Foreign Exchange Terms and Jargon Buster

Table Of Contents

A

Aussie

The nickname for the Australian Dollar

B

Bearish

If a currency is behaving ‘bearishly’ it is declining against its currency counterparts or stuck in a downtrend.

Bid

The bid is the price a buyer is willing to pay for a currency.

Broker

Currency brokers can manage the foreign exchange requirements of individuals and corporations. Generally speaking, using a currency broker is cheaper than using a bank as they don’t levy the same fees.

‘Buck’

A nickname for the US Dollar

Bullish

If a currency is behaving ‘bullishly’ it is advancing against its currency counterparts or experiencing an uptrend.

C

Cable

The nickname for the Pound to US Dollar exchange rate.

Central Banks

Central banks dictate the monetary policy of nations and can have a considerable impact on the currency exchange rates. Some major central banks include the Bank of England (BoE), European Central Bank (ECB), Federal Reserve, Reserve Bank of Australia (RBA), Reserve Bank of New Zealand (RBNZ), Bank of Canada (BOC) and Bank of Japan (BOJ).

Commission

In the world of foreign exchange, the commission is the charge some companies will levy to transfer one currency to another.

Currency

There are 180 global currencies recognized as legal tender and currently in circulation. Some currencies are traded more frequently than others on the foreign exchange market, with the US Dollar being the most traded currency in the world.

Currency Code

Currency codes are the shorthand abbreviations given to major world currencies. Generally, currency codes are three letters, with the first initials relating to the country the currency comes from and the final initial standing in for the name of the currency. For example, the currency code for Pound Sterling is GBP, GB for Great Britain and P for Pound.

Currency Converter

This handy tool lets you take the currency pair you’re interested in, the Pound to Euro (GBP/EUR) for example, and calculate how many Pounds you’ll get for your Euros based on the current rate of exchange. Currency Converter is a must need tool for foreign trade.

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Currency Exchange

An interchangeable term for ‘Foreign Exchange’ – see Foreign Exchange for a definition.

Currency Risk

Currency risk refers to the prospect of losing money on a currency exchange due to a shift in the market.

D

Dovish

Dovish actions, comments or developments tend to be cautious or pessimistic. This term is the opposite of ‘hawkish’.

E

Exchange Rate

A currency’s exchange rate is its value relative to another currency, so the value of the Pound in relation to the Euro, for example. Exchange rates are typically displayed in pairs using currency codes. So the Pound to Euro exchange rate would be displayed as GBP/EUR, with the exchange rate showing how many Euros you could get for 1 Pound.

Euro

The common currency shared by the 18 nations which make up the region known as the Eurozone.

F

Fixed Exchange Rate

A fixed exchange rate is one set by monetary policymakers. Fixed exchange rates tend to fluctuate between narrow ranges.

Floating Exchange Rate

The value of a floating exchange rate is determined by market supply and demand.

Foreign Exchange

Foreign exchange, or currency exchange, is the term applied to the process of selling the currency of one nation in order to buy the currency of another.

Forex

Forex is an abbreviation of foreign exchange.

Forward Contract

A forward contract is an agreement to sell a currency at a pre-set rate at a specified time in the future.

I

Interbank Exchange Rate

The interbank is the bank-to-bank market in foreign exchange, used by the largest financial institutions to deal with currencies directly.

K

Kiwi

A nickname for the New Zealand Dollar.

L

Loonie

A nickname for the Canadian Dollar

Long

In foreign exchange going ‘long’ on a currency means buying the asset with the goal of selling it at a higher price for profit. So if you were being long on the Pound to Euro (GBP/EUR) exchange rate, you will have bought the Pound against the Euro with the intention of selling the Euro at a higher price.

O

Offer

An offer is an order to sell a currency at or higher than the market price.

Q

Quantitive Easing

Quantitative easing is a strategy deployed by central banks to improve liquidity conditions when targeting interest rates no longer achieves the desired result. Quantitative easing involves the purchasing of assets (such as government bonds).

S

Short

When you’re being ‘short’ in financial markets you are selling something before you acquire it in hopes of making a profit from a fall in the price.

Spot Market

The ‘spot market’ is the market for the delivery of currencies within a two-day timeframe.

Spread

The spread is the disparity between a bid and an offer. For example, if the bid is 40 and the offer is 42.5 the spread is two and a half points.

Stop Loss

This kind of order involves the automatic purchase of a currency once it hits a pre-set price.

T

Thin

When market conditions are ‘thin’ prices aren’t as liquid as would be expected.

Trend

When a currency or currency pair is trending, it’s moving in a consistent direction.

V

Volatility

The amount of risk involved in a currency exchange depends on the degree of market volatility. The volatility of the foreign currency market can be affected by a host of social, economic, political and environmental factors.

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