Tag Archives: Foreign exchange

Guy Debelle: The FX Global Code

Speech by Mr Guy Debelle, Deputy Governor of the Reserve Bank of Australia, at Tradetech FX EU, Hybrid Conference, 8 September 2021

Thanks to Matt Boge for his incredible assistance over my term as Chair, as well as Grigoria Christodoulou and the other members of the GFXC Secretariat.

Tonight I will talk about the recently completed review and update of the FX Global Code. The updated Code was released on 15 July.1 Tonight I will remind you about the important role the Code plays in the foreign exchange (FX) market. I will summarise the parts of the Code that have been updated and talk about the accompanying papers on pre-hedging and last look.

FX Global Code

The FX Global Code was launched in May 2017. It was a direct and important response to the lack of trust the foreign exchange industry had been suffering on the back of a number of instances of misconduct in the market and the associated multi-billion dollar fines. This lack of trust was evident both between participants in the market and, at least as importantly, between the public and the market. The lack of trust was impairing market functioning. The market needed to move towards a more favourable and desirable location, and allow participants to have much greater confidence that the market is functioning appropriately.

It is also important to remember what the alternative was in the aftermath of the scandals. There was a decent chance authorities could conclude that a substantial regulatory response was necessary to generate the desired improvement in market structure and conduct. But the Code provided the opportunity for the FX market to address the lack of trust and market dysfunction.

The Code was developed through a public sector–private sector partnership. It was a joint effort of central banks and market participants drawn from all parts of the markets: from the buy side, including corporates and asset managers, and the sell side, along with trading platforms, ECNs and non-bank participants. The membership was also from all around the world, drawing from the various Foreign Exchange Committees (FXCs) across the globe comprising all the top 15 FX markets by turnover, both advanced and emerging markets. The Global Foreign Exchange Committee (GFXC) that maintains the Code has since expanded to 20 members.

The Code set out global principles of good practice in the FX market to provide a common set of guidance to the market. The 55 principles in the Code cover ethics, information sharing, aspects of execution including e-trading and platforms, prime brokerage, governance, risk management and compliance, and confirmation and settlement.

The Code is principles-based rather than rules-based. There are a number of reasons why this is so but, for me, an important reason is that the more prescriptive the Code, the easier it is to get around. Rules are easier to arbitrage than principles. The more prescriptive and the more precise the Code, the less people will think about what they are doing. If it’s principles-based and less prescriptive then market participants will have to think about whether their actions are consistent with the principles of the Code.

The Code is not a procedures manual. Rather, the Code articulates principles that need to be taken into account. Individual firms may then take these principles and reflect them in their own procedures manuals. Our aim in setting out these principles is to provide market participants with the framework in which to think about how they, for example, handle their orders. The emphasis here is very much on the word ‘think’.

These principles of good practice have helped to restore confidence and promote the effective functioning of the wholesale FX market. In my view, the FX market is in a better place than it was a few years ago. That is confirmed by surveys of market participants too, including the one conducted by the GFXC a couple of years ago.

The Code has also been adopted by a number of securities regulators round the world as the primary reference for their oversight of the FX market, including in the UK, in China and in my own market Australia.

When we launched the Code, it was agreed that the Code would be reviewed by the GFXC every three years to ensure it remained appropriate and to also ensure it stayed current with the ongoing evolution of the FX market.

Hence, around two years ago, the GFXC surveyed market participants to assess what areas of the Code needed to be reviewed.2 The primary response of market participants was that the Code remained fit for purpose and changes should only be made as necessary. The strong guidance was that changes to the Code should be contained to a few areas. The GFXC identified a few key areas requiring review to ensure that the Code continues to provide appropriate guidance and contributes to an effectively functioning market, and remains in step with the evolution of the market.3 The GFXC also saw the opportunity to provide greater consistency and usability in disclosures.

Over the past 18 months, various working groups of the GFXC, drawing on a diverse group of market participants and central banks, have been working on the review. The proposed updates to the Code have been through a number of rounds of feedback with market participants through the FXCs round the world, as well as a public feedback process. I would like to thank the broad range of market participants who provided us with feedback. I would particularly like to thank the working groups for their hard work, especially given the challenging environment of the pandemic.

