THE A - Z OF CURRENCY HEDGING

The glossary with insights and facts that makes currency hedging terms and concepts easily understandable.

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A

At the money

at the money

At the money

At the money is a term used in options trading. Options are contracts that allow you to buy or sell an asset at a pre-agreed price.

 

 

B

Base currency

base currency

Base currency

The base currency is the first currency shown in a foreign exchange quotation. The second currency in the quotation is called the quote currency, or counter currency.

C

Collar

Collar - FX Glossary

Collar

A collar is a hedging strategy that helps you manage your foreign exchange risk by limiting your exposure to currency fluctuations to within a certain range.

D

Derivative

derivative

Derivative

A derivative is a type of financial contract that gets its value from an underlying asset. In foreign exchange transactions, the underlying asset is typically a currency’s exchange rate.

E

Exposure

exposure

Exposure

In foreign exchange transactions, exposure is the risk that you could lose money due to the exchange rate evolving in a way that is unfavourable to you.

F

Forward contract

forward contract

Forward contract

Forward contracts are a type of derivative – a financial contract that gets its value from an underlying asset such as a company share or a loan or coffee beans.

G

Greeks

greeks

Greeks

On the options markets, the so-called “Greeks” are the numerical indicators that traders use to measure the risks a particular type of trade entails.

H

Hedge

hedge

Hedge

A hedge is an investment that you make in order to manage your risk. When you hedge, you’re minimising or offsetting the possibility you’ll lose money should things go wrong.

I

Initial Margin

initial margin

Initial Margin

Initial margin is the amount you have to pay a broker to open a trade on the forex market. It’s worked out as a percentage of the total value of your trade.

J

Japanese Yen Carry Trade

Japanese-Yen-Carry-Trade

Japanese Yen Carry Trade

A carry trade is a type of foreign exchange trade in which you borrow money in one currency at low interest and use it to make high-interest investments in another currency (Yen — Japan’s currency).

K

Knock-in Option

 Knock-in Option

Knock-in Option

A knock-in option is an option that only comes into force — or knocks in — if the underlying asset reaches a certain price. In foreign exchange, the underlying asset is an exchange rate.

L

Leverage

Leverage

Leverage means investing using money you’ve borrowed, usually from a broker. When you trade on leverage, you pay your broker a sum of money called initial margin.

M

Stay tuned!

'M' will be published on August 6, 2021.

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