2. Gross National Product (GNP)
One of the most significant measures of economic activity is the Gross National Product (GNP). GNP is the total value of goods and services produced by the entire US economy. Components of the GNP include consumer spending, investments, government spending, and net exports.A recession occurs when Real GNP (Gross National Product adjusted for inflation) has declined for two successive quarters.
3. Indicators of the Business Cycle
Economists use three types of indicators that provide monthly data on the movement of the economy as the business cycle enters different phases: leading, coincident, and lagging indicators.
4. The business cycle's effect in Forex
As the economy moves through the different phases of the business cycle, the FOREX market reacts to these changes. Investors view these changes and take corresponding action, attempting to take advantage of changes in the economy.In the FOREX market, the US Dollar will move inversely to interest rates. As interest rates increase, there will be a drain on earnings, resulting in a decline in the US Dollar Index.
5. Monetary Policy
Monetary policy attempts to control the supply of money and credit in the economy. This will affect interest rates causing an increase or decrease in economic activity. The primary focus of monetary policy is the control of inflation.
6. The activity of the Federal Reserve System (FRS)
The FRS implements monetary policy in the US. An Act of Congress established the Federal Reserve System, the nation’s central bank, in 1913. The Act divided the country into 12 Federal Reserve districts. Responsibility for coordination the activities of the district banks lies with the Federal Reserve Board of Governors in Washington D.C. The board has seven members appointed by the President and confirmed by the Senate.
Thursday, November 29, 2007
Fundamental elements of the economy:(1)
1. The Basic Concept
The performance of an investment will be influenced by the economy. The effects of inflation or deflation may interfere with anticipated returns. Thus, the direction of the economy must be considered when formulating an investment strategy.
A. The Business Cycle
The business cycle represents changes in economic activity. It has four phases: expansion (also called recovery), peak, recession (also call contraction), and trough.
In the expansion phase, business activity is growing, production and demand are increasing, and employment is expanding. Businesses and consumers normally borrow money to expand, which causes interest rates to rise.
B. Inflation
As the cycle moves into the peak, demand for goods overtakes supply and prices rise. This creates inflation. During inflationary times, there is too much money chasing more for their items causing prices to rise. This, in turn, reduces the purchasing power of the consumer.
As prices rise, demand slackens which causes economic activity to decrease. The cycle then enters the recessionary phase.
C. Deflation
As business activity contracts, employers lay off workers and demand slackens. Usually, this cause prices to fall creating deflation. The cycle enters the trough. Deflation is the persistent and appreciable fall in the general level of prices. Eventually, lower prices will stimulate demand and the economy moves into the next cycles, expansion.
The performance of an investment will be influenced by the economy. The effects of inflation or deflation may interfere with anticipated returns. Thus, the direction of the economy must be considered when formulating an investment strategy.
A. The Business Cycle
The business cycle represents changes in economic activity. It has four phases: expansion (also called recovery), peak, recession (also call contraction), and trough.
In the expansion phase, business activity is growing, production and demand are increasing, and employment is expanding. Businesses and consumers normally borrow money to expand, which causes interest rates to rise.
B. Inflation
As the cycle moves into the peak, demand for goods overtakes supply and prices rise. This creates inflation. During inflationary times, there is too much money chasing more for their items causing prices to rise. This, in turn, reduces the purchasing power of the consumer.
As prices rise, demand slackens which causes economic activity to decrease. The cycle then enters the recessionary phase.
C. Deflation
As business activity contracts, employers lay off workers and demand slackens. Usually, this cause prices to fall creating deflation. The cycle enters the trough. Deflation is the persistent and appreciable fall in the general level of prices. Eventually, lower prices will stimulate demand and the economy moves into the next cycles, expansion.
You may ask this Questions??!-(4)
Is it too difficult?
Trading Forex is so easy, anyone can do it. You don't need to watch bloomberg TV every morning or to buy every financial newspaper to determinate the trend. The Forex Market is highly predictable.
When is the FX market open for trading?
Forex is a true global 24-hour marketplace. The trading day begins in Sydney, and moves around the globe as each financial center comes to life. Tokyo follows, then London, and finally New York. Investors can respond in real time to any fluctuations caused by current economic, social and political events.What are foreign currency exchange rates?Foreign currency exchange rates are what it costs to exchange one country's currency for another country's currency. For example, if you go to England on vacation, you will have to pay for your hotel, meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to use (sell) some of your dollars to buy British pounds.
Assume you go to your bank before you leave and buy $1,000 worth of British pounds. If you get 565.83 British pounds (GBP 565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds.If GBP 565.83 isn't enough cash for your trip, you will have to exchange more US dollars for pounds while in England. Assume you buy another $1,000 worth of British pounds from a bank in England and get only GBP557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to .55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.
Assume that you have GBP100 left when you return home. You go to your bank and use the pounds to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.Theoretically, you can convert the exchange rate for buying a currency to the exchange rate for selling a currency, and vice versa, by dividing 1 by the known rate. For example, if the exchange rate for buying British pounds with US dollars is .56011, the exchange rate for buying US dollars with British pounds is 1.78536 (1 ?·.56011 = 1.78536). Similarly, if the exchange rate for buying US dollars with British pounds is 1.78536, the exchange rate for buying British pounds with US dollars is .56011 (1?·1.78536 = .56011). This is how newspapers often report currency exchange rates.
As a practical matter, however, you will not be able to buy and sell the currency at the same price, and you will not receive the price quoted in the newspaper. This is because banks and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it. The difference is called a spread.
How can I trade foreign currency exchange rates?
As you can see from the example, currency exchange rates fluctuate. As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies to make profits. Retail customers also participate in the forex market, generally as speculators who are hoping to profit from changes in currency rates.
What are the primary currencies traded in forex?
For most online brokers, there are four main currency pairs that are heavily traded and that offer immediate liquidity most of the time:
Euro / US Dollar
US Dollar / Japanese Yen
British Pound / US Dollar
US Dollar / Swiss Franc
How often does a person have to trade?
The beauty of self-trading forex is that you can trade as occasionally or as often as you wish. You might rely on longer-term strategies that may require checking the market as little as once or twice a week. Or, you might trade shorter-term methods that may require that you watch the market for a few hours a day.
How much money does it take to open a real money trading account?
If you're a new student of forex, you should first practice with a free practice account, often called "demo trading," using "pretend" money. When you feel ready to trade with real money, you can open a "mini" account with as little $300 USD, although we recommend starting with no less than $1000-$2000.
Who participates in the FX market?
Central, commercial and investment banks have traditionally dominated the Forex market. Other market participation is rapidly increasing, and now includes international money managers and brokers, multinational corporations, registered dealers, options and futures traders, and private investors.
When is the FX market open for trading?
Forex is a true global 24-hour marketplace. The trading day begins in Sydney, and moves around the globe as each financial center comes to life. Tokyo follows, then London, and finally New York. Investors can respond in real time to any fluctuations caused by current economic, social and political events.
What are foreign currency exchange rates?
Foreign currency exchange rates are what it costs to exchange one country's currency for another country's currency. For example, if you go to England on vacation, you will have to pay for your hotel, meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to use (sell) some of your dollars to buy British pounds.
Assume you go to your bank before you leave and buy $1,000 worth of British pounds. If you get 565.83 British pounds (GBP 565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds.If GBP 565.83 isn't enough cash for your trip, you will have to exchange more US dollars for pounds while in England. Assume you buy another $1,000 worth of British pounds from a bank in England and get only GBP557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to .55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.
Assume that you have GBP100 left when you return home. You go to your bank and use the pounds to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.Theoretically, you can convert the exchange rate for buying a currency to the exchange rate for selling a currency, and vice versa, by dividing 1 by the known rate. For example, if the exchange rate for buying British pounds with US dollars is .56011, the exchange rate for buying US dollars with British pounds is 1.78536 (1 ?·.56011 = 1.78536). Similarly, if the exchange rate for buying US dollars with British pounds is 1.78536, the exchange rate for buying British pounds with US dollars is .56011 (1?·1.78536 = .56011). This is how newspapers often report currency exchange rates.
price quoted in the newspaper. This is because banks and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it. The difference is called a spread.
How can I trade foreign currency exchange rates?
As you can see from the example, currency exchange rates fluctuate. As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies to make profits. Retail customers also participate in the forex market, generally as speculators who are hoping to profit from changes in currency rates.
Trading Forex is so easy, anyone can do it. You don't need to watch bloomberg TV every morning or to buy every financial newspaper to determinate the trend. The Forex Market is highly predictable.
When is the FX market open for trading?
Forex is a true global 24-hour marketplace. The trading day begins in Sydney, and moves around the globe as each financial center comes to life. Tokyo follows, then London, and finally New York. Investors can respond in real time to any fluctuations caused by current economic, social and political events.What are foreign currency exchange rates?Foreign currency exchange rates are what it costs to exchange one country's currency for another country's currency. For example, if you go to England on vacation, you will have to pay for your hotel, meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to use (sell) some of your dollars to buy British pounds.
Assume you go to your bank before you leave and buy $1,000 worth of British pounds. If you get 565.83 British pounds (GBP 565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds.If GBP 565.83 isn't enough cash for your trip, you will have to exchange more US dollars for pounds while in England. Assume you buy another $1,000 worth of British pounds from a bank in England and get only GBP557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to .55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.
Assume that you have GBP100 left when you return home. You go to your bank and use the pounds to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.Theoretically, you can convert the exchange rate for buying a currency to the exchange rate for selling a currency, and vice versa, by dividing 1 by the known rate. For example, if the exchange rate for buying British pounds with US dollars is .56011, the exchange rate for buying US dollars with British pounds is 1.78536 (1 ?·.56011 = 1.78536). Similarly, if the exchange rate for buying US dollars with British pounds is 1.78536, the exchange rate for buying British pounds with US dollars is .56011 (1?·1.78536 = .56011). This is how newspapers often report currency exchange rates.
As a practical matter, however, you will not be able to buy and sell the currency at the same price, and you will not receive the price quoted in the newspaper. This is because banks and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it. The difference is called a spread.
How can I trade foreign currency exchange rates?
As you can see from the example, currency exchange rates fluctuate. As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies to make profits. Retail customers also participate in the forex market, generally as speculators who are hoping to profit from changes in currency rates.
What are the primary currencies traded in forex?
For most online brokers, there are four main currency pairs that are heavily traded and that offer immediate liquidity most of the time:
Euro / US Dollar
US Dollar / Japanese Yen
British Pound / US Dollar
US Dollar / Swiss Franc
How often does a person have to trade?
The beauty of self-trading forex is that you can trade as occasionally or as often as you wish. You might rely on longer-term strategies that may require checking the market as little as once or twice a week. Or, you might trade shorter-term methods that may require that you watch the market for a few hours a day.
How much money does it take to open a real money trading account?
If you're a new student of forex, you should first practice with a free practice account, often called "demo trading," using "pretend" money. When you feel ready to trade with real money, you can open a "mini" account with as little $300 USD, although we recommend starting with no less than $1000-$2000.
Who participates in the FX market?
Central, commercial and investment banks have traditionally dominated the Forex market. Other market participation is rapidly increasing, and now includes international money managers and brokers, multinational corporations, registered dealers, options and futures traders, and private investors.
When is the FX market open for trading?
Forex is a true global 24-hour marketplace. The trading day begins in Sydney, and moves around the globe as each financial center comes to life. Tokyo follows, then London, and finally New York. Investors can respond in real time to any fluctuations caused by current economic, social and political events.
What are foreign currency exchange rates?
Foreign currency exchange rates are what it costs to exchange one country's currency for another country's currency. For example, if you go to England on vacation, you will have to pay for your hotel, meals, admissions fees, souvenirs and other expenses in British pounds. Since your money is all in US dollars, you will have to use (sell) some of your dollars to buy British pounds.
Assume you go to your bank before you leave and buy $1,000 worth of British pounds. If you get 565.83 British pounds (GBP 565.83) for your $1,000, each dollar is worth .56583 British pounds. This is the exchange rate for converting dollars to pounds.If GBP 565.83 isn't enough cash for your trip, you will have to exchange more US dollars for pounds while in England. Assume you buy another $1,000 worth of British pounds from a bank in England and get only GBP557.02 for your $1,000. The exchange rate for converting dollars to pounds has dropped from .56583 to .55702. This means that US dollars are worth less compared to the British pound than they were before you left on vacation.
Assume that you have GBP100 left when you return home. You go to your bank and use the pounds to buy US dollars. If the bank gives you $179.31, each British pound is worth 1.7931 dollars. This is the exchange rate for converting pounds to dollars.Theoretically, you can convert the exchange rate for buying a currency to the exchange rate for selling a currency, and vice versa, by dividing 1 by the known rate. For example, if the exchange rate for buying British pounds with US dollars is .56011, the exchange rate for buying US dollars with British pounds is 1.78536 (1 ?·.56011 = 1.78536). Similarly, if the exchange rate for buying US dollars with British pounds is 1.78536, the exchange rate for buying British pounds with US dollars is .56011 (1?·1.78536 = .56011). This is how newspapers often report currency exchange rates.
price quoted in the newspaper. This is because banks and other market participants make money by selling the currency to customers for more than they paid to buy it and by buying the currency from customers for less than they will receive when they sell it. The difference is called a spread.
How can I trade foreign currency exchange rates?
As you can see from the example, currency exchange rates fluctuate. As the value of one currency rises or falls relative to another, traders decide to buy or sell currencies to make profits. Retail customers also participate in the forex market, generally as speculators who are hoping to profit from changes in currency rates.
You may ask this Questions??!-(3)
Is it too difficult?
Trading Forex is so easy, anyone can do it. You don't need to watch bloomberg TV every morning or to buy every financial newspaper to determinate the trend. The Forex Market is highly predictable.
When does forex trading occur?
The first session, the Tokyo Session, begins each week on Monday morning in the Asia-Pacific region (Sunday evening in the Americas). Trading continues non-stop, moving into the London Session and on to the New York Session until all markets close on Friday afternoon.
