Forex Glossary

The foreign exchange market - a quick overview
In simple terms, the foreign exchange market (also known as 'FX', 'forex' and 'currency market')' is about exchanging one currency for another. The foreign exchange market is considered to be the largest financial market in the world with recent data revealing that trading in the foreign exchange market averaged US $5.3 trillion per day in April 2013.

The FX market is made up of many different counterparts - central banks, banks, investment firms, commercial companies, hedge funds, investors and non-bank providers like OFX. The large, international banks are, however, the main participants of the market.

The foreign exchange market may appear to be a daunting and confusing subject, however it doesn't need to be. We've put together this Forex Glossary to try and help you better understand the FX market - the key currencies that exist, a glossary full of industry terms, a section on some key terms/ acronyms and other information about the market.

  • American Option
    • An option which may be exercised at any valid business date through out the life of the option.

  • Arbitrage
    • A risk-free type of trading where the same instrument is bought and sold simultaneously in two different markets in order to cash in on the difference in these markets.

  • Adjustable Peg
    • An exchange rate system where a country's exchange rate is “pegged” (i.e. fixed) in relation to another currency. The official rate may be changed from time to time. See peg, and crawling peg.

  • Aggregate Risk
    • Total amount of exposure a bank has with a customer for both spot and forward contracts.

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

  • Around
    • Used in quoting forward “premium / discount”. “Five-five around” would mean five points on either side of the present spot value.

  • At Best
    • An instruction given to a dealer to buy or sell at the best rate that is currently available in the market.

  • At Par Forward Spread
    • When the forward price is equivalent to the spot price.

  • At the Price Stop-Loss Order
    • A stop-loss order that must be executed at the requested level regardless of market conditions.

  • Average Rate Option
    • A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an “Asian option”.