Alternative Investment Resources
Managed Funds Association 2025 M Street, N.W. Suite 610, Washington, DC USA
Center for International Securities and Derivatives Markets , UMass Amherst, MA.
Alternative Investment Management Association Ltd. 167 Fleet Street, 2nd Floor, London UK
HedgeWorld - Thomson/Reuters 3 Times Square, 18th Floor New York, NY USA
Futures Industry Association 2001 Pennsylvania Avenue N.W., Suite 600, Washington DC USA
Futures Magazine Group 999 Vanderbilt Beach Road, Suite 607, Naples, FL USA
Barclay Hedge 2094 185th Street, Suite 1B, Fairfield, IA USA
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Glossary of Relavant investment Terms
    (click on the first letter of a term)
A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   X   Y   Z

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Accredited Investor: A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
Aggressor: A trader dealing on an existing price in the market.
Appreciation: The increase in the value of an asset.
Arbitrage: Profiting from differences in the price of a single instrument or product that is traded on more than one market. Most market-making methodologies are considered arbitrage.
Arbitrageur: A type of investor who attempts to profit from price inefficiencies in the market by making simultaneous trades that offset each other and captures risk-free profits. An arbitrageur would, for example, seek out price discrepancies between derivatives listed on more than one exchange, buy the undervalued instrument on one exchange while short selling the same number of overvalued orders on another exchange, thus capturing risk-free profits as the prices on the two exchanges converge.
Alan Greenspan: The former chairman of the Board of Governors of the Federal Reserve System as well as the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. His tenure at the helm of the Fed lasted 18 years from 1987 until early 2006, when Ben Bernanke replaced him. He was first appointed to the post by then-president Ronald Reagan and kept at the Fed's helm by successors George H.W. Bush, Bill Clinton and President George W. Bush.
Alternative Investments: Non-traditional investment strategies designed to diversify overall market risk.
Algorithmic Trading (Algo): An emerging methodology that gained popularity in the 80's and 90's utilized by investment managers whereby the majority of fund allocations are typically determined using advanced computer systems, exchange (counterparty) connectivity and empirically derived trading models.
Ask: The price at which a currency pair or security is offered for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'offer', 'ask price', and 'ask rate'.
Ask Price: See 'ask'.
Ask Rate: See 'ask'.
Asset: An item having commercial or exchange value.
AUM: The assets under management or total in equity utilized by an investment manager.

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Back Office: The office location, or department, where the processing of financial transactions takes place.
Base Currency: In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.
Bear Market: An extended period of general price decline in an individual security, an asset, or a market.
Ben Bernanke: The chairman of the board of governors of the U.S. Federal Reserve. Bernanke took over the helm from Alan Greenspan on February 1, 2006, ending Greenspan's 18-year leadership at the Fed. A former Fed governor, Bernanke was chairman of the U.S. President's Council of Economic Advisors prior to being nominated as Greenspan's successor in late 2005.
Blackbox: A computer system, also known as a robot, containing programmed logical algorithms used by mangers to return finite trading related decisions for auto-execution.
Block Order: A significant order placed for sale or purchase of a large number of securities. Block orders are often used by institutional investors. Also known as a "Block Trade".
Bid: The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the 'bid price' and 'bid rate'.
Bid/Ask Spread: The point difference between the bid and offer (ask) price.
Big Figure: The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83
Bretton Woods Agreement: A 1944 agreement made in Bretton Woods, New Hampshire, which helped to establish a fixed exchange rate in terms of gold for major currencies. The International Monetary Fund was also established at this time.
Bull Market: A market which is on a consistent upward trend.
Buy Limit Order: An order to execute a transaction at a specified price (the limit) or lower.
Buy On Margin: The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.
Buy Side: A term used to differentiate between client traders and counterparty traders (sell-side traders). Buy side traders participate in the market for the opportunity to generate potential speculative returns.

