In the context of Foreign Exchange (FX), the acquisition rate refers to the rate at which a company or financial institution acquires a particular currency. It can also describe the exchange rate at which an entity purchases foreign currency for the purpose of conducting business, managing liquidity, or executing transactions.
In thee context of Foreign Exchange (FX), arbitrage refers to the practice of exploiting price differences in the exchange rates of the same currency pair across different markets or platforms to make a profit. The goal of arbitrage is to buy a currency at a lower price in one market and simultaneously sell it at a higher price in another, without any risk, because the transactions occur almost simultaneously.
In the context of foreign exchange (FX), the ask price is the price at which a market maker or broker is willing to sell a currency. It represents the amount of the quote currency (the second currency in a currency pair) required to buy one unit of the base currency (the first currency in the pair).
A base currency is the first currency in a currency pair against which the value of another currency (the quote currency) is measured.
A basis point (often abbreviated as bps) is a unit of measurement used in finance to express changes in interest rates, bond yields, or other percentages. One basis point is equal to 0.01% or 1/100th of a percent.
In the context of foreign exchange (FX), the bid price is the price at which a buyer (or market maker) is willing to purchase a currency. It represents the highest price a buyer is willing to pay for the base currency in a currency pair.
The Bid-Ask Spread in foreign exchange (FX) refers to the difference between the bid price and the ask price in a currency pair. It represents the transaction cost for traders when buying and selling currencies.
Central bank intervention refers to the actions taken by a country's central bank to influence the value of its national currency or stabilize financial markets.
A clearing house is a financial institution that acts as an intermediary between buyers and sellers in financial markets.
Counterparty risk, also known as credit risk, refers to the likelihood that the other party in a financial transaction (the counterparty) will not fulfill their obligations as agreed. This could involve failing to make payments, defaulting on a loan, or not delivering on a contract.
A cross-rate is the exchange rate between two currencies, each of which is quoted against a common third currency-most often the U.S. dollar (USD).
A currency option is a financial derivative contract that gives the buyer the right, but not the obligation, to buy or sell a specific amount of foreign currency at a predetermined exchange rate (known as the strike price) on or before a specified expiration date. To obtain this right, the buyer pays a premium to the seller of the option.
A currency pair is a quotation that shows the relative value of one currency against another in the foreign exchange (forex) market.
A currency peg is a fixed exchange rate system where a country’s currency is tied or "pegged" to another major currency, such as the U.S. dollar or the euro. This means the pegged currency maintains a consistent value relative to the anchor currency.
Currency risk, also known as foreign exchange risk or exchange-rate risk, is the possibility of financial loss that arises from unpredictable fluctuations in the value of one currency relative to another.
A currency swap is a financial agreement between two parties to exchange principal amounts and interest payments in different currencies over a specified period.
A derivative is a financial contract whose value is dependent on, or derived from, the value of an underlying asset, index, or rate.
Economic risk refers to the potential for financial loss or instability that arises from changes in the broader economic environment, affecting businesses, investments, or entire economies.
An exchange rate is the value of one nation's currency expressed in terms of another nation's currency. It represents the rate at which one currency can be exchanged for another, determining how much of one currency you get in return for a unit of the other.
An executable price quote in the context of foreign exchange (FX) is a firm, binding rate provided by a liquidity provider (such as a bank or dealer) at which a client can immediately execute a trade for a specified amount and currency pair. When a customer requests a quote and receives an executable rate, they have the option to accept and trade at that rate within a defined time window, typically a few seconds or minutes, depending on market conditions and the provider’s policies.
In finance, exposure refers to the amount of risk or potential loss an investor, business, or financial institution faces due to their investments, financial positions, or activities. It is essentially the degree to which one is vulnerable to financial loss if market conditions move unfavorably.
A foreign exchange (FX) broker, also known as a forex broker, is a financial intermediary or company that facilitates the buying and selling of currencies on behalf of clients. They act as middlemen between buyers and sellers in the foreign exchange market, matching currency buy and sell orders from their clients and providing a trading platform for these transactions.
FX markup (foreign exchange markup) is the additional fee or percentage that a financial institution, broker, or payment provider adds to the base or interbank exchange rate when converting one currency to another. This markup represents the profit margin or service fee for facilitating the currency exchange.
The FX spot market refers to the segment of the foreign exchange market where currencies are traded for immediate delivery, typically settled within two business days. In a spot transaction, the exchange rate at the moment of the trade is called the spot rate, and the transaction involves the immediate exchange of one currency for another.
Foreign exchange, often referred to as forex or FX, is the process of converting one currency into another. It involves the global market where currencies are traded between individuals, businesses, banks, and other entities.
