Foreign Exchange Services Key Terms

Foreign exchange services terms you will find useful

Foreign exchange market (Forex) is very different from the stock market in that there are levels of access for trading. The level of access to this market is determined by the amount of money with which the entity is trading. At the top is the inter-bank market, which accounts for 53% of all transactions. Then there are smaller investment banks, large multi-national corporations, large hedge funds and retail forex market makers. Forex is the most widely traded security. Each foreign exchange service offers various gauges to evaluate market trends. As you research foreign exchange services you will run across numerous terms, which may confuse you and that you might want to understand.

Inter-bank rates

Inter-bank rates are the foreign exchange (forex) rates that large international banks quote to other banks and which the public and other businesses do not have access to. Foreign exchange services keep track of the inter-bank rates.

Bid price

A bid price is the highest price that a buyer is willing to pay for a specific currency and is used by investors as part of their investment strategy that they communicate to foreign exchange services.

Ask price

Ask price is also referred to as offer price, offer, asking price or ask, and is the price a seller is willing to accept for foreign currency. Foreign exchange services use asking price as part of their trading strategies when managing accounts for clients.
SEC for more information.

Options spreads

Options spreads are a fundamental aspect of options trading strategies employed by foreign currency exchange services and consist of buying and selling options of the same foreign currency with different strike prices (a pre-determined price agreed upon) or expiration dates.

PIP

PIP or point is 0.0001 of a unit or 100th part of a percent and refers to the movement of exchange rates, also known as the minimum fluctuation or smallest amount of movement. Foreign exchange services track this level of change in foreign currency.

Arbitrage

Arbitrage is the practice of capitalizing on the price differential between two or more markets. This type of transaction can be done by foreign exchange services and is advantageous because there is no negative cash flow and offers a risk-free profit. Arbitrage is commonly used when trading currencies.