The pieces of the jigsaw

BACS: Bank Automated Clearing System - the electronic process for Sterling clearing for domestic banks. A cost saving process that should take 3 business days to reach the destination account.

CHAPS: Clearing House Automated Payment System (for transfers within the UK) – an electronic means of making payments. The fastest payment available, which usually results in the destination account being credited on the same day. Also called a WIRE (principally in the US) and formerly called a Telegraphic Transfer (TT). The expression is also used when making payments overseas in foreign currencies and which, within banking systems, are referred to as Electronic Payments and are either an Urgent or Standard Transfer, the Standard transfer taking an extra day.

Exposure: The amount of money at risk due to Foreign Exchange Rate movements.

Forward Rate: The rate at which two currencies can be exchanged on a preset future date.

Forward Points: The difference between the spot rate (today’s exchange rate) and the forward rate (the future exchange rate).

Forward Contract: A contract to exchange a specific amount of one currency for another on a future date at a pre-determined rate. A deposit is normally required for forward contracts.

GTC: Good Till Cancelled. A GTC foreign exchange order will be left in the market until executed or cancelled by the client.

Hedge: A method of protection against future currency exchange rate fluctuations.

Limit Order: Placing a limit order enables you to specify a defined rate of exchange that you would like to buy at. In other words, a better rate than is currently available. For example, if the Euro is currently trading at €1.48 to the £1, you can place a limit order to buy Euros if and when they reach €1.50 to the £1.

OCO: "One Cancels Other". A combination of a 'Stop Loss' order and a 'Take Profit' order. When one of these two foreign currency orders is executed, the other order is automatically cancelled.

Order: Where a client can leave an "order" with us to transact on your behalf if a particular exchange rate is reached.

Spot rate: The foreign exchange rate at which two currencies can be exchanged within the next two days.

Spot Transaction: The exchange of one currency for another at a specified rate for settlement within 2 working days. For example, an agreement would be reached to exchange $1.93 US Dollars for every pound sterling or to exchange €1.44 Euros for every pound sterling.

Stop Loss Order: A stop loss order is a means of limiting a client’s risk from adverse exchange rates. A currency exchange level is set. If that currency exchange level is reached, the trade is automatically executed in the market. The currency level used for a stop loss order is always worse than the current market price. This is a way to protect you from adverse changes in exchange rates without needing to constantly monitor the rate. Using a Euro example, if the market is trading at Euros €1.49 and you think that you may get a better rate by waiting, you can still protect yourself in case the market moves against you by placing a stop loss order at Euros €1.4875.

Take Profit Order: Like a "stop loss order", a take profit order first involves setting a currency exchange level. Once that currency exchange level is reached, the trade is executed in the foreign exchange market. The currency level used for a take profit order is always better than the current market price. This is a way to capitalise on improvements in exchange rates without needing to constantly monitor the rate.

Settlement Date: The date for the exchange of payments of the currencies following an agreed foreign exchange contract.