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Glossary of terms used in currency exchange
A list of terms used by currency brokers and their meanings

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Glossary of terms used in currency exchange
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Understanding currency exchange terms
To help you understand the terminology used by currency brokers or foreign exchange dealers, we've supplied a list of terms that are commonly used, together with their meanings. For further assistance in understanding your currency exchange process, currency brokers are usually extremely helpful in explaining how things work and what things mean, so do ask when unsure of anything.

BACS
A system used by banks in the UK that transfers money electronically.

Bear
A bear is someone who believes market prices will fall.

Bear Market
This is a market whose prices are falling.

Bid price
This is the price at which your currency broker wishes to buy foreign currency against the Pound.

Bottom
The term often referred to here is a market bottom, which is an area where prices when falling, encountered heavy support and were unable to progress any lower. The prices would then either start going up or be consolidated (trade sideways).

Bull
A Bull is someone who thinks that market prices will go up.

Bull Market
A Bull Market is a market where the prices are going up.

Broker
A Broker acts as a middle man between yourself, if you are the client, and the market.

Cable
Cable is the term used for the GBP Sterling versus US Dollar exchange rate. (The word comes from the cable laid under the Atlantic, which linked the tickertape machines in New York and London.)

Call rate
This relates to money deposited in a bank for an indefinite time, and the interest rate allocated to such funds between banks.

Cash Market
A market involving the buying and selling of cash.

Convertible Currency
Convertible currency is currency that does not need a bank’s permission to be converted to another currency or gold.

Correction
A correction is the term given for when a market is moving in one direction and then moves quickly in the other direction. This reversal of direction or correction will often be more rapid than the initial flow, and is often advantageous for the overall market movement.

Counterparties
This term refers to each of the parties involved in a transaction.

Cross Rate
A cross rate is one which does not include the US Dollar, using only other currencies instead.

Day Trading
Day Trading relates to the opening and closing of positions which remain the same during one trading day.

Dollar Rate
The dollar rate is the rate given to currencies against one unit of the US Dollar. The GBP Sterling versus US Dollar exchange rate (or cable) is the only exception to the rule, as this is quoted as units to the US Dollar to one GBP Sterling.

ECB
The European Central Bank or ECB is in charge of managing the Euro currency together with European interest rates and monetary policy.

EFT
Electronic Fund Transfers. These occur between banks and are the most common way of sending and receiving money.

EMS
European Monetary System.

EMU
European Monetary Union.

ERM
Exchange Rate Mechanism.

Exchange Rate Depreciation
This term refers to money which does badly against one or more currencies.

Exchange Rate Risk
This is the possible loss that a company might incur from a movement in exchange rates.

Federal Reserve / FED
This is the American central bank. Fixed Exchange Rate This is an official rate of exchange set by banks and other monetary authorities for different currencies.

Floating Exchange Rate
A currency has floating exchange rate when its value is decided by the market, by supply and demand.

FOMC
Federal Open Market Committee, which sets US interest rates and is in charge of US monetary policy.

Forex
Forex is an abbreviation of foreign exchange.

Forward Contract
This is a contract which allows you to fix or lock into a favourable exchange rate which can then be used to buy currency on a specific date or period in the future.

FX
FX stands for foreign exchange.

Fundamental Analysis
A fundamental analysis is one which is based on economic and political factors and events.

Hedging
A hedging transaction involves the purchase or sale of a currency to protect it against future fluctuation in the foreign exchange rates.

Initial Margin
This is the deposit required from you when arranging a forward transaction.

Interbank Rates
These are the rates that large banks/brokers quote other large banks/brokers for trade between them.

Limit Order
A Limit Order is one where you set an optimum exchange rate at which, if the rate is achieved, your currency can be purchased or sold.

OCO (One Cancels the Other) Order
This is the combination of a limit order and a stop loss order at predetermined market levels, where if one is executed the other order is automatically cancelled.

Offer
This is the rate quoted by your broker at which he/she is happy to sell a foreign currency.

Overnight Trading
This is the trading of currencies between the hours of 21: 00 and 08:00.

Settlement
This is the actual conversion of one currency to another.

Spot Contract
A spot contract involves the buying of currency with a settlement date of two business days forward, which offers the fastest delivery time.

Spread
Spread is the difference in prices between bid and offer rates.

Stop Loss Order
Stop Loss Orders enable you to fix a minimum rate at which a currency is bought or sold.

Value Date
The value date is the date when a contract or transaction is settled, and cash is credited to or debited from an account.

Volatility
Volatility is a measure of fluctuation in rates.

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