Glossary of foreign exchange terms
We've tried to answer some of our most common queries here, however, if your question isn’t answered below, please give us a call – we’d love to help.
BACS
Bankers Automated Clearing Services - The process for making Sterling payments via domestic banks. Usually takes three business days.
CHAPS
Clearing House Automated Payment System - a faster way of making payments. Usually happens on the same day.
Exposure
The amount of money at risk due to foreign exchange movements.
Faster Payments
A new UK system for faster payment of amounts up to £10,000 (lower for some banks). Funds usually credit within minutes.
Forward contract
A contract to exchange a specific amount of one currency for another on a future date, at a predetermined rate. A deposit is normally required for forward contracts.
Forward points
The difference between the spot rate and the forward rate. The forward points are a calculation of the interest rate differential between the buy and sell currency.
Forward rate
The rate at which two currencies can be exchanged on a preset future date.
GTC - Good ’Til Cancelled
A GTC foreign exchange order will be left in the market until executed or cancelled by you.
Hedge
Protection against future currency movements.
Interbank rate
This is the rate used by the banks to trade currency between themselves in large amounts.
Mid-market rate
Currency is bought by the customer at the offer rate and sold at the bid rate. The mid-market rate is the mid-point between the bid and offer rates.
OCO - One Cancels Other
A combination of a stop loss order and a take profit order. When one of these two orders is executed, the other order is automatically cancelled.
Order
You can leave an order with us to transact on your behalf if a particular exchange rate is reached.
Spot rate
The foreign exchange rate at which two currencies can be exchanged in two days’ time.
Spot Transaction
The exchange of one currency for another at a specified rate for settlement in two working days.
Stop Loss Order
A stop loss order is a means of limiting your risk in case exchange rates get worse. A currency stop loss level is set. If that currency level is reached, the trade is automatically executed in the market to stop any further loss. The currency level used for a stop loss order is always worse than the current market price. This is a way to protect yourself from adverse changes in exchange rates without needing to constantly monitor the rate.
Spread
The spread is the profit taken by a bank or a broker between the rate they receive and the rate they pass on to clients. World First takes a smaller spread than most banks and other currency companies, and passes this benefit on to their clients.
Take Profit Order
Like a stop loss order, a take profit order first involves setting a currency level. Once that currency level is reached, the trade is executed in the market. The currency level used for a take profit order is always better than the current market price. This is a way to capitalise or take profit on improvements in exchange rates without needing to constantly monitor the rate.
Settlement Date
The date for the exchange of payments.
If your question isn’t answered here, please give us a call.
