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.

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.

Breakout of a spread triple bottom A bearish point-and-figure chart formation that suggests that the currency is likely to break a support line the third time it reaches it. The currency failed to reach the
support line once.

Breakout of a spread 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. The currency failed to reach the resistance line once.

Breakout of a triple bottom A bearish point-and-figure chart formation that suggests that the currency is likely to break a support line the third time it reaches it.

Breakout of a 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.

Bullish tasuki A bullish two-day candlestick combination. It consists of a long black bar that has a high above 50 percent of the previous day's long blank body, and closes marginally below the previous day's low.

Bullish tsutsumi (the engulfing bar) A bullish two-day candlestick combination. It consists of a second bullish candlestick whose body "engulfs" the previous day's small bearish body.

Bundesbank The German central bank. In addition to its domestic obligations, the Bundesbank has had international obligations since 1979 as the front player of the European Monetary System. The Bundesbank is a very independent central bank.

Business firms (establishment) survey Survey of the payroll, workweek, hourly earnings, and total hours of employment in the non farm sector.

Business Inventories An economic indicator that consists of the items produced and held for future sale.

Butterfly spread A compound option strategy that consists of a combination of a bull spread and a bear spread, using either calls or puts.

Calendar combination A compound option strategy that consists of the simultaneous call calendar spread and put calendar spread, in which the strike price of the calls is higher than the strike price of the puts.

Calendar spread A combination option of two similar types of options, either calls or puts, with the same strike price but different expiration dates. The dissimilarity between the expiration dates allows this type of spread to capitalize on both the impact of the time decay and the interest rate differentials.

Calendar straddle A compound option strategy that consists of simultaneous buying of a longer-term straddle and a near-term straddle with a common strike price.

Call ratio backspread A compound option strategy that consists of short calls with a lower strike price and more long calls with a higher strike price. The profit is twofold. The maximum upside profit potential is unlimited. The downside profit potential consists of the total premium received. The maximum loss potential occurs when the currency price reaches the higher strike price at expiration.

Candlestick chart A type of chart that consists of four major prices: high, low, open, and close. The body (jittai) of the candlestick bar is formed by the opening and closing prices. To indicate that the opening was lower than the closing, the body of the bar is left blank. If the currency closes below its opening, the body is filled. The rest of the range is marked by two "shadows": the upper shadow (uwakage) and the lower shadow (shitakage).

Capacity utilization An economic indicator that consists of total industrial output divided by total production capability. The term refers to the maximum level of output a plant can generate under normal
business conditions.

Cardinal square A Gann technique for forecasting future significant chart points by counting from the all-time low price of the currency. It consists of a square divided by a cross into four quadrants. The all-time low price is housed in the center of the cross. All of the following higher prices are entered in clockwise order. The numbers positioned in the cardinal cross are the most significant chart points.

Channel line A parallel line that can be traced against the trendline, connecting the significant peaks in an uptrend, and the significant troughs in a downtrend.

Chaos theory A theory that holds that statistically noisy behavior may occur randomly, even in simple environments. This seemingly random behavior may be predicted with decreasing accuracy if the source is known.

CHIPS (Clearing House Interbank Payments System) A computerized system used for foreign exchange dollar settlements. Christmas tree spread A compound option strategy that consists of several short options at two or more strike prices.

Classes of options The types of options: calls and puts.

Combination spread (synthetic future) A compound option strategy that consists of a long call and a short put, or a long put and a short call, with a common expiration date.

Commodity Channel Index (CCI) An oscillator that consists of the difference between the mean price of the currency and the average of the mean price over a predetermined period of time. A buying signal is generated when the price exceeds the upper (+100) line, and a selling signal occurs when the price dips under the lower (- 100) line.

Commodity Futures Trading Commission (CFTC) An independent agency created by Congress in 1974 with a mandate to regulate commodity futures and options markets in the United States. The CFTC's responsibilities are to ensure the economic utility of futures markets, via competitiveness and efficiency; ensure the integrity of these markets; and protect the participants against manipulation, fraud, and abusive practices. The Commission, based in Washington, D.C., regulates the activities of 285 commodity brokerage firms; 48,211 salespeople; 8017 floor brokers; 1325 commodity pool operators (CPOs); 2733 commodity trading advisers (CTAs); and 1486 introducing brokers (IBs).

Commodity Research Bureau's (CRB) Futures Index Index formed from the equally weighted futures prices of 21 commodities. The preponderance of food commodities makes the CRB Index less reliable in terms of general inflation.

Common gap A price gap that occurs in relatively quiet periods or in illiquid markets. It has limited technical significance.

Condor spread A compound option strategy that consists of either four same-type options with a common expiration date—two long options with consecutive strike prices, one short option with an immediately lower strike price, and one short option with an immediately higher strike price; or four same-type options with a common expiration date—two short options with consecutive strike prices, one long option with an immediately lower strike price, and one long option with an immediately higher strike price.

Consumer Price Index (CPI) An economic indicator that gauges the average change in retail prices for a fixed market basket of goods and services.

Consumer sentiment A survey of households designed to gauge the individual propensity for spending. There are two studies conducted in this area, one survey by the University of Michigan, and the other by the National Family Opinion for the Conference Board. The confidence index measured by the Conference Board is sensitive to the job market, whereas the index generated by the University of Michigan is not.

