Futures and Forex Glossary Dictionary L1

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Law of One Price

The theory that the price of an asset, commodity or security will be the same between countries when corrected for exchange rates. The law of one price is another way of describing the mechanism of purchasing power parity. See Also: Purchasing Power Parity

Lawful Money

Currency issued by the Treasury of a country as opposed to a Central Bank. In the US, lawful money is any currency issued by the United States Treasury as opposed to the Federal Reserve. Lawful money can be backed or consist of gold or silver and has actual value as opposed to 'Fiat Money', which has no intrinsic value. The 'Gold Standard' and 'Bretton Woods' system would both be considered lawful money. Almost all countries in the world use a Fiat money system.

Leading Indicators

Main Economic indicators used to predict the future price level of a currency, such as bond spreads or the S&P 500 Index. Leading indicators are called so because they give a signal to buy or sell before the price adjusts.

Leads and Lags

An increase or decrease in the transaction speed of forex exchange payments. Payment speed increases when exchange rates increase and decreases when exchange rates decrease. Firms and companies may speed up their payments if they think the exchange rate will increase to save money on their position or they may hold of looking for a better rate if exchange rates decrease.

Left Hand Side

Being the seller in a two way currency trade, that is, selling the quote currency. Also refers to the Bid quote, which is the price that holders of the currency are willing to sell at. See Also: Quote

Leverage

The maximum amount of margin that can be used for taking a position. Thus with a deposit of $5,000 and a leverage of 100, a trader can take a position of $500,000. See Also: Margin

Liability

The obligation to deliver the asset in a transaction. In forex spot trading this means the obligation to deliver a currency. In speculative trades, such as those taking place at the majority of online brokers, there is no actual delivery of forex. Instead the difference is calculated and taken from a margin account.

Limit

A limit refers to a specific price at which an action is taken i.e. take profit or stop loss.

Limit Order

An order set to either buy or sell at a specified price (the Limit).

Limit Price

The specified price in a limit order. See Also: Limit Order

Line Chart

A simple charting method where each individual price level is connected by drawing lines between each time period.

Linked Exchange Rate System

A currency rate system where a nation decides to link its currency to follow another currency or stay within a predetermined margin. The currency is then left alone by government and central bank unless more or less currency is needed to maintain stability.

Liquid

A term used to describe market conditions when there is a lot of buying and selling i.e. a 'liquid market'. The liquidity of a market refers to the volume of the current market. The forex market is the most liquid market of all. See Also: Liquidity