FX Terms Explained: A Plain-English Guide For Payments Teams

Key takeaways

• Most FX terms fall into three buckets: pricing (rates), instruments (hedges), and rails (how money moves).

• Spot and forward rates are different by design, and forwards often reflect interest rate differentials.¹

• Clear terminology helps teams prevent delays, pricing mistakes, and policy confusion.

If your company pays international suppliers, sells in multiple currencies, or runs cross-border payroll, you will hear a steady stream of FX terms: spot, forwards, SWIFT, SEPA, settlement, NDFs, and more.

This guide explains the terms payments teams run into most often, in plain English and tied to real workflows.

The three buckets: pricing, instruments, and rails

Before definitions, it helps to sort terms by what they are used for.

• Pricing terms explain what rate you get and when (spot, forward, mid-market).

• Instruments describe how you reduce uncertainty (forwards, limit orders, natural hedges).

• Rails and identifiers explain how a payment is routed and recognized (SWIFT, SEPA, BIC, Fedwire).² ³ ⁴

If your team mixes these buckets up, it usually shows up as late payments, confusing policies, or misquoted pricing.

Core FX pricing terms

Currency pair

Two currencies quoted together, like EUR/USD. In most pairs, the first currency is the base (EUR) and the second is the quote (USD).

A quick way to read it: EUR/USD tells you how many USD it takes to buy 1 EUR.

Spot rate

The exchange rate for a trade that settles soon, typically based on standard market settlement conventions.

In payments terms, “spot” is usually the baseline price people reference when they say “what’s the rate today.”

Forward rate

A rate agreed today for exchanging currencies on a future date. The point is certainty: you know the rate now, even though the exchange happens later.

Forward points

The difference between the forward rate and the spot rate for the same currency pair and time period (tenor). Forward points often reflect interest rate differentials between the two currencies.¹

Mid-market rate

A benchmark rate often described as the midpoint between bid and ask quotes. Teams use it to compare pricing, but it is not necessarily the rate available for execution.

Common hedging and execution terms

Hedge

A transaction intended to reduce uncertainty in future costs or revenues due to exchange rate moves.

Forward contract

An agreement to exchange currencies at a pre-agreed rate on a future date. It is commonly used for known payables and receivables.

Tenor

How long until the settlement date, such as 1 month, 3 months, or 6 months.

Rolling a hedge

Moving a hedge settlement date forward if the payment date slips. The mechanics and pricing depend on the provider and market conditions.

Limit order

An instruction to exchange currency if the market reaches a target rate. This can be useful when timing is flexible and you are not forced to convert by a fixed due date.

Natural hedge

Reducing FX exposure by matching costs and revenues in the same currency, for example using EUR revenue to pay EUR suppliers. Many SMEs start here because it is more process than product.

Payment rails and routing terms

SWIFT

A secure messaging network used by banks and financial institutions to communicate about cross-border transactions.² SWIFT does not settle the payment itself, it standardizes and secures the instructions sent between institutions.²

BIC or SWIFT code

A standardized identifier for a financial institution used for routing purposes in international payments.²

SEPA

A framework that enables cashless euro payments across the EU and certain non-EU countries, supporting instruments like credit transfers and direct debits.³

SEPA Credit Transfer

A scheme for moving EUR from one bank account to another within SEPA.⁴

Fedwire

A US large-value funds transfer service used for time-critical payments.⁵ ⁶

Rails quick reference

Settlement and workflow terms that affect timing

Settlement

When the actual exchange of value occurs. A payment can be initiated today but settle later depending on rails, cutoffs, and checks.

Cutoff time

The deadline after which a payment is processed the next business day. Cutoffs are a common reason a “same-day” payment becomes “tomorrow.”

Intermediary bank

A bank that helps route certain cross-border payments, especially when the sending and receiving banks do not have a direct relationship. Intermediaries can affect timing and fees.

Beneficiary

The recipient of the payment.

Payment reference or purpose of payment

The information you include to help reconciliation and, in some corridors, satisfy compliance requirements.

Market structure terms you might hear in treasury

Deliverable vs non-deliverable

• Deliverable means currencies are exchanged at settlement.

• Non-deliverable means cash-settled, often used where currency delivery is restricted.⁷

NDF

A non-deliverable forward is a forward-style contract where no physical delivery occurs. Instead, the parties settle the net difference in a settlement currency, often USD.⁷

Covered interest parity

A concept connecting interest rate differentials to the relationship between spot and forward rates.¹

Why this vocabulary helps payments teams

A lot of “FX issues” are really coordination issues:

• Procurement assumes a rate that treasury did not hedge

• AP schedules a payment after cutoff

• Vendor details are incomplete, triggering delays

• Someone confuses SWIFT messaging with the actual settlement path²

When everyone shares the same definitions, it is easier to build a policy, set handoffs, and prevent late surprises.

FAQ

Do we need SWIFT for every international payment?

Not always. In Europe, EUR transfers may use SEPA rails instead.³ The required identifiers usually depend on the corridor and the beneficiary’s bank requirements.

Is a forward rate better or worse than spot?

Neither. It is different by design. Forward pricing often reflects interest rate differentials and market conventions.¹

When do NDFs matter?

Mostly when dealing with currencies that have restricted convertibility or settlement conventions.⁷ Many SMEs never use NDFs unless they operate in specific markets.

Conclusion and how Xe can help

FX terms get easier when you map them to what your team actually does: price a conversion, reduce uncertainty, and move money reliably.

If you are building a repeatable workflow, a practical next step is to standardize two things:

• the data you require from vendors (bank identifiers, account formats, references)

• the decision rules you use for timing (when you convert, when you pay, and what needs approval)

Xe Business is designed for payments teams that want fewer surprises and less rework. You can explore payment method options, set up operational structure for repeat payments, and use tools like forwards when you want to lock a known rate for a known date, rather than leaving a large conversion to a deadline day.

Create a free business account
Speak to an FX specialist

The content within this blog post is for informational purposes only and is not intended to constitute financial, legal, or tax advice. All figures and data are based on publicly available sources at the time of writing and are subject to change. Actual conditions may vary depending on location, timing, and personal circumstances. We recommend consulting official government resources or a licensed professional for the most up-to-date and personalized guidance.

Citations

¹ Bank for International Settlements — Covered Interest Parity Lost: Understanding the Cross-Currency Basis — (2016)
² SWIFT — What Is SWIFT? — (n.d.)
³ European Central Bank — Single Euro Payments Area (SEPA) — (n.d.)
⁴ European Payments Council — SEPA Credit Transfer — (n.d.)
⁵ Federal Reserve Financial Services — Fedwire Funds Service — (n.d.)
⁶ Federal Reserve Board — Fedwire Funds Service Overview — (2024)
⁷ ISDA — Non-Deliverable FX Forward (NDF) definition — (n.d.)

Information from these sources was taken on January 13, 2026.