What are the primary currencies traded in forex?
For most online brokers, there are four main currency pairs that are heavily traded and that offer immediate liquidity most of the time:
Euro / US Dollar
US Dollar / Japanese Yen
British Pound / US Dollar
US Dollar / Swiss Franc
How often does a person have to trade?
The beauty of self-trading forex is that you can trade as occasionally or as often as you wish. You might rely on longer-term strategies that may require checking the market as little as once or twice a week. Or, you might trade shorter-term methods that may require that you watch the market for a few hours a day.
How much money does it take to open a real money trading account?
If you're a new student of forex, you should first practice with a free practice account, often called "demo trading," using "pretend" money. When you feel ready to trade with real money, you can open a "mini" account with as little $300 USD, although we recommend starting with no less than $1000-$2000.
Who participates in the FX market?
Central, commercial and investment banks have traditionally dominated the Forex market. Other market participation is rapidly increasing, and now includes international money managers and brokers, multinational corporations, registered dealers, options and futures traders, and private investors.
When is the FX market open for trading?
Forex is a true global 24-hour marketplace. The trading day begins in Sydney, and moves around the globe as each financial center comes to life. Tokyo follows, then London, and finally New York. Investors can respond in real time to any fluctuations caused by current economic, social and political events.
Trading Forex is so easy, anyone can do it. You don't need to watch bloomberg TV every morning or to buy every financial newspaper to determinate the trend. The Forex Market is highly predictable.
When does forex trading occur?
The first session, the Tokyo Session, begins each week on Monday morning in the Asia-Pacific region (Sunday evening in the Americas). Trading continues non-stop, moving into the London Session and on to the New York Session until all markets close on Friday afternoon.
What are the primary currencies traded in forex?
For most online brokers, there are four main currency pairs that are heavily traded and that offer immediate liquidity most of the time:
Euro / US Dollar
US Dollar / Japanese Yen
British Pound / US Dollar
US Dollar / Swiss Franc
How often does a person have to trade?
The beauty of self-trading forex is that you can trade as occasionally or as often as you wish. You might rely on longer-term strategies that may require checking the market as little as once or twice a week. Or, you might trade shorter-term methods that may require that you watch the market for a few hours a day.
How much money does it take to open a real money trading account?
If you're a new student of forex, you should first practice with a free practice account, often called "demo trading," using "pretend" money. When you feel ready to trade with real money, you can open a "mini" account with as little $300 USD, although we recommend starting with no less than $1000-$2000.
Who participates in the FX market?
Central, commercial and investment banks have traditionally dominated the Forex market. Other market participation is rapidly increasing, and now includes international money managers and brokers, multinational corporations, registered dealers, options and futures traders, and private investors.
When is the FX market open for trading?
Forex is a true global 24-hour marketplace. The trading day begins in Sydney, and moves around the globe as each financial center comes to life. Tokyo follows, then London, and finally New York. Investors can respond in real time to any fluctuations caused by current economic, social and political events.
You may ask this Questions??!-(2)
Can I trade from home?
Trade from anywhere. If you like to travel, this is a dream business. Take your laptop with you and you can trade the FOREX and make money anywhere in the world where you have an internet connection. You can be on the white-sand beaches of Guadeloupe(My country).You have total freedom of location. FX Trading is not bound to any one trading floor and is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.
How much can I win?
The FOREX has a DAILY trading volume of around $1.5 trillion dollars - 30 times larger than the combined volume of all U.S. equity markets. This means that 1,498,574 skilled traders could each take 1 milllion doll_ars out of the FOREX market every day and the FOREX would still have more money left than the New York Stock would have daily!
Is there any risk?If you'd like to make $200 to $3,000 for as little as ten minutes of work -- work that involves minimal risk, but plenty of upside potential -- then this ongoing email mini- course if for you.Yes there is a risk, like in every investment, if you follow our training system and some fundamentals rules, it is much less risky than trading in the other markets. In fact, You can only loose what you decide to; the system of stop loss let you choose before the trade, how much you want to risk! You have a minimal risk for a unlimited potential!
I trade stocks, what is the difference?
I also trade the stock market before, and I can tell you that trading Forex is much easier and less risky than trading shares, and last but not least, you need only $300 to start.
Can I try first for FREE?
This is one of the numerous particularity of the forex, you can try one month for free whith the majority of the brokers, without any obligation. You will have access to the demo trading platform and you will trade in direct, with a simulation account.In most of the case, you will have $50,000 to start! (not real money). You will place your trades in directs, everything like the pros. Once you are profitable move into a real account with a small investment.
Trade from anywhere. If you like to travel, this is a dream business. Take your laptop with you and you can trade the FOREX and make money anywhere in the world where you have an internet connection. You can be on the white-sand beaches of Guadeloupe(My country).You have total freedom of location. FX Trading is not bound to any one trading floor and is not centralized on an exchange, as with the stock and futures markets. The FX market is considered an Over-the-Counter (OTC) or 'Interbank' market, due to the fact that the entire market is run electronically, within a network of banks, continuously over a 24-hour period.
How much can I win?
The FOREX has a DAILY trading volume of around $1.5 trillion dollars - 30 times larger than the combined volume of all U.S. equity markets. This means that 1,498,574 skilled traders could each take 1 milllion doll_ars out of the FOREX market every day and the FOREX would still have more money left than the New York Stock would have daily!
Is there any risk?If you'd like to make $200 to $3,000 for as little as ten minutes of work -- work that involves minimal risk, but plenty of upside potential -- then this ongoing email mini- course if for you.Yes there is a risk, like in every investment, if you follow our training system and some fundamentals rules, it is much less risky than trading in the other markets. In fact, You can only loose what you decide to; the system of stop loss let you choose before the trade, how much you want to risk! You have a minimal risk for a unlimited potential!
I trade stocks, what is the difference?
I also trade the stock market before, and I can tell you that trading Forex is much easier and less risky than trading shares, and last but not least, you need only $300 to start.
Can I try first for FREE?
This is one of the numerous particularity of the forex, you can try one month for free whith the majority of the brokers, without any obligation. You will have access to the demo trading platform and you will trade in direct, with a simulation account.In most of the case, you will have $50,000 to start! (not real money). You will place your trades in directs, everything like the pros. Once you are profitable move into a real account with a small investment.
You may ask this Questions??!
What exactly is forex?
Forex is an acronym for FOReign EXchange and is the worldwide currency inter-bank or inter-dealer market that uses a floating exchange rate system. It is the world's largest financial market, with an estimated daily average of more than $1.5 to $2 trillion. Some estimate that it would take the New York Stock Exchange about 2-3 months of trading to equal one day in forex.
Why is forex so popular?
Forex trading is attractive because it offers unparalleled freedoms. A forex trader can live anywhere as long as he/she is within reach of the internet. Work from home or office. Trade while traveling! A forex trader can usually choose his/her own hours to work since the global foreign exchange market is open 24-hours a day. There is NO inventory, NO shipping, NO billing, NO collections, NO employees, NO commuting and NO dress code. And finally, since forex traders can potentially earn a very high income, they enjoy the possibility of never, ever working for someone else again.
How fair is the forex market?
The forex market is so large and has so many participants that no one player, not even a large government, can completely control the long-term direction of the market. That's why so many experts have called forex the "most level playing field" on earth.
Where is the central location of the forex market?
For most currency instruments, there is NO central location where trading takes place. This is called the forex "spot market," not to be confused with currency futures or options. The bulk of forex trading takes place between a few hundred large banks that process transactions for large companies and governments. These institutions continually provide exchange rates for each other and for the broader market. The most recent quotation from one of these banks is considered the market's current pricing for that currency. Trading occurs over the internet, by telephone and through computer terminals at hundreds of locations around the globe.
Can I really trade at any time?
Of course! This system is perfect for people who have jobs or "have a life" and don't want to, or can't, sit in front of their computer all day trading. You can successfully trade around your work hours. Since the FOREX market is open 24 hours a day (Monday through Friday) there are good chances that you'll be able to find trading opportunities that won't conflict with your job.
Forex is an acronym for FOReign EXchange and is the worldwide currency inter-bank or inter-dealer market that uses a floating exchange rate system. It is the world's largest financial market, with an estimated daily average of more than $1.5 to $2 trillion. Some estimate that it would take the New York Stock Exchange about 2-3 months of trading to equal one day in forex.
Why is forex so popular?
Forex trading is attractive because it offers unparalleled freedoms. A forex trader can live anywhere as long as he/she is within reach of the internet. Work from home or office. Trade while traveling! A forex trader can usually choose his/her own hours to work since the global foreign exchange market is open 24-hours a day. There is NO inventory, NO shipping, NO billing, NO collections, NO employees, NO commuting and NO dress code. And finally, since forex traders can potentially earn a very high income, they enjoy the possibility of never, ever working for someone else again.
How fair is the forex market?
The forex market is so large and has so many participants that no one player, not even a large government, can completely control the long-term direction of the market. That's why so many experts have called forex the "most level playing field" on earth.
Where is the central location of the forex market?
For most currency instruments, there is NO central location where trading takes place. This is called the forex "spot market," not to be confused with currency futures or options. The bulk of forex trading takes place between a few hundred large banks that process transactions for large companies and governments. These institutions continually provide exchange rates for each other and for the broader market. The most recent quotation from one of these banks is considered the market's current pricing for that currency. Trading occurs over the internet, by telephone and through computer terminals at hundreds of locations around the globe.
Can I really trade at any time?
Of course! This system is perfect for people who have jobs or "have a life" and don't want to, or can't, sit in front of their computer all day trading. You can successfully trade around your work hours. Since the FOREX market is open 24 hours a day (Monday through Friday) there are good chances that you'll be able to find trading opportunities that won't conflict with your job.
F.T.O. & P.I.
How to make an F.T.O. and P.I. ??F.T.O. means Forex Trading OrdersP.I. means Positions Information
When you want to open a position you need to place an "entry" order. If and when the entry order executes, the position becomes "open" and starts its life on the market. At one point in time, you will place an "exit" order to "close" the position. A position can be "long" (entry order is to buy and exit order is to sell an instrument) or "short" (entry order is to sell and exit order is to buy an instrument).
At the point when you place your entry order, you need to define price level at which you want to buy or sell certain instrument. You also need to specify type of the order and quantity of the instrument you want to trade. There are 3 order types:
Market Order
Placing a market order means that you will buy at your broker's current "ask" (or "offer") price, or sell at your broker's current "bid" price, whatever that price currently is. For example, suppose you are buying EUR/USD. The current market, as quoted by your broker is 1.2934 / 1.2938. This means that your broker is willing to buy EUR/USD from you at 1.2934, and sell it to you at 1.2938.
Stop Order
Initiating a trade with a stop order means that you will only open a position if the market moves in the direction you are anticipating. For example, if USD/JPY is currently 108.72 and you believe it will move higher, you could place a stop order to buy at 108.82. This means that the order will only be executed if the market moves up to 108.82. The advantage is that if you are wrong and the market moves straight down, you will not have bought (because 108.82 will never have been reached). The disadvantage is that 108.82 is clearly a less attractive rate at which to buy than 108.72. Opening a position with a stop order is usually appropriate if you wish to trade only with strong market momentum in a particular direction.
Limit Order
A limit order is an order to buy below the current price, or sell above the current price. For example, if EUR/USD is trading at 1.2952 / 56 and you believe the market will rise, you could place a limit order to buy at 1.2945. If executed, this will give you a long position in EUR/USD at 1.2945, which is 11 pips better than if you had just bought EUR/USD with a market order. The disadvantage of the limit order is that if EUR/USD moves straight up from 1.2952 / 56, your limit at 1.2945 will never be filled and you will miss out on the profit opportunity even though your view on the direction of EUR/USD was correct. Opening a position with a limit order is usually appropriate if you believe that the market will remain in a range before moving in your anticipated direction, allowing the order to be filled first.
For both entry and exits orders you can specify price levels at which you want them to be executed. You have to specify entry levels when you place you entry order, while most brokers would allow you to specify exit levels at any time.
When you want to open a position you need to place an "entry" order. If and when the entry order executes, the position becomes "open" and starts its life on the market. At one point in time, you will place an "exit" order to "close" the position. A position can be "long" (entry order is to buy and exit order is to sell an instrument) or "short" (entry order is to sell and exit order is to buy an instrument).
At the point when you place your entry order, you need to define price level at which you want to buy or sell certain instrument. You also need to specify type of the order and quantity of the instrument you want to trade. There are 3 order types:
Market Order
Placing a market order means that you will buy at your broker's current "ask" (or "offer") price, or sell at your broker's current "bid" price, whatever that price currently is. For example, suppose you are buying EUR/USD. The current market, as quoted by your broker is 1.2934 / 1.2938. This means that your broker is willing to buy EUR/USD from you at 1.2934, and sell it to you at 1.2938.
Stop Order
Initiating a trade with a stop order means that you will only open a position if the market moves in the direction you are anticipating. For example, if USD/JPY is currently 108.72 and you believe it will move higher, you could place a stop order to buy at 108.82. This means that the order will only be executed if the market moves up to 108.82. The advantage is that if you are wrong and the market moves straight down, you will not have bought (because 108.82 will never have been reached). The disadvantage is that 108.82 is clearly a less attractive rate at which to buy than 108.72. Opening a position with a stop order is usually appropriate if you wish to trade only with strong market momentum in a particular direction.
Limit Order
A limit order is an order to buy below the current price, or sell above the current price. For example, if EUR/USD is trading at 1.2952 / 56 and you believe the market will rise, you could place a limit order to buy at 1.2945. If executed, this will give you a long position in EUR/USD at 1.2945, which is 11 pips better than if you had just bought EUR/USD with a market order. The disadvantage of the limit order is that if EUR/USD moves straight up from 1.2952 / 56, your limit at 1.2945 will never be filled and you will miss out on the profit opportunity even though your view on the direction of EUR/USD was correct. Opening a position with a limit order is usually appropriate if you believe that the market will remain in a range before moving in your anticipated direction, allowing the order to be filled first.
