FX JARGON
Cable, sterling, pound – alternative names for the GBP
- Greenback, buck – nicknames for the U.S. dollar
- Swissie – nickname for the Swiss franc
- Aussie – nickname for the Australian dollar
- Kiwi – nickname for the New Zealand dollar
- Loonie, the little dollar – nicknames for the Canadian dollar
- Figure – FX term connoting a round number like 1.2000
- Yard – a billion units, as in “I sold a couple of yards of sterling.”
| Appreciation |
| A currency is said to appreciate when it strengthens in price response to market demand. |
| Buy Rate |
| The price at which the currency is bought. i.e If the exchange rate reads GBP/EUR 1.1433, the ask price is €1.1433, meaning you can buy one Pound for 1.1433 Euros. |
| Back Office |
| The settlement department and processes related to the settlement of currency transactions (i.e written confirmation and settlement of trades, record keeping). |
| BACS |
| Bank Automated Clearing System. |
| Bear Market |
| A market distinguished by declining prices (e.g GBP/EUR exchange rate falling) Related to pessimism in the markets. |
| Bear, Bearish |
| A person who believes that prices/the market will decline. |
| Bull Market |
| A market distinguished by rising prices (e.g GBP/EUR exchange rate rising) accompanied with widespread optimism. |
| Bull, Bullish |
| A person who believes that prices/the market will rise. |
| Buying Selling FX |
| Buying and selling in the foreign exchange market always happens in the currency that is quoted first. ‘GBP/EUR’ means buy the GBP/sell the Euro. |
| Cable |
| Foreign exchange dealers slang for the British Pound sterling / US Dollar exchange rate. |
| Candlestick Chart |
| A type of Japanese chart that indicates the trading range (the high’s and low’s) for the day as well as the opening and closing price. |
| Central Bank |
| A central bank provides financial and banking services for a country’s government and commercial banks. It implements the government’s monetary policy, prints the nations currency, as well as changing interest rates. In the UK the central bank is the Bank of England (BoE), the US is the Federal Reserve (Fed), in Europe the European Central Bank (ECB) and in Japan, the Bank of Japan (BoJ). |
| CHAPS |
| Clearing House Automated Payment System. Assuming they are transferred within time, payments will clear into a designated account the same business day. |
| Cleared Funds |
| Transferred funds will not be designated as ‘cleared’ until they have passed through the banking system and the beneficiary account to which they have been sent has been credited. |
| Consumer Price Index (CPI) |
| A measure of inflation that tracks the price of a standard basket of goods. An increase in the CPI indicates the cost of that basket of goods in the economy has risen. |
| Counter-party |
| The participant, either a bank or client, with whom the currency transaction is made. |
| Cross-Rate |
| The exchange rate between two currencies e.g. Euro / Yen. |
| Currency |
| The type of money that a country uses. Each currency has a value relative to another, which is the basis for trade. |
| Currency Risk |
| The potential loss that could be incurred from an adverse change in exchange rates. |
| Deal Ticket |
| Record of the agreed transaction |
| Dealer |
| One authorised to deal on the foreign exchange market, who by placing the order to buy or sell, acts as the principal or counterpart to a transaction. |
| Dealing Systems |
| Online Internet trading platforms that link the contributing banks around the world. |
| Devaluation |
| Deliberate downward adjustment of a currency’s value versus the value of another currency. |
| Exposure |
| The potential for running a profit or loss from fluctuations in market prices, risk. |
| FedWire |
| An automated communications and settlement system linking the Federal Reserve banks with other banks and with depository institutions. |
| Foreign Exchange (Forex or FX) |
| The simultaneous buying of one currency and selling of another. |
| Forward Contract |
| A contract where the exchange of currencies is to be made more than two business days ahead at a fixed exchange rate. A popular hedging tool, it allows companies and individuals to fix a rate of exchange for settlement in the future. |
| Front Office |
| Usually comprises of the trading or dealing room. |
| G8 |
| The eight leading industrial countries: The United States, Japan, Germany, United Kingdom, China, France, Canada and Italy. |
| Gross Domestic Product (GDP) |
| Total value of a country’s output, income or expenditure produced within the country’s physical borders. |
| Hedging |
| A hedging transaction is one that protects an asset or liability against a fluctuation in the foreign exchange rate. Instruments used are varied and include forwards, options and a combination of the two. For commercial foreign exchange deals the most common hedging tool is the Forward Contract. |
| IBAN |
| International Bank Account Number. It is a standardised means of identifying bank accounts used for European cross-border payments. |
| IMF |
| International Monetary Fund, established in 1946. The IMF supports countries with balance of payments problems with the provision of loans. |
| IMM |
| International Monetary Market, part of the Chicago Mercantile Exchange that lists a number of currency and financial futures. |
| Indicative Quote |
| A dealer’s price that is not firm so can’t be dealt on. |
| Inflation |
| An economic condition reflecting a continued rise in the general price level in conjunction with a related drop in purchasing power. |
| Instruction |
| The specification of the banks at which funds shall be paid upon settlement. |
| Interbank Rates |
| The foreign exchange rates at which international banks trade currencies with each other. |
|
Intervention |
| Deliberate action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates. |
|
Left-hand Side |
| Taking the left hand side of a two way quote i.e. selling the quoted currency. |
| Limit Order |
| An order to buy or sell a specified amount of currency at a pre-determined exchange rate that is better than where the prevailing spot rate. A limit order is a 24-hour automated order which is intended to allow buyers of currency to purchase at or near the top of a currency range or allow sellers of currency to sell at or near the bottom of a currency range. It is a popular market tool as it allows companies or individuals to trade currency at the best possible price without the need to constantly monitor exchange rates. |
