Glossary of Foreign Exchange Terms

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Below are some commonly used expressions which market makers employ. Like most esoteric enterprises, the foreign exchange market likes to surround itself with jargon and technical shorthand. Hopefully, this glossary will dispel some of the mythology.

At a discount A currency which is less expensive to purchase forward than for spot delivery.

Its interest rates are higher than the latter's At a premium A currency which is more expensive to purchase forward than for spot delivery. Its interest rates are lower than the latter's Bid, wanted, firm, strong The currency in question is appreciating, or in demand, and buyers of the currency predominate Broken date, odd date A value date, which is not the regular forward date and implies an odd number of days

Cash Same as value today, where funds are settled on the same day the contract is struck End/end If the spot value of the near end of a swap falls on the last business day of the month, the forward date must also be the last business day of the month, for example 28 February to 31 March, not 28 March Firm A market maker making a commitment to a price Forward/forward A swap price where both value dates are beyond spot For indication Quotations which are not firm and are intended as an indication of unwillingness or inability to trade Long, overbought Excess of purchases over sales

"Mine" The trader buys the currency and amount specified at the time of asking for a quote Offered weak The currency in question is depreciating and sellers of the currency predominate

Overnight A swap price for today against tomorrow

Par Where spot is the same as the forward price, indicating that interest rates in the respective currencies are identical Pip The last decimal place of a quotation Short dates Usually swap prices for days up to one week Short, oversold Excess of sales over purchases

Spot date Cash settlement two working days from the trade date. The exception to the rule is the Canadian dollar, which is one working day from the trade date Spot next or spot a day A swap price for spot against the following day

Spot rate The price at which one currency can be bought or sold, expressed in terms of the other currency, for delivery on the spot date Spread The difference between the buying and selling price of a foreign exchange quotation Square Purchases and sales are equal, i.e. no position, or no further interest in dealing Swap pips, points Used to calculate the forward price and are determined by interest rate differentials

Tom/next A swap price for tomorrow against the next day, which is spot Value date, settlement date The date agreed upon by both parties on which the two payments involved are settled

Value tomorrow Except in Canada, settlement is one day ahead of spot value "Yours" The trader sells the currency and amount specified at the time of asking for a quote "Your risk" Where the response is not immediately forthcoming from a market user when a market maker has quoted a price, the market maker may, at its discretion, indicate the price is no longer firm by stating that the market user is now at risk of the price changing against him/her

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