Forex or Foreign Exchange is an important aspect of international travel. However, a lot of students face issues with understanding key terms related to Forex. Well, worry not. This blog on Forex glossary contains important forex terms like FX trading, base currency, quote currency, currency appreciation and depreciation, and many more. These words which are directly or indirectly related to forex are included in this forex glossary that every international student should know. Continue reading to find out their meaning and definitions in simpler terms.
Table of contents
Basic Forex Terms
There are many basic forex terms that you might have come across in daily life when interacting with your peers. Checking Forex Glossary will improve your understanding of currency exchange, trading and international money transfer. However, it is important to understand the meaning of these terms more specifically to ensure that your journey abroad is a smooth one. Be sure of the definitions to save yourself from Forex scams and avoid any ambiguity related to the basic Forex terms discussed in this section:
Forex: Forex refers to foreign exchange. It is a vast marketplace where currencies are traded globally for international trade and investment.
FX Trading: Forex trading is the buying and selling of currencies on the foreign exchange market (forex market) to profit from fluctuations in exchange rates.
Forex Card: It is a prepaid travel card that can be loaded with foreign currency. It helps in the easy management of money and lets you avoid carrying physical cash. Forex cards offer the convenience of spending abroad but with some applicable fees.
Forex Fees: It is also called foreign exchange fees which are charged by banks, forex card issuers, or currency exchange providers for offering forex services like currency exchange. These are also charged for transactions made in a foreign currency.
FX Swap: It is a foreign exchange swap, a two-part currency exchange agreement made between two parties. It involves the simultaneous buying and selling of currencies but with a condition. One part happens immediately (spot rate) and the other part happens at a pre-determined future date (forward rate).
Spot Rate: It refers to the current price you pay to exchange one currency for another. It is the price of the currency, commodity, or security for immediate settlement.
Forward Rate: It is the agreed-upon price you pay today to exchange one currency for another at a future date. It allows you to hedge against currency risks by locking the currency exchange rates for future transactions.
Bid Price: The price at which a trader can sell a currency pair.
Ask Price: The price at which a trader can buy a currency pair. The difference between these two prices is known as the spread.
MCTC: The full form of MCTC is a Multi-currency Travel Card. It is a type of forex card that can be loaded with multiple currencies. They offer users to make seamless international transactions that are convenient and secure.
Also Read: Check out this blog on currency exchange in Berlin. Know about top banks and currency exchange providers in 2024.
Forex Glossary: Currency-specific Forex Terminology
Forex is very much related to currency trading and exchange for investments and international trade. International students must know about forex terminology related to currency-specific terms. This section is mostly about the forex glossary related to currency.
Currency Pair– It is a pair of currencies that represent the exchange rate between two currencies. They are denoted by a three-letter code separated by a slash, for example- USD/EUR.
Base Currency: It is the first currency listed in a currency pair. It is usually the domestic currency which states how much of the other currency is required to buy a unit of base currency. For example, in EUR/USD, EUR is the base currency.
Quote Currency: It is the second currency listed in a currency pair. This is the price you pay to buy the base currency. For example, in EUR/USD, USD is the quote currency. You need USD to buy EUR.
Currency Depreciation: It refers to the fall in the value of one currency relating to the other currency. For example, the change in the exchange rate from 1 USD = 90 INR to 1 USD to 91 INR. In simpler terms, the decline in the value of INR is referred to as currency depreciation. In this case, more of the home currency is required to purchase the same unit of foreign currency.
Currency Appreciation: It refers to the increase in value of a country’s currency with other foreign currency. For example, the change in the exchange rate from 1 USD = 90 INR to 1 USD to 89 INR. In simpler terms, the increase in the value of INR is referred to as currency depreciation. In this case, less of the home currency is required to purchase the same unit of foreign currency.
Currency Hedging: This refers to hedging or locking exchange rates to mitigate the risks of currency fluctuations. It helps to deal with potential losses that might occur as a result of sudden movements in exchange rates.