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Cable: The British pound/US Dollar exchange rate GBP/USD.
Candlestick Chart: A chart that displays the daily trading price range (open, high, low and close).
Carry (Interest-Rate Carry): The income or cost associated with keeping a foreign exchange position overnight. This is derived when the currency pairs in the position have different interest rates for the same period of time.
Central Bank: A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.
Co-location: Remote client-side trading commands conducted with an exchange (counterparty) maintained on a system with a direct ad-hoc network connection designed to achieve lower latency times thus enabling traders to gain a more advantageous position in a first-come first-executed electronic communication network on the bid-ask order que.
Commercial Trader: A classification used by the Commodity Futures Trading Commission (CFTC) to describe traders that use the futures market primarily to hedge their business activities. This type of classification is usually given to futures commission merchants, foreign brokers, clearing members or even investment banks that buy index futures to hedge current long positions. An increase in commercial traders' long positions in a certain commodity may mean these traders believe the price of the commodity will increase, in which case they would not want to be adversely affected by missing out on a price increase.
Commodity Futures Trade Commission (CFTC): A U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. It ensures the open and efficient operation of the futures markets. There are five futures markets commissioners who are appointed by the president (subject to Senate approval).
Chartist: A person who attempts to predict prices by analyzing past price movements as recorded on a chart.
Closing a Position: The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.
Closing Market Rate: The rate at which a position can be closed based on the market price at end of the day.
Commission: The fee levied by an institution to undertake a trade on behalf of a customer.
Confirmation: Written acknowledgment of a trade, listing important details such as the date, the size of the transaction, the price, the commission, and the amount of money involved.
Counterpart: A participant in a financial transaction.
Cross-Rate: The exchange rate between 2 currencies where neither of the currencies are USD.
Currency: Money issued by a government.
Currency Carry Trade: A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use.
Currency Pair: The two currencies that make up a foreign exchange rate. IE: USD/JPY.
Currency Risk: The possibility of an unfavorable change in exchange rates.
Currency Strategist: An investment professional dealing primarily in the Foreign Exchange Market.

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Day Order: A buy or sell order that will expire automatically at the end of the trading day on which it is entered.
Day Trade: A trade opened and closed on the same trading day.
Day Trader: A trader who buys and sells on the basis of small short-term price movements.
Day Trading: Refers to a style or type of trading where trade positions are opened and closed during the same day.
Dealer: An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.
Depreciation: A fall in the value of a currency due to market forces.
Devaluation: The act by a government to reduce the external value of its currency.
Discretionary Account: An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.
Drawdown: The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.

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Econometrics: A type of market analysis that combines economic data with quantitative analysis.
Electronic Communication Network (ECN): A virtual trading exchange that with the advent of the internet and advanced global electronic networking capabilities replaced the traditional trading pit.
Euro: The common currency adopted by eleven European nations(Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal) on January 1, 1999.
European Central Bank (ECB): The Central Bank for the new European Monetary Union.
Execution: The process of completing an order or deal.

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Federal Deposit Insurance Corporation (FDIC): The regulatory agency responsible for administering bank depository insurance in the United States.
Federal Open Market Committee (FOMC): The branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the Board of Governors, which has seven members, and five reserve bank presidents. The president of the Federal Reserve Bank of New York serves continuously, while the presidents of the other reserve banks rotate in their service of one-year terms.
Federal Reserve (Fed): The Central Bank of the United States.
Fill: The process of completing a customer's order to buy or sell a currency pair.
Fill Price: The price at which a buy or sell order was executed.
Financial Risk: The risk that a firm will be unable to meet its financial obligations. Also see Liquidity Risk.
Flag: A technical charting pattern that looks like a flag with a mast on either side. Flags result from price fluctuations within a narrow range and mark a consolidation before the previous move resumes. Likewise, "pennant" formations are usually treated like flag formations because they are very similar in appearance, tend to show up at the same place in an existing trend, and have the same volume and measuring criteria.
Flat: A market position that does not present any market risk.
Forward: A transaction that settles at a future date.
Forward Points: The points that are added to or subtracted from the spot rate to calculate the forward rates for a forward foreign exchange transaction. These points are based on the differential between the interest rates of the two currency pairs.
Forward Price: (See forward rates).
Forward Rates: The net price resulting from calculating the forward points and subtracting them from the existing spot rate. This is the rate at which a currency can be purchased or sold for delivery in the future.
Fundamental Analysis: A method of evaluating a security by attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies).
Futures Commission Merchant (FCM): A merchant involved in the solicitation or acceptance of commodity orders for future delivery of commodities related to the futures contract market.

