Forex Terms

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Federal Deposit Insurance Corporation (FDIC) - The regulatory agency responsible for administering bank depository insurance in the US.

Federal Reserve (Fed) - The Central Bank of the United States.

Fixed Exchange Rate - An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention.

Fixed Interest - This type of transaction pays an agreed interest rate that remains constant for the term of the deal. Fixed interests are many times found in bonds, as well as, a fixed rate mortgage.

Flat (or Square) - To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out.

Floating Rate Interest - As opposed to a fixed rate, the interest rate on this type of deal will fluctuate with market rates or benchmark rates. One example of a floating rate interest is a standard mortgage.

Foreign Exchange (or Forex or FX) - The simultaneous buying of one currency and selling of another in an over-the-counter market. Most major FX is quoted against the US Dollar.

Foreign Exchange Risk - See Currency Risk

Forward - A deal that will commence at an agreed date in the future. Forward trades in FX are usually expressed as a margin above (premium) or below (discount) the spot rate. To obtain the actual forward FX price, one adds the margin to the spot rate. The rate will reflect what the FX rate has to be at the forward date so that if funds were re-exchanged at that rate there would be no profit or loss (i.e. a neutral trade). The rate is calculated from the relevant deposit rates in the 2 underlying currencies and the spot FX rate. Unlike in the futures market, forward trading can be customized according to the needs of the two parties and involves more flexibility. Also, there is no centralized exchange.

Forward Points - The pips added to or subtracted from the current exchange rate to calculate a forward price.

Forward Rate Agreements (FRA`s) - FRA`s are transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future.

Front and Back Office - The front office usually comprises of the trading room and other main business activities.

Fundamental Analysis - Thorough analysis of economic and political data with the goal of determining future movements in a financial market.

Futures - A way of trading financial instruments, currencies or commodities for a specific price on a specific date in the future. Unlike options, futures give the obligation (not the option) to buy or sell instruments at a later date. They can be used to both protect and to speculate against the future value of the underlying product.