Our clients can access a wide range of foreign exchange instruments to meet their specific requirements.Spot
Definition: A foreign exchange spot transaction, also known as ‘’FX spot’’, is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the settlement date. The settlement date is typically two days after the trade date. The exchange rate at which the transaction is done is called the spot exchange rate.Forward
Definition: A binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment. Unlike a currency future which is a standardised contract with a fixed trade size and delivery period, forwards can be tailored to a particular amount and period.
Currency forward settlement can either be on a cash or a delivery basis, provided that the option is mutually acceptable and has been specified beforehand in the contract. Currency forwards are over-the-counter (OTC) instruments, as they do not trade on a centralized exchange. Also known as an “outright forward.”Options
Definition: A foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument that gives the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.NDF (Non-deliverable Forward)
Definition: A non-deliverable forward is a foreign currency financial derivative contract which differs from a normal foreign currency forward contract because there is no physical settlement of the two currencies at maturity. Instead, a net cash settlement will be made by one party to another based on the movement of the two currencies.
Margins & Fees
Depending on the instruments being used, there may be margin requirements to consider, as well as variations in fee structures, as outlined below.
|Physical Spot||0.10% - 1.00%||N/A||N/A|
|Forward Exchange Contract (FEC)||0.10% - 1.00%||0 - 10%||Priced in to forward rate|
Non-Deliverable Forward (NDF)
R10.00 / USD 1,000.00
R10.00 / USD 1,000.00
5 - 8%
5 - 8%
Charged daily *
Charged daily *
Margin is required as a deposit to take any leveraged currency position. Effectively, your position is being funded on credit. This applies to any type of forward, option or rolling cash instruments like CFDs.
ZAR-based forward instruments typically have a margin requirement of 10%, whilst the major currencies can be as low as 1-2%.Spreads
The difference between the ASK and BID prices of any financial instrument is called the spread. It represents brokerage service costs and may be used to incorporate all transaction fees. Spread is traditionally denoted in pips, which is a percentage in point, meaning the fourth decimal place in a currency quotation.
The spread will vary according to several factors, including the currency pair, the instrument being traded, the trade volume and the underlying market conditions.Commissions
A commission percentage may be charged separately to the spread or the exchange rate applied to the conversion of the currency. Where commission is charged separately and not included in the spread, it simply means that the rate at which the currency conversion was made is improved by an amount equal to the commission charged.
The level of commission charged may vary according to several factors, including the nature of the service provided and the volume traded. The commission percentage typically ranges between 0.10% and 0.50% but can be higher.Financing / Forward Exchange Rate
Where a leveraged FX instrument is financed overnight or into a date in the future, a financing charge is applied. The forward exchange rate is determined by a parity relationship among the spot exchange rates and differences in the interest rates between two countries. This reflects an economic equilibrium in the foreign exchange market under which arbitrage opportunities are eliminated.
Forward points are added or subtracted to the spot rate, and are determined by prevailing interest rates in the two currencies (remember: currencies always trade in pairs) and the length of the contract. Typically, the higher yielding currency has negative points, while the lower yielding currency has positive points.
In a rolling cash or CFD FX position, the aforementioned interest rate differential/forward relationship exists in the form of a daily overnight adjustment on the position.
*Further information on margin levels and fees are available on request.