FX Glossary

- A -

Adjustable peg - Term for an exchange rate regime where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency, often the dollar or Euro, but where the rate may be changed from time to time. This was the basis of the Bretton Woods system. See peg, and crawling peg.

Adjustment - Official action, normally either by change in the internal economic policies to correct a payment imbalance or in the official currency rate.

Agent bank - (1) A bank acting for a foreign bank. (2) In the Euro market - the agent bank is the one appointed by the other banks in the syndicate to handle the administration of the loan.

Aggregate demand - Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and firms in other countries.

Aggregate supply - Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.

Appreciation - Describes a currency-strengthening in response to market demand rather than by official action.

Arbitrage - The simultaneous purchase and sale on different markets, of the same or equivalent financial instruments to profit from price or currency differential, the exchange rate differential or swap points. May be derived from deposit rate differentials.

Arbitrage channel - The range of prices within which there will be no possibility to arbitrage between the cash and futures market.

Asset allocation - Dividing instrument funds among markets to achieve diversification or maximum return.

Ask - The price at which the currency or instrument is offered.

At best - An instruction given to a dealer to buy or sell at the best rate that can be obtained.

At or better - An order to deal at a specific rate or better.

Authorized dealer - A financial institution or bank authorized to deal in foreign exchange.


- B -

Back office - Settlements and related processes.

Balance of Payments - A systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on "current account" or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers and/or decline in currency values.

Band - The range in which a currency is permitted to move. A system used in the ERM.

Bank line - Line of credit granted by a bank to a customer, also known as a "line."

Bank rate - The rate at which a central bank is prepared to lend money to its domestic banking system.

Base currency - The currency in which the operating results of the bank or institution are reported.

Basis - The difference between the cash price and futures price.

Basis point - One percent of one percent.

Basis trading - Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.

Basket - A group of currencies normally used to manage the exchange rate of a currency. Sometimes referred to as a unit of account.

Bear, Bearish, Bear Market - A Bear is a person who believes that the prices in the market will decline. This person would be considered Bearish. A Bear Market is a market that is declining (e.g. if the CAD v USD rate is falling). If the decline was expected to continue, the market would be Bearish.

Bid - The price at which a buyer has offered to purchase the currency or instrument.

Book - The summary of currency assets and liabilities held by a dealer, desk, or room. If the average maturity of the book is less than that of the assets, the bank is said to be running a short and open book. Passing the Book normally refers to transferring the trading of the bank's positions to another office at the close of the day, e.g. from London to New York.

Bottom - A market bottom is an area where prices in a decline encountered heavy support, were unable to progress any lower, and either reversed (i.e. went into a bull trend) or consolidated (traded sideways).

Bretton Woods (1944) -  This accord established a fixed exchange rate regime, whose aim was to provide stability in the world economy after the Great Depression and WWII. This accord fixed the exchange rates of major currencies to the US dollar and set the price of gold to $35/oz. The accord required central bank intervention to maintain the fixed exchange rates by exchanging dollars for gold. The declining demand for the dollar as well as the dwindling gold reserves led to the demise of the system, forcing Nixon to effectively end the accord in 1971.

Broker - An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries, affiliates and partners in many countries.

Bull, Bullish, Bull Market - A Bull is a person who believes that prices in the market will rise. This person would be considered Bullish. A Bull Market is a market that is rising (e.g. if the  v USD rate moves higher). If the advance is expected to continue, the market would be Bullish.

Bundesbank - Central Bank of Germany.

Buying Rate - Rate at which the market and a market maker in particular is willing to buy the currency. Sometimes called the bid rate.


- C -

Cable - Foreign Exchange jargon for the UK Pound v US Dollar exchange rate. Alludes to the cable laid under the Atlantic, which linked the tickertape machines in New York and London.

Capital risk - The risk arising from a bank having to pay to the counter party without knowing whether the other party will or is able to meet its side of the bargain. See Herstatt.

