FX Glossary

Using financial instruments (forwards, options, swaps) to offset potential currency losses from adverse exchange rate movements. Hedging protects against downside risk but may limit upside gains.

The market's expectation of future currency volatility derived from option prices. Higher implied volatility suggests greater expected price swings.

A forward contract settled in cash rather than physical currency delivery. NDFs are commonly used for currencies with trading restrictions or capital controls.

The interest rate at which banks lend reserve balances to each other overnight. Central banks often target this rate to influence monetary policy and overall liquidity in the financial system.

The smallest standard price move in a currency pair, typically 0.0001 (or 0.01 for JPY pairs). Traders measure profit and loss in pips. For example, if EUR/USD moves from 1.1050 to 1.1051, it has moved 1 pip.

The second currency in a currency pair (e.g., USD in EUR/USD). The quote currency is also known as the counter currency, and its value is used to express the value of the base currency.

A price level where a currency tends to encounter selling pressure and struggles to rise above. Resistance levels are identified through technical analysis and represent potential reversal points.

The degree of price fluctuation in a currency over a specific time period. Higher volatility means larger price swings and greater uncertainty in exchange rates. It is a key measure of FX market risk.

A forward contract that allows delivery to occur at any point within a specified date range, rather than on a single fixed date. Window forwards provide flexibility in managing currency exposure.

A graph showing the relationship between interest rates and bond maturity dates. Yield curve inversions and shifts often signal economic changes that affect currency values.