Continuation patterns Technical signals that reinforce the current trends.

Cost of carry The interest rate parity, whereby the forward price is determined by the cost of borrowing money in order to hold the position.

Council of Ministers The legislative body of the European Economic Community in charge of making the major policy decisions. It is composed of ministers from all the 12 member nations. The presidency rotates every six months by all the 12 members, in alphabetical order. The meetings take place in Brussels or in the capital of the nation holding the presidency.

Country (sovereign) risk A trading risk emerging from a government's interference in the foreign exchange markets.

Covered interest rate arbitrage An arbitrage approach that consists of borrowing currency A, exchanging it for currency B, investing currency B for the duration of the loan, and, after taking off the forward cover on maturity, showing a profit on the entire set of deals.

Covered long A compound option strategy that consists of selling a call against a long currency position. A covered long is synonymous with a short put.

Covered short A compound option strategy that consists of shorting a put against a short currency position. A covered short is synonymous with a short call.

Cox, Ross, and Rubinstein pricing model An option pricing model that takes into consideration the early exercise provision of the American style options. As it assumes that early exercise will occur only if the advantage of holding the currency exceeds the time value of the option, their binomial method evaluated the call premium by estimating the probability of early exercise for each successive day.The theoretical premium is compared to the holding cost of the cash hedge position, until the option's time value is worth less than the
forward points of the currency hedge and the option should be exercised.

Credit risk The possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counterparty.

Cross rates Currencies traded against currencies other than the U.S. dollar. A cross rate is a non-dollar currency.

Currency call A contract between the buyer and seller that holds that the buyer has the right, but not the obligation, to buy a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency. The writer assumes the obligation of delivering the specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency, if the buyer wants to exercise the call option.

Currency fixings An open auction executed in Europe on a daily basis in which all players, regardless of size, are welcome to participate with any amount.

Currency futures A specific type of forward outright deal with standardized expiration date and size of the amount.

Currency option A contract between a buyer and a seller, also known as writer, that gives the buyer the right, but not the obligation, to trade a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency; and gives the seller the obligation to deliver or buy the currency under the predetermined terms, if and when the buyer
wants to exercise the option.

Currency put A contract between the buyer and the seller that holds that the buyer has the right, but not the obligation, to sell a specific quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency. The writer assumes the obligation to buy the specific
quantity of a currency at a predetermined price and within a predetermined period of time, regardless of the market price of the currency, if the buyer wants to exercise the call option.

Current account balance The broadest current dollar measure of U.S. trade, which incorporates services and unilateral transfers into the merchandise trade data.

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.

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.

Factory Orders An economic indicator that refers to total orders for durable and nondurable goods. The nondurable goods orders consist of food, clothing, light industrial products, and products designed for the maintenance of the durable goods.

FASB # 8 (Financial Accounting Standards Board's Statement Number 8) The original accounting rules regarding foreign exchange were standardized in 1975, which set the procedures for foreign currency translations into U.S. dollars in the consolidated balance sheets of U.S. multinational corporations.

FASB # 52 (Financial Accounting Standards Board's Statement Number 52) A complex set of rules designed in 1981, whose main objective is to move the foreign exchange P&L from current income into
shareholders' equity.

Federal funds (Fed funds) Immediately available reserve balances at the federal reserves. The Fed funds are widely used by commercial banks or large corporations to lend to each other on an overnight basis. Although their level is established by the Fed, the prices fluctuate because they are traded in the market.

Federal Open Market Committee (FOMC) A committee established in 1935, through the Banking Act, to replace the Open Market Policy Conference (OMPC.) Currently active.

Federal Reserve The central bank of the United States. It was established in 1913 when Congress passed theFederal Reserve Act. The Act held that role of the Federal Reserve was "to furnish an elastic currency, to afford the means of rediscounting commercial.paper, to establish a more effective supervision of banking in the United States, and for other purposes."

Federal Reserve Board The board consists of a Governor and four other regular members. The Secretary of the Treasury and the Comptroller of the Currency are closely consulted. The 12 regional Federal Reserve Banks around the country have sufficient autonomy to manage financial conditions in their districts. They are also managed by governors.

Fedwire An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository institutions.

Fence A compound option strategy that consists of either a long currency position—a long out-of-money put and a short out-of-themoney call, where the options have the same expiration date (risk conversion); or a short currency position—a short out-of-the-money put and a long out-of-the-money call, where the options have the same expiration date (risk reversal).

Fibonacci percentage retracements Price retracements of 0.382 and 0.618, or approximately 38 percent and 62 percent. Fibonacci ratio 0.618 and 0.312. Fibonacci sequence Takes a sequence of numbers that begins with 1 and adds 1 to it, then takes the sum of this operation (2) and adds it to the previous term in the sequence (1). Next it takes the sum of the second operation (3) and adds it to the previous term in the sequence (the sum of the first operation, i.e., 2). The Fibonacci sequence continues iterating in this manner, adding the most recent sum to the previous term, which is itself the sum of the two previous terms, etc. This yields the following series of numbers: 1 1 2 3 5 8 13 21 34 55 89 144 233 377 610 987 1597 2584 4181 (etc.).

