Forex Glossary
arbitrage
Simultaneous buying and selling of securities, commodities, or currencies in different markets to take advantage of price differences.
ask (offer) price
The price at which a market is willing to sell.
banknote rate
The rate used for foreign exchange transactions involving physical banknotes. This rate takes into account the added costs of transport and insurance.
base currency
The first named currency in a currency pair.
bears
Traders who expect prices to decline.
bulls
Traders who expect prices to rise.
bid price
The price at which a market is willing to purchase.
call money
Money loaned by a financial institution on a very short-term basis which can be called the same day or at one or two days’ notice.
call option
An option to sell a commodity or asset (currency) at an agreed-upon price on or before a particular date.
counter currency
The second named currency in a currency pair.
central bank
The national bank of a sovereign state that provides financial and banking services to its government and commercial banking system, implements monetary policy, and issues currency.
contra currency
In a forex trade, the currency for which the dealt currency is traded. For example, in a USD/CHF trade the US dollar is the dealt currency and the CHF (Swiss Franc) is the contra currency.
convertibility
The ease with which a currency can be freely exchanged or converted into another currency.
credit card rate
The foreign exchange rate offered by a credit card company for transactions in a foreign currency using their credit card. Credit card rates vary by issuer of the credit card, but are typically a premium of 2−5% above the Spot Exchange Rate.
cross rate
An exchange rate between two currencies expressed in reference to a third currency, typically the US dollar.
currency
The system of money in general use in a country or currency zone. Examples include the US dollar, Swiss franc, and European Euro.
currency pair
Two currencies that constitute a foreign exchange rate: the base currency and the counter currency. For example: USD/EUR.
dealt currency
In a forex trade, the currency that specifies the unit of the trade. For example, in a USD/CHF trade of 1,000,000 USD, the US dollar is the dealt currency and the CHF (Swiss Franc) is the contra currency.
devaluation
The reduction of the external value of a currency based upon changes in monetary policy or the current economic or political environment.
exchange control
Governmental control of the movement of its currency with foreign entities.
exchange rate
The value of one currency expressed in another currency.
external value
The purchasing power of a domestic currency in another country.
fixed exchange
An administratively fixed exchange rate not based upon market conditions.
floating exchange rate
An exchange rate determined by market forces without central bank intervention.
foreign exchange
The simultaneous selling of one currency and buying of another. Also known as forex or fx.
forex
Foreign exchange.
forward contract
A privately negotiated financial contract to buy and sell a set quantity of a commodity (currency), at a future date, for a specified price.
forward discount
A situation where the spot futures exchange rate of a currency is trading at a lower rate than the current spot exchange rate.
forward premium
A situation where the spot futures exchange rate of a currency is trading at a higher rate than the current spot exchange rate.
futures contract
A highly standardized financial contract traded on an exchange (bourse) to buy and sell a set quantity of a commodity (currency), at a future date, for a specified price.
fx
Foreign exchange.
going long
The purchase of a commodity (currency) with expectation that its value will increase.
going short
The sale of a commodity (currency) with the expectation that its value will decrease.
hard currency
A globally traded currency that has a sustained history of purchasing power tied to the issuing country’s stable economic and political condition and the policies of its central bank. Examples include the US dollar, Euro, Swiss franc, and British pound sterling.
hedge
The strategic use of financial instruments (such as futures contracts, forward contracts, swaps, or options) to offset potential losses or gains in an underlying investment.
inflation
Loss of purchasing power of money, caused by the unrestrained growth of the amount of money in circulation.
interbank rate
The rate of interest charged on short-term (usually one- to three-day) loans between banks.
intervention
The purchase or sale of domestic or foreign currency by a government authority (usually its central bank) in order to manipulate the exchange rate away from market equilibrium.
key currency
A major currency in the global economy used to set the exchange rate in a forex transaction.
LIBID
London Interbank Bid Rate. A benchmark interest rate that major global banks are prepared to pay for Eurocurrency deposits in the London interbank market.
LIBOR
London Interbank Offered Rate. A benchmark interest rate that major global banks charge each other in the London interbank market for short-term loans of one day to 12 months.
LIMEAN
London Interbank Mean Rate. The calculated average of the London Interbank Bid Rate (LIBID) and the London Interbank Offered Rate (LIBOR).
margin
Cash or other collateral deposited with a commodities or securities broker as security.
option
A financial contract giving the buyer the right (but not the obligation) to purchase a set quantity of a commodity (currency) at a future date, for a specified price.
put option
An option to sell a commodity or asset (currency) at an agreed-upon price on or before a particular date.
realignment
The simultaneous revaluation and devaluation of the currencies of two or more countries.
revaluation
The increase of the external value of a currency based upon changes in monetary policy or the current economic or political environment.
risk position
An asset or liability which is exposed to fluctuations in value through changes in exchange rates, interest rates, or market conditions.
spot/next
A foreign exchange transaction valued at the current spot rate, but with delivery on the next day.
spot operations
A foreign exchange transaction in which settlement of delivery and payment is made immediately.
spot rate
The transaction rate quoted for immediate settlement.
strike price
The price at which a put or call option can be exercised.
swap transaction
An agreement between two parties to exchange a specified amount of two currencies at a certain time in the future at a specified exchange rate.
tom/next
A foreign exchange transaction where a current position is closed out at the daily close rate, but reentered at the new opening rate the next day, thereby avoiding the necessity of taking delivery of the currency until the next day.
transaction fee
A flat fee charged by a bank, currency exchange dealer, or credit card company on an individual currency exchange transaction.
volatility
A statistical measure of the amount by which a currency’s value changes based upon its mean value.
writer
The party that writes a forex option (option seller) and receives a premium from the buyer.
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River Natural
River Basin
River Tide Gate
Coastal Breakwater
Open Roadstead
Lake or Canal
Typhoon Harbor
Coastal Natural
Coastal Tide Gate
N/A
