the interbank market.
In practice too, most large currency traders in the European sphere tend to use the interbank market for speculative trading as well as for commercial hedging . one reason for this is historical and cultural. The banks have done an excellent job of persuading clients that transaction costs in the futures markets are much higher than in the interbank market. The currency section of the London futures exchange, LIFFE, was virtually stillborn, as a result.
Banks do not charge commissions on forex transactions, but make their money out of the spread between bid and offer prices. Clients often find that the spread is pleasantly narrow when they open a position, but decidedly adverse when it comes to closing, in the case offorward positions. few know just how adverse, unless they have access to simultaneous quotes from other banks.
Interest yield 39 . Used to denote yields on deposits and across the maturity spectrum in fixed interest and money instruments.
Intervention 47 . In most countries, the exchange rate is regarded as part of the panoply of tools by which the economy can be influenced. In those with an independent central bank, the value of the currency is usually regarded as the concern of the central bank. In America and Britain, it is the responsibility of the Treasury – and the Bank of England and the Fed are just instruments of Treasury policy.
Jawboning aside, only two ways are known of directly moving the value of the currency – interest rate manipulation and market intervention to support the currency by buying or depress it by selling. The central banks – Bundesbank in particular – have got more sophisticated in intervention. Even the underlying trend in a currency can be turned when the central bank is prepared to meet speculative sales-purchases until they are exhausted. This has been likened to an angler tightening the reel to exhaust the fish.
Key reversal 63 . At that precise moment when a trend is reaching its end, you often get trend followers pushing the going price trend to an extreme against value players who subsequently gain the upper hand. This results in a new high (say), combined with a lower range for the day than the previous day’s –i.e. the price range for the day is ‘outside’ the previous day’s. The same thing applies the other way round, with a new contract low.
You can see it best on a chart. This is a relatively rare phenomenon, which happens more often in a reversal than in a continuation of the trend.Key day 64 reversal. when the above happens in a single day.Key week 64 reversal. when the above happens in the course of a week, compared with the previous week, as seen in retrospect.
Kroll , stanley. engaging writer on futures, and successful trader. author of kroll on futures Trading Strategy; Business One-Irwin, 1987, ISBN 1 55625 033 8 – and other books on trading.
Kovnor, bruce 54,83,88-9. as of 1990, one of the most successful living traders, particularly active in the currencies. Heads the futures fund management group Caxton Corporation.
Koy, kevin 68 . Popularist ofPeter Steidlmayer’s original ideas. author of The Big Hitters.
Lao-Tzu 11 . Chinese thinker of 5th century BC; credited with being the an originator of Taoism and author of the seminal text Tao Te Ching. Died 479 BC.
Lateral thinking 1 1 3 . Phrase popularised by Edward de Bono , to denote the opposite of logical, step-by-step, “vertical” reasoning. Like right-brain thinking, often the best kind for financial markets.
Lefиvre, edwin 6 8 . Admirable author of classic “autobiography” of Jesse Livermore, Reminiscences of a Stock Operator (see book list)
Livermore, jesse 8,76,88,107,115 . “The Boy Plunger”, who started trading stocks in bucket shops and moved on to make and lose several big fortunes in stock and commodity markets in the 1920s and 30s, finally shooting himself.
Long . having bough and holding a security or future: opposite of short.
Margin 93 . The deposit put up by a futures trader – initially on opening a position (initial margin) and further (variation or continuation margin in the event of a loss on the position exceeding the initial margin.Margin call 94. a call for more (variation) margin. If it ever happens to you, close at least two thirds of your position and trade at the lower level in future.
Market Action 56 .The way the price of a currency or other instrument behaves in relation to to news and other background data. A price is said to be “acting well” when it rises in bearish circumsances and “acting badly” when it falls against a bullish background.
Market Vane 54 . A sentiment-polling service, surveying the opinion of a large selection of commodity pros. The interpretation is contrarian: a highly bullish reading is seen as unfavourable; a low bullish reading s favourable.
Market Wizards : interviews with Top Traders 68,82-90 . By Jack Schwager (see book list).
Mindsets 15 . The pre-judgements and assumptions we carry with us which are not derived from an objective assessment of the available data but from education, convention, herd opinion.
Mint investment Corporation 71 . A highly successful futures management firm, which uses a computerised trend-following trading system, and managed assets of around $1bn in 1990.
MIT “market if touched” – an order to deal at a specific target price, if touched even if not exceeded.
Neckline 6 2 . The low point either side of the head of a head and shoulders pattern.
