FX Terminology - Foreign Exchange Glossary

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Foreign Exchange Glossary terms used by money transfer brokers

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Appreciation

Appreciation: A currency appreciates when it strengthens in price.

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Ask Rate

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

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Asset Allocation

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

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Bacs

BACS: (Bankers Automated Clearing Services)

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

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Balance of Trade

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

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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.

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Bear Market

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

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Bid Rate

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

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Bid Offer

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

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Broker

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

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Foreign Exchange Glossary

Bull Market

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Chaps

CHAPS: (Clearing House Automated Payment System)

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

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Cable

Cable is the slang for the GBPUSD dollars exchange rate.

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Central Bank

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

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Commission

Commission: A transaction fee charged by a broker.

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Cross Rate

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

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Currency

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

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Currency Risk

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

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Day Trading

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

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Deficit

Deficit: is a negative balance of trade or payments

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Exposure

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

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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.

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European Central Bank

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

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Federal Reserve

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

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Foreign Exchange

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

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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 forwarding contracts.

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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.

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Forward Points

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

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Fundamental analysis

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

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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.

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GTC - Good till cancelled

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

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Hedge

The hedge is protection against future currency movements.

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Inflation

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

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Limit Order

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

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Liquidity

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

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Long position

A 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)...

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Margin

The margin is the required equity that an investor must deposit to collateralise a position.

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Margin Call

A 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.

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Market Maker

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

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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.

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Order

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

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Offer

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

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Open position

The 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.

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Over the Counter

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

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Pips

Pips are the term used in the currency market to characterise 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.

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Resistance level

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

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Settlement Date

Settlement Date is the date for the exchange of payments.

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Short Position

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

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Spot Price

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

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Spot Rate

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

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Spot Transaction

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

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Spread

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

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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 current 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.

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Support Level

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

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Take Profit Order

Take Profit Order is a stop loss order, a take profit order first involves setting a currency level. Once that current 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 capitalise on improvements in exchange rates without needing to constantly monitor the rate.

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Technical Analysis

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

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Company Details

Foreign Exchange Glossary

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