Dynamic Currency Conversion: It is a payment option for purchases in your home currency at the point of sale. In simpler terms, DCC conversion is when you see and pay in your domestic currency for foreign transactions. It might seem convenient, but it often comes with hidden costs.
Exchange Rate: It is the price of one currency in terms of another currency. This determines how much of one currency you need to buy another. For example, if the exchange rate is 1 USD = 80 INR, you need 1 USD to buy 80 INR.
Exchange Rate Volatility: This refers to the risk associated with the volatile nature of exchange rates, meaning that exchange rates are subject to sudden changes and fluctuations. It occurs due to factors like inflation, interest rates, trade deficit, etc.
Also Read: Thinking about what you should do if you encounter counterfeit currency? Check out this blog which talks about what do to with counterfeit currency.
Some More Terms in Forex Glossary
Various terms have not been included in the above sections. These terms are directly or indirectly related to Forex Trading. Check them for a better understanding of the Forex market by exploring more terms given in the Forex glossary below-
Lot: It is a standardized unit of trading in the forex market. A standard lot is equal to 100,000 units of the base currency.
Leverage: Leverage in forex means to borrow money for investment. The capital is borrowed for forex gains in investments.
Technical Analysis: It is the analysis, interpretation, and study of price movements and patterns in the forex market. This helps in predicting future price movements of forex rates. Bollinger Band is a common tool used by analysts for technical analysis in forex.
Forex Broker: A forex broker is like a middleman who connects you to the giant currency market. They let you buy and sell currencies for a small fee.
Forex Market Hours: These are the hours during which the forex market operates. The forex market is open 24 hours a day and 5 days a week. This means you can trade currencies all the time, 24/5.
Forex Signals: Forex signals are like tips about which currencies to buy or sell (trade). These tips are based on the friend’s (or program’s) analysis of the market, but there’s no guarantee they’ll make you money.
Forex Demo Account: It is a type of dummy account that lets you try out forex trading with fake money so you can learn the ropes without risking your cash. This is a great way to get comfortable with the trading platform and see if forex trading is right for you.
FX Trading Platform: It’s a software program provided by your broker that allows you to see live currency prices, analyze charts, and buy and sell currencies.
Wire Transfer: A wire transfer is an electronic method of sending funds from one bank account to another. It’s a quick and secure way to transfer money domestically (within the same country) or internationally. It involves the conversion of forex at a specified exchange rate to make transfers.
This was all about forex terminologies. Hope this blog helped you understand these terms more simply. To know more about forex, education loans, the best bank accounts for students, banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
FAQs
Forex refers to foreign exchange. It is a vast marketplace where currencies are traded globally for international trade and investment.
You can start forex trading by opening a forex demo account. It is a type of dummy account that lets you try out forex trading with fake money so you can learn the ropes without risking your cash. This is a great way to get comfortable with the trading platform and see if forex trading is right for you.
Base currency is usually the domestic currency which states how much of the other currency is required to buy a unit of base currency. For example, in EUR/USD, EUR is the base currency. The quote currency is the price you pay to buy the base currency. For example, in EUR/USD, USD is the quote currency. You need USD to buy EUR.
A foreign exchange swap is a two-part currency exchange which involves the simultaneous buying and selling of currencies but with a condition. One part happens immediately (spot rate) and the other part happens at a pre-determined future date (forward rate).
Forex signals are like tips from a friend (or sometimes a computer program) about which currencies to buy or sell. These tips are based on the friend’s (or program’s) analysis of the market, but there’s no guarantee they’ll make you money. It’s always best to do your own research before following any trading advice.
Some important forex terms used in Forex trading are FX swap, spot rate, forward rate, bid and ask price, currency pair, exchange rate, etc. Check out the detailed explanation in the blog.
Leverage in forex means to borrow money for investment. The capital is borrowed for forex gains in investments.