For both entry and exits orders you can specify price levels at which you want them to be executed. You have to specify entry levels when you place you entry order, while most brokers would allow you to specify exit levels at any time.
forex glossary ! (3)
Rally - A prompt rise in prices (quotations) in the market.
Random Walk - An economic theory that price movements in the commodity futures markets and in the securities markets are completely random in character (i.e., past prices are not a reliable indicator of future prices).
Range - The difference between the high and low price of a commodity during a given trading session, week, month, year, etc.
Rate - The price of one currency in terms of another, typically used for dealing purposes.
Ratio Hedge - The number of options compared to the number of futures contracts bought or sold in order to establish a hedge that is risk neutral.
Ratio Spread - This strategy, which applies to both puts and calls, involves buying or selling options at one strike price in greater number than those bought or sold at another strike price.
Reaction - The downward price movement tendency of a commodity after a price advance.
Receiver - A person appointed by the court to receive and preserve the property or funds that are the subject of litigation.
Recession - Decrease in business activity.
Revoke - To recall a power or authority previously conferred, or annul, repeal, rescind or cancel privileges or registration. In the case of Commodity Futures Trading Commission registration proceedings, to take away a previously granted registration.
Riding the Yield Curve - Trading in interest rate futures according to the expectations of change in the yield curve.
Ring - A circular area on the trading floor of an exchange where floor traders and floor brokers stand while executing futures trades.
Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Management - The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.
Risk/Reward Ratio - The relationship between the probability of loss and profit. This ratio is often used as a basis for trade selection or comparison.
Roll-Over - Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest Forex rate differential of the two currencies.
Round Lot - A quantity of a commodity equal in size to the corresponding futures contract for the commodity.
Round Turn - A completed futures transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.
Runners - Messengers who rush orders received by phone clerks to brokers for execution in the pit.
TRO - See Temporary Restraining Order.
Technical Analysis - An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.
Technical Indicators - The mathematical formulas used for construction of auxiliary schedules, facilitating the analysis of the market.
Telemarketing - Use of the telephone to solicit or otherwise communicate with futures and options customers or potential customers.
Temporary Injunction - A prohibitive, equitable remedy issued by a court forbidding a person to commit some action that he is attempting to commit, or restraining him in the continuance of some action. It is intended to last only until a hearing can be held.
Temporary License - If certain conditions are met, an applicant for registration as an associated person, floor broker, floor trader or introducing broker may be granted a temporary license (TL) which allows them to conduct business in that capacity while the application is being considered.
Temporary Restraining Order (TRO) - Prohibits a person from an action that is likely to cause irreparable harm. This differs from an injunction in that it may be granted immediately, without notice to the opposing party and without a hearing. It is intended to last only until a hearing can be held.
Tender - To give notice to the clearing house of the intention to initiate delivery of the physical commodity in satisfaction of the futures contract.
Tenderable Grades - Those grades of a commodity which have been officially approved by an exchange as deliverable in settlement of a futures contract.
Terminal Elevator - An elevator located at a point of greatest accumulation in the movement of agricultural products which stores the commodity or moves it to processors.
Trade Practice Action Type - A violation arising from the manner of execution of trades on the floor of an exchange but not including decorum or recordkeeping matters.
Traders - Generally people who trade for their own account or employees or institutions who trade for their employer's accounts.
Trading Advisor - See Commodity Trading Advisor.
Trading Ahead - A dual trader executes a trade for his personal account prior to executing an elected customer order.
Trading Limit - The maximum number of speculative futures contracts one can hold as determined by the CFTC and/or the exchange upon which the contract is traded. Also referred to as Position Limit.
Transaction Cost - The cost of buying or selling of financial instrument.
Transaction Date - The date on which a Forex market trading occurs.
Transfer Notice - A term used on some exchanges to describe a notice of delivery.
Transfer Trades - Entries made upon the books of futures commission merchants for the purpose of: (1) transferring existing trades from one account to another within the same office where no change in ownership is involved; (2) transferring existing trades from the books of one futures commission merchant to the books of another futures commission merchant where no change in ownership is involved. Also called Ex-Pit Transactions.
Transferable Option (or Contract) - A contract which permits a position in the option market to be offset by a transaction on the opposite side of the market in the same contract.
Treasury Bill - See U.S. Treasury Bill.
Treasury Bond - See U.S. Treasury Bond.
Treasury Note - See U.S. Treasury Note.
Treble Damages - An amount that is three times the actual losses, based upon a statute.
Trend - The tendency. Steady long-term movement of the price (Forex rate) in the market in the certain direction.
Trendline - In charting, a line drawn across the bottom or top of a price chart indicating the direction or trend of price movement. If up, the trendline is called bullish; if down, it is called bearish.
Turnover - The total money value of all executed transactions in a given time period; volume.
Two-Way Price - When both a bid and offer Forex rate is quoted for a FX transaction.
Uncovered Option - A short call or put option position which is not covered by the purchase or sale of the underlying futures contract or physical commodity.
Underlying Futures Contract - The specific futures contract that the option conveys the right to buy (in case of a call) or sell (in the case of a put).
Up Front Fees - Fees charged to a pool or a managed account prior to commencement of trading for the pool or account.
Uptick - A new price quote at a price higher than the preceding quote.
Uptick Rule - In the U.S., a regulation whereby a security may not be sold short unless the last Forex market trading prior to the short sale was at a price lower than the price at which the short sale is executed.
US Prime Forex rate - The interest Forex rate at which US banks will lend to their prime corporate customers.
U.S. Treasury Bill - A short-term U.S. government debt instrument with an original maturity of one year or less. Bills are sold at a discount from par with the interest earned being the difference between the face value received at maturity and the price paid.
U.S. Treasury Bond - Government-debt security with a coupon and original maturity of more than 10 years. Interest is paid semiannually.U.S. Treasury Note - Government-debt security with a coupon and original maturity of one to 10 years
Value Date - The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.
Variable Price Limit - A price limit schedule, determined by an exchange, that permits variations above or below the normally allowable price movement for any one trading day.
Variation Margin - Broker must request the funds from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
Versus Cash - A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as Against Actuals or Exchange for Physicals. See Exchange for Physical.
Vertical Spread - Buying and selling puts or calls of the same expiration month but having different strike prices.
Volatility (Vol) - A statistical measure of a market's price movements over time.
Volume - The number of purchases and sales of futures or options on futures contracts made during a specified period of time.
Warehouse Receipt - Document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.
Wash Sale - Transactions that give the appearance of purchases and sales but which are initiated without the intent to make a bona fide transaction and which generally do not result in any actual change in ownership. Such sales are prohibited by the Commodity Exchange Act.
Wash Trading - Entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without resulting in a change in the trader's market position.
Whipsaw - Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Wire House - See Futures Commission Merchant.
Writer - The issuer, grantor, or maker of an option contract. See Option Seller.
Yard - Slang for a billion.
Yield - The income in the form of percent on the invested capital counted for the term of one year.
Yield Curve - A chart in which yield level is plotted on the vertical axis, and the term to maturity of debt instruments of similar creditworthiness is plotted on the horizontal axis.
Yield to Maturity - The rate of return an investor receives if a fixed-income security is held to maturity.
Random Walk - An economic theory that price movements in the commodity futures markets and in the securities markets are completely random in character (i.e., past prices are not a reliable indicator of future prices).
Range - The difference between the high and low price of a commodity during a given trading session, week, month, year, etc.
Rate - The price of one currency in terms of another, typically used for dealing purposes.
Ratio Hedge - The number of options compared to the number of futures contracts bought or sold in order to establish a hedge that is risk neutral.
Ratio Spread - This strategy, which applies to both puts and calls, involves buying or selling options at one strike price in greater number than those bought or sold at another strike price.
Reaction - The downward price movement tendency of a commodity after a price advance.
Receiver - A person appointed by the court to receive and preserve the property or funds that are the subject of litigation.
Recession - Decrease in business activity.
Revoke - To recall a power or authority previously conferred, or annul, repeal, rescind or cancel privileges or registration. In the case of Commodity Futures Trading Commission registration proceedings, to take away a previously granted registration.
Riding the Yield Curve - Trading in interest rate futures according to the expectations of change in the yield curve.
Ring - A circular area on the trading floor of an exchange where floor traders and floor brokers stand while executing futures trades.
Risk - Exposure to uncertain change, most often used with a negative connotation of adverse change.
Risk Management - The employment of financial analysis and trading techniques to reduce and/or control exposure to various types of risk.
Risk/Reward Ratio - The relationship between the probability of loss and profit. This ratio is often used as a basis for trade selection or comparison.
Roll-Over - Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest Forex rate differential of the two currencies.
Round Lot - A quantity of a commodity equal in size to the corresponding futures contract for the commodity.
Round Turn - A completed futures transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase.
Runners - Messengers who rush orders received by phone clerks to brokers for execution in the pit.
TRO - See Temporary Restraining Order.
Technical Analysis - An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.
Technical Indicators - The mathematical formulas used for construction of auxiliary schedules, facilitating the analysis of the market.
Telemarketing - Use of the telephone to solicit or otherwise communicate with futures and options customers or potential customers.
Temporary Injunction - A prohibitive, equitable remedy issued by a court forbidding a person to commit some action that he is attempting to commit, or restraining him in the continuance of some action. It is intended to last only until a hearing can be held.
Temporary License - If certain conditions are met, an applicant for registration as an associated person, floor broker, floor trader or introducing broker may be granted a temporary license (TL) which allows them to conduct business in that capacity while the application is being considered.
Temporary Restraining Order (TRO) - Prohibits a person from an action that is likely to cause irreparable harm. This differs from an injunction in that it may be granted immediately, without notice to the opposing party and without a hearing. It is intended to last only until a hearing can be held.
Tender - To give notice to the clearing house of the intention to initiate delivery of the physical commodity in satisfaction of the futures contract.
Tenderable Grades - Those grades of a commodity which have been officially approved by an exchange as deliverable in settlement of a futures contract.
Terminal Elevator - An elevator located at a point of greatest accumulation in the movement of agricultural products which stores the commodity or moves it to processors.
Trade Practice Action Type - A violation arising from the manner of execution of trades on the floor of an exchange but not including decorum or recordkeeping matters.
Traders - Generally people who trade for their own account or employees or institutions who trade for their employer's accounts.
Trading Advisor - See Commodity Trading Advisor.
Trading Ahead - A dual trader executes a trade for his personal account prior to executing an elected customer order.
Trading Limit - The maximum number of speculative futures contracts one can hold as determined by the CFTC and/or the exchange upon which the contract is traded. Also referred to as Position Limit.
Transaction Cost - The cost of buying or selling of financial instrument.
Transaction Date - The date on which a Forex market trading occurs.
Transfer Notice - A term used on some exchanges to describe a notice of delivery.
Transfer Trades - Entries made upon the books of futures commission merchants for the purpose of: (1) transferring existing trades from one account to another within the same office where no change in ownership is involved; (2) transferring existing trades from the books of one futures commission merchant to the books of another futures commission merchant where no change in ownership is involved. Also called Ex-Pit Transactions.
Transferable Option (or Contract) - A contract which permits a position in the option market to be offset by a transaction on the opposite side of the market in the same contract.
Treasury Bill - See U.S. Treasury Bill.
Treasury Bond - See U.S. Treasury Bond.
Treasury Note - See U.S. Treasury Note.
Treble Damages - An amount that is three times the actual losses, based upon a statute.
Trend - The tendency. Steady long-term movement of the price (Forex rate) in the market in the certain direction.
Trendline - In charting, a line drawn across the bottom or top of a price chart indicating the direction or trend of price movement. If up, the trendline is called bullish; if down, it is called bearish.
Turnover - The total money value of all executed transactions in a given time period; volume.
Two-Way Price - When both a bid and offer Forex rate is quoted for a FX transaction.
Uncovered Option - A short call or put option position which is not covered by the purchase or sale of the underlying futures contract or physical commodity.
Underlying Futures Contract - The specific futures contract that the option conveys the right to buy (in case of a call) or sell (in the case of a put).
Up Front Fees - Fees charged to a pool or a managed account prior to commencement of trading for the pool or account.
Uptick - A new price quote at a price higher than the preceding quote.
Uptick Rule - In the U.S., a regulation whereby a security may not be sold short unless the last Forex market trading prior to the short sale was at a price lower than the price at which the short sale is executed.
US Prime Forex rate - The interest Forex rate at which US banks will lend to their prime corporate customers.
U.S. Treasury Bill - A short-term U.S. government debt instrument with an original maturity of one year or less. Bills are sold at a discount from par with the interest earned being the difference between the face value received at maturity and the price paid.
U.S. Treasury Bond - Government-debt security with a coupon and original maturity of more than 10 years. Interest is paid semiannually.U.S. Treasury Note - Government-debt security with a coupon and original maturity of one to 10 years
Value Date - The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.
Variable Price Limit - A price limit schedule, determined by an exchange, that permits variations above or below the normally allowable price movement for any one trading day.
Variation Margin - Broker must request the funds from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
Versus Cash - A transaction generally used by two hedgers who want to exchange futures for cash positions. Also referred to as Against Actuals or Exchange for Physicals. See Exchange for Physical.
Vertical Spread - Buying and selling puts or calls of the same expiration month but having different strike prices.
Volatility (Vol) - A statistical measure of a market's price movements over time.
Volume - The number of purchases and sales of futures or options on futures contracts made during a specified period of time.
Warehouse Receipt - Document guaranteeing the existence and availability of a given quantity and quality of a commodity in storage; commonly used as the instrument of transfer of ownership in both cash and futures transactions.
Wash Sale - Transactions that give the appearance of purchases and sales but which are initiated without the intent to make a bona fide transaction and which generally do not result in any actual change in ownership. Such sales are prohibited by the Commodity Exchange Act.
