Personal Foreign Exchange Glossary Terms

Listed below are common questions which are asked by comsumers looking to transfer money abroad, Just click on the question to find a jargon free answer by compare money transfer. Still not sure send us an email and we will provide an answer.

Ask Rate: Also known as the offer, this is the rate at which non-market makers can buy a particular currency.

Asset Allocation: Investment practice that divides funds among different markets to achieve diversification for risk management purposes.

Bacs

BACS: (Bankers Automated Clearing Services)

The process for Sterling clearing for domestic banks. Usually takes 3 business days.

Balance of Trade

Balance of Trade: The value of a country's exports minus its imports.

Base Currency

Base Currency: The currency which is the base for quotes. For example, the euro is the base currency for EURUSD quotes, while the US dollar is the base currency for USDJPY.

Bear Market

Bear Market: A market that is characterized by declining prices.

Bid Rate

Bid Rate: The rate at which traders can currently sell a particular currency.

Bid Offer

Bid Offer (Ask) Spread: The difference between the bid and the ask (offer) price.

Broker

Broker: An individual or a company that acts as an intermediary, handling investors' orders to buy and sell currencies. Some brokers charge commission for this service.

Bull Market

Chaps

CHAPS: (Clearing House Automated Payment System)

A faster means of making payments. Usually occurs on the same day.

Cable

Cable is the slang for the GBPUSD dollars exchange rate.

Central Bank

Central Bank: A government or quasi-governmental organization that manages a country's monetary policy. An example is the Federal Reserve, which is the US Central Bank.

Commission

Commission: A transaction fee charged by a broker.

Cross Rate

Cross Rate: An exchange rate between two currencies that does not involve the US dollar, such as EURJPY.

Currency

Currency: Any form of money issued by a government or central bank and used as legal tender.

Currency Risk

Currency Risk: The probability of an adverse change in exchange rates.

Day Trading

Day Trading: Refers to positions that have been opened and closed on the same day.

Deficit

Deficit: is a negative balance of trade or payments

Exposure

Exposure is the amount of money at risk due to Foreign Exchange movements.

Economic Indicator

Economic Indicator: A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), CPI (inflation) and retail sales.

European Central Bank

European Central Bank (ECB): The Central Bank of the European Monetary Union.

Federal Reserve

Federal Reserve (Fed): The Central Bank of the United States.

Foreign Exchange

Foreign Exchange/ Forex or FX market: A market where currencies are bought and sold against each other.

Forward Contract

Forward Contract is a contract to exchange a specific amount of one currency for another on a future date at a predetermined rate. A deposit is normally required for forward contracts.

Forward Rate

Forward Rate is the rate at which two currencies can be exchanged on a preset future date, e.g. sterling dollar exchange rate today for transfer in 3 months time.

Forward Points

Forward Points is the difference between the spot rate and the forward rate.

Fundamental analysis

Fundamental analysis is an analysis of economic and political information with the objective of determining future movements in a financial market.

Futures Contract

Futures Contract: An obligation to exchange a good or an instrument at a set price on a future date. The main difference between a future and a forward is that futures are typically traded on an exchange to a fixed settlement date. Forwards are over-the-counter (OTC) contracts and the maturity date can be defined on a bespoke basis.

GTC - Good till cancelled

GTC stands for Good Till Cancelled: A GTC foreign exchange order will be left in the market until executed or cancelled by you

Hedge

Hedge is protection against future currency movements.

Inflation

Inflation is an economic condition whereby prices for consumer goods rise, eroding purchasing power.

Limit Order

Limit order is an order to buy at or below a specific price or to sell at or above a specific price.

Liquidity

Liquidity is the ability of a market to accept large transaction with minimal or no impact on price stability.

Long position

Long position is a market position where the client has bought a currency he did not previously have. Normally expressed in base currency terms, e.g. long Dollars (short Swiss Franc)...

Margin

Margin is the required equity that an investor must deposit to collateralize a position.

Margin Call

Margin call is a request from a broker or a dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer. Alternatively the client can choose to close one or more positions.

Market Maker

Market Maker is a dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices.

OCO - One Cancels Other

OCO - "One Cancels Other" A combination of a 'Stop Loss' order and a 'Take Profit' order. When one of these two orders is executed, the other order is automatically cancelled.

Order

You can leave an "order" with us to transact on your behalf if a particular exchange rate is reached.

Offer

Offer is the price or rate that a trader is prepared to sell at.

Open position

Open position is a deal that has not been settled by physical payment or reversed by an equal and opposite deal for the same value.

Over the Counter

Over the Counter (OTC): Used to describe any transaction that is not conducted over a regulated exchange.

Pips

Pips is the term used in the currency market to characterize the smallest incremental move an exchange rate can make. The value of a pip depends on the currency pair. One pip/basis point equals for instance 0.0001 for EUR/USD, GBP/USD and USD/CHF, and 0.01 for USD/JPY.

Resistance level

Resistance level is a price level at which you would expect selling to take place.

Settlement Date

Settlement Date is the date for the exchange of payments.

Short Position

Short Position is an investment position that benefits from a decline in market price.

Spot Price

Spot Price is the current market price. Settlement of spot transactions usually occurs within two business days

Spot Rate

Spot rate is the foreign exchange rate at which two currencies can be exchanged in 2 days time.

Spot Transaction

Spot Transaction is the exchange of one currency for another at a specified rate for settlement in 2 working days.

Spread

Spread is the difference between the bid and the offer (ask) price.

Stop Loss Order

A stop loss order is a means of limiting your risk from adverse exchange rates. A currency level is set. If that currency level is reached, the trade is automatically executed in the market. The currency level used for a stop loss order is always worse than the current market price. This is a way to protect you from adverse changes in exchange rates without needing to constantly monitor the rate.

Support Level

Support Level is a price level at which you would expect buying to take place.

Take Profit Order

Take Profit Order is like a stop loss order, a take profit order first involves setting a currency level. Once that currency level is reached, the trade is executed in the market. The currency level used for a take profit order is always better than the current market price. This is a way to capitalize on improvements in exchange rates without needing to constantly monitor the rate.

Technical Analysis

Technical Analysis is an effort to forecast future market activity by analyzing market data through the use of charts, price trends, and volume.

Foreign Exchange Glossary

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