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Foreign Exchange Glossary - Jargon Buster
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Although a knowledge of these words and phrases may be useful and of interest for some clients, it is certainly not essential to be able to transfer money overseas. Foreign exchange brokers are experienced in explaining what’s involved in a way that is easy to understand. As with any financial service, if you ever feel that the person you are talking to is confusing you with unnecessary terminology you should try another broker or bank!
A B C D E F G H I J K L M N O P Q R S T U V W XYZ
Ask The price that a currency is offered for sale.
BACS The BACS network is the electronic funds transfer system in the U.K. Transfers normally take three days and are free.
Base Currency The currency that you are trying to exchange for another. If you are trying to exchange pounds for euros, then your base currency is pounds.
Basis Point One per cent of one per cent. If a currency increased in value by 0.20%, then you could say that it increased in value by 20 basis points.
BEAR A person who anticipates market prices will decline. This person would be considered Bearish.
BEAR MARKET A Bear Market is a market that is declining (e.g. if the £ vs $ rate is falling). If the decline was expected to continue, the market would be Bearish.
BID The rate at which a dealer is willing to buy the base currency.
BULL A person who anticipates market prices will rise. This person would be considered Bullish.
BULL MARKET A market characterised by rising prices. If the decline was expected to continue, the market would be Bearish.
BUREAU DE CHANGE Foreign exchange, cambio, weischel and bureaux de change are all names for the same thing: a place where you can change one currency into another. For example, you may want to convert sterling into euros, euros into dollars or dollars into yen. Bureaux de change are usually found in airports, train stations and other places popular with tourists. Some banks and post office branches also have them.
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CABLE Market terminology for Sterling/US Dollar exchange rate.
CALL RATE The interbank interest rate for funds not deposited for a fixed period.
CASH MARKET The market for the purchase and sale of physical currencies.
CHAPS
"Clearing House Automated Payment System" - a faster means of making payments than BACS. Usually occurs on the same day. The banks will normally charge for this service.
CONFIRMATION After a foreign currency transaction the Confirmation is verification of a trade that lists important details such as the exchange rate, value and contract date.
CONVERTIBLE CURRENCY Currency which can be freely exchanged for other currencies or gold without special authorisation from the appropriate central bank.
COUNTERPARTIES Parties on either side of a transaction.
CROSS RATE Exchange rate that does not involve the US Dollar. E.g The Euro/Yen is called a cross.
CURRENCY The type of money that a country uses. It can be traded for other currencies on the foreign exchange market, so each currency has a value relative to another.
CURRENCY RESTRICTIONS These are imposed when a government has to curb the amount of real money either leaving or being brought into the country. Restrictions are sometimes imposed when inflation is running rampant.
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DAY TRADING Refers to opening and closing of the same position or positions within the same trading day.
DOLLAR RATE The Dollar Rate is when a variable amount of foreign currency is quoted against one unit of the US Dollar. The exception is Sterling/US Dollar (Cable) which is quoted as units to the US Dollar to one Pound Sterling.
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ECB European Central Bank. Manage the Euro currency and European interest rates/monetary policy.
EFTs Electronic Fund Transfers are transfers between banks. The recommended means of sending or receiving payments.
EMS European Monetary System
EMU European Monetary Union
ERM Exchange Rate Mechanism
EURIBOR A rate used for Euro interest rate fixings based upon trading activity in the markets of the Euro zone.
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.
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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.
FLAT / SQUARE Where a client has not traded in that currency or where an earlier deal is reversed thereby creating a flat (neutral) position. E.g You bought £100,000, then sold £100,0000 = Flat.
FLOATING EXCHANGE RATE When the value of a currency is decided by supply and demand.
FOREX Not an Australian Lager. Abbreviation for Foreign Exchange and the colloquial name given to all foreign exchange activities. For example, colleagues may call a bank's foreign exchange dealer its Forex dealer.
FX Also an abbreviation for Foreign Exchange.
FORWARD POINTS The Interest Rate Differential between two currencies expressed in exchange rate points. The forward points are added or subtracted from the spot rate to give the forward or outright rate.
FORWARD CONTRACT Contract struck at the forward rate as specified below.
FORWARD VALUE/RATE The rate at which a dealer is willing to sell the base currency.
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GTC (Good Till Cancelled) An order left with a dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client.
HEDGING A hedging transaction is one which protects an asset or liability against a fluctuation in the foreign exchange rate.
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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 rates.
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LIBOR (London Inter Bank Offer Rate)British Bankers' Association average of interbank offered rates for dollar deposits in the London market based on quotations at 16 major banks. The interest rate used when one bank borrows from another. Also used as a benchmark to price derivative or capital market transactions.
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 reaches the specified price.
LONG POSITION A position where the client has bought a currency not previously held. Normally expressed in base currency terms. E.g. long dollars (short yen).
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MONETARY POLICY COMMITTEE The committee within the Bank of England (UK Central Bank) which is responsible for setting interest rates in the UK.
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OCO (One Cancels Other Order) Where the execution of one order automatically cancels a previous order.
OFFER The rate at which a dealer is willing to sell the base currency.
OLD LADY Old lady of Threadneedle Street, a term for the Bank of England.
OPEN POSITION Any deal which has not been settled by a physical payment or reversed by an equal and opposite deal for the same value date.
OVERNIGHT TRADING Refers to a purchase or sale between the hours of 9pm and 8am.
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PLAZA AGREEMENT Agreement made between the US, France, Germany, Japan and the UK in 1985 to work together in influencing exchange rates.
POLITICAL RISK The potential for loss arising from a change in government policy.
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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.
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SETTLEMENT Actual physical exchange of one currency for another between principal and client.
SETTLEMENT DATE The agreed date on which the client should ensure cleared funds have been paid to the broker and the day the broker will arrange to pay foreign currency to the client's designated account.
SHORT A market position where the principal has sold a currency not already owned. Usually expressed in base currency terms. E.g. short dollars (long yen).
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 (STOP) 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.
SWISSY Market slang for Swiss Franc.
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TECHNICAL ANALYSIS Analysis based on market action through chart study, moving averages, volume, open interest, formations and other technical indicators.
TOMORROW to NEXT Simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.
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US PRIME RATES The rate at which US Banks will lend to their prime corporate customers.
VALUE DATE Settlement date of a spot or forward deal.
VARIATION MARGIN Additional funds to be deposited by a client when an adverse price movement has caused funds to fall below the brokers margin requirement, thus the designated position is not covered with the existing margin value.
VOLATILITY A measure of price fluctuations.
WIRE TRANSFER A Wire Transfer is an electronic transfer of funds.
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NEXT STEP
Open a Trading Facility
This is straightforward and should take no more than a few minutes of your time.There are no obligations whatsoever in opening a Trading Facility with Moneycorp.
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