The Review of the Code

Following this process of review and consultation with industry, the GFXC has published the updated version of the Code. The July 2021 version of the Code replaces the earlier, August 2018 version. In total, 11 of the Code’s 55 principles have been amended.

The GFXC has also developed disclosure cover sheets and templates for algo due diligence and transaction cost analysis (TCA) to assist market participants in meeting the Code’s principles for disclosure and transparency. Additionally, the GFXC has published guidance papers on the practices of Pre-Hedging and Last Look to support market participants in applying the Code’s principles in these areas.

One area that reflects the development of the market is the role played by Anonymous Trading. The Code has been amended to encourage greater disclosure by those operating anonymous platforms, including of their policies for managing the unique identifiers (‘tags’) of their users. Anonymous trading platforms are also encouraged to make available the Code signatory status of their users.

Recognising the value that data related to trading activity holds for market participants, the Code now states that FX e-trading platforms (including anonymous platforms) should be transparent about their market data policies, including which user types such data is made available to and at what frequency and latency. Platforms are also encouraged to disclose the mechanisms and controls by which they are managing or monitoring the credit limits of their users.

The risks associated with FX settlement are potentially very significant and have come back into view again following the publication of the previous Triennial survey of FX turnover by the BIS.4 Consequently, the GFXC identified a need to strengthen the Code’s guidance on Settlement Risk. Amendments have been made to place greater emphasis on the usage of payment-versus-payment (PVP) settlement mechanisms where they are available and to provide more detailed guidance on the management of settlement risk where PVP settlement is not used. New language on the potential systemic consequences of a market participant’s failure to meet their payment obligations has been included to specifically discourage ‘strategic fails’.

The Code’s guidance on the information that providers of Algorithmic Trading or aggregation services should be disclosing has been expanded to include the disclosure of any conflicts of interest that could impact the handling of client orders (such as those arising from interaction with their own principal market-making desk).5 More broadly, the GFXC believes the market would benefit from greater uniformity of disclosures in this area. To enable clients to more easily compare and understand the services being offered, market participants providing algorithmic trading services are now encouraged to share their disclosure information in a standardised format. To this end, the GFXC has published an Algo Due Diligence Template that market participants may use, as appropriate.

Similarly, the GFXC believes that Transaction Cost Analysis would be aided by greater harmonisation of data reporting within the industry. TCA is central to determining the quality of execution received by users of algorithmic trading services. As the barriers to conducting TCA can be high, a standardised information set could be particularly helpful for less-sophisticated clients or those with limited resources. The GFXC has published a Transaction Cost Analysis Data Template that should assist in bringing about greater standardisation.

Disclosure Cover Sheet and Templates for Algo Due Diligence and Transaction Cost Analysis

Clear and accessible disclosures allow market participants to make informed decisions about the other market participants with whom they interact. A key area of focus for the GFXC was the challenges market participants faced in accessing and evaluating the large amount of varied disclosure information being made available to them.6 To address this, the GFXC has created standardised Disclosure Cover Sheets for liquidity providers and for FX e-trading platforms. They have been developed to improve the accessibility and clarity of existing disclosures. You should be able to more easily compare and contrast disclosures across a set of standardised information.

The Code has also been expanded to include explicit references to the provision of information about trade rejections. Market participants should be making clients aware of the basis on which trades might be rejected, and should be keeping records of the reasons behind electronic trade rejections.

The Disclosure Cover Sheet, the Algo Due Diligence Template and the TCA Data Template can support market participants in meeting the range of disclosure and transparency principles within the Code. They are available on the GFXC website and their use is voluntary. Market participants will be able to post their Disclosure Cover Sheet alongside their Statement of Commitment on participating public registers, further supporting accessibility of disclosure.

Guidance Papers on Pre-Hedging and Last Look

Principles 11 and 17 of the FX Global Code describe good practice for market participants using pre-hedging and last look. They continue to be areas that generate strong and sometimes diverse views across market participants. There was demand for further clarity on the appropriate usage of these trading practices. Hence, the GFXC has published separate guidance papers on these topics. These papers are intended to be read alongside the Code in its entirety. (That is, there are other principles in the Code that cover practices relevant to pre-hedging and last look, not just Principles 11 and 17.)

