Forex Terms P

Parabolic system. A stop-loss technical system, based on price and time. The system was devised to supplement the inadvertent gaps of the other trend-following systems. Although not technically an oscillator, the parabolic system can be used with the oscillators. SAR stands for stop-and-reverse. The stop moves daily in the direction of the new trend. The built-in acceleration factor pushes the SAR to catch up with the currency price. If the new trend fails, the SAR signal will be generated. The name of the system is derived from its parabolic shape, which follows the price gyrations. It is represented by a dotted line. When the parabola is placed under the price, it suggests a long position. Conversely, a price above the parabola indicates a short position.

Pennants. A continuation formation that resembles the outline of a pennant. It consists of a brief consolidation period within a solid and steep upward trend or downward trend. The consolidation itself tends to be sloped in the opposite direction from the slope of the original trend, or simply flat. The consolidation is bordered by a support line and a resistance line, which converge, creating a triangle. The previous sharp trend is known as the pennant pole. When the currency resumes its original trend by breaking out of the consolidation, the price objective is the total length of the pole, measured from the breakout price level.

Personal Income. An economic indicator that consists of the income received by individuals, non-profit institutions, and private trust funds. Some of the components of this indicator are wages and salaries, rental income, dividends, interest earnings, and transfer payments (Social Security, state unemployment insurance, and veteran's benefits).

Philadelphia Stock Exchange (PHLX). The oldest U.S. securities exchange, it offers currency futures and options on currency futures.

Point-and-figure chart. A type of chart that plots price activity without regard to time. When the currency moves up, the fluctuations are marked with Xs. The moves on the downside are plotted with Os. The direction on the chart only changes if the currency reverses by a certain number of pips.

Premium. The price of the option paid by the buyer to the seller.

Premium forward spread. Forward price that is added to a spot price to calculate a forward price. It reflects the fact that the foreign interest rate is higher than the U.S. interest rate for that particular period.

Prime rate. The rate that commercial banks charge customers, which is based on the discount rate.

Producer Price Index. An economic indicator that gauges the average changes in prices received by domestic producers for their output at all stages of processing.

Purchasing power parity (PPP). Model of exchange rate determination stating that the price of a good in one country should equal the price of the same good in another country, exchanged at the current rate (the law of one price).

Put-call-forward exchange parity (PCFP) theory. A relationship between a call option and a put option established through the forward market. The theory holds that the option of buying the domestic currency with a foreign currency at a certain price X is equivalent to the option of selling the foreign currency with the domestic currency at the same price X. Therefore, the call option in the domestic currency becomes the put option in the other, and vice versa.

Put ratio back-spread. A compound option strategy that consists of short puts with a higher strike price and more long puts with a lower strike price. The profit is two-fold. The maximum upside profit potential consists of the total premium received. The downside profit potential is unlimited. The maximum loss potential occurs when the currency price reaches the lower strike price at expiration.

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