Wash Trading - Entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without resulting in a change in the trader's market position.
Whipsaw - Slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.
Wire House - See Futures Commission Merchant.
Writer - The issuer, grantor, or maker of an option contract. See Option Seller.
Yard - Slang for a billion.
Yield - The income in the form of percent on the invested capital counted for the term of one year.
Yield Curve - A chart in which yield level is plotted on the vertical axis, and the term to maturity of debt instruments of similar creditworthiness is plotted on the horizontal axis.
Yield to Maturity - The rate of return an investor receives if a fixed-income security is held to maturity.
forex glossary ! (2)
B - See Introducing Broker.
IBRD - The international bank of reconstruction and development.
ICCH - International Commodities Clearing House Limited, a clearing house based in London operating world wide for many futures markets.
IDEM Membership (CBOT) - A Chicago Board of Trade membership of trading privileges for futures contract in the index, debt, and energy markets category (gold, municipal bond index, 30-day fed funds, and stock index futures).
IFEMA - International Foreign Exchange Master Agreement.
IMF - The International Monetary fund.
IMM - International Monetary Market part of the Chicago Mercantile Exchange that lists a number of currency and financial futures Implied volatilityA measurement of the market's expected price range of the underlying currency futures based on the traded option premiums.
Inverse Head and Shoulder - Turned "a head and shoulders".
Inverted Market - A futures market in which the nearer months are selling at premiums over the more distant months; characteristically, a market in which supplies are currently in shortage.
Invisible Supply - Uncounted stocks of a commodity in the hands of wholesalers, manufacturers and producers which cannot be identified accurately; stocks outside commercial channels but theoretically available to the market.
IOM - Index and Options Market part of the Chicago Mercantile Exchange.
IPI - Industrial Production Index. A coincident indicator measuring physical output of manufacturing, mining and utilities.
ISDA (International Securities Dealers Association) - Organization which foreign currency exchange banks have formed to regulate inter-bank markets and exchanges.
Joint Account - The incorporated bill.
Joint and Several Liability - Generally refers to the responsibility of multiple persons to pay a judgment or fine. When persons are jointly and severally liable to make payment, the person who is entitled to receive the payment (the creditor) may collect the entire amount from one or more of the responsible persons separately or from all responsible persons collectively, at the creditor's option. The amounts paid by any responsible person to the creditor reduce the amount for which the others remain responsible to pay the creditor.
KCBOT - Kansas City Board of Trade
KCBT - Kansas City Board of Trade
Lagging Indicators - Market indicators showing the general direction of the economy and confirming or denying the trend implied by the leading indicators. Also referred to as Concurrent Indicators.
Large Traders - A large trader is one who holds or controls a position in any one future or in any one option expiration series of a commodity on any one contract market equaling or exceeding the exchange or CFTC-specified reporting level.
Last Notice Day - The final day on which notices of intent to deliver on futures contracts may be issued.
Last Trading Day - According to the Chicago Board of Trade rules, the final day when trading may occur in a given futures or option contract month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of the underlying commodity or securities or by agreement for monetary settlement (in some cases by EFPs).
Locked In - A hedged position that cannot be lifted without offsetting both sides of the hedge (spread). Also refers to being caught in a limit move.
Long - One who has bought futures contracts or owns a cash commodity. Opposite of Short.
Long Hedge - Buying futures contracts to protect against possible increasing prices of commodities. Opposite of Short Hedge.
Long Position - A position that appreciates in value if market prices increase.
Long the Basis - A person or firm is said to be long the basis if they have bought the spot commodity and hedged with a sale of futures.
Lookback Option - An option whose payoff depends on the minimum or maximum price of the underlying asset during some portion of the life of the option.
Low - The lowest price of the day for a particular futures contract.
M0 - Cash in circulation . Only used by the UK.
M1 - Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.
M2 - Includes demand deposits time deposits and money market mutual funds excluding large CDs.
M3 - In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.
M4 - In the US it is M2 plus negotiable CDs.
MACE - MidAmerica Commodity Exchange.
MGE - Minneapolis Grain Exchange
MIDAM - MidAmerica Commodity Exchange.
MIT - See Market-If-Touched.
MITI - Japanese ministry of International Trade & Industry.
MM - Money Markets.
MRA - See Member Responsibility Action.
Money Pass - Two traders trading for their personal accounts, execute a buy and a sell with each other at different prices, resulting in a profit for one and a loss for the other.
Money Supply - The amount of money in the economy, which can be measured in a number of ways. In India we have four measures of money supply i.e M1, M2, M3, M4.
Motion - A request asking a judge to issue a ruling or order on a legal matter.
Motion for Summary Judgment - A request made by either party in a civil case. Asserts that the opposing party has raised no genuine issue of fact necessitating a hearing and asks the judge to rule in favor of the moving party based on the law. Typically made before the trial.
Motion to Dismiss - In a civil case, a request to a judge by the defendant, asserting that even if all the allegations are true, the plaintiff is not entitled to any legal relief and thus the case should be dismissed.
Moving Average - Sliding (dynamic) average. The indicator applied in a technical analysis for definition of the tendency in the market.
Municipal Bonds - Debt securities issued by state and local governments, and special districts and counties.
Mutual fund - An open-end investment company. Equivalent to unit trust.
NAV - See Net Asset Value.
Narrow Market - The market with a small amount of the participants, described in low volumes and significant fluctuations of the prices.
NFA - See National Futures Association.
NFA Associate Member - See Associate Member.
NYBT or NYBOT - New York Board of Trade.
NYCE - New York Cotton Exchange.
NYFE - New York Futures Exchange.
NYME or NYMEX - New York Mercantile Exchange.
NYMEX - New York Mercantile Exchange.
Naked Call - See Naked Option.
Naked Option - The sale of a call or put option without holding an offsetting position in the underlying commodity.
Naked Put - See Naked Option.
Non Member Panel - A panel in which a majority of the arbitrators are not connected with an NFA Member or NFA.
Notice Day - According to Chicago Board of Trade rules, the second day of the three-day delivery process when the clearing corporation matches the buyer with the oldest reported long position to the delivering seller and notifies both parties. See First Notice Day.
Notice of Appeal - The document a person must file with the adjudicating body in order to pursue an appeal.
Notice of Intent - The first formal pleading issued which begins a registration disqualification proceeding. It states the allegations which will be proven to show that an applicant or registrant is disqualified from CFTC registration.
Notional Amount - The amount (in an interest rate swap, forward rate agreement, or other derivative instrument) or each of the amounts (in a currency swap) to which interest rates are applied (whether or not expressed as a rate or stated on a coupon basis) in order to calculate periodic payment obligations.
Offer - The Forex rate at which a dealer is willing to sell a currency.
Office Recordkeeping Action Type - A violation arising from failure to make or preserve required office records.
Offset - Taking a second futures or options position opposite to the initial or opening position. See Liquidate.
Offsetting Transaction - A Forex market trading with which serves to cancel or offset some or all of the market risk of an open position.
Omnibus Account - An account of an originating FCM carried by a clearing FCM that combines the transactions of two or more accounts of the originating FCM in the name of the originating FCM rather than designating the accounts separately. The identity of the individual accounts is not disclosed to the carrying broker.
One Cancels the Other Order (OCO) - A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
Out Trade - A trade which cannot be cleared by a clearing house because the data submitted by the two clearing members involved in the trade differs in some respect.
Out of the Money - A call option with a strike price higher or a put option with a strike price lower than the current market value of the underlying asset.
Over the Counter Market - A market where products such as stocks, foreign currencies, and other cash items are bought and sold by telephone and other means of communication.
Overbought - A technical opinion for which the market price has risen too steeply and too fast in relation to underlying fundamental factors. Opposite of Oversold.
Overnight - A Forex market trading that remains open until the next business day.
Oversold - A situation arising in the market after prompt and significant downturn of the price (Forex rate).
Over the Counter (OTC) - Used to describe any transaction that is not conducted over an exchange.
PBOT - Philadelphia Board of Trade.
Par - The face value of a security. For example, a bond selling at par is worth the same dollar amount it was issued for or at which it will be redeemed at maturity.
Pardon - A remission of punishment or penalty without indicating exoneration from guilt.
Partnership - An association of two or more people who agree to share in the profits and losses of a business venture.
Party - A claimant or respondent.
Payment-In-Kind Program - A government program in which farmers who comply with a voluntary acreage-control program and set aside an additional percentage of acreage specified by the government receive certificates that can be redeemed for government-owned stocks of grain.
Pegged Price - The price at which a commodity has been fixed by agreement.
Pegging - Effecting commodity transactions to offset a decline in the price of the commodity so that previously written put options will expire worthless, thus protecting premiums previously received.
Performance Bond - Funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the exchange as a whole.
Performance Bond Call - A demand for additional funds because of an adverse price movement.
Performance Bond Margin - The amount of money deposited by both buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit. See Customer Margin and Clearing Margin.
Project A - An electronic trading system for futures and options developed by the Chicago Board of Trade.
Promotional Material - Any text of a standardized oral presentation, or any communication for publication in any newspaper, magazine or similar medium, or for broadcast over television, radio, or other electronic medium, which is disseminated or directed to the public concerning a futures account, agreement or transaction; any standardized form of report, letter, circular, memorandum or publication which is disseminated or directed to the public; and any other written material disseminated or directed to the public for the purpose of soliciting a futures account, agreement or transaction.
Proof of Service - A court paper filed as evidence that the witness or party to the lawsuit was served with the papers.
Pulpit - A raised structure adjacent to, or in the center of, the pit or ring at a futures exchange where market reporters, employed by the exchange, record price changes as they occur in the trading pit.
Punitive Damages - An amount intended to punish outrageous conduct.
Purchase and Sell Statement - A Statement sent by a commission house to a customer when his futures or options on futures position ha changed, showing the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges, and the net profit or loss on the transaction.
Purchasing Hedge or Long Hedge - Buyer futures contracts to protect against a possible price increase of cash commodities that will e purchased in the future. At the time the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased. Also referred to as a buying hedge. See Hedging.
Put Option - An option that gives the option buyer the right, but not the obligation, to sell the underlying futures contract at a particular price on or before a particular date.
Pyramiding - Construction of a trading pyramid. The trading tactics consisting in gradual increase of an available open position.
IBRD - The international bank of reconstruction and development.
ICCH - International Commodities Clearing House Limited, a clearing house based in London operating world wide for many futures markets.
IDEM Membership (CBOT) - A Chicago Board of Trade membership of trading privileges for futures contract in the index, debt, and energy markets category (gold, municipal bond index, 30-day fed funds, and stock index futures).
IFEMA - International Foreign Exchange Master Agreement.
IMF - The International Monetary fund.
IMM - International Monetary Market part of the Chicago Mercantile Exchange that lists a number of currency and financial futures Implied volatilityA measurement of the market's expected price range of the underlying currency futures based on the traded option premiums.
Inverse Head and Shoulder - Turned "a head and shoulders".
Inverted Market - A futures market in which the nearer months are selling at premiums over the more distant months; characteristically, a market in which supplies are currently in shortage.
Invisible Supply - Uncounted stocks of a commodity in the hands of wholesalers, manufacturers and producers which cannot be identified accurately; stocks outside commercial channels but theoretically available to the market.
IOM - Index and Options Market part of the Chicago Mercantile Exchange.
IPI - Industrial Production Index. A coincident indicator measuring physical output of manufacturing, mining and utilities.
ISDA (International Securities Dealers Association) - Organization which foreign currency exchange banks have formed to regulate inter-bank markets and exchanges.
Joint Account - The incorporated bill.
Joint and Several Liability - Generally refers to the responsibility of multiple persons to pay a judgment or fine. When persons are jointly and severally liable to make payment, the person who is entitled to receive the payment (the creditor) may collect the entire amount from one or more of the responsible persons separately or from all responsible persons collectively, at the creditor's option. The amounts paid by any responsible person to the creditor reduce the amount for which the others remain responsible to pay the creditor.
KCBOT - Kansas City Board of Trade
KCBT - Kansas City Board of Trade
Lagging Indicators - Market indicators showing the general direction of the economy and confirming or denying the trend implied by the leading indicators. Also referred to as Concurrent Indicators.
Large Traders - A large trader is one who holds or controls a position in any one future or in any one option expiration series of a commodity on any one contract market equaling or exceeding the exchange or CFTC-specified reporting level.
Last Notice Day - The final day on which notices of intent to deliver on futures contracts may be issued.
Last Trading Day - According to the Chicago Board of Trade rules, the final day when trading may occur in a given futures or option contract month. Futures contracts outstanding at the end of the last trading day must be settled by delivery of the underlying commodity or securities or by agreement for monetary settlement (in some cases by EFPs).
Locked In - A hedged position that cannot be lifted without offsetting both sides of the hedge (spread). Also refers to being caught in a limit move.
Long - One who has bought futures contracts or owns a cash commodity. Opposite of Short.
Long Hedge - Buying futures contracts to protect against possible increasing prices of commodities. Opposite of Short Hedge.
Long Position - A position that appreciates in value if market prices increase.
Long the Basis - A person or firm is said to be long the basis if they have bought the spot commodity and hedged with a sale of futures.
Lookback Option - An option whose payoff depends on the minimum or maximum price of the underlying asset during some portion of the life of the option.
Low - The lowest price of the day for a particular futures contract.
M0 - Cash in circulation . Only used by the UK.
M1 - Cash in circulation plus demand deposits at commercial banks. There are variations between the precise definitions used by national financial authorities.
M2 - Includes demand deposits time deposits and money market mutual funds excluding large CDs.
M3 - In the UK it is M1 plus public and private sector time deposits and sight deposits held by the public sector.
M4 - In the US it is M2 plus negotiable CDs.
MACE - MidAmerica Commodity Exchange.
MGE - Minneapolis Grain Exchange
MIDAM - MidAmerica Commodity Exchange.
MIT - See Market-If-Touched.
MITI - Japanese ministry of International Trade & Industry.
