Foreign exchange market definitions

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Foreign Currency Market Definitions

Ask Price

The price that sellers of currency offer to buyers.

Bid Price

The price that buyers of currency offer to sellers.


A medium of exchange of value to define by reference to the geographical location of the authorities responsible for it. A currency is represented by a three-character code for example GBP or USD.

Currency pair

The exchange rate relationship between two currencies in which one currency is expressed in terms of the other. For example GBP/EUR.

Exchange rate

The amount of one currency required to buy another. For example the GBP/EUR exchange rate of 0.6896 means that GBP 0.6896 is required to buy one Euro or conversely one Pound buys 1.45 Euros.

Exchange rate risk

The potential loss that could be incurred from a movement in currency prices or exchange rates.

Financial institution

An entity that performs financial services. Examples include currency brokers and banks.

Foreign exchange

A transactions which changes the foreign currency holding of a financial institution or individual.

Foreign exchange market

The market where buyers and sellers of currencies are able to buy and sell currencies.

FX and forex

Abbreviations for foreign exchange.

Interbank prices

Currency prices that financial institutions trade at between themselves. These are typically transactions of US $1 million or more. Interbank prices are different from retail prices.


Currency has been overbought when the upward price movement is 150% greater than normal as a result of net buying. The price will usually fall quite sharply after a currency has been overbought.


Currency has been oversold when the downward price movement is 150% greater than normal as a result of net selling. The price will usually rise quite sharply after a currency has been oversold.

Price movement

The change in the price of a currency over a specific time period.


One basis point or 0.0001.

Retail prices

Currency prices that include commissions and charges that a bank offers to convert currencies for noncorporate clients.


The difference between the bid and the ask price of a currency.

Limit Order

An instruction to buy currency at a price that is above the current market price that gets executed when the specified price is reached. These can be used by to buy currency at better rates when the market is perceived to be rising.

Stop loss

An instruction to buy or sell currency at a price that is below the current market price that gets executed when the specified price is reached. These can be used by to close out risk when the market is falling.


A measure of how much an exchange rate is expected to fluctuate or has fluctuated over a given period of time. Volatility is often expressed as a percentage per year.

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