Currency Terminology

Common words when exchanging currency

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Base Currency – The currency which other currencies are quoted against.

Basis Point – A basis point is a unit of measure to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01%.

Bid – The exchange rate which the broker is willing to purchase the base currency.

Currency – A country’s unit of exchange issued by their government or central bank.

Exchange Rate Risk – The potential loss that could be incurred from an adverse movement in exchange rates.

Foreign Exchange – The exchange of currency from one country for currency from another country.

Forward Contract – Locking in a rate of exchange for a period of time up to 2 years.

FX / Forex – An abbreviation of Foreign Exchange.

Good till Cancelled (GTC) An order is active until it is cancelled by the trader.

Interbank Rates – The foreign currency exchange rates at which large international banks sell currency to other large international banks.

Interest Rate Risk – The potential for changes in the interest rate creating losses.

Margin – A deposit provided by a client to cover the risk of adverse market movement on a forward position.

Margin Call – A demand for additional deposit to cover the risk of adverse market movement on a forward position.

Maturity – The date of which a trade is due to be settled.

One cancels the other order (OCO) – Combination of a limit and stop/loss order. If one of the two has been executed, the other will be cancelled automatically.

Open Position – A transaction that has not been settled and at risk of adverse market movements.

Resistance Level – A resistance level is the opposite of a support level. It is where the price tends to find resistance as it is going up.

Spot Contract- Is a currency transaction that is due to be settled in two days.

Spot Price / Spot Rate – The current market price for a spot transaction.

Spread – The difference between the bid (buy) and offer (Sell) prices. This is usually used for interbank trade of currencies.

Support Level – A support level is a price level where the price tends to find support as it is going down

Value Date – The date that both parties of a transaction agree to exchange payments.

Volatility – A measure of price fluctuations.

Volume – represents the total amount of transaction.