ABA Routing Code
Identifies the financial institution responsible for the payment of funds.
The process whereby an account is approved for currency trading and formal notification is advised in writing.
Bank Identifier Code (BIC)
The BIC code is a SWIFT code identifies the bank with whom the beneficiary holds their account for use when sending funds cross-border.
Basis point (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point.
A person who believes the market will decline.
A market in which prices are trending lower.
The payee or recipient of money.
The rate quoted when you wish to buy one currency against another.
An intermediary between a buyer and seller of currency.
A market in which prices are trending higher.
The person receiving currency in a foreign exchange transaction having sold another currency to receive it.
A nick-name for the GBP vs USD currency pair. It refers to the submarine cable laid beneath the Atlantic Ocean and through which exchange rates were transmitted in the mid 19th century.
The Clearing House Automated Payment System (CHAPS) is a British payment system , which offers same-day sterling fund transfers.
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.
A technical term for a sideways market trend i.e. when prices are oscillating within a corridor.
Written confirmation of a credit to your account.
Written confirmation of a debit from your account.
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 to interest rate differentials.
The date on which one currency is exchanged for another.
The European Central Bank (ECB)
The European Central Bank manages the Euro and European interest rates / monetary policy.
Exchange Rate Risk
The potential loss from the adverse movement in exchange rates where a financial transaction is denominated in a currency other than that of a base currency of the customer.
The Federal Reserve System often to referred to as the Federal Reserve or FED is the central bank of the United States.
Forward Exchange Contract
A forward exchange contract is a special type of foreign currency transaction. Forward contracts are agreements between two parties to exchange two designated currencies at a specific time in the future. These contracts always take place on a date after the date that the spot contract settles and are used to protect the buyer from fluctuations in currency prices.
The Federal Open Market Committee. The monetary policy making arm of the Federal Reserve, the committee which sets US interest rates.
Abbreviation of Foreign Exchange - The exchange of one currency for another.
A forward contract is a customized contract between two parties to buy or sell an asset or currency at a specified price on a future date. A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging. Unlike standard futures contracts, a forward contract can be customized to any commodity, currency and delivery date. A forward contract settlement can occur on a cash or delivery basis. Forward contracts do not trade on a centralized exchange and are therefore regarded as over-the-counter (OTC) instruments. While their OTC nature makes it easier to customize terms, the lack of a centralized clearing house also gives rise to a higher degree of default risk. As a result, forward contracts are not as easily available to the retail investor as futures contracts.
means funds that are held as a security deposit against a forward transaction & is made up of Initial and Variation margin:
• Initial Margin means a fixed percentage deposit required for the life of the Forward Trade and paid when the trade is instigated.
• Variation Margin means the additional margin required from the Client to cover adverse exchange rate movements relating to existing Forward Trades.
Forward points are the number of basis points added to or subtracted from the current spot rate of a currency pair to determine the forward rate for delivery on a specific value date. When points are added to the spot rate this is called a forward premium; when points are subtracted from the spot rate it is known as a forward discount. The forward rate is based on the difference between the interest rates of the two currencies and the time until the maturity of the deal.
The Financial Conduct Authority is a financial regulatory body in the United Kingdom regulating financial firms providing services to consumers and maintains the integrity of the financial markets.
A hedging transaction is a position that a market participant takes in order to limit risks related to another position or transaction that the market participant is involved in. The hedging transaction usually involves derivatives, such as options or futures contracts, but it can be done with inversely correlated assets as well. Hedging transactions are generally used to limit the losses that a position faces if the initial investing thesis is incorrect, but they can also be used to lock in a specific amount of profit. Hedging transaction are a common tool for businesses as well as portfolio managers looking to lower their overall portfolio risk.
International Bank Account Number is an internationally agreed system of identifying bank accounts across national borders.
Quotation to provide a reference rate at given point in time but may not be the rate at which the transaction is dealt.
Interbank FX Rate
The interbank FX rate refers to the price at which banks conduct wholesale foreign exchange transactions in both the spot and forward market; spreads are much tighter than for smaller retail transactions.
FX Limit Order
An FX limit order is an order placed to execute a buy or sell currency at a specified limit price or better. Because a limit order is not a market order, it may not be executed if the price set by the client cannot be met during the period of time in which the order is left open.
