The freemarket foreign exchange glossary
Peer-to-peer describes services that are governed by a network of peers. Although peer-to-peer (P2P) is used elsewhere, like in crowdfunding and P2P lending, we at freemarket specifically use it to talk about our currency matching technology. Our members generate their own supply and demand, and we use P2P technology to match their currency requirements and deliver the mid-market rate for all involved.
The mid-market rate simply refers to the rate achieved at the mid-point between the BUY and SELL value of a currency. It changes often and quickly as a result of currencies fluctuating. It is not the same as the interbank or institutional rate, although some banks may use the mid-market rate to trade with one another. At freemarket we endeavour to deliver mid-market rates for all customers through our matching technology.
The institutional (or interbank) rate is commonly used to refer to the rate at which banks transact with each other. It may be the same as the mid-market, or a few Pips off of it. If freemarket are unable to match your currency with another member of our network, we pass on institutional rates from our banking partner.
Pip stands for ‘Point in Percentage’. A Pip is a unit of measurement used to express the change in value between two currencies. For example: at the time of writing the GBP/EUR rate is 1.1425. That means with £10,000 I could buy €11,425.00. Now, if GBP were to depreciate against the EUR, by 5 Pips, it would be 1.1420. That means my £10,000 would now only get me €11,420.00.
A spread margin is the difference between the price at which a provider purchases currency and the price at which they sell it to a customer. Pips are often used to denote the size of the spread in this instance.
AML stands for Anti-Money Laundering and refers to our regulatory checks set out by the FCA (Financial Conduct Authority). Financial institutions are required to undertake several checks as part of the AML process to ensure money from criminal activity is not being filtered through the banking system.
KYC stands for Know Your Customer and makes up part of the AML checks set out by the FCA. KYC compliance checks entail identifying and verifying customers. These checks protect both the company and their existing customers from fraudulent activity.
The SWIFT (Society for Worldwide Interbank Financial Telecommunications) code is a format of your BIC (Bank Identification Code). SWIFTS or BICs are unique identification codes for the bank that holds your account. They allow banks and financial institutions to send and receive secure messages about payment instructions.
IBANs (International Bank Account Numbers) are another form of unique code that identify a given bank account and provide a standardised way of recognising and locating bank accounts globally.
Did we miss something? Let us know in the comments and we’ll update this blog with the correct definition.