Carry - The interest cost of financing securities or other financial instruments held.

Cash delivery - Same day settlement.

Cash - Normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries which rely for foreign exchange services on these markets because of time zone preference i.e. Latin America. In Europe and Asia, cash transactions are often referred to as value same-day deals.

Central bank - A bank which is responsible for controlling a country's monetary policy. It is normally the issuing bank and controls bank licensing and any foreign exchange control regime.

Central rate - Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.

Chartist - An individual who studies graphs and charts of historic data to find trends and predict trend reversals. This includes the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double-bottom or double-top patterns which are thought to indicate trend reversals.

Clean float - An exchange rate that is not materially affected by official intervention.

Closed position - A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.

Commission - The fee that a broker may charge clients for dealing on their behalf.

Confirmation - A memorandum to the other party describing all the relevant details of the transaction.

Consolidation - Another technical analysis term. It relates to a condition when the rates are moving in a sideways fashion ~ which is usually encountered after a market top or bottom.

Contagion - Term used to describe the spread of economic crises from one country’s market to other countries within close geographic proximity. This term was first used following the Asian Financial Crisis in 1997, which began in Thailand and soon spread to other East Asian economies. It now is used to refer to the recent crisis in Argentina and its effects on other Latin American countries.

Contract - An agreement to buy or sell a specified amount of a particular currency.

Conversion - The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

Convertible currency - A currency that can be freely exchanged for another currency (and/or gold) without special authorization from the central bank.

Copey - Slang for the Danish krone.

Correction - This is a technical analysis term. When a market moves strongly in one direction and then pulls back, the pullback will be referred to as a correction. A correction, (which is a common occurrence in a bull (up) or bear (down) trend), is often sharper (i.e. occurs more quickly) than the preceding move. Corrections are a component of the overall trend (either up or down) and are not considered terminal to that trend (i.e. reversing it). Indeed a correction usually strengthens the foundations of the trend to carry on and sustain further gains or further losses in the days/weeks ahead.

Correspondent bank - The foreign bank's representative who regularly performs services for a bank which has no branch in the relevant center, e.g. to facilitate the transfer of funds. In the U.S. this often occurs domestically due to interstate banking restrictions.

Counterparty - The other organization or party with whom the exchange deal is being transacted.

Countervalue - Where a person buys a currency against the dollar, it is the dollar value of the transaction.

Country risk - The risk attached to a borrower by virtue of its location in a particular country. This involves examination of economic, political and geographical factors. Various organizations generate country risk tables.

Crawling peg - A method of exchange rate adjustment; the rate is fixed/pegged, but adjusted at certain intervals in line with certain economic or market indicators.

Credit risk - The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered.

Cross deal - A foreign exchange deal entered into involving two currencies, neither of which is the base currency.

Cross rates - Rates between two currencies, neither of which is the U.S. Dollar.

Current account - The net balance of a country's international payment arising from exports and imports, together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.


- D -

Day trader - Speculators who take positions in commodities which are then liquidated prior to the close of the same trading day.

Deal date - The date on which a transaction is agreed upon.

Deal ticket - The primary method of recording the basic information relating to a transaction.

Dealer - An individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities. Dealers trade for their own account and risk.

Deflator - Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.

Delivery date - The date of maturity of the contract, when the exchange of the currencies is made. This date is more commonly known as the value date in the FX or money markets.

Delivery risk - A term to describe when a counterparty will not be able to complete his side of the deal, although willing to do so.

Depreciation - A fall in the value of a currency due to market forces rather than due to official action.

Desk - Term referring to a group dealing with a specific currency or currencies.

Details - All the information required to finalize a foreign exchange transaction, i.e. name, rate, dates and point of delivery.

Devaluation - When the value of a currency is lowered against the other, i.e. it takes more units of the domestic currency to purchase a foreign currency. This differs from depreciation in that depreciation occurs through changes in demand in the foreign exchange market, whereas devaluation typically arises from government policy. A currency is usually devalued to improve the balance of trade, as exports become cheaper for the rest of the world and imports more expensive to domestic consumers.