FINEX A currency market that is part of the New York Cotton Exchange (NYCE), the oldest futures exchange in New York. The exchange lists futures on the European Currency Unit and the USDX, a basket of ten currencies: deutsche mark, Japanese yen, French franc, British pound, Canadian dollar, Italian lira, Dutch guilder, Belgian franc, Swedish krona, and Swiss franc.

Fisher effect A theory holding that die nominal interest rate consists of the real interest rate plus the expected rate of inflation.

Flag A continuation formation that resembles the outline of a flag. It consists of a brief consolidation period within a solid and steep upward trend or downward trend. The consolidation itself tends to be sloped in the opposite direction from the slope of the original trend, or simply flat. The consolidation is bordered by a support line and a resistance line, which are parallel to each other or very mildly converging, making it look like a flag (parallelogram). The previous sharp trend is known as the flagpole. When the currency
resumes its original trend by breaking out of the consolidation, the price objective is the total length of the flagpole, measured from the breakout price level.

Floor brokers Any individuals on the exchange floor engaged in executing orders for another person. They may also trade for their own accounts, with the primary responsibility of executing the customers' orders first. Brokers are licensed by the federal government.

Floor traders (locals) Exchange members who execute their own trades by being physically present in the pit, or place for futures trading.

Foreign exchange The mechanism that values foreign currencies in terms of another currency.

Foreign exchange brokers Intermediaries among banks who bring together buyers and sellers to the market, optimize the prices they show to their customers, and do not take positions for themselves.

Foreign exchange exposure The potential effect of currency fluctuations on shareholders' equity.

Foreign exchange rate The price of one currency in terms of another.

Forward outright Foreign exchange deal that matures at a day past the spot delivery date (generally two business days).

Forward spread (forward points or forward pips) Forward price used to adjust a spot price to calculate a forward price. It is based on the current spot exchange rate, the interest rate differential, and the number of days to delivery.

Fractal geometry Geometry theory that refers to the fact that certain irregular objects have a fractal number of dimensions. In other words, an object cannot fill an integer number of dimensions. French-West German Treaty of Cooperation A treaty signed in 1963 by President Charles de Gaulle and Chancellor Konrad Adenauer, which established that West Germany would lead economically through the cold war and France, the former diplomatic powerhouse, would provide the political leadership.

Fuzzy logic Method that attempts to weigh the quality of the patterns recognized by neural networks. Because not all patterns have equal financial significance for foreign currency forecasting, this method qualifies the degree of certainty of the results

Gann percentage retracements The Gann theory focuses mostly on the eighths, along with retracements in thirds.

Gap The price gap between consecutive trading ranges (i.e., the low of the current range is higher than the high of the previous range).

Genetic algorithms Method used to optimize a neural network. Trial and error are applied to an evolutionlike system, which mimics natural selection for financial forecasting purposes.

GLOBEX An electronic trading system conceived in 1987 as an afterhours trading system and geared toward global futures trading; created through a joint venture of the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBT), and Reuters PLC.

Golden cross An intersection of two consecutive moving averages that move in the same direction and suggest that the currency will move in the same direction.

Gross Domestic Product The sum of all goods and services produced in the United States.

Gross National Product The sum of government expenditure, private investment, and personal consumption.

Gross National Product Implicit Deflator Deflator tool designed to adjust the Gross National Product for inflation. It is calculated by dividing the current dollar GNP figure by the constant dollar GNP figure.

Harami bar A "wait-and-see" two-day candlestick combination. It consists of two consecutive ranges having opposite directions, but it does not matter which one is first. The second day's range results fall within the previous day's body.

Head-and-shoulders A bearish reversal pattern that consists of a series of three consecutive rallies, such that the first and third rallies (the shoulders) have about the same height and the middle one (the head) is the highest. The rallies are based on the same support line, known as the neckline. When the neckline is broken, the price target is approximately equal in amplitude to the distance between the top of the head and the neckline.

Hedging A method used to minimize or eliminate the risk of exchange rate fluctuations.

High-low band A band created by two winding parallel lines above and below a short-term moving average that borders most price fluctuations. The moving average is based on the high and low prices. The resulting two moving averages define the edges of the band. A close above the upper band suggests a buying signal and a close below the lower band gives a selling signal.

Hoshi (star) A "wait-and see" two-day candlestick combination. It consists of a tiny body that appears the following day outside the original body. It is not important whether the star reaches the previous day's shadows. The direction of the two consecutive ranges is also irrelevant.

Households survey Consists of the unemployment rate, the overall labor force, and the number of people employed.

Implied volatility Method of measuring volatility by considering the premiums currently trading in the market and calculating the figure based on the level of the option premium.

In-the-money (ITM) call A call whose present currency price is higher than the strike price.

In-the-money (ITM) put A put whose present currency price is lower than the strike price.

Industrial Production An economic indicator that consists of the total output of a nation's plants, utilities, and mines.

Initiation margin A margin paid by the trading party in order to trade currency futures. A trader's daily loss cannot exceed the size of this margin.

Interest rate risk Amount of mismatches and maturity gaps among transactions in the foreign exchange book.

International Fisher effect Theory holding that investors will hold assets denominated in depreciating currencies only to the extent that interest rates are sufficiently high to balance the expected currency
losses.

International Monetary Market The major currency futures and options on currency futures market in the world. It is a division of the Chicago Mercantile Exchange in Chicago.