MM - Money Markets.
MRA - See Member Responsibility Action.
Money Pass - Two traders trading for their personal accounts, execute a buy and a sell with each other at different prices, resulting in a profit for one and a loss for the other.
Money Supply - The amount of money in the economy, which can be measured in a number of ways. In India we have four measures of money supply i.e M1, M2, M3, M4.
Motion - A request asking a judge to issue a ruling or order on a legal matter.
Motion for Summary Judgment - A request made by either party in a civil case. Asserts that the opposing party has raised no genuine issue of fact necessitating a hearing and asks the judge to rule in favor of the moving party based on the law. Typically made before the trial.
Motion to Dismiss - In a civil case, a request to a judge by the defendant, asserting that even if all the allegations are true, the plaintiff is not entitled to any legal relief and thus the case should be dismissed.
Moving Average - Sliding (dynamic) average. The indicator applied in a technical analysis for definition of the tendency in the market.
Municipal Bonds - Debt securities issued by state and local governments, and special districts and counties.
Mutual fund - An open-end investment company. Equivalent to unit trust.
NAV - See Net Asset Value.
Narrow Market - The market with a small amount of the participants, described in low volumes and significant fluctuations of the prices.
NFA - See National Futures Association.
NFA Associate Member - See Associate Member.
NYBT or NYBOT - New York Board of Trade.
NYCE - New York Cotton Exchange.
NYFE - New York Futures Exchange.
NYME or NYMEX - New York Mercantile Exchange.
NYMEX - New York Mercantile Exchange.
Naked Call - See Naked Option.
Naked Option - The sale of a call or put option without holding an offsetting position in the underlying commodity.
Naked Put - See Naked Option.
Non Member Panel - A panel in which a majority of the arbitrators are not connected with an NFA Member or NFA.
Notice Day - According to Chicago Board of Trade rules, the second day of the three-day delivery process when the clearing corporation matches the buyer with the oldest reported long position to the delivering seller and notifies both parties. See First Notice Day.
Notice of Appeal - The document a person must file with the adjudicating body in order to pursue an appeal.
Notice of Intent - The first formal pleading issued which begins a registration disqualification proceeding. It states the allegations which will be proven to show that an applicant or registrant is disqualified from CFTC registration.
Notional Amount - The amount (in an interest rate swap, forward rate agreement, or other derivative instrument) or each of the amounts (in a currency swap) to which interest rates are applied (whether or not expressed as a rate or stated on a coupon basis) in order to calculate periodic payment obligations.
Offer - The Forex rate at which a dealer is willing to sell a currency.
Office Recordkeeping Action Type - A violation arising from failure to make or preserve required office records.
Offset - Taking a second futures or options position opposite to the initial or opening position. See Liquidate.
Offsetting Transaction - A Forex market trading with which serves to cancel or offset some or all of the market risk of an open position.
Omnibus Account - An account of an originating FCM carried by a clearing FCM that combines the transactions of two or more accounts of the originating FCM in the name of the originating FCM rather than designating the accounts separately. The identity of the individual accounts is not disclosed to the carrying broker.
One Cancels the Other Order (OCO) - A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
Out Trade - A trade which cannot be cleared by a clearing house because the data submitted by the two clearing members involved in the trade differs in some respect.
Out of the Money - A call option with a strike price higher or a put option with a strike price lower than the current market value of the underlying asset.
Over the Counter Market - A market where products such as stocks, foreign currencies, and other cash items are bought and sold by telephone and other means of communication.
Overbought - A technical opinion for which the market price has risen too steeply and too fast in relation to underlying fundamental factors. Opposite of Oversold.
Overnight - A Forex market trading that remains open until the next business day.
Oversold - A situation arising in the market after prompt and significant downturn of the price (Forex rate).
Over the Counter (OTC) - Used to describe any transaction that is not conducted over an exchange.
PBOT - Philadelphia Board of Trade.
Par - The face value of a security. For example, a bond selling at par is worth the same dollar amount it was issued for or at which it will be redeemed at maturity.
Pardon - A remission of punishment or penalty without indicating exoneration from guilt.
Partnership - An association of two or more people who agree to share in the profits and losses of a business venture.
Party - A claimant or respondent.
Payment-In-Kind Program - A government program in which farmers who comply with a voluntary acreage-control program and set aside an additional percentage of acreage specified by the government receive certificates that can be redeemed for government-owned stocks of grain.
Pegged Price - The price at which a commodity has been fixed by agreement.
Pegging - Effecting commodity transactions to offset a decline in the price of the commodity so that previously written put options will expire worthless, thus protecting premiums previously received.
Performance Bond - Funds that must be deposited as a performance bond by a customer with his or her broker, by a broker with a clearing member or by a clearing member, with the Clearing House. The performance bond helps to ensure the financial integrity of brokers, clearing members and the exchange as a whole.
Performance Bond Call - A demand for additional funds because of an adverse price movement.
Performance Bond Margin - The amount of money deposited by both buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit. See Customer Margin and Clearing Margin.
Project A - An electronic trading system for futures and options developed by the Chicago Board of Trade.
Promotional Material - Any text of a standardized oral presentation, or any communication for publication in any newspaper, magazine or similar medium, or for broadcast over television, radio, or other electronic medium, which is disseminated or directed to the public concerning a futures account, agreement or transaction; any standardized form of report, letter, circular, memorandum or publication which is disseminated or directed to the public; and any other written material disseminated or directed to the public for the purpose of soliciting a futures account, agreement or transaction.
Proof of Service - A court paper filed as evidence that the witness or party to the lawsuit was served with the papers.
Pulpit - A raised structure adjacent to, or in the center of, the pit or ring at a futures exchange where market reporters, employed by the exchange, record price changes as they occur in the trading pit.
Punitive Damages - An amount intended to punish outrageous conduct.
Purchase and Sell Statement - A Statement sent by a commission house to a customer when his futures or options on futures position ha changed, showing the number of contracts bought or sold, the prices at which the contracts were bought or sold, the gross profit or loss, the commission charges, and the net profit or loss on the transaction.
Purchasing Hedge or Long Hedge - Buyer futures contracts to protect against a possible price increase of cash commodities that will e purchased in the future. At the time the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased. Also referred to as a buying hedge. See Hedging.
Put Option - An option that gives the option buyer the right, but not the obligation, to sell the underlying futures contract at a particular price on or before a particular date.
Pyramiding - Construction of a trading pyramid. The trading tactics consisting in gradual increase of an available open position.
forex glossary ! (1)
Abandon - The act of an option holder in electing not to exercise or offset an option.
Accommodation Trading - Non-competitive trading entered into by a trader, usually to assist another with illegal trades.
Account Statement - An extract under the bill. Contains data on the spent operations and a status of the client bill at the broker for the chosen period.
Accrued Interest - Interest earned between the most recent interest payment and the present date but not yet paid to the lender.
Action Type - An Action Type is a uniform category of rule violation, such as floor recordkeeping violations, sales practice violations and trade practice violations.
Actuals - The physical or cash commodity, as distinguished from a commodity futures contract. See also Cash Commodity or Spot Commodity. Also See Cash Commodity.
Add-on Method - A method of paying interest where the interest is added onto the principal at maturity or interest payment dates.
Adjudication - The determination of a controversy and a pronouncement of a judgment based on evidence presented. Implies a final judgment of the court or other body deciding the matter, as opposed to a proceeding in which the merits of the cause of action were not reached.
Back Months - Those futures delivery months with expiration or delivery dates furthest into the future; futures delivery months other than the spot or nearby delivery month.
Back Office - The departments and processes related to the settlement of financial transactions.
Back to Back - (1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency.
Backwardation - A market in which futures prices are progressively lower in the distant delivery months; the opposite of Contango. See also Inverted Market.
Bad Faith - Dishonesty or fraud in a transaction, such as entering into an agreement with no intention of ever living up to its terms, or knowingly misrepresenting the quality of something that is being bought or sold.
Balance of Forex market trading - The value of a country's exports minus its imports.
Balance of Payments - A systematic record of the economic transactions during a given period for a country.(1) The term is often used to mean either: (i) balance of payments on "current account"; or (ii) the current account plus certain long term capital movements.(2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values.
Balance of Trade - The value of exports less imports. Invisibles are normally excluded, and is otherwise referred to as mercantile or physical trade. Figures can be quoted on FoB/ FaS , customs cleared, or Fob export, FoB export.
Band - The range in which a currency is permitted to move. A system used in the ERM.
Bank Line - Line of credit granted by a bank to a customer, also known as a " line".
Bank Notese - Bank notes are paper issued by the central or issuing bank and are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted, in some counties, into FX. Bank notes are normally priced at a premium to the current spot rate for a currency.
Bank Rate - The rate at which a central bank is prepared to lend money to its domestic banking system.
Cabinet Trade - A trade that allows options traders to liquidate deep out-of-the-money options by trading the option at a price equal to one-half tick.
Cable - Forex market trader jargon referring to the Sterling/US Dollar exchange Forex rate. So called because the Forex rate was originally transmitted via a transatlantic cable beginning in the mid 1800's.
Cable Transfer - Telegraphic transfer of funds from one centre to another. Now synonymous with inter bank electronic fund transfer.
CACE - Citrus Associates of the Cotton Exchange.
Calendar Spread - See Horizontal Spread.
Call - An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period.
Call Option - The buyer of a call option acquires the right, but not the obligation, to purchase a particular futures contract at a stated price on or before a particular date.
Call Rule - An exchange regulation under which an official bid price for a cash commodity is competitively established at the close of each day's trading. It holds until the next opening of the exchange.
Canceling Order - An order that deletes a customer's previous order.
Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Capital Account - Juxtaposition of the long and short term capital imports and exports of a country.
Capital Gain - The profit made from the sale of a capital asset, such as real estate, a house, jewelry or stocks and bonds.
Daily Price Limit - The maximum price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange.
Daily Trading Limit - The maximum price range set by the exchange each day for a contract.
Day Order - An order that if not executed expires automatically at the end of the trading session on the day it was entered.
Day Trader - A speculator who will normally initiate and offset a position within a single trading session.
Day Trading - Refers to positions which are opened and closed on the same trading day.
Dealer - An individual who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent Forex market trading with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Dealer Option - A put or call on a physical commodity, not originating on or subject to the rules of an exchange, in which the obligation for performance rests with the writer of the option. Dealer options are normally written by firms handling the underlying commodity and offered to public customers, although the reverse may also be true.
Decision - A formal, written judgment or verdict.
Deck - The orders for purchase or sale of futures or option contracts held by a floor broker.
Electronic Trading System - Systems that allow participating exchanges to list their products for trading after the close of the exchange's open outcry trading hours (i.e., Chicago Board of Trade's Project A, Chicago Mercantile Exchange's GLOBEX and New York Mercantile Exchange's ACCESS.)
Elliot Wave Theory - (1) A theory named after Ralph Elliot, who contended that the stock market tends to move in discernible and predictable patterns reflecting the basic harmony of nature; or (2) in technical analysis, a charting method based on the belief that all prices act as wavers, rising and falling rhythmically.
Enjoin - To command or instruct with authority; to abate, suspend or restrain. For example, one may be "enjoined" or commanded by a court with equitable powers, either to do a specific act or to refrain from doing a certain act.
Equilibrium Price - The market price at which the quantity supplied of a commodity equals the quantity demanded.
Equity - The dollar value of a futures trading account if all open positions were offset at the going market price.
Escrow Account - A special account in which a lawyer or escrow agent deposits money or documents that do not belong to him or his firm.
Estoppel - A bar which precludes someone from denying the truth of a fact which has been determined in an official proceeding or by an authoritative body.
European Terms - A method of quoting exchange rates, which measures the amount of foreign currency needed to buy one U.S. dollar, i.e., foreign currency unit per dollar. See Reciprocal of European Terms.
Expiration Date - Generally the last date on which an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts.
Fast Market - Rapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.
False Breakout - Short-term movement of a Forex rate through some conditional border (the previous top or a bottom, a level of consolidation), and then return and movement to the opposite party.
FCM - See Futures Commission Merchant.
FEDAI - Foreign Exchange Dealers Association of India) is an association of all dealers in foreign exchange which sets the ground rules for fixation of commissions and other charges and also determines the rules and regulation relating to day-to-day transactions in foreign exchange in India. The FEDAI has commonly recognised 38 currencies for dealing.
Federal Deposit Insurance Corporation (FDIC) - The regulatory agency responsible for administering bank depository insurance in the US.
Fictitious Trading - Wash trading, bucketing, cross trading, or other schemes which give the appearance of trading. Actually, no bona fide, competitive trade has occurred.
Fiduciary Duty - An obligation to act solely in the best interest of another party. For instance, a corporation's board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust's beneficiaries, and an attorney has a fiduciary duty to a client.
Fill or Kill Order - A customer order which demands immediate execution or cancellation.
Forex trader - The dealer making operations on the means or with support of which to him were entrusted by investors.
Futures Industry Association (FIA) - The national trade association for futures commission merchants.
Futures Price - (1) Commonly held to mean the price of a commodity for future delivery that is traded on a futures exchange; or (2) the price of any futures contract.
FX - Foreign Exchange.
Gamma - A measurement of how fast delta changes, given a unit of change in the underlying futures price.
Gap - Break. The range of the prices inside of which there were no quotations, forms break on the price schedule.
GIM Membership (CBOT) - A Chicago Board of Trade membership that allows an individual to trade all futures contracts listed in the government instrument market category.
General Conduct Action Type - A violation arising from conduct not described by any other action type violation.
Ginzy Trading - A trade practice in which a floor broker, in executing an order, particularly a large order, will fill a portion of the order at one price and the remainder of the order at another price to avoid an exchange's rule against trading at fractional increments or split ticks.
Give Up - A contract executed by one broker for the client of another broker that the client orders to be turned over to the second broker. The broker accepting the order from the customer collects a wire toll from the carrying broker for the use of the facilities. Often used to consolidate many small orders or to disperse large ones.