Direct quotation - Quoting in fixed units of foreign currency against variable amounts of the domestic currency.

Dirty float - An exchange rate system in which the currency is not pegged, but is “managed” by the central bank to prevent extreme fluctuations in the exchange rate. The exchange rate is managed through changes in the interest rate to attract/detract capital flows or through the buying and selling of the currency. This system is contrasted with a Pure Float in which there is no central bank intervention and the exchange rate is entirely determined by the market and speculation.


- E -

Easing - Modest decline in price.

ECB - European Central Bank. Manage the Euro currency and European interest rates/monetary policy.

Economic indicator - A statistic that indicates current economic growth rates and trends, such as retail sales and employment.

ECU - European Currency Unit.

Effective exchange rate - An attempt to summarize the effects on a country's trade balance of its currency's changes against other currencies.

EFT - Electronic Fund Transfer.

EMS - European Monetary System.

Eurodollar - Name for U.S. dollar-denominated deposits and claims held outside the U.S.

European Monetary System - A system designed to stabilize, if not eliminate, exchange risk between member states of the EMS as part of the economic convergence policy of the EU. It permits currencies to move in a measured fashion (divergence indicator) within agreed bands (the parity grid) with respect to the ECU and consequently with each other.

Exchange control - A system of controlling inflows and outflows of foreign exchange. Devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.

Exchange Rate Risk - The exposure/potential loss a company faces from a movement in exchange rates.

Exotic - A less broadly traded currency.

Exposure - (i) Net working capital - The current assets in a foreign currency minus current liabilities in the currency; (ii) Net financial method - The current assets in a foreign currency minus current liabilities and long term debt in the currency; (iii) Monetary/non-monetary method - Monetary assets and liabilities in the foreign currency are valued at present exchange rates, while non-monetary items are entered at the relevant historic rates.


- F -

Fast market - Rapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances, price levels may be omitted, and bid and offer quotations may occur too rapidly to be fully reported.

Fed fund rate - The interest rate on Fed funds. This is a closely watched short-term interest rate as it signals the Fed's view as to the state of the money supply.

Fed - The United States Federal Reserve. Federal Deposit Insurance Corporation Membership is compulsory for Federal Reserve members. The corporation had deep involvement in the Savings and Loans crisis of the late 80s.

Federal Reserve Bank / FED - This is the American central bank

Federal Reserve system - The central banking system of the U.S. comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership in the Fed is compulsory for banks chartered by the Comptroller of Currency and optional for state-chartered banks.

Fill or Kill - An order which must be entered for trading, normally in a pit three times, if not filled is immediately canceled.

Fisher effect - The relationship that exists between interest rates and exchange rate movements, so that in an ideal situation, interest rate differentials would be exactly offset by exchange rate movements. See interest rate parity.

Fixed exchange rate - Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band.

Flexible exchange rate - Exchange rates with a fixed parity against one or more currencies with frequent revaluations. A form of managed float.

Floating exchange rate - An exchange rate where the value is determined by market forces. Even floating currencies are subject to intervention by the monetary authorities. When such activity is frequent, the float is known as a dirty float.

FOMC - Federal Open Market Committee, the committee that sets money supply targets in the U.S. which tend to be implemented through Fed Fund interest rates etc.

Foreign exchange - The purchase or sale of a currency against sale or purchase of another.

Forex - Foreign Exchange.

Forex club - Groups formed in the major financial centers to encourage educational and social contacts between foreign exchange dealers, under the umbrella of Association Cambiste International.

Free reserves - Total reserves held by a bank minus the reserves required by the authority.

Front office - The activities carried out by the dealer, normal trading activities.

Fundamentals - The macro economic factors that are accepted as forming the foundation for the relative value of a currency, these include inflation, growth, trade balance, government deficit and interest rates.

