Glossary of Foreign Exchange Terminology

Jargon guide to the various terms used in the currency conversion market...

Below are some examples of the terminology that might be used when looking at the currency markets and dealing with foreign currency brokers.

Bid The rate at which a dealer is willing to buy the base currency
Broker A broker is a middleman acting between a client and a market maker. A broker will charge a commission for their services
Convertible Currency Currency which can be freely exchanged for other currencies or gold without special authorisation from the appropriate central bank.
Exchange Rate Depreciation Currency which loses in value against one or more currencies
Exchange Rate Risk The potential loss that could be incurred from an adverse movement in exchange rates
Fixed Exchange Rate Official rate of exchange set by monetary authorities for one or more currencies. In practice, some fixed exchange rates are allowed to fluctuate between defined upper and lower bands
Floating Exchange Rate When the value of a currency is decided by supply and demand
FOREX/FX An abbreviation of Foreign Exchange
Forward Points The Interest Rate Differential between two currencies expresses in exchange rate points. The forward points are added or subtracted from the spot rate to give the forward or outright rate
Forward Rates The rate at which a foreign exchange contract is struck today for settlement at a specified future date
Forward Contract Contract struck at the forward rate as specified above.
Hedging A hedging transaction is one which protects an asset or liability against a fluctuation in the foreign exchange rate.
Initial Margin The deposit required from a client when they transact a forward order
Interbank Rates The FX rates large international banks quote other large international banks. The difference between the buy rate and the sell rate, the spread can be around 0.07%. Normally the public and other businesses do not have access to these rates.
Interest Rate Risk The potential for losses arising from changes in interest rate
Limit Order An order given which has restrictions upon execution. The client specifies a price and the order can be executed at the prevailing market price only if the market reached the specified price
Margin Cash deposit provided by clients as collateral to cover losses (if any) that may result from the client’s foreign exchange trades
Margin Call A demand for additional funds to cover positions
Maturity Date for settlement
Offer The rate at which a dealer is willing to sell the base currency
Open Position Any deal which has not been settles by a physical payment or reversed by an equal and opposite deal for the same value date
Outright Forward
Foreign Exchange transaction involving either the purchase or the sale of a currency for settlement at a future date
Outright Rate The forward rate of a foreign exchange deal based on the spot price plus or minus the forward adjustment which represents the difference in interest rates between the two currencies
Resistance A price level at which you would expect selling to take place
Rollover Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies (e.g. next day)
Settlement Actual physical exchange of one currency for another between principal and client
Spot contract Spot means the settlement date of a deal which is two business days forward
Spread The difference between bid and offer prices
Stop Loss Order An order to buy or sell when a particular price is reached either above or below the price that prevailed when the order was given
Support Levels A price level at which you would expect buying to take place
Technical Analysis
Analysis based on market action through chart study, moving averages, volume, open interest, formations and other technical indicators
Value Date Settlement date of a spot or forward deal
Volatility A measure of price fluctuations
Information supplied by Janine Harrison, Key Account Executive Moneycorp Web: www.moneycorp.com /Tel: 020 7823 7500 / e-mail Copyright © 2006 Moneycorp All Rights Reserved