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Global Fund: A type of mutual fund, closed-end fund or exchange-traded fund that can invest in markets located anywhere in the world. These funds provide more global opportunities for diversification and act as a hedge against inflation and currency risks in an investors nation.
Global-macro strategy: A hedge fund strategy that bases its holdings--such as long and short positions in various equity, fixed income, currency, and futures markets--primarily on overall economic and political views of various countries (macroeconomic principles).
Good Till Canceled Order (GTC): A buy or sell order which remains open until it is filled or canceled.
Greybox: Similar to a blackbox, the greybox trading approach consists of programming logical algorithms to determine trading related decisions.

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Hard Stop: A price level that, if reached, will trigger an order to sell an underlying security. Hard stops are set at a constant price and are inherently good until canceled. A hard stop is used to protect the downside of holding an investment by always being active, and is only triggered once the price reaches the specified stop level.
Head And Shoulders Pattern: A term used to describe a chart formation in which a derivative price drafts a line similar to a silhouette of a man from the upper torso to the head.
Hedge: A transaction that reduces the risk on an existing investment position.
Hedge Fund: An organized pool of sophisticated investors.
High water mark: The highest level of return achieved on investment capital.

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Iceberg Orders: A computer system assisted execution technique used by traders, where the actual total size displayed enqueue remains concealed via a client-side algorithm until the price is met for the purpose of effectuating a lesser influence on the meta-perception of counterparties and passive participants herding heuristic biases amongst other factors whilst executing large orders.
Initial Margin: The deposit a customer needs to make before allocated a trading limit.
Initial Margin Requirement: The minimum portion of a new security purchase that an investor must pay for in cash.
Interbank Market: The financial system and trading of currencies among banks and financial institutions, excluding retail investors and smaller trading parties. While some interbank trading is performed by banks on behalf of large customers, most interbank trading takes place from the banks' own accounts.

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Jobber: A trader who manuevers for small, short-term profits during the course of a trading session, rarely carrying an unhedged position overnight. Also see Sell-side Trader.

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Leverage: Is often created through options, futures, margin and other financial instruments. For example, say you have $1,000 to invest. This amount could be invested in 10 shares of Microsoft stock, but to increase leverage, you could invest the $1,000 in five options contracts. You would then control 500 shares instead of just 10.
Limit Order: An order to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher.
Limited Partnership Agreement (LPA): An agreement entered upon by an investment group with an investment management company typically involving rights and shares allocated by the fund.
Liquidity: Refers to the relationship between transaction size and price movements. For example, a market is "liquid" if large transactions can occur with only minimal price changes.
Liquidity Risk: The risk associated in financial transactions with counterparty's.
Lock-up Period: An interval of time a fund may require client's to commit investment capital before the funds are eligible to be withdrawn.
Long: See long position.
Long Position: In foreign exchange, when a currency pair is bought, it is understood that the primary currency in the pair is 'long', and the secondary currency is 'short'.
Long Volatility: A stance managers take on the market whereby they anticipate sustained or increased market volatility.

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Maintenance: A set minimum margin that a customer must maintain in his margin account
Managed Forex Accounts: A type of forex account in which a money manager trades the account on a client's behalf for a fee. Managed forex accounts are similar to hiring an investment advisor to manage a traditional investment account of equities and bonds. Returns and fees between managed accounts can vary greatly; therefore, it is important to research your options thoroughly before assigning your account to a professional manager.
Managed Fund: An investment account that is owned by an individual investor and looked after by a hired professional money manager. In contrast to mutual funds (which are professionally managed on behalf of many mutual-fund holders), managed accounts are personalized investment portfolios tailored to the specific needs of the account holder.
Margin: The amount of money needed to maintain a position.
Margin Account: An account that allows leverage buying on credit and borrowing on currencies already in the account. Buying on credit and borrowing are subject to standards established by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding.
Margin Call: A call for additional funds in a margin account either because the value of equity in the account has fallen below a required minimum (also termed a maintenance call) or because additional currencies have been purchased (or sold short).
Mark-to-Market: The theoretical value of an open position at the current market price.
Market Close: This refers to the time of day that a market closes. In the 24 hour-a-day foreign exchange market, there is no official market close. 5:00 PM ET is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time.
Market-Maker: A person or firm that provides liquidity making two-sided prices (bids and offers) in the market.
Market Order: A customer order for immediate execution at the best price available when the order reaches the marketplace.
Market Psychology: The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.
Market Rate: The current quote of a currency pair.
Market Risk: The risks that occur when general market pressures cause the value of an investment to fluctuate.
Maturity: The date on which payment of a financial obligation is due.
Microstructure Analysis: The study of change in order book composition of a given derivative.
Momentum: The tendency of a market to continue movement in a single direction.