The Guidance Paper on Pre-Hedging discusses the circumstances in which pre-hedging could be used in the FX market and the controls and disclosures that could help align pre-hedging activity with the Code. As the paper states, in utilising pre-hedging, liquidity providers are expected to behave with integrity both in executing their client activities and in supporting the functioning of the FX market. While the intent of any liquidity provider conducting pre-hedging should be to benefit the liquidity consumer in executing an anticipated order, there is no guarantee that it will always result in a trade, or a trade at a price that is beneficial to the liquidity consumer. Pre-hedging done with no intent to benefit the liquidity consumer, or market functioning, is not in line with the Code and may constitute illegal front-running.

The Guidance Paper on Last Look has generated a larger volume of discussion and feedback than the other parts of the review. The guidance paper reinforces Principle 17 of the Code by emphasising that the last look be applied in a fair and predictable manner. The guidance paper does move the industry forward in providing greater clarity about the intent of Principle 17. In addition, the disclosure sheets provide liquidity consumers with the capacity to better assess in a consistent manner, the way they are being treated in the last look window.

Last look is intended to be used for the price and validity checks only, and for no other purpose. LPs should apply the price and validity check without delay. Anything else that prolongs the last look window is contrary to the intent of the Code. At the end of the guidance paper, it outlines some areas that liquidity consumers should monitor to assess whether last look is being applied appropriately.

We did consider whether to state what some of those other purposes might be that you should not use last look for. We have not done so for a number of reasons. First is that the Code is principles-based, not regulation, and the principle underlying last look makes it clear that there is no other legitimate purpose beyond price and validity checks. Second, if we had a description of some activities that we don’t regard as acceptable, then unless we had a completely exhaustive list, which is close to impossible, we run the risk of providing a safe harbour for anything that wasn’t on the list.

In that regard, some have said we should be more prescriptive about last look. But again, I would remind you that the Code is principles-based. It is not regulation.

Another area of debate was around the word ‘promptly’. Neill Penney, the co-vice chair of the GFXC, makes the point that the use of the word ‘immediate’ could be interpreted by the market as the GFXC indicating that all liquidity providers needed to upgrade their technology to move to a zero hold time. That’s not an outcome we are after.

The disclosure cover sheets ask about the length of last look window. Because the technology has not yet been invented to run processes without taking any time at all, requiring that length to be zero would ban last look. Some people in the market use the term ‘hold time’ to mean length of last look window. In that sense a non-zero hold time is clearly consistent with the Code. Decisions should be prompt and may well be within small fractions of a second in many cases, but cannot truly be immediate. Others use hold time or additional hold time to mean a deliberate delay before starting the price and validity check. Such a delay is not consistent with the code; the guidance paper makes clear LPs should apply the price and validity check without delay.

Because of the inconsistent use of hold time, the guidance paper and cover sheets have deliberately avoided relying on market participants having a single definition of it. If someone in the market talks to you about hold time, ask them to confirm what they mean before replying.

Moreover, trying to define a time period doesn’t work because it’s going to differ in different circumstances, in different markets, with different latencies and different systems, so I don’t see that as feasible. At some level, this is semantics, but the combination of promptly and without delay, makes the intent clear in my view.

As I mentioned, alongside the paper, the GFXC published standardised disclosure cover sheets for liquidity providers which includes a section on last look practices. The intent is to provide a standard form so that liquidity consumers can more easily compare and contrast the offerings from LPs.

Liquidity providers adhering to these principles and providing transparency about their practices though the disclosure cover sheets should help to give their clients greater clarity about the process. Liquidity consumers should then use this information to evaluate their execution, ask questions of their liquidity provider’s last look process, and evaluate whether to trade with liquidity providers that are using last look.

Finally, there is clearly continuing debate in the industry about the application of last look. The GFXC intends to continue to monitor the application of last look and the effect of the guidance paper, and take additional action if necessary. This may include providing further guidance going forward, potentially via updates to Principle 17.

