in two different markets in order to cash in on the divergence between the two markets.

Ascending triangle A triangle continuation formation with a flat upper trendline and a bottom sloping upward trendline. (See Triangle.)

Ascending triple top A bullish point-and-figure chart formation that suggests that the currency is likely to break a resistance line the third time it reaches it. Each new top is higher than the previous one.

Atekubi A bearish two-day candlestick combination. It consists of a blank bar that closes at the daily high; the current closing price equals the previous day’s low. The original day’s range is a long black bar.

At par forward spread Forward price is zero; therefore, the spot price is similar to the forward price. It reflects the fact that the foreign interest rate is similar to the U.S. interest rate for that particular period.

At-the-money (ATM) option An option whose present currency price is approximately equal to the strike price.

At the price stop-loss order A stop-loss order that must be executed at the precise requested level, regardless of market conditions.

Average options Options that refer to the average rate of the underlying currency that existed during the life of the option. This rate becomes the strike in the case of the average strike options; or it becomes the underlying, determining the intrinsic value when compared to a predetermined fixed strike in the case of average rate options. Average options can be based on the spot rate (spot style) or on the forward underlying the option (forward style.) The average can be calculated arithmetically or geometrically, and the rates can be tabulated with a variety of frequencies.


B

Balance-of-payments All the international commercial and financial transactions of the residents of one country.

Bank of Canada (BOC) The central bank of Canada.

Bank of England (BOE) The central bank of the United Kingdom. It is a less independent central bank. The government may overwrite its decision.

Bank of France (BOF) The central bank of France.

Bank of Italy (BOI) The central bank of Italy.

Bank of Japan (BOJ) The Japanese central bank. Although its Policy Board is still fully in charge of the monetary policy, changes are still subject to the approval of the Ministry of Finance (MOF). The BOJ targets the M2 aggregate.

Bar chart A type of chart that consists of four significant points: the high and the low prices, which form the vertical bar; the opening price, which is marked with a little horizontal line to the left of the bar; and the closing price, which is marked with a little horizontal line to the right of the bar.

Barrier options (trigger options, cutoff options, cutout options, stop options, down/up-and-outs/ins, knockups) Options very similar to European style vanilla options, except that a second strike price (the trigger) is specified that, when reached in the market, automatically causes the option to be expired (knockout options) or “inspired” (knockin options).

Bearish tasuki A bearish two-day candlestick combination. It consists of a long blank bar that has a low above 50 percent of the previous day’s long black body, and closes marginally above the previous day’s high. The second day’s rally is temporary, as it is caused only by profit-taking. The sell-off is likely to continue the next day.

Bearish tsutsumi (the engulfing pattern) A bearish two-day candlestick combination. It consists of a second-day bearish candlestick whose body “engulfs” the previous day’s small bullish body.

Bilateral grid An exchange rate system that links all the central rates of the EMS currencies in terms of the ECU.

Black closing bozu A bearish candlestick formation that consists of a long black bar (upper shadow).

Black marubozu (shaven head) A bearish candlestick formation that consists of a long black bar (no shadow).

Black opening bozu A bearish candlestick formation that consists of a long black bar (lower shadow).

Black-Scholes fair value model The original option pricing model, which holds that a stock and the call option on the stock are comparable investments and thus a risk less portfolio may be created by buying the stock and selling the option on the stock, as a hedge. The movement of the price of the stock is reflected by the movement of the price of the option, but not necessarily by the same amplitude. Therefore, it is necessary to hold only the amount of the stock necessary to duplicate the movement of the price of the option.

Blank closing bozu A bullish candlestick formation that consists of a long blank bar (lower shadow).

Blank marubozu (shaven head) A bullish candlestick formation that consists of a long blank bar (no shadows).

Blank opening bozu A bullish candlestick formation that consists of a long blank bar (upper shadow).

Bollinger bands A quantitative method that combines a moving average with the instrument’s volatility. The bands were designed to gauge whether the prices are high or low on a relative basis. They are plotted two standard deviations above and below a simple moving average. The bands look like an expanding and contracting envelope model. When the band contracts drastically, the signal is that volatility will expand sharply in the near future. An additional signal is a succession of two top formations, one outside the band followed by one inside. If it occurs above the band, it is a selling signal. When it occurs below the band, it is a buying signal.

Book method Point-and-figure chart’s original name.

Box spread A compound option strategy that consists of four options with a common expiration date: a long call and a short put at one strike price, and a long put and a short call at a different strike price.

Breakaway gap A price gap that occurs in the beginning of a new trend, many times at the end of a long consolidation period. It may also appear after the completion of major chart formations.

 

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