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National Futures Association (NFA): An independent self-regulatory non-profit organization that regulates the futures market. The NFA began operating in 1982. Through the implementation and enforcement of regulatory programs, the NFA protects small investors from unscrupulous activities. It also provides arbitration and mediation services for resolving investor complaints. Since the NFA is independent, its regulations are unbiased towards any one member.
Noncommercial Trader: A classification used by the Commodity Futures Trading Commission (CFTC) to identify traders that use the futures market for speculative purposes. Generally, the category of noncommercial trader includes individual investors, hedge funds, and some large financial institutions. If noncommercial traders (speculators) have a substantial number of short positions, it can be inferred that this group of investors believes the price of the underlying asset is going to decrease.
Neural Network: A series of algorithms that attempt to identify underlying relationships in a set of data by using a process that mimics the way the human brain operates. Theoretically, neural networks have the ability to adapt to changing input so that the network produces the best possible result without the need to redesign the output criteria.

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OCO-One Cancels the Other Order: A combination of two orders in which the execution of either one automatically cancels the other.
Offer: The price at which a currency pair or security is for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'ask', 'ask price', and 'ask rate'.
Open Order: Buy or sell order that remains in force until executed or canceled by the customer.
Open Position: Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction.
Option: A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).
Order: A customer's instructions to buy or sell currencies.
Overnight Position: Trader's long or short position in a currency at the end of a trading day.

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Pattern Trading: A methodology for implementing trades and allocating risk capital that relies heavily on data points and empirically derived strategies.
Pip (Percentage in Points): The smallest increment of change in a foreign currency price, either up or down.
Price: The price at which the underlying currency can be bought or sold.
Price Transparency: The ability of all market participants to "see" or deal at the same price.
Principal Value: The original amount invested by the client.
Private Placement Memorandum (PPM): A legal document funds distribute to prospective investors.
Program Trading: Computerized trading used primarily by institutional investors typically for large-volume trades. Orders from the trader's computer are entered directly into the market's computer system and executed automatically.
Proprietary Accounts: Accounts fund managers use to trade both their client's and personal capital.
Proprietary Trader: Professional traders who typically manage funds for themselves and the financial institution's they counter with.
Pyramiding: A method of increasing a position size by using unrealized profits from successful trades to increase margin.

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Qualified Eligible Person (QEP): A QEP is a sophisticated person or entity who participates in a commodity pool or opens a managed account. The categories of persons or entities who qualify as QEPs are listed in CFTC Regulation 4.7(a).
Quant: A trader who performs his/her analysis, risk management and trade execution using quantitative methods.
Quantitative Analysis: A business or financial analysis technique that seeks to understand behavior by using complex mathematical and statistical modeling, measurement and research. By assigning a numerical value to variables, quantitative analysts try to replicate reality mathematically.
Quote: A simultaneous bid and offer in a currency pair.

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Rate: Price at which a currency can be purchased or sold against another currency.
Real-time: When a system relays information to a user at a speed that is near instantaneous or has a short delay from when the event actually occurred. Online brokerages often provide a real-time data feed that displays stock quotes and their respective real-time changes, with a very insignificant lag time, so that clients can base their investing decisions on the most up-to-date information.
Resistance: Price level at which technical analysts note persistent selling of a currency.
Revaluation: Daily calculation of potential profits or losses on open positions based on the difference between the settlement price of the previous trading day and the current trading day.
Risk (Foreign Exchange Risk): The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced.
Risk Management: The employment of financial analysis and use of trading techniques to reduce and/or control exposure to financial risk.
Roll-Over: The process of extending the settlement value date on an open position forward to the next valid value date.
ROR: Rate of return.