FX - Foreign Exchange.


- G -

G7 - The seven leading industrial countries, specifically U.S., Germany, Japan, France, UK, Canada and Italy.

G10 - G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

Gap - A mismatch between maturities and cash flows in a bank or individual dealer's position book. Gap exposure is effectively interest rate exposure.

Going long - The purchase of a stock, commodity or currency for investment or speculation.

Going short - The selling of a currency or instrument not owned by the seller.

Gold standard - The original system for supporting the value of currency issued. Where the price of gold is fixed against the currency, it means that the increased supply of gold does not lower the price of gold but causes prices to increase.

Good til canceled - An instruction to a broker that, unlike normal practice, the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.

Grid - Fixed margin within which exchange rates are allowed to fluctuate.

Gross Domestic Product - Total value of a country's output, income or expenditure produced within the country's physical borders.

Gross National Product - Gross domestic product plus " factor income from abroad" - income earned from investment or work abroad.


- H -

Hard currency - A currency whose value is expected to remain stable or increase in terms of other currencies.

Head and shoulders - A pattern in price trends which chartists consider indicating a price trend reversal. The price has risen for some time, at the peak of the left shoulder, profit-taking has caused the price to drop or level. The price then rises steeply again to the head before more profit-taking causes the the price to drop to around the same level as the shoulder. A further modest rise or level will indicate that a further major fall is imminent. The breach of the neckline is the indication to sell.

Hit the bid - Acceptance of purchasing at the offer or selling at the bid.


- I -

IMF - International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term and encourage liberalization of exchange rates. The IMF supports countries with balance of payments problems with the provision of loans.

IMM - International Monetary Market, part of the Chicago Mercantile Exchange that lists a number of currency and financial futures' implied volatility. A measurement of the market's expected price range of the underlying currency futures based on the traded-option premiums.

Indicative quote - A market-maker's price which is not firm.

Inflation - Continued rise in the general price level in conjunction with a related drop in purchasing power. Sometimes referred to as an excessive movement in such price levels.

Initial margin - The margin required by a Foreign Exchange firm to initiate the buying or selling of a determined amount of currency.

Inter-Bank Rates - The rates banks/brokers quote other banks/brokers for trades between banks (inter-bank). The prices quoted for transactions in excess of $500,000 or equivalent.

Interest rate swaps - An agreement to swap interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. It is the interest cash flows, whether payments or receipts are exchanged.

Internationalization - Referring to a currency that is widely used to denominate trade and credit transactions by non-residents of the country of issue. U.S. Dollar and Swiss Franc are examples.

Intervention - Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.


- K -

Kiwi - Slang for the New Zealand Dollar.


- L -

Leading indicators - Statistics that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

Limit Order - An order to buy or sell one currency against another when a pre-determined price is reached. It is lodged with a Bank or Broker and floats 24 hrs a day until either cancelled or hit. It is used to try and achieve a very favourable price at the very top or bottom of a range. It is free of charge to use and provides an excellent vehicle for companies to attempt to buy or sell their currencies at the best point in a range (without having to constantly monitor the prices and keep calling a broker/bank for prices).

Liquidation - Any transaction that offsets or closes out a previously established position.

Liquidity - The ability of a market to accept large transactions.


- M -

Maintenance margin - The minimum margin which an investor must keep on deposit in a margin account at all times with respect to each open contract.

Make a market - A dealer is said to make a market when he or she quotes bid and offer prices at which he or she stands ready to buy and sell.

Managed float - When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction.

Mark to market - The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.

Market maker - A person or firm authorized to create and maintain a market in an instrument.

Market order - An order to buy or sell a financial instrument immediately at the best possible price.

Micro economics - The study of economic activity as it applies to individual firms or well-defined small groups of individuals or economic sectors.

Mid-price or middle rate - The price halfway between the two prices, or the average of both buying and selling prices offered by the market makers.