Gold Silver Ratio - The number of ounces of silver required to buy one ounce of gold at current spot prices.
Good This Week Order - Order which is valid only for the week in which it is placed.
Good 'Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
Grades - Various qualities of a commodity.
Grain Terminal - Large grain elevator facility with the capacity to ship grain by rail and/or barge to domestic or foreign markets.
Grantor - A person who sells an option and assumes the obligation, but not the right, to sell (in the case of a call) or buy (in the case of a put) the underlying futures contract at the exercise price.
Guarantor - A secondary party who becomes obligated to repay a debt for the party primarily responsible who has failed to repay an obligation. A guarantor of an introducing broker is a futures commission merchant that is subject to discipline under NFA rules for violations committed by the introducing broker.
Accommodation Trading - Non-competitive trading entered into by a trader, usually to assist another with illegal trades.
Account Statement - An extract under the bill. Contains data on the spent operations and a status of the client bill at the broker for the chosen period.
Accrued Interest - Interest earned between the most recent interest payment and the present date but not yet paid to the lender.
Action Type - An Action Type is a uniform category of rule violation, such as floor recordkeeping violations, sales practice violations and trade practice violations.
Actuals - The physical or cash commodity, as distinguished from a commodity futures contract. See also Cash Commodity or Spot Commodity. Also See Cash Commodity.
Add-on Method - A method of paying interest where the interest is added onto the principal at maturity or interest payment dates.
Adjudication - The determination of a controversy and a pronouncement of a judgment based on evidence presented. Implies a final judgment of the court or other body deciding the matter, as opposed to a proceeding in which the merits of the cause of action were not reached.
Back Months - Those futures delivery months with expiration or delivery dates furthest into the future; futures delivery months other than the spot or nearby delivery month.
Back Office - The departments and processes related to the settlement of financial transactions.
Back to Back - (1) Transaction where all the obligations and liabilities in one transaction are mirrored in a second transaction. (2) Transaction where a loan is made in one currency in one country against a loan in another country in another currency.
Backwardation - A market in which futures prices are progressively lower in the distant delivery months; the opposite of Contango. See also Inverted Market.
Bad Faith - Dishonesty or fraud in a transaction, such as entering into an agreement with no intention of ever living up to its terms, or knowingly misrepresenting the quality of something that is being bought or sold.
Balance of Forex market trading - The value of a country's exports minus its imports.
Balance of Payments - A systematic record of the economic transactions during a given period for a country.(1) The term is often used to mean either: (i) balance of payments on "current account"; or (ii) the current account plus certain long term capital movements.(2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values.
Balance of Trade - The value of exports less imports. Invisibles are normally excluded, and is otherwise referred to as mercantile or physical trade. Figures can be quoted on FoB/ FaS , customs cleared, or Fob export, FoB export.
Band - The range in which a currency is permitted to move. A system used in the ERM.
Bank Line - Line of credit granted by a bank to a customer, also known as a " line".
Bank Notese - Bank notes are paper issued by the central or issuing bank and are legal tender, but are not usually considered to be part of the FX market. However bank notes can be converted, in some counties, into FX. Bank notes are normally priced at a premium to the current spot rate for a currency.
Bank Rate - The rate at which a central bank is prepared to lend money to its domestic banking system.
Cabinet Trade - A trade that allows options traders to liquidate deep out-of-the-money options by trading the option at a price equal to one-half tick.
Cable - Forex market trader jargon referring to the Sterling/US Dollar exchange Forex rate. So called because the Forex rate was originally transmitted via a transatlantic cable beginning in the mid 1800's.
Cable Transfer - Telegraphic transfer of funds from one centre to another. Now synonymous with inter bank electronic fund transfer.
CACE - Citrus Associates of the Cotton Exchange.
Calendar Spread - See Horizontal Spread.
Call - An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period.
Call Option - The buyer of a call option acquires the right, but not the obligation, to purchase a particular futures contract at a stated price on or before a particular date.
Call Rule - An exchange regulation under which an official bid price for a cash commodity is competitively established at the close of each day's trading. It holds until the next opening of the exchange.
Canceling Order - An order that deletes a customer's previous order.
Candlestick Chart - A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.
Capital Account - Juxtaposition of the long and short term capital imports and exports of a country.
Capital Gain - The profit made from the sale of a capital asset, such as real estate, a house, jewelry or stocks and bonds.
Daily Price Limit - The maximum price advance or decline from the previous day's settlement price permitted during one trading session, as fixed by the rules of an exchange.
Daily Trading Limit - The maximum price range set by the exchange each day for a contract.
Day Order - An order that if not executed expires automatically at the end of the trading session on the day it was entered.
Day Trader - A speculator who will normally initiate and offset a position within a single trading session.
Day Trading - Refers to positions which are opened and closed on the same trading day.
Dealer - An individual who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent Forex market trading with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Dealer Option - A put or call on a physical commodity, not originating on or subject to the rules of an exchange, in which the obligation for performance rests with the writer of the option. Dealer options are normally written by firms handling the underlying commodity and offered to public customers, although the reverse may also be true.
Decision - A formal, written judgment or verdict.
Deck - The orders for purchase or sale of futures or option contracts held by a floor broker.
Electronic Trading System - Systems that allow participating exchanges to list their products for trading after the close of the exchange's open outcry trading hours (i.e., Chicago Board of Trade's Project A, Chicago Mercantile Exchange's GLOBEX and New York Mercantile Exchange's ACCESS.)
Elliot Wave Theory - (1) A theory named after Ralph Elliot, who contended that the stock market tends to move in discernible and predictable patterns reflecting the basic harmony of nature; or (2) in technical analysis, a charting method based on the belief that all prices act as wavers, rising and falling rhythmically.
Enjoin - To command or instruct with authority; to abate, suspend or restrain. For example, one may be "enjoined" or commanded by a court with equitable powers, either to do a specific act or to refrain from doing a certain act.
Equilibrium Price - The market price at which the quantity supplied of a commodity equals the quantity demanded.
Equity - The dollar value of a futures trading account if all open positions were offset at the going market price.
Escrow Account - A special account in which a lawyer or escrow agent deposits money or documents that do not belong to him or his firm.
Estoppel - A bar which precludes someone from denying the truth of a fact which has been determined in an official proceeding or by an authoritative body.
European Terms - A method of quoting exchange rates, which measures the amount of foreign currency needed to buy one U.S. dollar, i.e., foreign currency unit per dollar. See Reciprocal of European Terms.
Expiration Date - Generally the last date on which an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts.
Fast Market - Rapid movement in a market caused by strong interest by buyers and/or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.
False Breakout - Short-term movement of a Forex rate through some conditional border (the previous top or a bottom, a level of consolidation), and then return and movement to the opposite party.
FCM - See Futures Commission Merchant.
FEDAI - Foreign Exchange Dealers Association of India) is an association of all dealers in foreign exchange which sets the ground rules for fixation of commissions and other charges and also determines the rules and regulation relating to day-to-day transactions in foreign exchange in India. The FEDAI has commonly recognised 38 currencies for dealing.
Federal Deposit Insurance Corporation (FDIC) - The regulatory agency responsible for administering bank depository insurance in the US.
Fictitious Trading - Wash trading, bucketing, cross trading, or other schemes which give the appearance of trading. Actually, no bona fide, competitive trade has occurred.
Fiduciary Duty - An obligation to act solely in the best interest of another party. For instance, a corporation's board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust's beneficiaries, and an attorney has a fiduciary duty to a client.
Fill or Kill Order - A customer order which demands immediate execution or cancellation.
Forex trader - The dealer making operations on the means or with support of which to him were entrusted by investors.
Futures Industry Association (FIA) - The national trade association for futures commission merchants.
Futures Price - (1) Commonly held to mean the price of a commodity for future delivery that is traded on a futures exchange; or (2) the price of any futures contract.
FX - Foreign Exchange.
Gamma - A measurement of how fast delta changes, given a unit of change in the underlying futures price.
Gap - Break. The range of the prices inside of which there were no quotations, forms break on the price schedule.
GIM Membership (CBOT) - A Chicago Board of Trade membership that allows an individual to trade all futures contracts listed in the government instrument market category.
General Conduct Action Type - A violation arising from conduct not described by any other action type violation.
Ginzy Trading - A trade practice in which a floor broker, in executing an order, particularly a large order, will fill a portion of the order at one price and the remainder of the order at another price to avoid an exchange's rule against trading at fractional increments or split ticks.
Give Up - A contract executed by one broker for the client of another broker that the client orders to be turned over to the second broker. The broker accepting the order from the customer collects a wire toll from the carrying broker for the use of the facilities. Often used to consolidate many small orders or to disperse large ones.
Gold Silver Ratio - The number of ounces of silver required to buy one ounce of gold at current spot prices.
Good This Week Order - Order which is valid only for the week in which it is placed.
Good 'Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
Grades - Various qualities of a commodity.
Grain Terminal - Large grain elevator facility with the capacity to ship grain by rail and/or barge to domestic or foreign markets.
Grantor - A person who sells an option and assumes the obligation, but not the right, to sell (in the case of a call) or buy (in the case of a put) the underlying futures contract at the exercise price.
Guarantor - A secondary party who becomes obligated to repay a debt for the party primarily responsible who has failed to repay an obligation. A guarantor of an introducing broker is a futures commission merchant that is subject to discipline under NFA rules for violations committed by the introducing broker.
The difference between the Numerator and Denominator !!
The Numerator is the top part of the fraction,the Denominator would obviously be the bottom part of it.Exampleexample of Eur and USDEUR would be the Numerator (the first currency which is on top),USD would be the Denominator (the currency that comes below or after the EUR)The numerator is called the base currency and the denomiator is known as the counter currency.Now whenever you place a "BUY" order in a Forex platform for example with the EUR/USD pair, what you are actually doing is buying the EUR and selling the USD. Buying in the Forex is known as going "LONG".On the other hand if you were to sell the pair, you would be selling the EUR and buying the USD. This is known as going "SHORT" exactly like short selling in a stock market. (Short-selling is where you sell a stock/currency/commodity first and then try to buy it back at a lower price).If you buy or sell a currency pair, you would be buying/selling the base currency (the one on top, NUMERATOR).It would be the exact opposite of what you did to base currency if you were to sell a currency pair.You are always buying one currency (the base) and selling another (the counter). If you sell the pair you are simply flipping which one you buy and which one you sell. The transaction is eventually the same.
Forex currencies !!
The US economy is the largest in the world. That is in the majority of Forex transactions traders involve the US dollar against another currency.The German mark, the Japanese yen, sterling (British pound) and the Swiss franc have been the basic currency of a lot of trading transactions. Each of these markets has very distinct features.The German mark has been replaced by the Euro. The German mark was a tower of strength. The traditional role of the Bundesbank was undermined after unification with the former East Germany and it has now been replaced by the European central bank.The Japanese yen has been highly changible in recent years. In October 1998, the most dramatic currency move in many years was seen as the dollar fell some 15% in just a few days against the Japanese yen.The Swiss franc serves as does the dollar from time to time, as a "safe haven". This is due to the isolation of the Swiss economy, its independent and neutral political acts and the secrecy of Switzerland's banking system.The British pound, always a big part of foreign exchange markets and the first currency to be Forex market traded actively against the US dollar via the transatlantic cables (hence the description "cable"), has traditionally weakened against most other currencies. This tendency has been reversed in recent years and the pound will remain an interesting currency as it takes its place as one of the few key European currencies.Here are some of the creal and common symbols used in the Forex market:USD - The US DollarEUR - The currency of the European Union "EURO"GBP - The British PoundJPN - The Japanese YenCHF - The Swiss FrancAUD - The Australian DollarCAD - The Canadian DollarNZD - The New Zealand DollarThe most commonly traded currencies are referred to as the 'Majors':US Dollar (USD)Japanese Yen (JPY)Euro (EUR)British Pound (GBP)Canadian Dollar (CAD)Australian Dollar (AUD)Swiss Franc (CHF)Most commonly traded currency pairs are:EUR/USD which stands for Euro / US DollarUSD/JPY which stand for US Dollar / Japanese YenGBP/USD which stands for British Pound / US DollarUSD/CAD which stands for US Dollar / Canadian DollarAUD/USD which stands for Australian Dollar/US DollarUSD/CHF which stands for US Dollar / Swiss FrancEUR/JPY which stands for Euro / Japanese YenThese are the symbols you will most commonly see in a Forex market platform. Of course there are many other symbols for other currencies as well, but these are the most commonly traded ones.
How to calculate profit in forex trading?
The objective of forex currency trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency you bought has increased its value relative to the one you sold. If you have bought a currency and the price appreciates in value, then you must sell the currency back in order to lock in the profit.
Let us assume that you open a long position by buying USD/JPY for 107.58 (quantity of 100000) and few hours after that, you close the position by selling USD/JPY for 107.74 (quantity of 100000). These two trades would bring you profit of (107.74 - 107.58) * 100000 = JPY 16000 (JPY is the counter or quote currency in the USD/JPY pair). You can than convert the profit to a currency you like, for example JPY 16000 = 16000 / 107.74 = USD 148.51.
We can also say that these two trades would bring you 16 "pips" profit. A "pip" is the smallest increment in any instrument. For asset types other than forex, the smallest increment is often called "tick". In EUR/USD one pip is 0.0001, in USD/JPY one pip is 0.01. Expressing position profits in pips is often very useful for quick calculations and estimates.
One pip, from the example above, would bring you 0.01 * 100000 = JPY 1000 profit, or JPY 1000 = 1000 / 107.74 = USD 9.28.
Let us assume that you open a long position by buying USD/JPY for 107.58 (quantity of 100000) and few hours after that, you close the position by selling USD/JPY for 107.74 (quantity of 100000). These two trades would bring you profit of (107.74 - 107.58) * 100000 = JPY 16000 (JPY is the counter or quote currency in the USD/JPY pair). You can than convert the profit to a currency you like, for example JPY 16000 = 16000 / 107.74 = USD 148.51.