Statement of Commitments

Almost 1,100 entities globally have signalled their adherence to the Code’s principles by signing a Statement of Commitment. With the publication of the updated Code, the GFXC is encouraging market participants to consider renewing their Statements of Commitment, having regard to the nature and relevance of the updates to their FX market activities.

The GFXC acknowledges that the changes to the Code will affect certain parts of the market more than others. For those most affected by the changes, we would anticipate a period of up to 12 months for practices to be brought into alignment with the updated principles. We would expect that the disclosure cover sheets would be posted alongside the Statement of Commitments on a similar timeframe, if not sooner.


To conclude, the GXFC has completed the three-year review of the FX Global Code. The Code has been updated to remain current with the ongoing evolution of the FX market. It will continue to serve its important role of setting the standard for good practice.

But to do so, it requires that you as market participants continue to reflect the principles of the Code in your activities in the FX market. I would strongly encourage you to familiarise yourself with the changes to the Code, and particularly to make good use of the disclosure templates.

In the end, we all have a strong common purpose in ensuring that the FX market continues to operate effectively and with integrity.

1 GFXC (2021), ‘GFXC Updates FX Global Code, Publishes New Templates for Disclosures and Guidance Paper on Pre-Hedging’, Press Release, 15 July. Available at <https://www.globalfxc.org/press/p210715.htm>.

2 GFXC (2020), ‘GFXC 2019 Survey Results’, January. Available at <https://www.globalfxc.org/docs/gfxc_survey_results_Jan20.pdf>.

3 GFXC (2019), ‘GFXC Priorities for the 3-Year Review of the FX Global Code’, 6 November. Available at <https://www.globalfxc.org/events/20191204_summary_3_year_review_feedback.pdf>.

4 Schrimpf A and Sushko V (2019), ‘Sizing Up Global Foreign Exchange Markets’, BIS Quarterly Bulletin, December, pp 21–38. Available at <https://www.bis.org/publ/qtrpdf/r_qt1912f.htm>.

5 For more on algo trading, see BIS (2018), ‘Monitoring of Fast-Paced Electronic Markets’, report submitted by a Study Group established by the Markets Committee, September. Available at <https://www.bis.org/publ/mktc10.pdf>.

6 Hauser A (2019), ‘Run Lola Run! The Good, the Bad and the Ugly of FX Market Fragmentation – and What To Do About It’, Speech at TradeTech FX 2019, Barcelona, 13 September. Available at <https://www.bankofengland.co.uk/speech/2019/andrew-hauser-panellist-at-trade-tech-fx-europe-barcelona>.

How to Pick a Forex Signal Provider

What is Forex Trading Signal?

A forex trading signal is specific information about a particular forex pair (EURUSD – USDJPY GBPUSD, etc.). The signal is a recommendation for entering a position on a currency pair, usually at a specific price and time, take profit and stop loss targets. The trading signal can also include extra information like charts, graphs and market analysis. A Forex signal provider is a service, usually on a subscription basis (monthly or yearly), where a provider sends forex trading signals to subscribers to trade on. A good FX signal service does all the research and analysis of the forex pairs trying to find the best trade setups, which are then transmitted in the form of trading signals to their clients. 

Categories of Trading Signal Providers

Foreign exchange signal providers may provide the signals for free, or they may require a weekly, monthly or yearly fee. Signal services use technical analysis to generate forex signals, or fundamental analysis to provide their trading fx signals.

Technical analysis is the analysis of graphs and forex charts, looking at moving averages, candlesticks, flags, areas of support and areas of resistance, and other technical indicators. Technical analysis believe that recent and historical price action as seen on price charts should be the primary means to determine forex future price direction of a forex pair. The most intellectual foreign exchange signal providers have their own prop trading systems that produce these signals based on years of historical testing and quant research.

Foreign exchange signals services that provide forex trading signals based on fundamental analysis rely on the fundamentals of the economy and news reports from FED or ECB such as interest rates, GDP, inflation rates, unemployment rates, and central bank announcements to help them make trading related decisions.

What to Look for When Choosing a Forex Signal Provider

Investors need to pay attention to all details regarding a signal service. So what are the factors to look for when trying to find the best forex signals provider? Here are some tips:

Age of the account

The first thing to look for when choosing a Foreign exchange signals provider is the age of the account. Start searching by looking at signal service providers who have a track record of at least three years. This will tell you the experience of the trader who is managing the signals. It will also show you how consistent the FX signal provider has been in the last three years of trading.