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Scalping or Spreading: The act of trading in the equities or options and futures market whereby a trader holds a position for a very short period of time, attempting to make money off of the bid-ask spread.
Sell Limit Order: An order to execute a transaction only at a specified price (the limit) or higher.
Selling Short: A situation where a currency has been sold with the intent of buying back the position at a lower price to make a profit.
Sell Side: Large, regulated investment firms who act as the "counterparty" or conduit to market liquidity for the purpose of executing buy-side order flow while balancing the firm's risk and in many cases to attempt short-term arbitrage profits from the discrepancies in the bid-ask spread.
Settlement: The actual delivery of currencies made on the maturity date of a trade.
Sharpe Ratio: A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns.
Short: See short position.
Short Hedge: An investment strategy that is focused on mitigating a risk that has already been taken. The "short" portion of the term refers to the act of shorting a security, usually a derivatives contract, that hedges against potential losses in an investment that is held long (i.e., the risk that was already taken).
Short position: In foreign exchange, when a currency pair is sold, the position is said to be short. It is understood that the primary currency in the pair is 'short', and the secondary currency is 'long'.
Short Squeeze: The pressure on short sellers to cover their positions as a result of sharp price increases.
Speculator: A person who trades derivatives, commodities, bonds, equities or currencies with a higher-than-average risk in return for a higher-than-average profit potential. Speculators take large risks, especially with respect to anticipating future price movements, in the hope of making quick, large gains.
Spot Market: Market where people buy and sell actual financial instruments (currencies) for two-day delivery.
Spot/Next or S/N roll: The process of moving the spot settlement value date on an open position forward to the next valid value date. This process will affect the profit or loss on the overnight position. The forward points reflect the difference in interest rates between the currencies being rolled over.
Spot Price: The current market price of a currency that normally settles in 2 business days (1 day for Dollar/Canada).
Spread: This point or pip difference between the bid and ask price of a currency pair.
Statistical Arbitrage: A profit situation arising from pricing inefficiencies between securities. Investors identify the arbitrage situation through mathematical modeling techniques.
Stick: A slang word used in the currency industry meaning 'million'. (also see "yard")
Sterling: Another term for the British currency, 'The Pound'.
Stop Hunting: A strategy that attempts to force some market participants out of their positions by driving the price of an asset to a level where many individuals have chosen to set their stop-loss orders. The triggering of many stop losses generally leads to high volatility and can present a unique opportunity for investors who seek to trade in this environment.
Stop (loss) Order: Order to buy or sell when a given price is reached or passed to liquidate part or all of an existing position.
Stop Order (or stop): An order to buy or to sell a currency when the currency's price reaches or passes a specified level.
Support Levels: A price at which a currency or the currency market will receive considerable buying pressure.
Swap: A transaction which moves the maturity date of an open position to a future date.

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Take Profit Order: A customer's instructions to buy or sell a currency pair which, when executed, will result in the reduction in the size of the existing position and show a profit on said position.
Technical Analysis: A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.
Tick: The smallest possible change in a price, either up or down.
Tomorrow Next (Tom/Next), (T/N), T/N Roll: The process of moving the settlement value date on an open position forward from one business day after the trade date (tomorrow), to the next valid value date (next), the spot value date.
Transaction Date: The date on which a trade occurs.
Turnover: The total volume of all executed transactions in a given time period.
Two-Way Price: A quote in the foreign exchange market that indicates a bid and an offer.

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Value Date: The maturity date of the currency for settlement, usually two business days (one day for Canada) after the trade has occurred.
Variation Margin: Funds, which are required to bring the equity in an account back up to the initial margin level, calculated on a day-to-day basis.
VIX - CBOE Volatility Index: The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".
Volatility (VOL): A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

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Yard: A slang word used in the currency industry meaning 'billion'. (also see "stick")

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