Intrinsic value The amount by which an option is in-the-money. In the case of a call, the intrinsic value equals the difference between the underlying currency price and the strike price. In the case of the put, the intrinsic value equals the difference between the strike price and the present currency price, when beneficial.

Inverse head-and-shoulders A bullish reversal pattern that consists of a series of three consecutive sell-offs. Among the three consecutive sell-offs, the shoulders have approximately the same amplitude, and the head is the lowest. The formation is based on a resistance line called the neckline. After the neckline is penetrated, the target is approximately equal in amplitude to the distance between the top of the head and the neckline.

Irikubi A bearish two-day candlestick combination. It consists of a modified atekubi bar. All the characteristics are the same, except that the second day's closing high is marginally higher than the original day's low.

Island reversal An isolated range or ranges that occur at the tip of a V-formation.

ISO codes Standardized currency codes developed by the International Organization for Standardization (ISO).

J-Curve theory Devaluation of a currency will trigger export gains in the long term, rather than the short term, because of previous contracts, existing inventories, and behavior modification.

Jittai Body of the candlestick (See Candlestick charts.)

Journal of Commerce Index Index that consists of the prices of 18 industrial materials and supplies used in the initial stages of manufacturing, building, and energy production. It is more sensitive than other indexes, as it was designed to signal changes in inflation prior to the other price indexes.

Kabuse (dark cloud cover) A bearish two-day candlestick combination. It consists of a second-day long black bar that opens above the high of the previous day's blank bar and closes within the previous day's range (in an uptrend).

Karakasa (hangman at the top, hammer at the bottom) A bearish candlestick at the top of the trend, bullish at the bottom of the trend.The candlestick can be either blank or black. The body of the candlestick is very small and only half the length of the shadow.

Kenuki (tweezers) A "wait-and-see" two-day candlestick combination. It consists of consecutive bars that have matching highs or lows. In a rising market, a tweezers top occurs when the highs match. The opposite is true for a tweezers bottom.

Key reversal day The daily price range on the bar chart of the reversal day fully engulfs the previous day's range; also, the close is outside the preceding day's range.

Kirikomi A bullish two-day candlestick combination. It consists of a blank marubozu bar that opens the second day lower (than the previous low of a long black line) and closes above the 50 percent level of the previous day's range.

Knockin A plain vanilla option that does not exist until the trigger is reached. Knockout a plain vanilla option that goes away if the trigger is reached.

Koma (spinning tops) A reversal candlestick formation that consists of a short bar, either blank or black. This candlestick may also suggest lack of direction.

Larry Williams %R A version of the stochastics oscillator. It consists of the difference between the high price of a predetermined number of days and the current closing price; that difference in turn is divided by the total range. This oscillator is plotted on a reversed 0 to 100 scale. Therefore, the bullish reversal signals occur at under 80 percent and the bearish signals appear at above 20 percent. The interpretations are similar to those discussed under stochastics.

Leading Indicators Index An economic indicator designed to offer a six- to nine-month future outlook of economic performance. It consists of the following economic indicators: average workweek of production workers in manufacturing; average weekly claims for state unemployment; new orders for consumer goods and materials (adjusted for inflation); vendor performance (companies receiving slower deliveries from suppliers); contracts and orders for plant and equipment (adjusted for inflation); new building permits issued;
change in manufacturers' unfilled orders for durable goods; change in sensitive materials prices; index of stock prices; money supply, adjusted for inflation; and the index of consumer expectations.

Line chart The line connecting single prices for each of the time periods selected.

Linearly weighted moving average A moving average that assigns more weight to the more recent closings.

Long legged shadows' doji A reversal candlestick formation that consists of a bar in which the opening and closing prices are equal.

Long straddle A compound option that consists of a long call and a long put on the same currency, at the same strike price, and with the same expiration dates. The maximum loss for the buyer is the sum of the premiums. The upside break-even point is the sum of the strike price and the premium on the straddle. The downside break-even point is the difference between the strike price and the premium on the straddle. The profit is unlimited.

Long strangle A compound option that consists of a long call and a long put on the same currency, at different strike prices, but with the same expiration dates. The profit is unlimited.

Ml Money supply measure that is composed of currency in circulation (outside the Treasury, the Fed, and depository institutions), traveler's checks, demand deposits, and other checkable deposits [negotiable order of withdrawal (NOW) accounts, automatic transfer service (ATS) accounts, etc.].

M2 Money supply measure that consists of Ml plus repurchase agreements, overnight Eurodollars, money market deposit accounts,savings and time deposits (in amounts under $100,000), and
balances in general accounts.

M3 Money supply measure that is composed of M2 plus time deposits over $100,000, term Eurodollar deposits, and all balances in institutional money market mutual funds.

Margin The amount of money or collateral deposited by a customer with a broker, by a broker with a clearing member, or by a clearing member with the clearinghouse in order to insure the broker or clearinghouse against loss on outstanding futures positions.

Mark-to-market Daily cash flow system used by the U.S. futures exchanges to maintain a minimum level of margin equity for a specific currency future or option by calculating the profit and loss at the end of each trading day in each contract position resulting from the price fluctuation.

Matched sale-purchase agreements Daily operations executed by the Federal Reserve, in which the Fed sells a security for immediate delivery to a dealer or a foreign central bank, with the agreement to buy back the same security at the same price at a predetermined time in the future (generally within seven days). This arrangement amounts to a temporary drain of reserves.