Check for verified trading results and proven track record

A track-record ensures that the claimed performance is real and is good if it is verified by an independent third-party, such as eToro , Myfxbook, FX Blue or ForexFactory etc. Some signal providers publish hypothetical or simulated track-records of their signals, which mean that their signals weren’t traded in the real market. Those records can be different from real track-records, and show that the FX signal provider doesn’t trade his own signals. Another major consideration is whether the signal provider uses a demo account or real account to trade the signals.

Consistent Profits – Signals have to be profitable

Before using any forex signals service, traders need to make sure it has a good track record. The best signals service provider must produce good, consistent trading results. Many signal providers claim to catch up to a few thousand pips per month, but without a verified track-record those numbers shouldn’t be taken seriously. Furthermore, if a provider “guarantees” a fixed amount of pips per month, you should delete that provider from your list. Nobody in this world can guarantee profits, and this is an early warning sign.


When comparing the performance of Forex signal services, you must look at the pips earned rather than percentage return. The reason for this is that percentage returns can be misleading as different leverage amounts will provide different percentage gain data.

You must check the number of positive pips per transaction and compare them to the number of negative pips per position. Then compare the results to the total win ratio. Also, you should check how many weeks on average a forex service provider has gains against how many weeks it has losses.

An important criterion is to find how many entry positions the forex signal service is offering. Most reliable signal providers will manage to balance the quantity of trading opportunities with the total transaction fees of the forex account. If the FX signal service is providing a big number of signals with arrow profit targets, you have to be cautious, this should be a warning and signals that making profits with that signal provider will be a difficult story.  

Win Rates

Most professional forex signal services will only provide an entry signal that has an advantageous return to risk profile. That is the correct approach to trade the forex pairs. So these investors can make steady profits even with 30%, 40% or 50% win rates. Reliable forex strategy services have a consistent performance record and obviously they are not profitable every month, but in the long term they show consistent positive results.

Traders must also analyze the average risk to reward in conjunction with win rate. There are strategies with 95% win rates that can lose money and there are also strategies with 25% win rates that can make money. It is all relative, so don’t let win rates fool you.


Drawdown is the high-to-low decline in equity that an investor has in a certain period.  Some investors refuse to take the losses from a position failing to use any stop loss.  The trader keeps open the losing position waiting a reversal in the market.  Turning a negative position into a winner sounds great, but it will destroy your margin and may never turn to gains. 

Some signals look really good because they risk hundreds of pips to only make 5 or 10 pips in profit. This approach works well over a short period, but signals like this nearly always blow up eventually. A successful FX signals service will not only provide excellent returns in terms of portfolio growth but will accomplish this with reasonable drawdowns.

Demo and free trial

Any reliable signal provider must offer a free or at small fee trial period to test and verify their service. If you can’t get a trial period, most likely the services are not transparent, real and reliable. Try not to use such services. If anyone is confident in what he is doing, he will definitely offer you a demo account first.

Any graphs and analysis sent together with the signals is a great feature as they help in understanding the signals and offer valuable learning material. This learning material can also be used as a great educational resource to learn from, especially if you’re looking to become an independent forex trader. The signal service provider should also have strict risk management guidelines in place and keep you updated on any changes on the trade setup.

Money management

Many forex signal providers actually use a forex penny account. A cent account, as the name implies allows you to trade just in cents. This means that in trading there is very little risk. Copying trades from that kind of account to your real trading account with thousand USD in equity can be a bad investment. Pay attention to the trading equity of the FX signals provider.

Researching and analyzing how the signals service trades (based on their trading record) will give you a lot more insight. The bottom line is that traders need to also focus on the money management strategy of the signals provider and not just how much returns they generate.


An important factor to consider also is the software and tools a forex signal service is using. Do they have robust software to send out signal notifications and are they offering different channels for you to receive the trading signals on time? Another factor to check is the details that the forex signals provide. Do the signals always provide profit targets and stop loss figures or do they only provide just entry points but no exit points?


