Glossary And Foreign Exchange Terms (Letter D-E)

Glossary And Foreign Exchange Terms (Letter D-E)

D

Daylight position limit The maximum amount of a certain currency a trader is allowed to carry at any single time, between the regular trading hours.

Dead cross An intersection of two consecutive moving averages that move in opposite directions and should technically be disregarded.

Dealing systems On-line computers that link the contributing banks around the world on a one-on-one basis.

Delta (A) (1) The change of the currency option price relative to a change in the currency price; (2) the hedge ratio between the option contracts and the currency futures contracts necessary to establish a neutral hedge; (3) the theoretical or equivalent share position. In the third case, delta is the number of currency futures contracts a call buyer is long or a put buyer is short. Delta ranges between 0 and 1.

Descending triangle A triangle continuation formation with a flat lower trendline and a downward-sloping upper trendline. (See Triangle.)

Descending triple bottom Bearish point-and-figure chart formation that suggests that the currency is likely to break a support line the third time it reaches it. Each new bottom is lower than the previous one.

Diagonal spread A compound option strategy that consists of several same-type options, in which the long side and the short side have different strike prices and different expirations.

Diamond A minor reversal pattern that resembles a diamond shape.

Direct dealing An aggressive approach in which banks contact each other outside the brokers’ market.

Directional Movement Index A signal of trend presence in the market. The line simply rates the price directional movement on a scale of 0 to 100. The higher the number, the better the trend potential of a movement, and vice versa.

Discount forward spread A forward price that is deducted from a spot price to calculate a forward price. It reflects the fact that the foreign interest rate is lower than the U.S. interest rate for that particular period.

Discount rate The interest rate at which eligible depository institutions may borrow funds directly from the Federal Reserve Banks. The rate is controlled by the Federal Reserve and is not subject to trading.

Discretion for range to trader stop-loss order A stop-loss order that gives the trader a number of discretionary pips within which the order has to be filled.

Double bottoms A bullish reversal pattern that consists of two bottoms of approximately equal heights. A parallel (resistance) line is drawn against a line that connects the two bottoms. The break of the resistance line generates a move equal in size to the price difference between the average height of the bottoms and the resistance line.

Double tops A bearish reversal pattern that consists of two tops of approximately equal heights. A parallel (support) line is drawn against a resistance line that connects the two tops. The break of the support line generates a move equal in size to the price difference between the average height of the tops and the support line.

Downside tasuki gap A bearish two-day candlestick combination. It consists of a second-day blank bar that closes an overnight gap opened on the previous day by a black bar.

Downward breakout of a bearish support line A bearish point-andfigure chart formation that confirms the currency’s breakout of a support line the third time it reaches it.

Downward breakout of a bullish support line A bearish point-andfigure chart formation that confirms the currency’s breakout of a support line the third time it reaches it. The support line is sloped upward.

Downward breakout from a consolidation formation A bearish pointand- figure chart formation that resembles the inverse flag formation. A valid downside breakout from the consolidation formation has a price target equal in size to the length of the previous downtrend.

Durable Goods Orders An economic indicator that measures the changes in sales of products with a life span in excess of three years.


E

Economic exposure Reflects the impact of foreign exchange changes on the future competitive position of a company.

Elliott Wave Principle A system of empirically derived rules for interpreting action in the markets. It refers to a five-wave/threewave pattern that forms one complete bull market/bear market cycle of eight waves.

Envelope model A band created by two winding parallel lines above and below a short-term moving average that borders most price fluctuations. When the upper band is penetrated, a selling signal occurs; when the lower band is penetrated, a buying signal is generated. Because the signals generated by the envelope model are very short-term and occur many times against the ongoing direction of the market, speed of execution is paramount.

Eurocurrency Currency deposit outside the country of origin.

Eurodollars U.S. dollar deposits placed in commercial banks outside the United States.

European Coal and Steel Community European entity established in 1951 by the Treaty of Paris, with the purpose of promoting inter-European trade in general, and eliminating restrictions on the trade of coal and raw steel in particular. West Germany, France, Italy, the Netherlands, Belgium, Luxembourg, and Great Britain formed this community.

European Commission The executive body of the European Economic Community in charge of making and observing the enforcement of policy. It consists of 23 departments, such as foreign affairs, competition policy and agriculture. Each country selects its own representatives for four-year terms, but the commissioners may only act for the benefit of the community. The commission is based in Brussels and consists of 17 members.

European Court of Justice The European Economic Community body in charge of settling disputes between the EC and member nations. It consists of 13 members and is based in Luxembourg.

European currency unit A basket of the member currencies. As a composite unit, the ECU consists of all the European Community currencies, which are individually weighted. It was created by the European Monetary System with the eventual goal of replacing the individual European member currencies.

European Economic Community A community established by the Treaty of Rome in 1951, with the goal of eliminating customs duties and any barriers against the transit of capital, services, and people among the member nations. The signatories were West Germany, France, Italy, the Netherlands, Belgium, and Luxembourg.

European Joint Float Agreement European monetary system established in April 1972 by the EC members: West Germany, France, Italy, the Netherlands, Belgium, and Luxembourg. Great Britain, Ireland, and Denmark were admitted by January 1973. The agreement allowed the member currencies to move within a 2.25 percent fluctuation band (nicknamed the snake). As a joint group, the agreement allowed these currencies to gyrate within a 4.5 percent band (nicknamed the tunnel). The entire agreement was known as the snake in the tunnel.

European Monetary Cooperation Fund EMS fund established to manage the EMS credit arrangements.

European Monetary Institute (EMI) The new European Central Bank created to govern the EMS. As of March 1994, it did not have any power over inter-EMS monetary policy.

European Monetary System European monetary system established in March 1979 by seven full members: West Germany, France, the Netherlands, Belgium, Luxembourg, Denmark, and Ireland. Great Britain did not participate in all of the arrangements and Italy joined under special conditions. New members: Greece in 1981, Spain and Portugal in 1986. Great Britain joined the Exchange Rate Mechanism in 1990. Also in 1990, West Germany became Germany as a result of its political unification with East Germany.

European Parliament The European Economic Community body in charge of reviewing and amending legislative proposals. It has the power to reject the budget proposals. It consists of 518 members who are elected. It is based in Luxembourg, but the sessions take place in Strasbourg or Brussels.

European Payment Union European entity instituted in 1950 to facilitate the inter-European settlements of international trade transactions.

European-style currency option An option that may only be exercised on the expiration date.

European Union Treaty Treaty signed by the 12 EMS members in February 1992 in the Dutch city of Maastricht, with the stated goal of forming a “closer union among the peoples of Europe.”

Exchange for physical (EFP) Consists of deals executed in the cash market, outside the exchanges, for amounts equivalent to the currency futures amount, on forward outright prices valued for the futures’ expiration. EFPs are generally quoted by commercial and investment banks, even during regular trading hours.

Exchange rate risk (1) Foreign exchange risk that is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. (2) Trading risk pertinent to market fluctuation.

Exercise (strike) price The price at which the underlying currency will be delivered upon exercise.

Exhaustion gap Price gap that occurs at the top or the bottom of a Vreversal formation. The trend changes direction in a rather uncharacteristically quick manner.

Expanding (broadening) triangle A triangle continuation formation that looks like a horizontal mirror image of a triangle; the tip of the triangle is next to the original trend, rather than its base. (See Triangle.)

Expiration date The delivery date.

Exponentially smoothed moving average A moving average that also takes into account the previous price information of the underlying currency.

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