We can also say that these two trades would bring you 16 "pips" profit. A "pip" is the smallest increment in any instrument. For asset types other than forex, the smallest increment is often called "tick". In EUR/USD one pip is 0.0001, in USD/JPY one pip is 0.01. Expressing position profits in pips is often very useful for quick calculations and estimates.
One pip, from the example above, would bring you 0.01 * 100000 = JPY 1000 profit, or JPY 1000 = 1000 / 107.74 = USD 9.28.
Forex trading examples!!
Forex trading examples
Example 1 An investor has a margin deposit with Saxo Bank of USD 100,000.
The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.
The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.
Day 1: Buy USD 2,000,000 vs CHF 1.5520 = Sell CHF 3,104,000.
Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.
Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.
Day 5: Sell USD 2,000,000 vs CHF 1.5745 = Buy CHF 3,149,000.
As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.
This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.
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Example 2: The investor follows the cross rate between the EUR o and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).
The dealer quotes 112.05-10. The investor sells EUR at 112.05.
Day 1: Sell EUR 1,000,000 vs JPY 112.05 = Buy JPY 112,050,000.
He protects his position with a stop-loss order to buy back the EUR o at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.
Day 3: Buy EUR 1,000,000 vs JPY 112.60 = Sell JPY 112,600,000.
The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.
This results in a loss of JPY 0.55m = approx.USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.
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Example 3 The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:
He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investors sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.
Day 1: Sell USD 1,000,000 vs CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.
After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.
Day 31: Buy USD 1,000,000 vs CAD 1.4865 = Sell CAD 1,486,500 for Day 61.
Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.
The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.
Example 1 An investor has a margin deposit with Saxo Bank of USD 100,000.
The investor expects the US dollar to rise against the Swiss franc and therefore decides to buy USD 2,000,000 - 2% of his maximum possible exposure at a 1% margin Forex gearing.
The Saxo Bank dealer quotes him 1.5515-20. The investor buys USD at 1.5520.
Day 1: Buy USD 2,000,000 vs CHF 1.5520 = Sell CHF 3,104,000.
Four days later, the dollar has actually risen to CHF 1.5745 and the investor decides to take his profit.
Upon his request, the Saxo Bank dealer quotes him 1.5745-50. The investor sells at 1.5745.
Day 5: Sell USD 2,000,000 vs CHF 1.5745 = Buy CHF 3,149,000.
As the dollar side of the transaction involves a credit and a debit of USD 2,000,000, the investor's USD account will show no change. The CHF account will show a debit of CHF 3,104,000 and a credit of CHF 3,149,000. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the profit calculation.
This results in a profit of CHF 45,000 = approx. USD 28,600 = 28.6% profit on the deposit of USD 100,000.
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Example 2: The investor follows the cross rate between the EUR o and the Japanese yen. He believes that this market is headed for a fall. As he is not quite confident of this trade, he uses less of the leverage available on his deposit. He chooses to ask the dealer for a quote in EUR 1,000,000. This requires a margin of EUR 1,000,000 x 5% = EUR 10,000 = approx. USD 52,500 (EUR /USD 1.05).
The dealer quotes 112.05-10. The investor sells EUR at 112.05.
Day 1: Sell EUR 1,000,000 vs JPY 112.05 = Buy JPY 112,050,000.
He protects his position with a stop-loss order to buy back the EUR o at 112.60. Two days later, this stop is triggered as the EUR o strengthens short term in spite of the investor's expectations.
Day 3: Buy EUR 1,000,000 vs JPY 112.60 = Sell JPY 112,600,000.
The EUR side involves a credit and a debit of EUR 1,000,000. Therefore, the EUR account shows no change. The JPY account is credited JPY 112.05m and debited JPY 112.6m for a loss of JPY 0.55m. Due to the simplicity of the example and the short time horizon of the trade, we have disregarded the interest rate swap that would marginally alter the loss calculation.
This results in a loss of JPY 0.55m = approx.USD 5,300 (USD/JPY 105) = 5.3% loss on the original deposit of USD 100,000.
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Example 3 The investor believes the Canadian dollar will strengthen against the US dollar. It is a long term view, so he takes a small position to allow for wider swings in the rate:
He asks Saxo Bank for a quote in USD 1,000,000 against the Canadian dollar. The dealer quotes 1.5390-95 and the investors sells USD at 1.5390. Selling USD is the equivalent of buying the Canadian dollar.
Day 1: Sell USD 1,000,000 vs CAD 1.5390. He swaps the position out for two months receiving a forward rate of CAD 1.5357 = Buy CAD 1,535,700 for Day 61 due to the interest rate differential.
After a month, the desired move has occurred. The investor buys back the US dollars at 1.4880. He has to swap the position forward for a month to match the original sale. The forward rate is agreed at 1.4865.
Day 31: Buy USD 1,000,000 vs CAD 1.4865 = Sell CAD 1,486,500 for Day 61.
Day 61: The two trades are settled and the trades go off the books. The profit secured on Day 31 can be used for margin purposes before Day 61.
The USD account receives a credit and debit of USD 1,000,000 and shows no change on the account. The CAD account is credited CAD 1,535,700 and debited CAD 1,486,500 for a profit of CAD 49,200 = approx. USD 33,100 = profit of 33.1% on the original deposit of USD 100,000.
forex trading basics (2)
Forex trading basics (2)Dealing Spread, but No CommissionsWhen trading foreign exchange, you are quoted a dealing spread offering you a buying and a selling level for your trade. Once you accept the offered price and receive confirmation from our dealers, the trade is done. There is no need to call an exchange floor. There are no other time-consuming delays. This is possible due to live streaming prices, which are also a great advantage in times of fast-moving markets: You can see where the market is trading and you know whether your orders are filled or not.
The dealing spread is typically 3-5 points in normal market conditions, e.g. USD/EUR 1.7780-85. This means that you can sell US dollars against the Euro at 1.7780 and buy at 1.7785. There are no further costs, commissions or exchange fees.
This ensures that you can get in and out of your trades at very low slippage and many traders are therefore active intra-day traders, given that a typical day in USD/EUR presents price swings of 150-200 points.
Spot and forward trading When you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. Due to the fact that the EU investment directive does not presently cover spot foreign exchange trading we will, however, require you to swap your trade forward at least another two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.
Although a forward trade is for a future date, the position can be closed out at any time - the closing part of the position is then swapped forward to the same future value date.
Interest Rate Differentials Different currencies pay different interest rates. This is one of the main driving forces behind foreign exchange trends. It is inherently attractive to be a buyer of a currency that pays a high interest rate while being short a currency that has a low interest rate.
Although such interest rate differentials may not appear very large, they are of great significance in a highly leveraged position. For example, the interest rate differential between the US dollar and the Japanese yen has been approximately 5% for several years. In a position that can be supported by a 5% margin deposit, this results in a 100% profit on capital per annum when you buy the US dollar. Of course, an even more important factor normally is the relative value of the currencies, which changed 15% from low to high during 2005 - disregarding the interest rate differential. From a pure interest rate differential viewpoint, you have an advantage of 100% per annum in your favour by being long US dollar, and an initial disadvantage of the same size by being short.
Such a situation clearly benefits the high interest rate currency and as result, the US dollar was in a strong bull market all through 2005. But it is by no means a certainty that the currency with the higher interest rate will be strongest. If the reason for the high interest rate is runaway inflation, this may undermine confidence in the currency even more than the benefits perceived from the high interest rate.
Stop-loss discipline As you can see from the description above, there are significant opportunities and risks in foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict stop-loss policies in positions that are moving against you.
Fortunately, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekend. This means that there will nearly always be an opportunity to react to moves in the main currency markets and a low risk of getting caught without the opportunity of getting out. Of course, the market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level.
But the main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events, such as G7 meetings, are normally scheduled for weekends.
For speculative trading, we always recommend the placement of protective stop-lossorders. With Saxo Bank Internet Trading you can easily place and change such orders while watching market development graphically on your computer screen.
The dealing spread is typically 3-5 points in normal market conditions, e.g. USD/EUR 1.7780-85. This means that you can sell US dollars against the Euro at 1.7780 and buy at 1.7785. There are no further costs, commissions or exchange fees.
This ensures that you can get in and out of your trades at very low slippage and many traders are therefore active intra-day traders, given that a typical day in USD/EUR presents price swings of 150-200 points.
Spot and forward trading When you trade foreign exchange you are normally quoted a spot price. This means that if you take no further steps, your trade will be settled after two business days. Due to the fact that the EU investment directive does not presently cover spot foreign exchange trading we will, however, require you to swap your trade forward at least another two business days. This ensures that your trades are undertaken subject to supervision by regulatory authorities for your own protection and security. If you are a commercial customer, you may need to convert the currencies for international payments. If you are an investor, you will normally want to swap your trade forward to a later date. This can be undertaken on a daily basis or for a longer period at a time. Often investors will swap their trades forward anywhere from a week or two up to several months depending on the time frame of the investment.
Although a forward trade is for a future date, the position can be closed out at any time - the closing part of the position is then swapped forward to the same future value date.
Interest Rate Differentials Different currencies pay different interest rates. This is one of the main driving forces behind foreign exchange trends. It is inherently attractive to be a buyer of a currency that pays a high interest rate while being short a currency that has a low interest rate.
Although such interest rate differentials may not appear very large, they are of great significance in a highly leveraged position. For example, the interest rate differential between the US dollar and the Japanese yen has been approximately 5% for several years. In a position that can be supported by a 5% margin deposit, this results in a 100% profit on capital per annum when you buy the US dollar. Of course, an even more important factor normally is the relative value of the currencies, which changed 15% from low to high during 2005 - disregarding the interest rate differential. From a pure interest rate differential viewpoint, you have an advantage of 100% per annum in your favour by being long US dollar, and an initial disadvantage of the same size by being short.
Such a situation clearly benefits the high interest rate currency and as result, the US dollar was in a strong bull market all through 2005. But it is by no means a certainty that the currency with the higher interest rate will be strongest. If the reason for the high interest rate is runaway inflation, this may undermine confidence in the currency even more than the benefits perceived from the high interest rate.
Stop-loss discipline As you can see from the description above, there are significant opportunities and risks in foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict stop-loss policies in positions that are moving against you.
Fortunately, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekend. This means that there will nearly always be an opportunity to react to moves in the main currency markets and a low risk of getting caught without the opportunity of getting out. Of course, the market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level.
But the main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events, such as G7 meetings, are normally scheduled for weekends.
For speculative trading, we always recommend the placement of protective stop-lossorders. With Saxo Bank Internet Trading you can easily place and change such orders while watching market development graphically on your computer screen.
forex trading basics (1)
Forex Trading Basics(1)The global foreign exchange market is the biggest market in the world. The USD 1.2 trillion daily turnover dwarfs the combined turnover of all the world's stock and bond markets.
There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.
Of course many commercial organisations participate purely due to the currency exposures created by their import and export activities, but the main part of the turnover is accounted for by financial institutions. Investing in foreign exchange remains predominantly the domain of the big professional players in the market - funds, banks and brokers. Nevertheless, any investor with the necessary knowledge of the market's functions can benefit from the advantages stated above.
In the following, we would like to introduce you to some of the basic concepts of foreign exchange trading.
Margin Trading Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For trading the main currencies, SaxoBank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security.
In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 2%, in the underlying value of your trade will result in a 200% profit or loss on your deposit. See below for specific examples. As you can see, this calls for a very disciplined approach to trading as both profit opportunities and potential risks are very large indeed.
Base Currency and Variable Currency When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell Euro. Or buy Euro and sell Japanese yen, or any other combination of dozens of widely traded currencies. But there is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening in relation to the other.
The trade currency is normally, but not always, the currency with the highest value. When trading US dollars against German marks, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. USD 1,000,000. When closing the position, the opposite trade is done, again USD 1,000,000. The profit or loss will be apparent in the change of the amount of Euro credited and debited for the two transactions. In other words, your profit or loss will be denominated in Euro, which is known as the price currency. As part of our service, Saxo Bank will automatically exchange your profits and losses into your base currency if you require this.
This way of trading is different to the futures markets, for example, where the marks, francs and yen are the fixed trade currency, resulting in a US dollar denominated profit or loss. You can, however, also choose to trade in this reciprocal manner in foreign exchange markets but it is not the norm.
There are many reasons for the popularity of foreign exchange trading, but among the most important are the leverage available, the high liquidity 24 hours a day and the very low dealing costs associated with trading.
Of course many commercial organisations participate purely due to the currency exposures created by their import and export activities, but the main part of the turnover is accounted for by financial institutions. Investing in foreign exchange remains predominantly the domain of the big professional players in the market - funds, banks and brokers. Nevertheless, any investor with the necessary knowledge of the market's functions can benefit from the advantages stated above.
In the following, we would like to introduce you to some of the basic concepts of foreign exchange trading.
Margin Trading Foreign exchange is normally traded on margin. A relatively small deposit can control much larger positions in the market. For trading the main currencies, SaxoBank requires a 1% margin deposit. This means that in order to trade one million dollars, you need to place just USD 10,000 by way of security.
In other words, you will have obtained a gearing of up to 100 times. This means that a change of, say 2%, in the underlying value of your trade will result in a 200% profit or loss on your deposit. See below for specific examples. As you can see, this calls for a very disciplined approach to trading as both profit opportunities and potential risks are very large indeed.
Base Currency and Variable Currency When you trade, you will always trade a combination of two currencies. For example, you will buy US dollars and sell Euro. Or buy Euro and sell Japanese yen, or any other combination of dozens of widely traded currencies. But there is always a long (bought) and a short (sold) side to a trade, which means that you are speculating on the prospect of one of the currencies strengthening in relation to the other.
