Financial speak leaving you baffled? Let us clarify some of the common terms you’ll come across when talking about foreign exchange

ACH: Automated Clearing House is an electronic payment network for completing financial transactions in the US.

BACS: Bankers Automated Clearing Services – the process for Sterling clearing for domestic banks. Usually takes 3 business days.

CHAPS: Clearing House Automated Payment System – a faster means of making payments. Usually occurs on the same day.

Currency Drawdown: this occurs when bought funds are required sooner than the settlement or value date and can incur a fee.

Currency Exchange (or foreign exchange): A business that allows customers to exchange one currency for another currency.

Currency Roll: this occurs when funds due to on the settlement date fail to arrive so the trade is “rolled” to the next business day and can incur a fee.

Exchange Rate: The price of a nation’s currency in terms of another currency.

Exposure: The amount of money at risk due to Foreign Exchange movements.

Faster Payments: A new process when UK banks will transfer funds on the same day for amounts up to £10,000.00.

Forward Points: The difference between the spot rate and the forward rate.

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.

GTC – Good til Cancelled: A GTC foreign exchange order will be left in the market until executed or cancelled by you.

GTE – Good til Expiry: A GTE foreign exchange order will run in the market until it is executed or expires at a specific time and date.

Hedge: Protection against future currency movements.

Indirect Quote: A currency quotation in the foreign exchange markets that expresses the amount of foreign currency required to buy or sell one unit of the domestic currency.

Local Payments: A slower method of making payments (1-3 days) via local payment networks such as BACS, SEPA or ACH. Whilst a slower method, it avoids any intermediary or routing bank fees so the full amount sent will always arrive with the beneficiary.

Market Order: You can leave an “order” with us to transact on your behalf if a particular exchange rate is reached.

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.

SEPA: Single European Payments Area is an EU wide simplification of bank transfers made in Euros aimed to reduce costs and improve efficiency. It is an alternative to a SWIFT payment.

Settlement Date: is the date that we require to receive the sold funds to complete a currency trade.

Spot Rate: The foreign exchange rate at which two currencies can be exchanged in 2 days time.

Spot Transaction: The exchange of one currency for another at a specified rate for settlement in 2 working days.

Spread: The difference between the bid and the ask price of a security or asset.

Stop Loss Order: A stop loss order is a means of limiting your risk from adverse exchange rates. A currency level is set. If that currency level is reached, the trade is automatically executed in the market. 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.

Value Date: The date for the exchange of payments.


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