Matching systems Electronic systems duplicating the traditional brokers' market. A price shown by a bank is available to all traders.

Maturity date The date when a foreign exchange contract expires.

Merchandise Trade Balance An economic indicator that consists of the net difference between the exports and imports of a certain economy. The data includes food, raw materials and industrial supplies, consumer goods, autos, capital goods, and other merchandise.

Momentum An oscillator designed to measure the rate of price change, not the actual price level. This oscillator consists of the net difference between the current closing price and the oldest closing price from a
predetermined period. The momentum is measured on an open scale around the zero line.

Moving average An average of a predetermined number of prices over a number of days, divided by the number of entries.

Moving average convergence-divergence (MACD) An oscillator that consists of two exponential moving averages (other inputs may be chosen by the trader as well) plotted against the zero line. The zero line represents the times the values of the two moving averages are identical. A buying signal is generated when this intersection isupward, whereas a selling signal occurs when the intersection takes place on the downside.

Moving averages oscillator An oscillator in which the values of two consecutive moving averages are subtracted from each other (the larger number of days from the previous one) and the new values are plotted.

Naked intervention (unsterilized intervention) A central bank intervention in the foreign exchange market that consists solely of the foreign exchange activity. This type of intervention has a monetary effect on the money supply and a long-term effect on foreign exchange.

National Association of Purchasing Managers Index (NAPM) A survey of 250 industrial purchasing managers, conducted in order to gauge the changes in new orders, production, employment, inventories, and vendor delivery speed.

National Futures Association (NFA) A self-regulatory organization that consists of futures commission merchants (FCMs), commodity pool operators (CPOs), commodity trading advisers (CTAs), introducing brokers (IBs), leverage transaction merchants (LTMs), commodity exchanges, commercial firms, and banks. It is responsible for certain aspects of the regulation of FCMs, CPOs, CTAs, IBs, and LTMs, focusing primarily on qualifications and proficiency, financial conditions, retail sales practices, and business.

Netting A process that enables institutions to settle only their net positions with one another at the end of the day, in a single transaction, not trade by trade.

Neural networks Computer systems that recognize patterns. They may be used to generate trading signals or to be part of trading systems.

Neutral spread (delta-neutral spread) A compound option strategy that consists of a long option position and a short option position whose respective total delta positions are relatively equal. Next best price stop-loss order A stop-loss order that must be executed after the requested level is reached.

Nonfarm sector Jobs in government, manufacturing, services, construction, mining, retail and others.

Nostro account (clearing account) The account for each foreign currency in the country of origin maintained by the financial institutions for purchase and receiving (P&R) purposes.

Open interest The total outstanding position in a currency.

Open Market Investment Committee (OMIC) Committee established in 1923 in order to coordinate the Reserve Bank operations. It was composed of the Governors of the Federal Reserve Banks in New York, Boston, Philadelphia, Chicago, and Cleveland. Not currently active.

Open Market Policy Conference (OMPC) Committee established in 1930 to replace the OMIC. It consisted of 12 Federal Reserve Banks governors and the members of the Board. Not currently active.

Optimal options Options that refer to the most favorable rate of the underlying currency that existed (from the holder's perspective) during the life of the option. This rate becomes the strike in the case of optimal strike options, or it becomes the underlying, determining the intrinsic value when compared to a predetermined fixed strike in the case of optimal rate options. Optimals can be based on the spot
rate (spot style) or the forward rate (forward style).

Option currency spread A long currency option and an offsetting short currency option, generally in the same currency.

Option writers Option sellers.

Oscillators Quantitative methods designed to provide signals regarding overbought and oversold conditions.

Out-of-the-money (OTM) call A call whose present currency price is lower than the strike price.

Out-of-the-money (OTM) put A put whose present currency price is higher than the strike price.

Overnight position limit A position kept overnight by traders.

Parabolic system A stop-loss technical system, based on price and time. The system was devised to supplement the inadvertent gaps of the other trend-following systems. Although not technically an oscillator, the parabolic system can be used with the oscillators. SAR stands for stop-and-reverse. The stop moves daily in the direction of the new trend. The built-in acceleration factor pushes the SAR to catch up with the currency price. If the new trend fails, the SAR signal will be generated. The name of the system is derived from its parabolic shape, which follows the price gyrations. It is represented by a dotted line. When the parabola is placed under the price, it suggests a long position. Conversely, a price above the parabola indicates a short position.

Pennants A continuation formation that resembles the outline of a pennant. It consists of a brief consolidation period within a solid and steep upward trend or downward trend. The consolidation itself tends to be sloped in the opposite direction from the slope of the original trend, or simply flat. The consolidation is bordered by a
support line and a resistance line, which converge, creating a triangle. The previous sharp trend is known as the pennant pole. When the currency resumes its original trend by breaking out of the consolidation, the price objective is the total length of the pole, measured from the breakout price level.

Personal Income An economic indicator that consists of the income received by individuals, nonprofit institutions, and private trust funds. Some of the components of this indicator are wages and salaries, rental income, dividends, interest earnings, and transfer payments (Social Security, state unemployment insurance, and veteran's benefits).

Philadelphia Stock Exchange (PHLX) The oldest U.S. securities exchange, it offers currency futures and options on currency futures.