Monetary base - Currency in circulation, plus banks' required and excess deposits at the central bank.

Monetary Policy - Generally associated with the setting of interest rate levels in an economy to try and stimulate or stifle borrowing and thus control consumer demand/spending. Conventional wisdom states that if interest rates move in an upward direction in one nation (under normal economic circumstances) then the currency in that nation should move up in value against foreign currencies. The rational is that the rate of return on interest bearing deposits become more attractive and the foreign demand for that currency should increase.

Moving average - A way of smoothing a set of data, widely used in price time series.

MPC (Monetary Policy Committee) - The committee within the Bank of England (UK Central Bank) which is responsible for setting interest rates in the UK.


- N -

Net Position - The amount of currency bought or sold which have not yet been offset by opposite transactions.

Notional amount - The notional amount is the value or quantity of the asset that is being delivered in a contract.


- O -

Odd lot - A non-standard amount for a transaction.

Offer - The price at which a seller is willing to sell. The best offer is the lowest such price available.

Off-shore - The operations of a financial institution which although physically located in a country, has little connection with that country's financial systems. In certain countries, a bank is not permitted to do business in the domestic market but only with other foreign banks. This is known as an off-shore banking unit.

One Cancels Other Order (O.C.O. Order) - An order that through its execution cancels the other part of the same order.

Overnight limit - Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.

Overnight - A deal from today until the next business day.


- P -

Parity - (1) Foreign exchange dealer's slang for "your price is the correct market price." (2) Official rates in terms of SDR or other pegging currency.

Parities - The value of one currency in terms of another.

Pegged - A system where a currency moves in line with another currency. Some pegs are strict while others have bands of movement.

PIP or Points - Most currencies are quoted in five digit figures, irrespective of the position of the decimal point. A PIP is the phrase used to describe the smallest part of an exchange rate. Example: on the ? v US$ rate of ?/$ 1.6500 a pip is 0.0001. Accordingly if the rate moves up by 5 pips the resulting rate in the example will be 1.6505. A POINT is generally 100 pips. In the above example if the rate moves up by 100 pips (one point) the resulting rate will be 1.6600.

Position - The netted total commitments in a given currency. A position can be either flat or square (no exposure), long (more currency bought than sold), or short (more currency sold than bought).

Profit taking - The unwinding of a position to realize profits.


- Q –

Quote - An indicative price. The price quoted for information purposes but not to deal.


- R –

Rally - A recovery in price after a period of decline.

Range - The difference between the highest and lowest price of a future recorded during a given trading session.

Rate - (1) The price of one currency in terms of another, normally against USD. (2) Assessment of the credit worthiness of an institution.

Reaction - A decline in prices following an advance.

Reciprocal currency - A currency that is normally quoted as dollars per unit of currency rather than the normal quote method of units of currency per dollar. Sterling is the most common example.

Resistance - Resistance is a forecasted price level where the rate of exchange should encounter selling pressure, which should stop the price/rate from rising any further. Main market participants (Investment funds, Banks etc.) look for resistance and support levels to place orders and thus they become, to a large degree, self-fulfilling prophecies. See also support.

Revaluation - Increase in the exchange rate of a currency as a result of official action.

Revaluation rate - The rate for any period or currency which is used to revalue a position or book.

Risk management - The identification and acceptance or offsetting of the risks threatening the profitability or existence of an organization. With respect to foreign exchange, involves consideration of market, sovereign, country, transfer, delivery, credit and counterparty risk.

Risk position - An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.

Rollover - An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).

Round trip - Buying and selling of a specified amount of currency.


- S  –

Same day transaction - A transaction that matures on the day the transaction takes place.

Selling rate - Rate at which a bank is willing to sell foreign currency.

Settlement date - The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.

Settlement risk - Risk associated with the non-settlement of the transaction by the counter party.

Short sale - The sale of a specified amount of currency not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price.

Short-term interest rates - Normally the 90-day rate.

