Glossary

Not sure what a term or acronym means? You should find you answer here in the glossary.

ABA Routing Code

Identifies the financial institution responsible for the payment of funds.

Account opening

This is when your account has been approved and notification of a trading account number sent in writing

Bank Identifier Code

(a.k.a. BIC) This code identifies the bank with whom the beneficiary hold their account for use when sending funds cross-border

Basis Point

One hundredth of one percent (0.01%)

Bear

A person who believes the market will decline

Bearish

A descriptive term for a person who believes the market will decline

Bear Market

A market on the decline.

Beneficiary

The payee or recipient of money.

BIC

See Bank identifier code

Bid Price

The rate quoted when you wish to buy some foreign currency against the pound

Bottom

TA Market bottom is an area where prices in a decline encountered heavy support, were unable to progress any lower and wither reversed or consolidated.

Broker

A middleman between the buyer and seller of currency

Bull

A person who believes the market will rise.

Bullish

A person who believes the market will rise is Bullish

Bull Market

A market on the rise.

Buyer

The person receiving currency in a forex exchange.

Cable

Slang term for the GBP vs USD rate.  Refers to the cable laid along the atlantic floor.

CHAPS

Clearing House Automated Payment System:  CHAPS is an automated method of transferring payment

Correction

Market analysis term.  When the market moves strongly in one direction and then pulls back, this is termed a correction.  More common in a bullish market, the correction is often sharper than the move it corrects.

Consolidation

Technical term for a sideway trend.  I.e. when the market is neither rising, nor falling.

Credit Advice

Writted confirmation of a credit to your account.

Debit Advice

Written confirmation of a debit from your account.

Discount

In foreign exchange, the term refers to a situation where a currency can be bought more cheaply for a future date than for immediate delivery.

Due Date

Date on which one currency is exchanged for another.

ECB

European Central Bank.  Manages the Euro and European interest rates / monetary policy.

Exchange Rate Risk

The potential loss a coompany faces from movement in exchange rates.

Federal Reserve

The American central bank.

FED

The Federal reserve.

Fixed forward

A foreign exchange deal that is in a binding obligation to buy or sell a certain amount of currency at a pre-determined rate of exchange, on a certain data.  This is often available for a maximum duration of 2 years.

FOMC

The Federal Open Market Commitee.  The moetary policy making arm of the federal reserve.  The committee which sets US interest rates.

Forex

Abbreviation of Foreign Exchange - The exchange of currency for another.

Forward Contract

A forward contract allows the buyer to agree to buy currency at a set rate, some time in advance.

Forward Margin

The difference between the forward and spot price of a currency.

Forward Points

Different countries will generally have different interest rates. When buying one currency against another for delivery at a future date, the bank or broker will adjust the spot (immediate delivery) price to take this variation into account. The sale of a low yielding currency (in a low interest-rate economy) and the purchase of a high yielding one will be reflected in a higher net price than the spot rate. This is described as 'points on' for the forward adjustment. Obviously the opposite position results in a 'points off' adjustment.

Forward Time Option Contract

A forward exchange contract that can be used between two dates, which can be up to three months apart with a maximum duration of 12 months. The time difference is often known as a time window.

FSA

Financial Services Authority - the organization that regulates financial business practices.

Fundamental Analysis

Analysis or forecasting of currencies/economies based on economic and political factors and events.

Hedging

A hedging transaction is one that protects an asset or liability against fluctuation in the foreign exchange rates. For commercial forex deals the most popular hedging tool is a Forward Contract. A forward contract allows a company to lock in a rate of exchange based on today's spot price (with an adjustment for the 'forward points')for a future date when they need to buy or sell a foreign currency.

IBAN

International Bank Account Number.

Indication

Quotation to provide a current market level, but not actually deal.

Inter-bank rates

The rates banks/brokers quote other banks/brokers for trades between banks (inter-bank). The true market price. The prices quoted for transactions in excess of £500,000 or equivalent.

Limit Order

An order to buy or sell one currency against another when a pre-determined price is reached. It is lodged with a Bank or Broker and floats 24 hrs a day until either cancelled or hit. It is used to try and achieve a very favorable price at the very top or bottom of a range. It is free of charge to use and provides an excellent vehicle for companies to attempt to buy or sell their currencies at the best point in a range (without having to constantly monitor the prices and keep calling a broker/bank for prices).

Maturity

This is the date that a forward contract is due for completion and remaining payment due.

MPC

The committee within the Bank of England (UK Central Bank) which is responsible for setting interest rates in the UK.

Monetary Policy

Generally associated with the setting of interest rate levels in an economy to try and stimulate or stifle borrowing and thus control consumer demand/spending. Conventional wisdom states that if interest rates move in an upward direction in one nation (under normal economic circumstances) then the currency in that nation should move up in value against foreign currencies. The rational is that the rate of return on interest bearing deposits become more attractive and the foreign demand for that currency should increase.

