Glossary
Fence
A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a 'collar' involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation.
Fill-or-kill order (FOK)
A type of option order which requires that the order be executed completely or not at all. A fill-or-kill order is similar to an all-or-none (AON) order. The difference is that if the order cannot be completely executed (i.e., filled in its entirety) as soon as it is announced in the trading crowd, it is to be 'killed' (i.e., cancelled) immediately. Unlike an AON order, a FOK order cannot be used as part of a GTC order.
First In First Out (FIFO)
Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.
Flat/square
Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.
Floor broker
A trader on an exchange floor who executes trading orders for other people.
Floor trader
An exchange member on the trading floor who buys and sells for his or her own account.
Forex
The market in which currencies are traded. The forex market is the largest, most liquid market in the world with an average traded value that exceeds $3.0 trillion per day and includes all the currencies of the world.
Foreign Exchange Option
A security that allows currency traders to realize gains without having to purchase the underlying currency pair. By incorporating leverage, forex options magnify returns and provide a set downside risk. Alternatively, currency trading options can be held alongside the underlying forex pair to lock in profits or minimize risk. In this case, limiting the upside potential is usually necessary for capping the downside as well.
Because options contracts implement leverage, traders are able to profit from much smaller moves when using an options contract than a traditional retail forex trade would allow. When combining traditional positions with a forex option, hedging strategies such as straddles, strangles and spreads can be used to minimize the risk of loss in a currency trade.
Because of the risk of loss involved in writing options, most retail forex brokers do not allow traders to sell options contracts without high levels of capital for protection.
Forward
The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.
Forward Points
The pips added to or subtracted from the current exchange rate to calculate a forward price.
French Central Government Balance
The difference between the central government's monthly income and spending.
Fundamental analysis
A method of predicting stock prices based on the study of earnings, sales, dividends, and so on.
Fungibility
Interchangeability resulting from standardization. Options listed on national exchanges are fungible, while over-the-counter options generally are not. Classes of options listed and traded on more than one national exchange are referred to as multiple-listed / multiple-traded options.
Futures Contract
An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.
FX
An abbreviation for the Foreign Exchange Market. See Forex.