Sidelined - A major currency that is lightly traded due to major market interest in another currency pair.

Soft Market - More potential sellers than buyers, which creates an environment where rapid price falls are likely.

Spot - (1) The most common foreign exchange transaction. (2) Spot or spot date refers to the spot transaction value date that requires settlement within two business days, subject to value date calculation.

Spot next - The overnight swap from the spot date to the next business day.

Spot price/rate - The price at which the currency is currently trading in the spot market.

Spread - The difference in prices between bid and offer rates. The inter-bank spread is considered the smallest and the variation between tourist buy & sell rates is generally the largest.

Square - Purchase and sales are in balance and thus the dealer has no open position.

Squawk box - A speaker connected to a phone often used in broker trading desks.

Squeeze - Action by a central bank to reduce supply in order to increase the price of money.

Stable market - An active market which can absorb large sales or purchases of currency without major moves.

Standard - A term referring to certain normal amounts and maturities for dealing.

Sterilization - Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.

Sterling - British Pound, otherwise known as cable.

Stocky - Market slang for Swedish krona.

Stop Loss Order - An order to buy or sell one currency against another when a pre-determined price is reached. It is lodged with a Bank or Broker and offers 24-hour protection and will float until either cancelled or hit. It is used to protect your purchase or sale of a currency from negative movements in the market overnight or over a period of days/weeks. It is free of charge to use and provides an excellent vehicle for companies to protect themselves from negative movements while leaving the door open to a company to benefit if the market moves in their favour.

Support Levels - Support is a forecasted price level where the rate of exchange should encounter buying pressure, which should stop the price/rate from falling any further. Main market participants (Investment Funds, Banks etc.) look for support and resistance levels to place their orders and thus they become, to a larger degree, self-fulfilling prophecies. See also Resistance.

Swissy - Market slang for Swiss Franc.


- T –

Technical Analysis - Technical analysis is the study of market action, primarily through the use of charts, for the purposes of forecasting future prices and trends. Technical analysis provides details of support and resistance levels. It further identifies trends and indicates when a trend is reversing. It is widely used by the main market players (the people who move the rates with the volumes they trade) and accordingly has arguably become the most popular form of analysis in tracking and forecasting currency movements.

Technical correction - An adjustment to price not based on market sentiment but on technical factors such as volume and charting.

Thin market - A market in which trading volume is low and in which bid and ask quotes are wide and the liquidity of the instrument traded is low.

Tick - A minimum change in price, up or down.

Today/Tomorrow - Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.

Tomorrow next (Tom next) - Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.

Top - A market top is an area where prices in an upward trend encountered heavy resistance, was unable to progress any higher, and either reversed (i.e. went into a bear trend) or traded sideways.

Trade date - The date on which a trade occurs.

Tradeable amount - Smallest transaction size acceptable.

Transaction date - The date on which a trade occurs.

Transaction - The buying or selling of currencies resulting from the execution of an order.

Two-tier market - A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa.

Two-Way quotation - When a dealer quotes both buying and selling rates for foreign exchange transactions.


- U –

Uncovered - Another term for an open position.

Under-valuation - An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.

Uptick - A transaction executed at a price greater than the previous transaction.


- V -

Value date - For a spot transaction, it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting center coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day.

Value spot - Normally settlement for two working days from today. See value date.

Volatility - A measure of the amount by which an asset price is expected to fluctuate over a given period.

Vostro account - A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.


- W -

Wash trade - A matched deal which produces neither a gain nor a loss.

Whipsaw - Term for where a trader takes a position, then experiences a move against it, triggering stop loss limits and liquidation of positions, followed by a reversal and move in the original direction. Normally occurs in volatile markets.

Working day - A day on which the banks in a currency's principal financial center are open for business. For FX transactions, a working day only occurs if the bank in both financial centers are open for business (all relevant currency centers in the case of a cross are open).


- Y -

Yard - Term for a billion