OCO Order

(OCO = One Cancels the Other). A combination of a linked limit order and a stop loss orders at predetermined market levels, where if one is executed the other order is automatically cancelled. It is used to encapsulate foreign exchange risk within known parameters i.e. to try to achieve a favorable rate whilst also giving protection against adverse market moves. It is lodged with a Bank or Broker and offers 24-hour protection and will float until either cancelled or hit. It is free of charge to use and provides an excellent vehicle for companies to transact their currencies at the best point in a range, whilst protecting themselves from negative movements.

Offer

The rate quoted when you wish to sell a foreign currency for the Pound.

Outright Forward Par

A forward contract that has a specific finish date (see fixed dated forward) when the forward rate is equal to the spot rate.

OTC

(a.k.a. Over-The-Counter). An option traded via, e.g. a bank as opposed to an exchange. Generally tailored to meet a customers specific requirements with no standardization of exercise date or expiry price.

Overnight Trading

Refers to a purchase or sale of currencies between the hours of 21: 00 and 08:00, which can be done through using STOP LOSS or LIMIT ORDERS.

Over The Counter

An option traded via, e.g. a bank as opposed to an exchange. Generally tailored to meet a customers specific requirements with no standardization of exercise date or expiry price.

Point

Most currencies are quoted in five digit figures, irrespective of the position of the decimal point. A PIP is the phrase used to describe the smallest part of an exchange rate. Example: on the £ v US$ rate of £/$ 1.6500 a pip is 0.0001. Accordingly if the rate moves up by 5 pips the resulting rate in the example will be 1.6505. A POINT is generally 100 pips. In the above example if the rate moves up by 100 pips (one point) the resulting rate will be 1.6600.

Pip

Most currencies are quoted in five digit figures, irrespective of the position of the decimal point. A PIP is the phrase used to describe the smallest part of an exchange rate. Example: on the £ v US$ rate of £/$ 1.6500 a pip is 0.0001. Accordingly if the rate moves up by 5 pips the resulting rate in the example will be 1.6505. A POINT is generally 100 pips. In the above example if the rate moves up by 100 pips (one point) the resulting rate will be 1.6600.

Quotation

A request for a currency exchange rate, which if agreeable, it is intended to deal on.

Resistance

Resistance is a forecasted price level where the rate of exchange should encounter selling pressure, which should stop the price/rate from rising any further. Main market participants (Investment funds, Banks etc.) look for resistance and support levels to place orders and thus they become, to a large degree, self-fulfilling prophecies. See also SUPPORT.

Settlement Date

Date on which one currency is exchanged for another - for foreign exchange deals this is the day on which the transaction will be settled, i.e. the date on which the entries are passed over your bank account. For spot deals the value date is normally 2 working days after the deal is agreed. Spot deals may involve up to 5 working day settlement, known as spot + 3 (3 days settlement after standard spot).

SPOT

Deals transacted for settlement two business days ahead. A deal done on Monday would be for spot value Wednesday, a deal done Friday would be for spot value Tuesday. It is the rate used if a client wishes to buy currency for the fastest possible delivery.

Spot Deal

Deals transacted for settlement two business days ahead. A deal done on Monday would be for spot value Wednesday, a deal done Friday would be for spot value Tuesday. It is the rate used if a client wishes to buy currency for the fastest possible delivery

Spread

The difference between the buying and selling rate. Also known as a margin.

Stop-Loss

An order to buy or sell one currency against another when a pre-determined price is reached. It is lodged with a Bank or Broker and offers 24-hour protection and will float until either cancelled or hit. It is used to protect your purchase or sale of a currency from negative movements in the market overnight or over a period of days/weeks. It is free of charge to use and provides an excellent vehicle for companies to protect themselves from negative movements while leaving the door open to a company to benefit if the market moves in their favor.

Support Level

Support is a forecasted price level where the rate of exchange should encounter buying pressure, which should stop the price/rate from falling any further. Main market participants (Investment Funds, Banks etc.) look for support and resistance levels to place their orders and thus they become, to a larger degree, self-fulfilling prophecies. See also RESISTANCE.

Technical Analysis

Technical analysis is the study of market action, primarily through the use of charts, for the purposes of forecasting future prices and trends. Technical analysis provides details of SUPPORT and RESISTANCE levels. It further identifies trends and indicates when a trend is reversing. It is widely used by the main market players (the people who move the rates with the volumes they trade) and accordingly has arguably become the most popular form of analysis in tracking and forecasting currency movements.

TOP

A market top is an area where prices in an upward trend encountered heavy resistance, was unable to progress any higher, and either reversed (i.e. went into a bear trend) or traded sideways.

Value Date

Date on which one currency is exchanged for another - for foreign exchange deals this is the day on which the transaction will be settled, i.e. the date on which the entries are passed over your bank account. For spot deals the value date is normally 2 working days after the deal is agreed. Spot deals may involve up to 5 working day settlement, known as spot + 3 (3 days settlement after standard spot).

 
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