Foreign Exchange Terms Explained

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.

Exposure:

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

Forward Rate:

The rate at which two currencies can be exchanged on a preset future date, e.g. sterling dollar exchange rate today for transfer in 3 months time.

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 Till Cancelled:

A GTC foreign exchange order will be left in the market until executed or cancelled by you.

Hedge:

Protection against future currency movements.

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 2 days time.

Spot Transaction:

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

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 you from adverse changes in exchange rates without needing to constantly monitor the rate.

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 capitalize on improvements in exchange rates without needing to constantly monitor the rate.

Settlement Date:

The date for the exchange of payments.