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot and forward transactions, interest rate and commodity swaps, options, loans and fixed income instruments such as bonds.
The Monetary Policy Committee (MPC)
The Monetary Policy Committee within the Bank of England which is responsible for setting interest rates in the UK.
Monetary policy consists of the process of drafting, announcing and implementing the plan of actions taken by the central bank, currency board or other competent regulatory authority of a country that determines the scope and impact of the key drivers of the economic activity in that country. Activities which are integral to monetary policy consists of management of money supply and interest rates which are aimed at achieving macroeconomic objectives like controlling inflation, consumption, growth and liquidity. These are achieved by actions such as modifying the interest rate, buying or selling government bonds, regulating foreign exchange rates, and changing the amount of money banks are required to maintain as reserves.
A one-cancels-the-other order is a pair of orders stipulating that if one order executes, then the other order is automatically cancelled. An OCO order combines a stop order with a limit order on an automated trading platform. When either the stop or limit price is reached, and the order executed, the other order automatically gets cancelled. Experienced traders use OCO orders to mitigate risk.
The rate quoted when you wish to sell one currency against another.
Over-The-Counter is a financial instrument traded outside of a formal exchange such as an option traded via, e.g., a bank as opposed to an exchange. Generally tailored to meet a customer’s specific requirements with no standardization of exercise date or expiry price.
Refers to a purchase or sale of currencies between the hours of 21: 00 and 08:00 in a market which is open when the local market is closed. This may be achieved through the use of STOP LOSS or LIMIT ORDERS.
Point (See Basis Point)
A pip is the smallest price move that a given exchange rate makes based on market convention. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point; for most pairs, this is the equivalent of 1/100 of 1%, or one basis point. For example, the smallest move that the USD/CAD currency pair can make is $0.0001, or one basis point.
Pip is an acronym for “percentage in point”.
Understanding the quotation and pricing structure of currencies is essential for anyone wanting to trade currencies in the forex market. Market makers tend to trade specific currency pairs in set ways, either direct or indirect, which means understanding the quote currency is paramount.
For example, the cross rate between the U.S. dollar and the Canadian dollar is quoted USD/CAD is a direct quote, and in this example, the CAD is the quote currency. The represents how many Canadian dollars are worth one single U.S. dollar.
On the other hand, the EUR/USD is an indirect quote, and the USD is the quote currency. This pair represents how many U.S. dollars are required to purchase a single euro.
Resistance, or a resistance level, is the price point at which the rise in the price of a currency or a stock index is halted by the emergence of a growing number of sellers who wish to sell the currency or stock at that price. Resistance levels can be short lived if new information comes to light that changes the overall market’s attitude towards a currency, or they can be long lasting.
The settlement date is the date when a trade is final and the buyer must make payment. In spot foreign exchange (FX), the date is usually two business days after the transaction date.
Spot trading most commonly refers to the spot forex market, on which currencies are traded electronically around the world. Most spot currency trades settle two business days after the execution of the trade, with the exception of the U.S. dollar vs. the Canadian dollar, which settles the next business day. Holidays can cause the settlement date to be far more than two calendar days after execution, especially during the Christmas and Easter seasons. The settlement date must be a valid business day in both currencies. Money generally changes hands on the settlement date, which means there is credit risk between the two parties.
The difference between the buying and selling rate.
A stop-loss order is an order placed with a broker to sell a currency when it reaches a certain price. Stop-loss orders are designed to limit an investor’s loss on a position in a currency.
Support, or a support level, is the price point at which the fall in the price of a currency or a stock index is halted by the emergence of a growing number of buyers who wish to buy the currency or stock at that price.
Society for Worldwide Interbank Financial Telecommunications (SWIFT) is member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, SWIFT uses a standardized proprietary communications platform to facilitate the transmission of information about financial transactions. Financial institutions securely exchange this information, including payment instructions, among themselves.
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.
In Forex trading, the value date is regarded as the delivery date on which counterparties to a transaction agree to settle their respective obligations by making payments and transferring ownership. Due to differences in time zones and bank processing delays, the value date for spot trades in foreign currencies is usually set two days after a transaction is agreed on. The value date is the day that the currencies are actually traded, not the date on which the traders agree to the exchange rate.