Glossary of foreign exchange terms

BACS: Bankers Automated Clearing Services - The process for making Sterling payments via domestic banks. Usually takes three business days.

CHAPS: Clearing House Automated Payment System - a faster way of making payments. Usually happens on the same day.

Exposure: The amount of money at risk due to foreign exchange movements.

Faster Payments: A new UK system for faster payment of amounts up to £10,000 (lower for some banks). Funds usually credit within minutes.

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.

Forward points: The difference between the spot rate and the forward rate. The forward points are a calculation of the interest rate differential between the buy and sell currency.

Forward rate: The rate at which two currencies can be exchanged on a preset future date.

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

Hedge: Protection against future currency movements.

Interbank rate: This is the rate used by the banks to trade currency between themselves in large amounts.

Mid-market rate: Currency is bought by the customer at the offer rate and sold at the bid rate. The mid-market rate is the mid-point between the bid and offer rates.

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 two days’ time.

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

Stop Loss Order: A stop loss order is a means of limiting your risk in case exchange rates get worse. A currency stop loss level is set. If that currency level is reached, the trade is automatically executed in the market to stop any further loss. 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.

Spread: The spread is the profit taken by a bank or a broker between the rate they receive and the rate they pass on to clients. World First takes a smaller spread than most banks and other currency companies, and passes this benefit on to their clients.

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 capitalise or take profit on improvements in exchange rates without needing to constantly monitor the rate.

Settlement Date: The date for the exchange of payments.

If your question isn’t answered here, please give us a call on 0800 783 6022 or +44 020 7801 9080 – we’d love to help. Alternatively arrange for us to call you back.