Volatility
The degree of price fluctuation in a currency over a specific period. Higher volatility means larger price swings and greater uncertainty in exchange rates, making it a key measure of FX market risk.
Related terms
Implied Volatility
The market’s expectation of future volatility derived from option prices. Higher implied volatility suggests greater expected price swings.
Read full definitionVIX (Volatility Index)
A measure of the market’s expectation of 30-day volatility, constructed from the implied volatilities of a wide range of S&P 500 index options. The VIX is widely used as a gauge of market risk and is often called the ‘investor fear gauge’.
Read full definitionCurrency Risk
The danger of losing capital due to changes in foreign exchange prices, including the risk to a portfolio when currency markets experience strong moves.
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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.
Read full definitionFX Swap
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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