Series 34 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Pip

The smallest standard price increment for most currency pairs: 0.0001, or 0.01 for yen-quoted pairs; a one-pip move measures the change in the quote currency.

Standard lot

A position size of 100,000 units of the base currency; a mini lot is 10,000 units and a micro lot is 1,000 units.

Base and quote currency

In EUR/USD the base is EUR, the currency being bought or sold; the quote is USD, showing how much of it one base unit costs.

Bid-ask spread

The difference between the bid, at which the dealer buys the base currency from the customer, and the ask, at which the dealer sells it.

Rollover or swap

A daily credit or debit applied to open positions reflecting the interest-rate differential between the two currencies; it can add to or erode returns.

Spot forex settlement

A spot currency transaction conventionally settles two business days after the trade date (T+2); retail positions are usually rolled rather than physically delivered.

Leverage in retail forex

The ratio of notional position value to the security deposit posted; a 2% deposit equals 50:1 leverage on major currency pairs.

Cross currency pair

A pair that excludes the U.S. dollar, such as EUR/JPY; its rate is derived from the two corresponding dollar-based exchange rates.

Regulated entity requirement

Under the Commodity Exchange Act, retail off-exchange forex may be offered only by a regulated entity, such as a CFTC-registered RFED or FINRA-member forex dealer, or to eligible contract participants.

Retail Foreign Exchange Dealer

An RFED is a firm registered with the CFTC and a member of the NFA that acts as counterparty to retail off-exchange forex transactions.

Forex Dealer Member

An FDM is a FINRA member broker-dealer approved to conduct retail forex business; associated persons who solicit or effect trades must pass the Series 34 exam.

CFTC risk disclosure statement

A written disclosure of forex risks delivered to a prospective customer before the account is opened; the customer signs and returns an acknowledgment that the firm retains.

Record retention period

CFTC recordkeeping rules require forex records to be kept for five years, with the most recent two years readily accessible.

NFA Rule 2-43 FIFO

NFA Compliance Rule 2-43 requires customer orders to be offset on a first-in, first-out basis and bars holding simultaneous long and short positions in one account.

RFED minimum net capital

CFTC rules require a retail foreign exchange dealer to maintain adjusted net capital of at least $20 million and to file monthly financial reports.

Segregation of customer funds

Customer security deposits must be held in accounts designated as customer funds, separate from the firm's own money, and are not covered by SIPC.

Security deposit minimums

Retail forex customers must post 2% of notional value for major currency pairs and 5% for non-major pairs, capping leverage at 50:1 and 20:1.

Margin call and liquidation

If a customer's equity falls below the required security deposit, the dealer must obtain additional funds promptly or close positions to restore the minimum.

Trade confirmation contents

A confirmation shows the trade date and time, currency pair, amount, execution price, and any commission or markup charged to the customer.

Discretionary account authorization

Trading on a customer's behalf requires a written power of attorney and approval by a designated principal; discretion may not be assumed or exercised orally.

Customer account statement

Customers with open forex positions must receive statements showing positions, prices, and account equity, typically monthly, plus confirmations after each trade.

Customer identification program

BSA/AML rules require the firm to verify each customer's identity, maintain records, and screen against government sanctions lists before opening an account.

Approval of retail communications

Retail communications must be fair and balanced, approved by a registered principal before use, and retained for three years under FINRA recordkeeping rules.

Net capital notification

A forex dealer member must notify FINRA if its net capital falls below the required minimum and must file annual audited financial statements.

Suitability obligation

Before recommending a forex account or strategy, the firm must have a reasonable basis and reasonable grounds to believe it fits the customer's objectives and finances.

Know your customer rule

FINRA Rule 2090 requires reasonable diligence to learn each customer's essential facts, including identity, financial condition, and investment experience.

Hypothetical performance

Projected or hypothetical trading results may not be presented as if actual; any hypothetical performance must be clearly labeled and accompanied by required disclaimers.

Guarantee against loss

Promising a customer that a forex account will not lose money, or guaranteeing a profit, is prohibited conduct under FINRA and NFA sales-practice rules.

Churning

Excessive trading in a customer account to generate commissions or markups, without regard to the customer's investment objectives, is prohibited.

Front running

Trading for the firm's or a representative's own account ahead of a customer order to profit from the expected price impact is prohibited.

Telemarketing calling hours

Cold calls to prospective customers may be made only between 8 a.m. and 9 p.m. local time, and firms must honor the do-not-call registry.

Written supervisory procedures

FINRA Rule 3110 requires a firm to establish, maintain, and enforce written procedures reasonably designed to achieve compliance with applicable rules.