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Managing risk in currency markets requires knowledge of these key terms.
Last updated: 16 December 2025
Understanding currency markets can be tricky, what with all the acronyms, inside references, and technical terms that get banded about. Financial decision-makers like CFOs, Heads of Treasury and Directors need clarity when it comes to their exposures. But they don’t always get it.
To better help businesses understand the risks they face, we’ve put together an FX glossary of the most important terms, as well as what they mean in practice.
Spot contract
What is it: A spot deal is a contract to buy a certain amount of currency immediately and at the market rate.
Who is it for: Small treasury teams with limited overseas exposures that can handle irregular payments on an ad hoc basis.
Pros and cons: Spot contracts are easy to set up, fast and require no specialist knowledge or technology. You can sometimes save money by processing a payment at the market rate. However, they leave you at risk of paying over the odds should exchange rates move against you.
Fixed-date forward contract
What is it: Fixed-date forwards allow you to lock in an exchange rate and secure a guaranteed rate for a currency transfer at a defined future date.
Who is it for: Businesses with fixed costs and income transacted at reliable intervals.
Pros and cons: Fixed forward contracts protect your profit margins and cashflow from currency risk. Fixed-date forwards provide clarity over the true cost of your payments,
Open forward contract
What it is: A flexible forward (also known as a window forward) allows a business to lock in an exchange rate for a specific amount of currency, which can be ‘drawn down’ at any time between two defined dates (the ‘window’). This differs from a standard forward contract which usually has a single settlement date.”
Who is it for: Businesses with uncertain cashflow.For example, you might know that a supplier will pay in the next three months, but not the exact date.
Pros and cons: Flexible forward contracts are a useful way to reduce your exposures if your cashflow is on the lumpier side.
FX option
What is it: A more flexible type of currency contract that provides more flexibility than traditional products, although these tend to be more complex.
Who is it for: More sophisticated hedging and treasury teams that require strategic optionality when it comes to their exposures.
Pros and cons: FX options come in a number of shapes and sizes. These include vanilla options, forward extra, collar options, participating forward, and non-deliverable forwards. FX options can offer a high degree of control, but they can also be hard to manage without specialist assistance. Typically, the have a higher barrier to entry compared to more common hedging products.
Market order
What is it: A market order is an order to purchase currency at a specified rate. Once the target rate is achieved, your payment will be executed.
Who is it for: Businesses with no urgent currency hedging requirements but who are sensitive to pricing in the medium and long term.
Pros and cons: Market orders are a great tool to take advantage of volatility without having to constantly monitor pricing. However, it’s possible that you won’t hit your desired rate over the course of your term.
Currency hedging
What is it: Currency hedging is the process of protecting your finances from erosion caused by market volatility by using products that manage risk.
Who is it for: All business exposed to foreign currencies should be hedging their currency risk, although the tools they use to do so will vary.
Pros and cons: You’ll usually have to pay a premium up front, but that’s nothing compared to the money you could lose by taking a chance. Hedging FX exposures helps
Mark to market risk
What is it: Mark to market risk is the risk to your cashflow, credit headroom and other underlying key financials caused by currency volatility and any unrealised losses that result from this.
Who is it for: If you hedge using currency contracts with settlement dates in the future, you are at risk of mark to market valuations. You can read our full breakdown of this factor here.
Margin call
What is it: When exchange rates move against you, FX counterparties (banks, brokers or specialist providers) may issue a request to post additional collateral to guarantee the valuation gap. You could therefore be on the hook for an unexpected cash outlay in the event of a margin call.
Who is it for: Margin call will be relevant to all businesses with international exposures or operations.
Register with Smart Currency Business today or request a call back from our team to discuss how our comprehensive risk management solutions can protect your business from risk.