Point-and-figure chart A type of chart that plots price activity without regard to time. When the currency moves up, the fluctuations are marked with X's. The moves on the downside are plotted with O's. The direction on the chart only changes if the currency reverses by a certain number of pips.

Premium The price of the option paid by the buyer to the seller.

Premium forward spread Forward price that is added to a spot price to calculate a forward price. It reflects the fact that the foreign interest rate is higher than the U.S. interest rate for that particular period.

Prime rate The rate that commercial banks charge customers, which is based on the discount rate.

Producer Price Index An economic indicator that gauges the average changes in prices received by domestic producers for their output at all stages of processing.

Purchasing power parity (PPP) Model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country, exchanged at the current rate (the law of one price).

Put-call-forward exchange parity (PCFP) theory A relationship between a call option and a put option established through the forward market. The theory holds that the option of buying the domestic currency with a foreign currency at a certain price X is equivalent to the option of selling the foreign currency with the domestic currency at the same price X. Therefore, the call option in the domestic currency becomes the put option in the other, and vice versa.

Put ratio backspread A compound option strategy that consists of short puts with a higher strike price and more long puts with a lower strike price. The profit is twofold. The maximum upside profit potential consists of the total premium received. The downside profit potential is unlimited. The maximum loss potential occurs when the currency price reaches the lower strike price at expiration.

Random walk theory An efficient market hypothesis, stating that prices move randomly versus their intrinsic value. Therefore, no one can forecast market activity based on the available information.

Rate of change A momentum oscillator in which the oldest closing price is divided into the most recent one.

Ratio call spread A compound option strategy that consists of a number of long calls with lower strike prices and a larger number of short calls with a higher strike price. The maximum profit is realized when the currency price is at the higher strike price. This combination has two break-even points. The downside break-even point consists of the sum of the lower strike price and the debit, divided by the number of long calls. The upside break-even point consists of the sum of the higher strike price and the maximum profit potential, divided by the number of naked calls. The maximum loss is twofold. The maximum downside risk is the net premium. The upside risk is unlimited.

Ratio put spread A compound option strategy that consists of a number of long puts with higher strike prices and a larger number of short puts with a lower strike price. The maximum profit is realized when the currency price is at the lower strike price. This combination has two break-even points. The downside break-even point consists of the difference between the lower strike price and the maximum profit potential, divided by the number of naked puts. The upside break-even point consists of the difference between the higher strike
price and the debit, divided by the number of long calls. The maximum loss is twofold. The maximum downside risk is unlimited. The upside risk is the net premium.

Ratio spread A compound option strategy in which the number of long options is different from the number of short options.

Rectangle A continuation formation that resembles the outline of a parallelogram. The price objective is the height of the rectangle.

Regulation Q Regulation passed by the Federal Reserve thatprohibited payment of interest on demand deposits and prescribedmaximum rates banks could pay on time deposits. These ceilings had been imposed since 1933 by the U.S. government. The regulation is not currently in effect.

Relative Strength Index An oscillator that measures the relativechanges between the higher and lower closing prices. The RSI is plotted on a 0 to 100 scale. The 70 and 30 values are used as warning signals, whereas values above 85 indicate an overbought condition (selling signal), and values under 15 suggest an oversold condition (buying signal).

Replacement risk A form of credit risk that holds thatcounterparties of failed banks will find their books unbalanced to the extent of their exposure to the insolvent party. In order to rebalance their books, these banks must enter new transactions.

Repurchase agreements (repos) Daily operations executed by the Federal Reserve. A repurchase agreement between the Federal Reserve and a government securities dealer consists of the Fed's purchasing a security for immediate delivery, with the agreement to sell the same security back at the same price at a predetermined date in the future (usually within 15 days). This arrangement amounts to a temporary injection of reserves in the banking system.

Resistance level The peaks representing the price level at which supply exceeds demand.

Reversal patterns Patterns that occur at the end of the trend, signaling the trend change.

Rollover (tomorrow/next or torn/next) swap A swap designed for spot trades' maintenance. It was designed to change the old spot date to the current spot date (on the front office's side) and to enable the bank to make the payments to the counterparty (on the back office's side).

Rounded bottom A bullish reversal pattern that consists of a very slow and gradual change in the direction of the market.

Rounded top (saucer) A bearish reversal pattern that consists of a very slow and gradual change in the direction of the market.

Runaway or measurement gap A price gap that occurs within solid trends. It is also called a measurement gap because it tends to occur about midway through the life of a trend.

Sangu (three gaps) A reversal candlestick signal applicable in either a steeply rising or falling market, when the daily limits will break the trading. The theory holds that after the third gap, the market will reverse at least to the second gap.

Sanpei (three parallel bars) A reversal candlestick combination. It refers to the similarity in direction and velocity of three consecutive bars, as otherwise all the entries are parallel. They generate a reversal formation after an extended rally. When bullish, the formation is known as the three soldiers. When bearish, the name is
the three crows.

Sanpo (three methods) A candlestick combination that advises that retracements are in order before the market will reach new highs and new lows.

Sansen (three rivers) method A reversal candlestick combination. It consists of three daily entries. The first day is a long blank bar (a bullish move), followed by a bullish but short-range one-day island. The third entry is a bearish long black line.

Sanzan (three mountains) A reversal candlestick combination. It consists of a triple-top formation.

