Spot – This term denotes the settlement date of a transaction. Spot is always two working days after the date of the agreement of the transaction and is a market standard for deals requiring early settlement. It is possible for deals to be transacted for same-day or next day settlement depending on the time the transaction is concluded.
Forward Value – This term denotes an agreement to purchase or sell currency at a rate agreed today but for settlement at an agreed fixed date in the future. This allows a client to fix a rate now against a future commitment e.g. delivery of goods and services or staged payments on a property purchase. A deposit or margin (see below) is required to secure forward transactions.
Option Forward – This term denotes a forward contract where the settlement date is not fixed but is between two agreed dates in the future. Such contracts are beneficial to clients in that have a future commitment but the date of settlement is not yet fixed. When the settlement date is known payments will be made in the normal way. If the settlement becomes due after the further date, a contract can be extended though this may result in an alteration to the exchange rate. A deposit or margin is required to secure option forward transactions.
Limit Order – This is a simple mechanism that allows a client to place an order to buy or sell a currency at an exchange rate that is better than the current market rate. Should the exchange rate reach the level of the client’s order, the transaction will automatically be completed. Such orders are placed in an effort to optimise dealing but it should be noted that exchange rates move up and down (see Stop Loss Order) and the placement of a Limit Order does no guarantee execution and is placed at the client’s risk.
Stop Loss Order – This is a mechanism to protect against adverse exchange rate movements. A client may want to limit their exposure by placing an order to trigger a transaction should there be a downturn in the market. This provides a safety net protecting the downside and ensuring a limit to any potential loss. It is not uncommon for clients to place both a limit order and stop loss order at the same time to try and optimise their dealing while sensibly managing downside risk.
Settlement Date – Shall mean the agreed date on which client should ensure cleared funds have been paid to the Company and the day on which the Company, having received cleared funds, will arrange to pay foreign currency to the Client’s designated account.
Segregated Client Account – This is an account opened by City Forex Limited in the name of the client and for the sole use of the client in which currencies purchased can be held until instructions are received to pay monies away.
Margin – This is the amount of deposit needed to secure a forward transaction. City Forex requires a margin of 10% of the value of the transaction to be paid on the day the transaction is agreed. On the settlement date the balance of 90% would be paid. In some cases a further top-up margin may be required if the original margin is insufficient to cover the risks incurred by the Company in the event of adverse exchange rate movements.
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