Glossary of terms
At Freemarket, we try to keep things as straightforward as we can. But in case there are any terms that are unclear, we’ve compiled a short glossary.
Alternative Payment Method (APM)
This is a method of payment which isn’t based on one of the big card rails such as American Express, JCB, Mastercard, UnionPay and Visa.
Examples of this could be; bank transfers, direct debits, eWallets, or prepaid schemes.
Anti-Money Laundering (AML) checks are set out by the Financial Conduct Authority (FCA) to prevent proceeds from criminal activity being filtered through the banking system. This is part of the process we perform when verifying every new Freemarket member.
BACS or Bankers Automated Clearing Services is one of the most used payment methods in the UK. A BACS payment is made directly from one UK bank account to another, usually taking up to three working days to arrive in the recipients bank account.
This is a a Bank Identifier Code (BIC). They help to process payments automatically – making them faster, safer and cheaper.
Clearing House Automated Payment System (CHAPS) is a payment system that guarantees same-day payment processing and settlement if the instruction is sent by 2pm on a working day.
Cross-border payment is a term referring to transactions involving individuals, companies, or banks operating in at least two different countries.
A currency pair is a quotation featuring two different currencies, with currency being quoted in terms of the other.
Faster Payments is a service that allows you to send and receive payments in hours, or even minutes.
Financial Conduct Authority (FCA)
The Financial Conduct Authority (FCA) is the conduct regulator The Financial Conduct Authority is the conduct regulator for financial services firms and financial markets in the UK and the prudential regulator for over of those firms.
A forward contract is an agreement, usually with a bank or financial provider, to exchange a specific amount of currencies sometime in the future for a specific rate.
FX / Forex / Foriegn Exchange
Foreign exchange, FX or Forex is the market in which currencies are traded. Financial institutions and payments providers trade trillions a day.
Every bank account has an International Bank Account Number (IBAN). It is a unique code which provides a standard way to identify any account, worldwide.
An Interchange is a fee paid between banks from the acquirer to the card issuer each time a card payment transaction occurs.
The institutional, or interbank rate is the price banks use to exchange a currency with each other. It is usually very close to the mid-market rate. At Freemarket, we use this rate to buy currency to cover users’ requirements that aren’t matched in a scheduled exchange, and we pass the price on.
Know Your Customer (KYC) checks are part of the Anti-Money Laundering procedures set out by the Financial Conduct Authority. They protect companies and their customers from fraudulent behaviour, and we carry them out as standard when we verify a new Freemarket member.
Majors / Major Currencies
Majors are the most traded pairs of currencies in the world. They take the lions share of foreign exchange trading and therefore they exhibit high market liquidity.
The Majors are: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD and USD/CAD
Usually, financial institutions make money by charging different prices for buying and selling a currency. The mid-market rate eliminates this margin, and is the exact halfway point between the two. At Freemarket, is the rate we use for our matched, scheduled currency exchanges.
The Markets in Financial Instruments Directive is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), to improve the functioning of financial markets making them more efficient, resilient and transparent.
Currencies that are not paired with the US Dollar but consist of the Euro, the UK Pound and Yen are minor pairs. Minors have a smaller market share compared to major pairs. Because of this they can exhibit lower market liquidity.
At Freemarket, you exchange your currency with other members, rather than buying from a bank; this is an example of a peer-to-peer service. Our members supply and demand the currency, and our service merely matches those requirements and calculates a fair mid-market rate.
In currency exchange, Pip stands for “point in percentage”; it is used to describe how values change between currencies. It is usually measured at the fourth decimal point. For example, if the GBP/EUR rate is 1.1425, and the Pound depreciates by five Pips against the Euro, the new rate would be 1.1420; a depreciation of €5 in every £10,000.
PSD2 is an EU legislation which sets requirements for firms that provide payment services. As well as promoting innovation, PSD2 aims to improve consumer protection, make payments safer and more secure, and drive down the costs of payment services.
SEPA (Single Euro Payments Area) is an initiative set by the European union to make European payments as easy and cheap as domestic ones by creating a single market for euro-denominated payments.
A spot trade is an agreement to buy a currency against another currency for an agreed price for settlement on the spot date. Upon settlement, the rate received is called the spot rate.
When an institution buys a currency at one price and sells it at another, the difference between the two rates is called the spread margin. It is often denoted in Pips. At Freemarket, our members’ exchanges use a fair, mid-market rate, so there is no need to lose money between buying and selling prices.
Strong Customer Authentication (SCA)
Strong Customer Authentication (SCA) is a European regulatory requirement, designed to make paying online more secure, and consequently, reduce payment fraud. For further information on Strong Customer Authentication – read our article here.
SWIFT / BIC
The bank that holds your account has a unique Bank Identification Code (BIC), which enables other banks to send and receive secure messages about payments. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) code is one format of BIC.
A virtual IBAN (International Bank Account Number) is issued by a bank to allow incoming payments to be rerouted to a different, real, physical bank account.