| Margin Call |
| A demand for additional funds to restore the originally agreed margin percentage of a contract that has been affected by an adverse movement in the exchange rate. |
| Maturity |
| Date for settlement of a contract. |
| Monetary Easing |
| Part of Central Bank monetary policy where the interest rate is decreased or the money supply increased to stimulate an economy. |
| Monetary Policy |
| A central bank’s management of a country’s money supply. Economic theory underlying monetary policy suggests that controlling the growth of the amount of money in the economy is the key to controlling prices and therefore inflation. However, central banks monetary capability is severely limited by global money movements. This forces them to use the indirect tool of exchange rate manipulation. |
| Monetary Tightening |
| Part of Central Bank monetary policy where the interest rate is increased or the money supply reduced to ward off inflation. |
| OECD |
| Organisation of Economic Co-operation and Development. |
| Offer |
| The rate at which a dealer is willing to sell currency at. |
| Pip (Tick) |
| Foreign exchange term representing the minimum fluctuation or smallest increment of price movement. It is a 100th part of a %, normally 10,000 of any spot rate. E.g. if the GBP/USD exchange rate is $1.5500, one pip is 0.0001. |
| Premium |
| In the currency market, it is the amount of pips added/subtracted from the spot price to determine a forward exchange rate. |
| Rally |
| A recovery in an exchange rate price after a period of decline. |
| Range |
| The difference between the highest and lowest price of a currency recorded during a given trading period. |
| Rate |
| The price of one currency in terms of another. |
| Reserve Currency |
| A currency held by a central bank on a permanent basis as a store of international liquidity, these are normally US Dollar, Euro and Pounds sterling. |
| Right-hand Side |
| Taking the right hand side of a two way quote i.e. buying the quoted currency. |
| Risk/Return |
| The relationship between the risk and return on a currency. Usually, the more risk you are prepared to take, the higher the profit or loss you can expect. |
| 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 (also called Tomorrow Next, abbreviated to Tom-Next). |
| Running a Position |
| Keeping open positions in the hope of a speculative gain. |
| Same Day Transaction |
| A transaction that matures on the day the transaction takes place (Value Today). |
| Selling rate |
| Rate at which foreign currency is sold at. |
| Settlement |
| Actual physical exchange of one currency for another to complete a transaction and honour a contract. |
| Settlement Date |
| The date by which an FX contract between two parties must be settled by the transference of funds between buyer and seller. |
| Settlement Risk |
| Risk associated with the non-settlement of the transaction by the counter party. |
| Spot |
| The most common foreign exchange transaction. A transaction that occurs immediately with the transfer of funds to settle the contract usually taking place within two business days after the deal has been agreed. It is used when clients need to buy and sell currency and transfer it within the shortest period possible. |
| Spot Rate |
| The price at which the currency is currently trading for immediate purchase transactions. |
| Spread |
| The difference between the bid and ask price of a currency. |
| Stop Loss Order |
| An order to buy or sell a specified amount of currency at a pre-determined exchange rate that is either above or below the rate that prevailed when the order was given. A stop loss order is a 24-hour automated order that is intended to protect the purchase or sale of a currency from adverse movements in the exchange rate. It is a popular market tool as it allows companies or individuals to firstly protect their profits and bottom line positions and secondly, enhance the value of their currency if the exchange rate rallies in their favour. |
| Support Level |
| A price level at which you would expect buying to take place and is recognised by technical analysts as a price which a currency will struggle to move below, which could result in a rebound of the exchange rate. |
| SWIFT |
| Society for World-wide Interbank Telecommunications. A Belgian based company that provides the global electronic network for settlement of most foreign exchange transactions. |
| Technical Analysis |
| Is the analysis of market action through charts, past prices and volume trends to forecast future market activity such as price and developments. Technical analysis provides details of Support and Resistance levels and can identify changes in currency movements. |
| Technical Correction |
| An adjustment to price not based on market sentiment but technical factors predicted by technical analysis charting. |
| Tradable (Market) Amount |
| Smallest transaction amount accepted by a financial institution. |
| Trade (Transaction) Date |
| The date on which a trade occurs. |
| Trade Deficit/Surplus |
| The difference between the value of imports and exports. Often only reported in visible trade terms. |
| Transaction (Deal or Trade) |
| The buying or selling of currencies resulting from the acceptance of a price from a dealer. |
| Turnover |
| The total monetary value of currency contracts traded is calculated by multiplying size by the number of contracts traded. |
| Value Date |
| The settlement date of any contract; the day on which the funds are due and the exchange of the currencies (between two contracted parties) that are being bought or sold takes place. A spot transaction usually has a Value Date two business days from the deal date. However, if a bank or public holiday falls in the country(s) of the foreign currency(s) within this period, then the value date then moves forward one business day. A transaction with a value date beyond two business days would usually be considered a forward contract. |
| World Bank |
| A bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.
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