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FOREX Glossary
Here are some of the most common terms used in FOREX trading.
Ask Price - Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote - e.g. EUR/USD 1.1965 / 68 - means that one euro can be bought for 1.1968 UD dollars.
Bar Chart - A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information - the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.
Base Currency - is the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. For example, in the quote - USD/JPY 112.13 - US dollars are the base currency, with 1 US dollar being worth 112.13 Japanese yen.
Bid Price - is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1965 / 68 - means that one euro can be sold for 1.1965 UD dollars.
Bid/Ask Spread - is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.
Broker - the intermediary between buyer and seller. Most FOREX brokers are associated with large financial institutions and earn money by setting a spread between bid and ask prices.
Candlestick Chart - A type of chart used in Technical Analysis. Each time division on the chart is displayed as a candlestick - a red or green vertical bar with extensions above and below the candlestick body. The top of the extension shows the highest price for the chart division and the bottom of the extension shows the lowest price. Red candlesticks indicate a lower closing price than opening price, and green candlesticks indicate the price is rising.
Cross Currency - A currency pair that does not include US dollars - e.g. EUR/GBP.
Currency Pair - Two currencies involved in a FOREX transaction - e.g. EUR/USD.
Economic Indicator - A statistical report issued by governments or academic institutions indicating economic conditions within a country.
First In First Out (FIFO) - refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.
Foreign Exchange (FOREX, FX) - Simultaneously buying one currency and selling another.
Fundamental Analysis - Analysis of political and economic conditions that can affect currency prices.
Leverage or Margin - The ratio of the value of a transaction to the required deposit. A common margin for FOREX trading is 100:1 - you can trade currency worth 100 times the amount of your deposit.
Limit Order - An order to buy or sell when the price reaches a specified level.
Lot - The size of a FOREX transaction. Standard lots are worth about 100,000 US dollars.
Major Currency - The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.
Minor Currency - The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.
One Cancels the Other (OCO) - Two orders placed simultaneously with instructions to cancel the second order on execution of the first.
Open Position - An active trade that has not been closed.
Pips or Points - The smallest unit a currency can be traded in.
Quote Currency - The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.
Rollover - Extending the settlement time of spot deals to the current delivery date. The cost of rollover is calculated using swap points based on interest rate differentials.
Technical Analysis - Analysis of historical market data to predict future movements in the market.
Tick - The minimum change in price.
Transaction Cost - The cost of a FOREX transaction - typically the spread between bid and ask prices.
Volatility - A statistical measure indicating the tendency of sharp price movements within a period of time.
Forex Trading News
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RELATED ARTICLES
Calculating FOREX Profits and Losses
FOREX currencies are traded in much smaller divisions than cash. Whereas the smallest division in US cash is the penny ($0.01), US currency can be traded on the FOREX in divisions of $0.0001. This smallest division is called the pip (short for Price Interest Point - sometimes just called 'points'). Since currencies are traded in large lots of (say) $100,000 - small movements in value can generate substantial profits and losses. In a lot of US$100,000 one pip is worth $10 so an increase in 40 pips (4/10 of one cent) can generate a profit or loss of $400.
FOREX Brokers
Most FOREX traders use a broker to handle their transactions. What exactly is a broker? Strictly speaking, a broker is an individual or a company that buys and sells orders according the investor's decisions. Brokers earn money by charging a commission or a fee for their services.
FOREX Signals
One of the disadvantages of FOREX trading is the time investment needed to monitor the markets for advantageous entry and exit points. It's possible to sit in front of a computer monitor for hours watching the markets.
FOREX Trading Strategies
To be a successful FOREX trader you need a trading strategy. There is no one set strategy that is good for all traders; rather, each trader needs to develop his or her individual approach to the FOREX. Some traders rely solely on technical analysis while others prefer fundamental analysis, but many successful FOREX traders use a combination of both to get a broad overview of the market and for plotting entry and exit points.
FOREX Training
Knowledge is the key to successful FOREX trading. The knowledgeable trader has greater awareness of how the market moves and more chances of making profitable transactions. Without knowledge you are shooting in the dark. You may succeed on a few deals but the odds are that you are going to lose in the long run.
FOREX versus Stocks
Stocks have been a popular investment for hundreds of years. Companies issue stocks to raise capital for expansion and new projects, and each share of the stock represents a partial ownership in the company.
How to Read FOREX Quotes
Currency prices are determined by a number of factors, the most important of which are economic and political conditions in the issuing country. Political stability, inflation, and interest rates are all factored into the price of any currency. In addition, governments can try to control the price of their currency by either flooding the market (to lower the price) or buying extensively (to raise the price).
Introduction to Fundamental Analysis
FOREX traders almost always rely on analysis to make plan their trading strategies. There are two basic types of FOREX analysis - technical and fundamental. This article will look at fundamental analysis and how it used in FOREX trading.
Risks of FOREX Trading
Despite the claims you may see on some FOREX web sites, FOREX is not risk-free. You are trading with substantial sums of money and there is always a possibility that trades will go against you. There are several trading tools, however, that can minimize your risk, and with caution, and above all education, the FOREX trader can learn how to trade profitably and while minimizing losses.
Trading Currencies on Margin
The key to FOREX popularity is margin. Without margin, the FOREX would be beyond the reach of the average investor. So, what exactly is margin and how does it work?
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