Sell Short - you sell what you do not have, and hope you can replace it with cheaper purchases of the same in the future. The trap is that if it rises, you pay more to replace it, and your buying to replace what you sold short drives the price still higher. If someone bought it up as you sold it short, they can make you pay dearly to replace what you sold short.

Long - hold for the rise in price, or contract to buy, for that rise in price.

Spot - the now and two-days later price; sell if you have it, buy if you want it.

Forward - a "long" position, two persons agree on an exchange at some future time - non-negotiable, non-liquid.

Futures - a "long" position, small standardized blocks of popular currency, negotiable, liquid; available at a few locations; higher transaction cost; good for small businesses.

Options - unilateral contracts, where the seller is bound to perform, for the consideration he receives, which is a "premium", maybe 1% or 2%. The seller sells a right to a buyer, who may merely lapse the right, and forfeit his "premium", rather than exercise that right. Liquidity of options vary, with some being negotiable, and resold in a secondary market. Highly "geared" means leveraged, which options frequently are. An astute trader would want to sell your contracts for a high price when the market seems volatile, and investors are more scared than the actual market conditions call for.

Calls - is an option to buy currency at a fixed price within some limited time. Market professionals, the market makers, cannot maintain proper CALL-TO-PUT ratios to hedge the put options they have sold because the call is unpopular, in need of speculators to balance the puts.

Puts - popular, an offer/option to sell currency at a fixed price within some limited time. Businessmen with overseas sales frequently resort to these to limit currency fluctuations.

currency swap - both put and call as a set of transactions; or - sell while simultaneously buying a call to replace the sold currency at a safe price.

values - Options have a delta, ª, a mathematical measure of an option's expected sensitivity to changes in the underlying currency. Delta pricing comes from this element of value.

power options - hedging of options whose payoff is a polynomial function of the underlying asset's price at expiration.

purpose - Options are believed to complete an otherwise incomplete market. Futures are easier and more efficient to trade than underlying equities. Options allow downside risk control while an investor may share in underlying asset appreciation. Selling options can add cash flow to a portfolio, while changing risk. Options generally operate on leveraged funds. Tax considerations from cash flows may be beneficial. However, David Bowman and Jon Faust of the Federal Reserve Board have written that options are actually causing some of the events (market movements) which they seem to rrepresent insurance against.

Derivatives - privately negotiated contracts whose value is tied to the market performance of bonds, commodities, currency, stocks and other assets. This market thrives on volatility, insecurity, an absence of knowledge.

interest rate swap - fixed rates can be exchanged for floating rates; or "floors and ceilings" can be placed on rates, (for a premium). Government rates vary across the EURO countries. Efforts to standardize the interest rates in this market require a dependable benchmark "rate". The rate used by LIFFE as a standard is the "swap curve", to determine the EURO country bond rates, in a facet of the business dominated by banks. Banks shun the LIFFE plan in favor of over-the-counter swaps with private variable rates. EURO territory remains standardless.

credit swap - a dealer will separate risk of default from risk that interest rates will climb or drop. This separates a firm's credit rating, (which represents the risk) from interest rates, which depend on entirely different factors. Illiquid loans seem more liquid when portions of loans can be bought, exchanged and sold in a ready market. For example, an American and Italian bank may swap blocks of loans to diversify, with default risk separated from interest. Multiple loans are lower risk than a single loan, and geographic diversity avoids regional downturns so these loan block swaps spread risk. Reducing known and controllable risk reduces cost and increases values. Overexposure to one borrower can also be reduced "for a fee" (the premium) by use of these swaps.

default swap - the price of a default swap is the nominal value of the underlying bond or loan minus the price in the event of default or rescheduling. In the event of default, the seller of the swap will scramble to buy the underlying assets. This bids the price up past that predicted "price in the event of default or rescheduling" level, which makes the value of the insurance lower than it probably cost.

inverse floater - your investment increases in value - cash flow increases when interest rates go down, rather than up.

over-the-counter means outside of the exchange, negotiated between two persons. These are tailored for an individual customer, frequently off the balance sheet, and difficult to monitor for the actual "value at risk" or VAR.

reverse swap - the undoing of options and "swaps" is so complex that reversal frequently is a contract with opposite terms, parties and conditions, which inflates the figures of options and underlying assets.

the latest : mutual fund options, real estate and weather derivatives; barrier options and basis swaps have complex cash flows and therefore obscure behaviors and values.