Sashikomi A bearish two-day candlestick combination. It consists of amodified irikubi bar. The difference is that the opening of the secondday's blank bar is much lower than that of the irikubi bars. Despite the wider gap thus formed, the blank candlestick closes only slightly above the previous day's low.

Settlement risk A form of credit risk that may occur due to the time zones separating the nations. Payment may be made to a party who will declare insolvency (or be declared insolvent) immediately after receipt, but prior to executing its own payments.

Shitakage Lower shadow of the candlestick. (See Candlestick chart.)

Short straddle A compound option that consists of a short call and a short put on the same currency, at the same strike price, and with the same expiration dates. The maximum profit consists of the combined premium of the two individual options. The loss occurs when the level of the premium is overpassed by the currency swing, and the loss is unlimited.

Short strangle A compound option that consists of a short call and a short put on the same currency, with the same expiration dates, but with different strike prices. The maximum profit consists of the combined premium of the two individual options. The loss is unlimited.

Simple moving average or arithmetic mean An average of a predetermined number of prices over a number of days, divided by the number of entries.

Slow stochastics A version of the original stochastic oscillator. The new, slow %K line consists of the original %D line. The new, slow %D line formula is calculated from the new %K line.

Snake The nickname of the European Joint Float Agreement's 2.25 percent fluctuation band for the European currencies against each other, derived from its curvaceous movement.

Speedlines Support or resistance lines that divide the range of the trend into thirds on a vertical line. The two resulting speedlines are plotted by using as coordinates the origin and the 1/3 and 2/3 prices respectively.

Spot deal A foreign exchange deal that consists of a bilateral contract between a party delivering a certain amount of a currency against receiving a certain amount of another currency from a second counterparty, based on an agreed exchange rate, within two business days of the deal date. The exception is the Canadian dollar, in which the spot delivery is executed within one business day.

Spot next (S/N) A foreign exchange deal that matures one business day past the spot date, or three business days.

Sterilized intervention A central bank intervention in the foreign exchange market that consists of a sale of government securities that offsets the reserve injection which occurs due to the foreign exchange intervention. The money market activity sterilizes the impact of the foreign exchange intervention on the money supply.Sterilized interventions have a short- to medium-term effect.

Stochastics Oscillators that consist of two lines called %K and %D. Visualize %K as the plotted instrument and %D as its moving average. The resulting lines are plotted on a 1 to 100 scale. Just as in the case of the RSI, the 70 percent and 30 percent values are used as warning signals. The buying (bullish reversal) signals occur at under 10 percent and the selling (bearish reversal) signals come into play at above 90 percent.

Strike price See Exercise price.

Support level The troughs representing the level at which demand exceeds supply.

Swap deal A foreign exchange deal that consists of a spot deal and a forward outright deal. A party simultaneously buys and sells (or sells and buys) the same amount of a currency with another counterparty;
the two legs of the transaction mature on different dates (one of the dates being the spot date) and are traded at different exchange rates (one of the exchange rates being the spot rate). Exceptions may be made with regard to the value dates (forward-forward) and amount (different amounts).

SWIFT (Society of Worldwide Interbank Financial Telecommunications)An automated system set up to send standardized payment instructions for foreign currencies among international banks.

Swing Index (SI) A momentum oscillator that is plotted on a scale of -100 to +100. The spikes reaching the extremes suggest reversal.

Symmetrical triangle A triangle continuation formation in which the support and resistance lines are symmetrical. (See Triangle.)

Synthetic call option A combination of a long currency and a long currency put. Synthetic put option A combination of a short currency and a long currency call.

Tan Book An economic report prepared by the Federal Reserve for FOMC meetings.

Tankan Economic Survey The Japanese equivalent of the American Tan Book, which is released by the Federal Reserve. The survey is released on a quarterly basis.

Technical analysis The chart study of past behavior of commodity prices for purposes of forecasting their future performance.

Theory of elasticities A model of exchange rate determination stating that the exchange rate is simply the price of foreign exchange that maintains the BOP in equilibrium. The degree to which the exchange rate responds to a change in the trade balance depends entirely on the elasticity of demand to a change in price.

Theta (T) or time decay Occurs as the very slow or nonexistent movement of the currency triggers losses in the option's theoretical value.

Three Buddha top formation A reversal candlestick combination. It consists of a head-and-shoulders formation, or three consecutive rallies in which the first and the third are of approximately the same height, and the second is the highest.

Threshold of divergence A safety feature for the EMS that creates an emergency exit for currencies that become the singular focus of various adverse forces. The threshold of divergence indicates when the specific country with the pressured currency should take additional steps other than simple central bank intervention in the foreign exchange markets.

Time decay See Theta.

Time value (time premium or extrinsic value) The difference between the option premium and its intrinsic value.

Tohbu (gravestone doji) A reversal candlestick formation.

Tomorrow/next (T/N) deal A foreign exchange deal that matures the next business day, or one day prior to the spot date.

Tonbo (dragonfly) A reversal candlestick formation.

Traditional (Charles Dow) percentage retracements Occur at 33 percent, 50 percent, and 66 percent.

Transaction exposure Potential profit and loss generated by current foreign exchange transactions.

Translation exposure The risk of change of the consolidated corporate earnings as a result of past volatility in the base currency.

