Soft Currency
A currency whose value fluctuates and is mostly lower than other currencies due to weaker demand, usually caused by economic or political uncertainty. Many developing-country currencies are soft, sometimes worsened by pegs to major currencies that leave exchange rates unfavourably high for investors.
Related terms
Fiat Currency
Money that holds value because a government maintains it as legal tender. Created and regulated by central banks, fiat currency is used for transactions within the national economy under the domain of its backing government.
Read full definitionDepreciation
A decrease in the value of a currency relative to another. If EUR/USD falls from 1.15 to 1.10, the euro has depreciated against the dollar.
Read full definitionEmerging Markets
Economies that are developing toward advanced-market status, often offering higher growth alongside greater currency, political and liquidity risk. Trading with them frequently calls for tailored FX and payment solutions.
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Spot Rate
The current market exchange rate at which one currency can be bought or sold for immediate delivery. Spot trades typically settle two business days later (T+2).
Read full definitionForward Contract
An agreement to exchange a set amount of one currency for another at a fixed rate on a future date. It locks in today’s rate, protecting a business from adverse currency moves before a payment falls due.
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The simultaneous purchase and sale of the same amount of a currency for two different value dates, typically a near leg at spot and a far leg forward. It is used to roll a hedge forward or manage short-term cash-flow timing.
Read full definitionCurrency Pair
Two currencies quoted against each other, such as GBP/USD. The first is the base currency and the second the quote currency; the price shows how much of the quote currency one unit of the base is worth.
Read full definitionBid-Ask Spread
The difference between the price at which the market will buy a currency (bid) and the price at which it will sell (ask). A tighter spread means lower transaction costs.
Read full definitionPip
The smallest standard increment by which a currency pair moves, usually the fourth decimal place (0.0001). Pips are the common unit for quoting spreads and price movements.
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