Home Investment Terminology
Markets have a language all their own and within that language, Investment Terminology has its own dialect. Here are some terms we commonly use in our commentary.
Another way of referring to easy or easier monetary policy, often used as a code word by central bankers
An Australian stock index
Asset Purchase Program: It’s not just something you find on your phone, it’s a BOJ initiative introduced in 2010 as a monetary easing tool where it buys government bonds with up to three years until maturity (and also corporate debt, ETFs and REITs) and trust funds investing in stocks and property.
The main Australian stock index
The Australian Dollar - (or a person that speaks with an interesting accent)
An international organization which fosters monetary and financial cooperation and serves as a bank for central banks. The BIS often acts as an agent in the Investment Terminology market, allowing central banks to mask their identity in an attempt to dampen market impact.
A type of option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. A barrier option can be a knock-out, meaning it can expire worthless if the underlying exceeds a certain price, limiting profits for the holder but limiting losses for the writer. It can also be a knock-in, meaning it has no value until the underlying reaches a certain price.
A buy order placed at or below the market.
Bank of England
Bank of Japan
Buy the f****** dip!
Italian government bonds
The market nickname for the Bundesbank, Germany’s inflation-obsessed central bank
German 10-year government bonds. The Bobl is the 5 year and Schatz the 2-year.
Nickname for GBP/USD. Originates from the use of transatlantic cables to transact currency deals years ago. Anyone who uses terms like “Cable-yen” or “euro-cable” is to be dismissed as an amateur.
The French stock index, the CAC 40
A method of charting price action. The subject of multitudes of books and the preferred method of charting at Investment Terminology.
An entry in the comprehensive income section of a translated balance sheet summarizing the gains/losses resulting from varying exchange rates over the years. A CTA entry is required under the Financial Accounting Standards Board (FASB) No.52 rule as a means of helping investors differentiate between actual operating gains/losses and those generated via translation.
German stock index, the DAX 30
The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the “hedge ratio”.
A statement related to monetary policy which implies looser policy (lower rates).
Refers to monetary policy tending towards lower interest rates. Monetary authorities (a central bank) will want easy monetary policies (lower interest rates and even perhaps a program like quantitative easing, in order to encourage economic growth).
A wholesale electronic trading platform used to trade between interbank dealers. Its like an ECN for banks.
European Central Bank
A council consisting of the economy and finance ministers of the European Union. They meet once a month.
The provision of liquidity by member national banks of the European System of Central Banks (Eurosystem) to individual banks. The provision of liquidity is made under exceptional circumstances to illiquid institutions unable to obtain liquidity either in the market or from participation in monetary policy operations (shut out by the ECB). Loans are made against collateral and are at the risk of the national central bank.
An Exchange Traded Fund (the BOJ has bought ETFs as part of its APP easing program).
Not the Euro; a pet peeve of many old FX traders is to hear the euro currency referred to as ‘eurodollar’. A eurodollar refers to a US dollar on deposit at banks outside the US. Similarly, eurodollar futures are a very popular interest-rate futures contract.
A group of finance ministers of countries who are members of the euro. It’s spokesman is Jean- Claude Junckers, the finance minister of Luxembourg.
Is a legal instrument agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty. Colloquially known as ‘euro SPV’ or ‘euro TARP’.
To trade counter to. For instance, to “fade a trend” is to counter the trend. To fade a rumor is to believe it to be untrue and do the opposite of what the rumor would suggest.
The Federal Reserve Bank, the central bank for the United States.
A useful tool for traders as markets correct during trends. Technicians look for support on pullbacks at 38.2% of the uptrend or rebounds in an downtrend, 50% and 61.8%. Derived from the “golden ratio” of Italian mathematician Fibonacci.
UK stock index, the FTSE100
Forward guidance can take many forms, but, in essence all of them involve a central bank saying, or at least hinting at, what its going to do with monetary policy do before they do it. There is a more detailed explanation at this post.
Federal Open Market Committee, the monetary policy-setting group within the Federal Reserve Bank of the USA. It consists of 12 members, the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents 9selected on a rotating basis for one-year terms).
Market nickname for the USD/CAD currency pair.
Concepts in the options markets are expressed in terms of the Greek alphabet. Gamma refers to the rate of change in an option’s delta relative to the price of the underlying asset. A short gamma position will become shorter as the price of the underlying asset increases. As the market rallies, you are effectively selling more and more of the underlying asset as the delta becomes more negative.
UK government bonds
To transact a deal on the bid price, i.e. to sell at the bid price, to whoever is bidding.
Past tense of give, what has happened if you’ve crossed the spread and sold at the bid.
A cultural tradition in Japan of settling accounts on the 5th day of the month (and on dates that are multiples of 5, so 5, 10, 15, 20, 25 and 30). In FX markets it relates to importer demand for USD/JPY, said to occur on the 5th of each month. Needs to be taken with a grain of salt, markets are not that simple: but at least now when you see commentators referring to Gotobi demand, you’ll know what they mean.
The Governing Council is the 23-member monetary policy-setting group within the European Central Bank. Generally, anyone who is referred to as part of the ECB on Investment Terminology Live is a member of the Governing Council.
When bondholders are forced or voluntarily take a worse deal than the one outlined in the bond covenant.
A statement regarding monetary policy which implies tighter policy (higher rates).
A stock market technical indicator when two trading days within 30 days of each other where, on the same day, 10-week moving average is rising, new highs are greater than 2.2% of total issues traded, new lows are greater than 2.2% of total issues traded, and the McClellan Oscillator is negative. ,
Hong Kong Monetary Authority, the central bank of Hong Kong.
(Ichimoku Kinko Hyo)A series of technical indicators packaged together and overlaid on a candlestick or bar chart to form the Ichimoku chart. Popularly used for yen crosses.
The International Monetary Market division of the Chicago Mercantile Exchange. This is the exchange where the bulk of the currency futures trading takes place worldwide. Net positions on the exchange are compiled each week and reported in the Commitments of Traders report on Friday afternoons.
The bank-to-bank market in foreign exchange. Banks can deal directly with each other in currencies, most often over the phone, or through EBS or Reuters Dealing. ‘Interbank’ dealing usually refers to the direct dealing between banks with no broker intervening (classing EBS and Reuters as brokers in this context as they serve to match up buyers and sellers). Bank ‘A’ contacts Bank ‘B’ and asks for a price in (for example) USD/JPY, in an amount (20 million USD, for example). Bank ‘B’ ‘makes’ (in this way banks are market makers to each other) a price, showing a bid and an offer: Bank A is then free to transact a deal on the shown bid or offer, or to pass and not deal.