Glossary

People in foreign exchange love using complicated vernacular, acronyms and long rigmarole (see?). It can sometimes be overwhelming. That's why we offer a jargon-free service and put this financial terms glossary together, to help you make sense of any terms you might not have heard of before. 

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Term

Definition

ABA

A code used by the American Bankers Association to define a bank. Often used when sending payments to America.

BACS

Bankers Automated Clearing Service: a process of making Sterling payments between UK bank accounts. These payments are usually free but take three days to credit the account to which they are sent.

Base Currency

The currency which other currencies are quoted against.

Basis Point

A basis point, or bp, is 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% (0.0001), and is used to denote the percentage change in a financial instrument.

BIC code

Bank Identifier Code: often used in conjunction with an IBAN number (see below) when sending payments to the eurozone.

Bid

The price a buyer is willing to pay to purchase a currency and sell another at a particular time.

BoE

Bank of England: the central bank of the United Kingdom.

Central Bank

A government body that often controls the monetary policy of a nation including the setting of interest rates usually.

CBI

Confederation of British Industry - a leading UK business organisation that speaks on behalf of more that 240,000 businesses in the UK

CHAPS

Clearing House Automated Payment System: a fast way of making Sterling payments between UK bank accounts. Usually same day payments, banks often charge £20 - £45 pounds for these. (FC Exchange charge a maximum of £10 for these but often they are free of charge).

ECB

European Central Bank

Exposure

The amount of money which is at risk due to foreign exchange market movement (can be removed with a Forward Contract).

Faster Payments Service

A new way of sending UK domestic payments online and via the phone. These payments can credit within a few hours if not minutes. They are often free but have a limit of £10,000.

Federal Open Market Committee (FOMC)

The body responsible for setting interest rates and credit policies of the Federal Reserve System in America.

Fiscal Cliff

Automatic tax increases and spending cuts due to take effect on 1 January 2013 in the USA. According to economists, this would push the US into recession and in turn have global consequences.

Forex or FX

Abbreviations for Foreign Exchange.

Forward Contract

A contract used to fix the exchange rate. A future date is agreed upon with a client, at a pre-determined, agreed rate. A deposit (or margin) is usually required in forward transactions but can increase buying power today ten-fold, e.g. a client could book $150,000 at a rate of $1.50 for a date in the future, costing £100,000 and just pay £10,000 within two days of agreeing to the transaction with the £90,000 balance due in the future.

Hedging

Protecting against future fluctuations in the foreign exchange rate (see Forward Contract)

IBAN

International Bank Account Number: an international standard for identifying bank accounts across national borders. The prefix is often the country code and the digits contain the account number and other banking information relation to the beneficiary account. Almost always used when sending payments to the eurozone. You may find our IBAN checker helpful.

Interbank Rates

The foreign exchange rates at which large international banks trade currency between themselves in very large amounts. This is the most commonly used indicative rate to follow the market by rather than a buy or sell price.

Margin

A deposit provided by a client as collateral to cover a Forward Contract.

Margin call

A request for additional funds during the time period of a Forward Contract in order to maintain an agreed deposit level due to volatile exchange rate fluctuations. This is not an extra cost as the additional funds are deducted from the net balance due.

Monetary Policy Committee

The group of nine members who set the UK interest rates by meeting on the first Thursday of the first full week every month.

Order

You can place a ‘stop’ or ‘limit’ order with us to execute a trade on your behalf if a particular exchange rate is achieved. These can be left in the market 24 hours a day and are useful to benefit or mitigate risk outside trading hours.

OCO

This is a pair of orders stating that if one order fills/is executed, then the other order is automatically cancelled. It uses a stop order with a limit order. When either the limit level or stop level is reached and the order executed, the other order will cancel automatically.

Pip

Acronym for 'Percentage in Point' .Represents a small incremental move that an exchange rate can make. It is one one hundredth of a percent, e.g. if a currency moves from 1.2000 to 1.2005 it has moved 5 pips.

QE

Quantitative Easing: monetary policy used by central banks to stimulate the national economy. A central bank implements quantitative easing by purchasing financial assets from banks and other businesses in the private sector with new electronically created funds.

SEPA

Single Euro Payments Area – within and to which SEPA payments can be sent.

Settlement Date

The final stage of a transaction - this is the date for the exchange of payments.

Sort Code

A six-digit number, normally formatted as three pairs of numbers. E.g. 12-34-56 that identifies both the bank and the branch in the UK where the account is held.

Spot Trade

A transaction at a specified rate usually for settlement in two working days.

Spot Price

The current price for a spot trade.

Spot Rate

The current rate for a spot trade.

Spread

This is the difference between the rate at which a bank or broker buys and what they pass on to clients and is the profit on a trade. The spread a bank can take is often around 4%. As a specialist FC Exchange can take a smaller spread and save clients money.

Swift

Society of Worldwide Interbank Financial Telecommunications - a dedicated network set up to support fund transfer messages between member institutions worldwide.

Technical Analysis

Analysis based on market activity through chart study, volume, trends, moving averages, patterns, formations and other technical indicators.

Trend

The direction of the market - often split into three categories: major, intermediate and short term trends. Three directions are also associated with a trend; that is, uptrend, downtrend, and a sideways trend.

Value Date

The date in a transaction for the exchange of payments.

Volatility

A measure of price fluctuations.

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