Trend The general direction of the market, as shown by the significant peaks and troughs of the currency fluctuations.

Trendline A straight line connecting the significant highs (peaks) in adowntrend, and the significant lows (troughs) in an uptrend.

Triangle A continuation formation that resembles the outline of apennant, but without the pole. It consists of a brief consolidation period within a solid and steep upward trend or downward trend. The consolidation itself tends to be sloped in the opposite direction from the slope of the original trend, or simply flat. The consolidation is bordered by converging support and resistance lines, making it look like a triangle. When the currency resumes its original trend by breaking out of the consolidation, the price objective is the height of the triangle, measured from the breakout price level.

Triple bottom A bullish reversal pattern that consists of three bottoms of approximately equal heights. A parallel—resistance—line is drawn against a support line, which connects these tops. 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.

Triple top A bearish reversal pattern that consists of three tops of approximately equal heights. A parallel—support—line is drawn against a resistance line, which connects these tops. The break of the support line generates a moveequal in size to the price difference between the average height of the topsand the support line. |

TRIX Index An oscillator that consists of a one-day ROC calculation of a triple exponentially smoothed moving average of the closing price.

Tunnel The nickname of the European Joint Float Agreement's total fluctuation band of the European currencies.

Unemployment Rate An economic indicator released as a percentage that is calculated as the ratio of the difference between the total labor force and the employed labor force, divided by the total labor force.

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

Upward breakout of a bearish resistance line Bullish point-and-figurechart formation that confirms the currency's breakout of a resistance line the third time it reaches it. The resistance line is sloped downward.

Upward breakout of a bullish resistance line Bullish point-and-figure chart formation that confirms the currency's breakout of a resistance line the third time it reaches it.

Upward breakout from a consolidation formation Bullish point-and-figure chart formation that resembles the flag formation. A valid upside breakout from the consolidation formation has a price target equal in size to the length of the previous uptrend.

USDX Currency index that consists of the weighted average of the prices of ten foreign currencies against the U.S. dollar: deutsche mark, Japanese yen, French franc, British pound, Canadian dollar, Italian lira, Dutch guilder, Belgian franc, Swedish krona, and Swiss franc.

Uwakage Upper shadow of the candlestick. (See Candlestick chart.)

Value at risk The expected loss from an adverse market movement, with a specified probability over a particular period of time.

Variation (maintenance) margin Margin paid by the trading party in order to fully cover any unrealized loss. Any trader holding an overnight position with a negative P&L must post it in cash. It must be kept on deposit at all times.

Vega The sensitivity of the theoretical value of an option to a change in volatility.

Velocity of money The rate at which money is turning over on an annual basis to facilitate income transactions.

Vertical bear call spread A compound option strategy of buying two options with a common expiration date; one option is a short call with a lower strike price and the other is a long call with a higher strike price. The seller's maximum profit is limited to the premium paid for the two options. The break-even point is calculated as the sum of the lower strike price and the total premium. The maximum loss consists of the dollar difference between the two strike prices, minus the total premium received.

Vertical bear put spread A compound option strategy of buying two options with a common expiration date; one option is a long put with a higher strike price and the other is a short put with a lower strike price. The buyer's maximum profit consists of the dollar difference between the two strike prices, minus the total premium paid. The break-even point is calculated as the difference between the higher strike price and the total premium. The maximum loss is limited to the premium paid for the two options.

Vertical bear spread An option combination whose theoretical value will decline to a predetermined maximum profit if the price of the underlying currency declines and whose maximum loss is also predetermined.

Vertical bull call spread A compound option strategy of buying two options with a common expiration date; one option is a long call with a lower strike price and the other is a short call with a higher strike price. The buyer's maximum profit consists of the dollar differencebetween the two strike prices, minus the total premium paid. The break-even point is calculated as the sum of the lower strike price and the total premium. The maximum loss is limited to the premium paid for the two options.

Vertical bull put spread A compound option strategy of buying two options with a common expiration date; one option is a long put with a lower strike price and the other is a short put with a higher strike price. The buyer's maximum profit consists of the net premium paid for the two options (one paid, the other received). The break-even point is calculated as the difference between the higher strike price and the total premium received. The maximum loss is limited to the dollar difference between the two strike prices, minus the total premium received.

Vertical bull spread An option combination whose theoretical value will rise to a predetermined maximum profit if the price of underlying currency rises, and whose maximum loss is also predetermined.

Vertical spread A compound option that consists of two similar options (i.e., calls or puts), one being bought and the other sold, on the same currency and with the same expiration date, but with different strike prices.

V-formation (spike) Reversal formation that shows sudden trend changes and is accompanied by heavy trading volume. This pattern may include a key reversal day, or an island reversal and an exhaustion gap.

Volatility The degree to which the price of currency tends to fluctuate within a certain period of time.

Volume The total amount of currency traded within a period of time, usually one day.

Vostro account A vostro account from the point of view of the counterparty.

Wedge A continuation formation that resembles the outline of a pennant, but without the pole. It consists of a brief consolidation period within a solid and steep upward trend or downward trend. The consolidation is sharply angled in the opposite direction from the slope of the original trend. The consolidation is bordered by a support line and a resistance line thatconverge, making it look like a sharply angled triangle. When the currency resumes its original trend by breaking out of the consolidation, the price objective is the height of the wedge, measured from the breakout price level.