MOVEMENTS in the price between the Pound, the Dollar, the Euro and other currencies could have a detrimental impact on the value of your dream home.
Specialist currency dealers are often a useful place to turn for advice, charge lower fees than your bank and usually offer a better exchange rate.
But it is also a business steeped in strange phrases and terms, from draw-down to roll-over, to name just two.
Luke Percy, account manager at SGM-Foreign Exchange, offers a guide to some of the terminology:
Spot
This term is used throughout the foreign exchange market to describe the next normally available value date.
'Spot' is always two working days time. Depending on the currency and time of day, it is possible to book deals with the value date being the same or next working day as the date upon which they are booked.
Value date
The date of which the deal settles.
Forward contract
This is where currency is purchased today, at an agreed rate, for delivery for a date up to 12 months ahead. The rate is fixed and a deposit of 10% of the currency value must be lodged against it.
This is particularly effective where there is a future commitment and you want to fix your costs as soon as that commitment arises.
Examples might be where a commercial contract has been agreed, the purchase of a property or covering a letter of credit.
Time option
This is similar to a forward contract, however it differs in that rather than booking for one specific date, the contract can be taken at any time between two pre-agreed dates.
This is useful when the exact delivery date is unknown.
Draw-down
A draw down is the term commonly used to describe the early delivery of all or part of a forward contract. There may be a slight adjustment to the original exchange rate in this case.
Roll-over
This is where the delivery date of a forward deal is extended for all or part of the original contract. There may be a slight adjustment to the original exchange rate in this case.
Stop or stop loss order
This is an instruction to purchase an amount of currency at a given level, lower than the prevailing market rate.
The most common reason to do this would be to provide a 'safety net' to ensure that should there be a down-turn in the market you would not get a worse price than one previously agreed or budgeted for.
The orders are placed into an electronic system that ensures coverage over a 24-hour period.
Limit order
This is similar to a 'stop' in that it is an instruction to buy at a given rate, however it is placed at a level above the prevailing market level. This would be done with the intention of achieving a better rate of exchange.
By using both a limit and a stop order you provide boundaries within which you can be certain of buying your currency no matter what happens within the market.
If you have any questions please request more information on the currency services offered by SGM-FX.