The Forex signal provider first of all has to be profitable and have a verified track record, ideally by a third independent party. Even if the forex signal provider does have verified results, make sure to open first a free forex signals trial account to assess the quality of the signals in real-time trading. You also need to make sure that the type of trades and times at which they are sent out suit your personal trading style and time-zone.

Finally, always do your own research, check online reviews and get a free trial period before you buy any trading signal service.

Moody’s: Currency weakness will primarily impact sovereigns with large external imbalances in Latin America

New York, June 04, 2018 — A number of emerging market countries, including several in Latin America, have experienced currency depreciations and a decline in foreign exchange reserves in recent months. The tightening of monetary policy by the Federal Reserve and country-specific macroeconomic imbalances have affected capital flows to emerging markets.

“To the extent that currency fluctuations are driven by capital outflows — or significantly lower inflows — they are credit negative for countries with large external funding needs,” says Moody’s analyst Renzo Merino; “While present conditions do not place material downward credit pressure on most sovereigns in Latin America, we have seen significant pressures emerge for Argentina in particular.”

In the case of Argentina, the depreciation of the peso was the result of adverse market reaction to the authorities’ decision to ease inflation targets in late 2017, and a capital gains tax on foreign holdings of peso-denominated debt instruments that became effective in late April. In addition, Argentina’s credit profile incorporates underlying macroeconomic weaknesses, including the presence of large fiscal and current account deficits and persistently high inflation — factors that make the country stand out at times of global market volatility and asset re-pricing.

While other countries in the region have seen a worsening in external debt metrics in recent years, Moody’s sees limited contagion risk from Argentine. “There are important mitigating factors at play,” says Merino, “including higher and more stable foreign exchange reserves and government external liquid assets that can provide debt service coverage if needed, in addition to a greater prevalence of flexible exchange rates in the region.”

Although less vulnerable than Argentina, Costa Rica, Chile and Paraguay stand out because of their large external borrowing requirements relative to reserves. The presence of mitigating factors in Chile (steady foreign-currency revenue stream) and Paraguay (current account surpluses contributing to reserve accumulation) limit credit risks there. While Brazil has also experienced currency pressures in recent months, its main credit vulnerability is domestic, related to challenging fiscal dynamics.


Factor sensitivity
The impact on a portfolio of assets of movements in the underlying risk parameter of an individual asset.

Factor portfolio
A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factors.

Sale of a firm’s accounts receivable to a financial institution known as a factor.

Fading a big dog
Buying (selling) when a big dog is selling (buying).

The fair price is usually either the theoretical price an instrument should fetch or the no-arbitrage price.The fair price of a future or forward contract is the price at which arbitrage between the derivative and the underlying asset just breaks even. The fair value of an option is what should be the price of that option in an efficient market with reference to theoretical option models.

Fairway Bond or Note
Another name for Accrual Note, Corridor Note, or Range Note. It accrues interest if and only if the index rate stays within a range (analogous to a golf ball staying on the fairway).

Fannie Mae
Federal National Mortgage Association. The largest player in the secondary mortgage market.

Federal Reserve System
The central bank of the U.S., established in 1913, and governed by the Federal Reserve Board located in Washington, D.C. The system includes 12 Federal Reserve Banks and is authorized to regulate monetary policy in the U.S. as well as to supervise Federal Reserve member banks, bank holding companies, international operations of U.S.banks, and U.S.operations of foreign banks.

Financial engineering
Combining or dividing existing instruments to create new financial products.

Frankfurt Interbank Overnight Average

Fisher effect
A theory that nominal interest rates in two or more countries should be equal to the required real rate of return to investors plus compensation for the expected amount of inflation in each country.

Flat trades
(1) A bond in default trades flat; that is, the price quoted covers both principal and unpaid, accrued interest. (2) Any security that trades without accrued interest or at a price that includes accrued interest is said to trade flat.

Flattening of the yield curve
A change in the yield curve where the spread between the yield on a long-term and short-term Treasury has decreased. Compare steepening of the yield curve and butterfly shift.

Flex Option
An exchange-traded options that does not have the standard terms of listed options. The customer and the market maker can negotiate various terms, such as strike price and expiration date.

A strip of Floorlets.