Foreign exchange risk, also known as currency risk, FX risk, or exchange-rate risk, is the risk of financial loss that arises from fluctuations in exchange rates between currencies.
The foreign exchange market, commonly known as the forex or FX market, is a global decentralized or over-the-counter (OTC) marketplace where currencies are bought, sold, and exchanged at current or predetermined prices.
A forward contract is a customized, non-standardized agreement between two parties to buy or sell a specific asset at a predetermined price on a specified future date.
Forward points are the number of basis points (or pips) added to or subtracted from the current spot rate of a currency pair to determine the forward rate for delivery on a specific future date.
A futures contract is a standardized, legally binding agreement to buy or sell a specific commodity, asset, or security at a predetermined price on a specified date in the future.
Hedging in the context of foreign exchange (FX) refers to the use of financial strategies or instruments to protect against the risk of losses caused by unfavorable movements in currency exchange rates.
Interest rate differential (IRD) in the context of foreign exchange (FX) refers to the difference between the interest rates of two countries' currencies that are paired together in a currency trade.
Interest rate parity (IRP) is a fundamental theory in international finance that describes the relationship between the interest rates of two countries and the exchange rates of their currencies. It states that the difference in interest rates between two countries is offset by the difference between the forward exchange rate and the spot exchange rate, ensuring that investors cannot achieve risk-free arbitrage profits by exploiting interest rate differentials between countries.
Leverage is the use of borrowed funds (debt) to increase the potential return from an investment or project.
A limit order is an instruction to buy or sell a security or currency at a specific price or better. For a buy limit order, the trade will only execute at the limit price or lower; for a sell limit order, it will only execute at the limit price or higher.
Market liquidity risk is the risk that a market participant will be unable to buy or sell assets in the desired quantity within a given period without significantly affecting the asset's price, often due to insufficient market depth or disruptions.
A long position in finance refers to the purchase or ownership of a security, asset, or derivative with the expectation that its value will increase over time. When an investor takes a long position, they are bullish, anticipating that the price will rise so they can sell later at a profit.
In finance, margin is the collateral that an investor must deposit with a broker or exchange to cover the credit risk created when borrowing funds to buy financial instruments, selling assets short, or entering into derivative contracts.
A market maker is a firm or individual that actively quotes both buy (bid) and sell (ask) prices for a particular financial instrument, along with the quantity available at those prices thereby providing liquidity to the market. Market makers stand ready to buy securities from sellers and sell securities to buyers at publicly quoted prices, facilitating smooth and continuous trading.
A market order in foreign exchange (FX) is an instruction to buy or sell a currency pair immediately at the best available current price. This type of order is executed as soon as it is received by the broker, ensuring the trade is filled quickly, but without guaranteeing a specific execution price. The final price may differ slightly from the price seen when placing the order, especially in fast-moving or less liquid markets.
Mid-market rate (also known as the interbank rate or mid rate) refers to the exchange rate between two currencies that is calculated as the exact midpoint between the buy (bid) and sell (ask) prices offered by banks or financial institutions in the foreign exchange (FX) market.
A Non-Deliverable Forward (NDF) is a financial derivative contract used in foreign exchange (FX) markets, primarily for currencies that are not freely convertible or are subject to capital controls. Unlike standard forward contracts where the underlying currencies are physically exchanged at maturity, an NDF is settled in cash based on the difference between the agreed-upon forward rate (the NDF rate) and the prevailing spot rate at the contract's maturity date.
Over-the-counter (OTC) securities are financial instruments that are not listed on formal, centralized exchanges such as the New York Stock Exchange (NYSE) or NASDAQ. Instead, these securities are traded directly between parties, typically through a decentralized network of broker-dealers rather than on a centralized exchange platform.
A pip (short for "percentage in point" or "price interest point") is the smallest standardized unit of movement in the price of a currency pair in forex trading.
Purchasing power parity (PPP) is an economic theory and metric that compares the relative value of different countries' currencies by measuring how much of each currency is needed to purchase the same basket of goods and services in each country.
The quote currency is the second currency listed in a forex (foreign exchange) pair, also known as the counter currency.
In the context of Foreign Exchange (FX), a Request for Quote (RFQ) refers to a process where a market participant (such as a corporation, hedge fund, or institutional investor) requests a price or quote from a liquidity provider (like a bank or broker) for a specific currency transaction.
Volatility is a statistical measure of the degree of variation or fluctuation in the price or returns of a financial asset, such as a stock, derivative, or market index, over a specific period of time. It quantifies how much and how quickly the price of an asset moves around its average price, often measured by the standard deviation or variance of returns.