Forex Investment Glossary

Account Equity: The monetary value of an account if all open positions were offset at current market prices.

Calmar Ratio: Average annualized rate of return for the last 36 months divided by the maximum drawdown for the last 36 months.

Commodity Futures Trading Commission (CFTC): The U.S. federal regulatory agency of the futures industry, established in 1974.

Commodity Trading Advisor (CTA): An individual or organization that is paid to directly or indirectly advise others on the buying and selling of futures, options on futures, or forex.

Disclosure Document: The document that CTAs must supply when soliciting customers. It typically contains: disclosure statements; actual performance records; the CTA's business background and trading methodology; and advisory agreement papers.

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.

Futures Commission Merchant (FCM): A brokerage firm registered with the CFTC and NFA to (1) solicit or accept orders to buy or sell futures or options on futures contracts, and (2) accept money or other assets from customers to support such orders. OANDA is Invariant's FCM.

Performance Fee: A performance-based fee paid as a percentage of an account's net new trading profits.

Interbank: The over-the-counter market for currency trading among international banks and dealers.

Managed Account: An arrangement where the owner of an account gives written power of attorney to a CTA to buy and sell without prior approval of the account owner.

Management Fee: A fee set as a percentage of assets under management.

Model Account: An account established for the explicit purpose of developing a track record of actual trades based on the strategy, commissions and fees a trader intends to use in managing accounts.

National Futures Association (NFA): The futures industry's self-regulatory organization that handles registration of futures commission merchants, introducing brokers, CTAs, CPOs, and associated persons of these entities.

Pip: The smallest unit of measurement for currency (equivalent to a "tick" in the stock market).

Peak-To-Trough: The drawdown measurement made from an account's equity high to the lowest equity point prior to recovery.

Rate Of Return: A performance measurement that tracks a trader's annual profits as a percent of assets under management.

Sharpe Ratio: A measure of risk-adjusted rate of return. It generally is calculated as [(average rate of return) minus (risk-free rate of return)] divided by (standard deviation of monthly returns). A relatively high Sharpe Ratio (above 2.0 is considered very good) usually is indicative of good performance.

Sortino Ratio: Measures the risk-adjusted return of an investment asset, portfolio or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target, or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally.

Standard Deviation: A statistical measure of a portfolio's performance risk, based on the volatility of returns.

Track Record: The entire performance history of a CTA.

Trend-Following: A trading strategy designed to capture profits generated in short-, intermediate- or long-term price trends.