Glossary of Foreign Exchange Terminology

Jargon guide to the various terms used in currency conversion market; the meaning of terms such as: Stop loss order, Rollover, Floating exchange rate. If you don't understand your bank or broker, perhaps the answer is here.

Below are some examples of the terminology you might come across 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, for example, the 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

Further Information

AngloINFO INFOrmation Page Foreign Exchange Options
AngloINFO INFOrmation Page Foreign Exchange Converter

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

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