Floor broker
A local who trades for customer accounts, on commission.

An Interest Rate Option to receive fixed in an FRA. Its payoff is proportional that to that of a Put Option on a floating rate of interest.

An option on a Floor.

Floor trader
A local who trades for his own account, trying to buy low and sell high.

Foreign direct investment (FDI)
The acquisition abroad of physical assets such as plant and equipment, with operating control residing in the parent corporation.

Foreign equity market
That portion of the domestic equity market that represents issues floated by foreign companies.

Foreign exchange
Currency from another country.

Foreign exchange controls
Various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Foreign exchange dealer
A firm or individual that buys foreign exchange from one party and then sells it to another party. The dealer makes the difference between the buying and selling prices, or spread.

Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out at a loss due to an adverse movement in the currency rates.

Foreign exchange swap
An agreement to exchange stipulated amounts of one currency for another currency at one or more future dates.

Forward Contract
A contract to exchange (buy or sell) an underlying instrument for a fixed forward price at a specific, future delivery date. In certain cases – but not always – the Forward Price exceeds the spot price by the cost of carrying the underlying asset from the spot delivery date to the forward delivery date. The cost of carry is an increasing function of the rate of interest and storage costs, and a decreasing function of the rate of dividends, interest, or other cash flows from the underlying instrument. Cf. Futures Contract.

Forward cover
Purchase or sale of forward foreign currency in order to offset a known future cash flow.

Forward Curve
The Forward Curve at a specific future date, based on today’s Forward Curve.
Forward delivery
A transaction in which the settlement will occur on a specified date in the future at a price agreed upon on the trade date.

Forward differential
Annualized percentage difference between spot and forward rates.

Forward discount
A currency trades at a forward discount when its forward price is lower than its spot price.

Forward exchange rate
Exchange rate fixed today for exchanging currency at some future date.

Forward Fed funds
Fed funds traded for future delivery.

Forward forward contract
In Eurocurrencies, a contract under which a deposit of fixed maturity is agreed to at a fixed price for future delivery.

Forward interest rate
Interest rate fixed today on a loan to be made at some future date.

Forward looking multiple
A truncated expression for a P/E ratio that is based on forward (expected) earnings rather than on trailing earnings.

Forward market
A market in which participants agree to trade some commodity, security, or foreign exchange at a fixed price for future delivery.

Forward premium
A currency trades at a forward premium when its forward price is higher than its spot price.

Forward rate
A projection of future interest rates calculated from either the spot rates or the yield curve.

Forward Curve
The Forward Curve at a specific future date, based on today’s Forward Curve.

Forward Rate Agreement
A contract calling for one counterparty to receive the fixed FRA rate and pay the floating rate (e.g., LIBOR) for a particular accrual period in the future, and for the other counterparty to do the reverse. Settlement is at the beginning of the accrual period, when the markets resolve the uncertainty about the floating rate, mainly because that reduces the credit risk associated with the contract. Cf. Swaplet.

Freddie Mac
Federal Home Loan Mortgage Association. The second largest player in the secondary mortgage market.

Front months
Futures contracts with delivery dates in the nearer future.

Fundamental analysis
Security analysis that seeks to detect misvalued securities by an analysis of the firm’s business prospects. Research analysis often focuses on earnings, dividend prospects, expectations for future interest rates, and risk evaluation of the firm.

Fundamental beta
The product of a statistical model to predict the fundamental risk of a security using not only price data but other market-related and financial data.

Fundamental descriptors
In the model for calculating fundamental beta, ratios in risk indexes other than market variability, which rely on financial data other than price data.

Funded debt
Debt maturing after more than one year.

Funding ratio
The ratio of a pension plan’s assets to its liabilities.

Futures Contract
An exchange-traded contract that on its last trading day settles into a Forward Contract (q.v.). The Futures Price and the corresponding Forward Price differ systematically in a world where interest rates are stochastic, and the difference depends on the correlation between the underlying spot price and the price of the zero coupon bond that matures on the last trading day.

Futures contract multiple
A constant, set by an exchange, which when multiplied by the futures price gives the dollar value of a stock index futures contract.

Futures Option
A listed option that settles into a Futures Contract

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