The trade currency is normally, but not always, the currency with the highest value. When trading US dollars against German marks, the normal way to trade is buying or selling a fixed amount of US dollars, i.e. USD 1,000,000. When closing the position, the opposite trade is done, again USD 1,000,000. The profit or loss will be apparent in the change of the amount of Euro credited and debited for the two transactions. In other words, your profit or loss will be denominated in Euro, which is known as the price currency. As part of our service, Saxo Bank will automatically exchange your profits and losses into your base currency if you require this.
This way of trading is different to the futures markets, for example, where the marks, francs and yen are the fixed trade currency, resulting in a US dollar denominated profit or loss. You can, however, also choose to trade in this reciprocal manner in foreign exchange markets but it is not the norm.
where the forex came from?
Brief history of Forex tradingInitially, the value of goods was expressed in terms of other goods, i.e. an economy based on barter between individual market participants. The obvious limitations of such a system encouraged establishing more generally accepted means of exchange at a fairly early stage in history, to set a common benchmark of value. In different economies, everything from teeth to feathers to pretty stones has served this purpose, but soon metals, in particular gold and silver, established themselves as an accepted means of payment as well as a reliable storage of value.
Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.
Before the First World War, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.
At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.
In the latter stages of the Second World War, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.
The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.
The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.
But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.
The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.
But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD1,200 billion is traded every day, far more than the world's stock and bond markets combined.
Originally, coins were simply minted from the preferred metal, but in stable political regimes the introduction of a paper form of governmental IOUs (I owe you) gained acceptance during the Middle Ages. Such IOUs, often introduced more successfully through force than persuasion were the basis of modern currencies.
Before the First World War, most central banks supported their currencies with convertibility to gold. Although paper money could always be exchanged for gold, in reality this did not occur often, fostering the sometimes disastrous notion that there was not necessarily a need for full cover in the central reserves of the government.
At times, the ballooning supply of paper money without gold cover led to devastating inflation and resulting political instability. To protect local national interests, foreign exchange controls were increasingly introduced to prevent market forces from punishing monetary irresponsibility.
In the latter stages of the Second World War, the Bretton Woods agreement was reached on the initiative of the USA in July 1944. The Bretton Woods Conference rejected John Maynard Keynes suggestion for a new world reserve currency in favour of a system built on the US dollar. Other international institutions such as the IMF, the World Bank and GATT (General Agreement on Tariffs and Trade) were created in the same period as the emerging victors of WW2 searched for a way to avoid the destabilising monetary crises which led to the war. The Bretton Woods agreement resulted in a system of fixed exchange rates that partly reinstated the gold standard, fixing the US dollar at USD35/oz and fixing the other main currencies to the dollar - and was intended to be permanent.
The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties. A number of realignments kept the system alive for a long time, but eventually Bretton Woods collapsed in the early seventies following president Nixon's suspension of the gold convertibility in August 1971. The dollar was no longer suitable as the sole international currency at a time when it was under severe pressure from increasing US budget and trade deficits.
The following decades have seen foreign exchange trading develop into the largest global market by far. Restrictions on capital flows have been removed in most countries, leaving the market forces free to adjust foreign exchange rates according to their perceived values.
But the idea of fixed exchange rates has by no means died. The EEC (European Economic Community) introduced a new system of fixed exchange rates in 1979, the European Monetary System. This attempt to fix exchange rates met with near extinction in 1992-93, when pent-up economic pressures forced devaluations of a number of weak European currencies. Nevertheless, the quest for currency stability has continued in Europe with the renewed attempt to not only fix currencies but actually replace many of them with the Euro in 2001.
The lack of sustainability in fixed foreign exchange rates gained new relevance with the events in South East Asia in the latter part of 1997, where currency after currency was devalued against the US dollar, leaving other fixed exchange rates, in particular in South America, looking very vulnerable.
But while commercial companies have had to face a much more volatile currency environment in recent years, investors and financial institutions have found a new playground. The size of foreign exchange markets now dwarfs any other investment market by a large factor. It is estimated that more than USD1,200 billion is traded every day, far more than the world's stock and bond markets combined.
what is the Forex?
Forex (Foreign Exchange, Forex currency exchange) simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The currencies of the world are on a floating exchange rate, and are always traded in pairs Euro/Dollar, Dollar/Yen, etc. In excess of 85 percent of all daily transactions involve trading of the major currencies.
Four major currency pairs are usually used for investment purposes. They are: Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, and US dollar against Swiss franc. The following notation is used for these currency pairs: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. You may consider them as "blue chips" of the FOREX market. No dividends are paid on currencies. The investment profits come from well known "buy low - sell high".
If you think one currency will appreciate against another, you may exchange that second currency for the first one and stay in it. In case everything goes as planned, some time later you may make the opposite deal - exchange this first currency back for that other - and collect profits.
Transactions on the FOREX market are fulfilled by dealers at major banks or FOREX brokerage companies. FOREX is the world wide market, so when you are sleeping in the North America some dealers in Europe are trading currencies with their Japanese counterparties. Therefore the FOREX market is active 24 hours a day and dealers at major institutions are working in three shifts. Clients may place take-profit and stop-loss orders with brokers for overnight execution.
Price movements on the FOREX market are very smooth and without gaps that you face almost every morning on the stock market. The daily turnover on the FOREX market is about $1.2 trillion, so investor can enter and exit position without problems. The fact is that the FOREX market never stops, even on the day of September-11, 2001 you could obtain two-side quotes on currencies.
The currency foreign exchange market is the largest and oldest financial market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world, and it is traded mainly through the 24 hour-a-day inter-bank currency market - the primary market for currencies. The forex market is a cash (or "spot") inter-bank market. By comparison, the currency futures market is only one per cent as big.
Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.
In the past, the forex inter-bank market was not available to small speculators due to the large minimum transaction sizes and often-stringent financial requirements. Banks, major currency dealers and the occasional huge speculator used to be the principal dealers. Only they were able to take advantage of the currency market's fantastic liquidity and strong trending nature of many of the world's primary currency exchange rates.
Today, foreign exchange market maker brokers such as FX Solutions are able to break down the larger sized inter-bank units, and offer small traders the opportunity to buy or sell any number of these smaller units (lots).
These brokers give virtually any size trader, including individual speculators or smaller companies, the option to trade the same rates and price movements as the large players who once dominated the market. Market makers quote buying and selling rates for currencies, and they profit on the difference between their buying and selling rates.
Forex is the acronym for Foreign Exchange Market. This is the biggest and most liquid market of the entire world today. One to three trillion dollars exchange hands at Forex every day. Thatis a huge amount of money. No stock market exchange of any country come close to this.
This market is huge. It is a sea of money full of sharks and dangerous waters, but it is also the only market where you at least hypothetically can make $1,000,000 in two weeks starting with only $1,000.
I say hypothetically because what happens often is that people blindly gamble their money at Forex without knowing anything about it and they lose their shirt. That is why I say to you: be careful! This market is profitable, but you need to learn the basics well, do your homework and demo trade a lot.
Just remember that 95% of traders lose money, 5% make it and less than 1% become rich at Forex. The nice thing about this market is that you can make money without creating any product or service, selling anything, nor advertising. You just trade some cash and get paid depending on your knowledge and expertise.
This is the market where banks, transnational corporations and individual traders exchange one currency for another. I am talking about the spot Forex market. You can trade at huge leverage as much as 400 to 1, meaning that for every dollar that you have for trading you can trade 400. For example if you have $1,000 on your account you can trade as much as $400,000.
This is dangerous. Most experienced traders won it use such a high leverage. In the other hand, high leverage can be good if you learn how to use it in your favor. Anyway, that is enough for the basics. If you want to learn more about how this market emerged, its history and so, then read my other articles.
Now let us talk about the strategies and how some traders make money at Forex. Let us start by saying that what works for me may not necessary work for you. Trading currencies is risky. That is a fact. But ultimately I discovered a few strategies that could give novice traders a winning edge.
Trading Forex is not as easy as most people think. Today you may be earning a lot and tomorrow you are losing 40% of your starting capital. Novice traders often make the same mistakes over and over again. I will enumerate a few of them bellow.
1. Do not look for a holly grail of trading.
This is for people who are afraid to lose or are too greedy and want to get rich quick. Even when it seems so, The Forex Market is not the place to get rich quick. Yes, you can make a lot of money over time and yes you dont have to sell anything, nor create or advertise any products. Still you have to learn a whole lot about what makes this market tick and what moves the price of the currencies plus how to manage your money effectively so you dont lose your shirt.
Many novice traders spend a LOT of time searching a perfect strategy that will allow them to always win-win and never lose. They want to have guaranteed profits because they cant stand to lose and/or they want to make too much (millions) quick so they can retire fast and buy a mansion in a far distant beautiful tropical island. It doesnt happen.
Dont waist your time. A trading strategy that allows you to have guaranteed profits do not exist. Trading is very risky. That is why it is so profitable. Remember: no risk, no reward." So, do not try to always win on every trade. It is simply not possible. There is no way to get rid of the fact of uncertainty. What I mean is that no matter how effective your trading strategy may be, sometimes it will fail and you have to be ready to face this fact.
By not trying to find a perfect strategy that turns you into a millionaire fast, you will just save a ton of your own time and efforts. It doesnt exist. If you find it, please dont tell me about it. First I wont believe you. Second I dont need it. You will find out bellow why I say that I wont need it.
2. Use technical analysis and fundamental analysis.
When I started trading I didnt believe in this. I wanted to find a strategy which consisted of money management alone (which I explain bellow). This is not good! Money management is important but you still need the other two. You define (predict") where the market is heading to depending on how effective your technical and fundamental strategies are.
Mastering technical analysis is the ability to predict future price movements by analyzing past price data and graphical patterns. You get a graphic of certain currencies. Check the data that you observe and based on your knowledge of technical analysis you predict" with certain degree of accuracy where the market is going.
Many brokers allow you to add technical indicators to the graphs while you are trading. You can try this on a demo account and see how well you are able to define the future price movement of the currencies you plan to trade.
There are many technical indicators. I cant tell which one will be more effective for you. Every trader is different. This is something that you will have to discover by yourself. There is not a hidden secret or magic formula for trading Forex. It is what you do every minute when you are in front of the graphics and checking the news what really counts.
The secret is in your overall knowledge and your decisions. This comes with experience and practice. If you open an account with one of these online brokers you can trade on paper before you trade with real money, so you can learn and practice before you risk any capital.
You can use the MACD (Moving average convergence divergence), the Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA, Elliot Waves and many others. There are in fact many technical indicators but these are among the most widely known and used.
When you add technical indicators to the graphic the brokers software will automatically perform mathematical calculations to reveal interesting facts and patterns about the graphics that you cant readily see without said indicators. You can use the technical indicators to create your own technical systems.
These systems will never work 100% of the time, but if they work 70% - 80% it may be enough. Thats because you can control your risks with money management techniques as I describe bellow.
To further increase your probability of winning and reduce your probability of losing on every trade you can use fundamental analysis. I think that most traders choose one or the other but many traders use both.
Fundamental analysis is to trade the news. What is going on with the countriess economies of the currencies that you are trading? What is the unemployment index? Did something suddenly happen that could drastically affect the price of the currencies?
Trading the news is another effective way to predict" where the market is going. Many online brokers offer you a link with important financial news.
3. Use money management strategies.
You need money management techniques. This is what makes you or breaks you. Put it this way, most traders invest far too much of their trading capital on every trade. It is as follows . . . Expect to make too much and you will make too little, expect to make little and you will make a lot."
What does it mean? It means that if you try to make a fortune on every trade you will lose your shirt. If you expect to make a little on every trade and you compound your profits, you may make a lot of money over the long run.
The first rule of money management says that you should not risk more than 1% of the money that you have on your account. You control this risk with stop loss and limit orders. When you start trading this may seem as little profits specially if you start with little trading capital. In the other hand if you compound some or all of your profits you may increase your account exponentially over time.
The magic of compound interest is amazing! This is the way that most fortunes are created on the financial markets, little by little. If you gamble your money you may lose it fast.
Many traders do exactly the opposite. Imagine that you open an account with $5,000 and you enter a trade for $1,000. Let us say that the market moves against you and you lose those $1,000. Now you have $4,000 on your account. You think that the price for the currencies is too low, so it should recover. In fact you are pretty sure that it will come back.
Then you invest $1,500 to recover from the previous loss plus realize a $500 profit. The market moves again against you. It kept going in the same direction, something that you didnt expected. What happens? Now you have $2,500 on your account. That is 50% of your initial trading capital. It will be very hard for you to recover from that loss.
In the other hand, if you risk 1% of your money on every trade, you will have $4,900 on your account after that initial loss. It will be much easier for you to recover from those trades.
The second rule of money management is to expect always to receive more profits than the money that you risk to lose. This can be accomplished through limit and stop orders as well as trailing stops.
For example if you expect to make a 25 pips profits on every trade, then you put the stop order at 15 pips bellow or above your entry price. A better way to have a greater expectancy ratio is to use trailing stops as I describe above. A trailing stop allows you to cut the loses short and let your winners ride.
These are the basic techniques that a successful trader should use to generate consistent profits at the Forex Market. This is basic information, but I realize that many people out there dont even know what Forex is, so I didnt want to get into more complex strategies here. You will find information about complex and advanced Forex strategies on my website.
And in brief
The currency (foreign exchange) market is the largest market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world, and it is traded mainly through the 24 hour-a-day Interbank currency market - the primary market for currencies. The FOREX market is a cash (or "spot") interbank market. By comparison, the currency futures market is only one percent as big.
Foreign Exchange simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The currencies of the world are on a floating exchange rate, and are always traded in pairs - Euro/Dollar, Dollar/Yen, etc. In excess of 85 percent of all daily transactions involve trading of the major currencies - Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, and the U.S. Dollar.
Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.
In the past, the FOREX interbank market was not available to small speculators due to the large minimum transaction sizes and often-stringent financial requirements. Banks, major currency dealers and the occasional huge speculator used to be the principal dealers. Only they were able to take advantage of the currency market's fantastic liquidity and strong trending nature of many of the world's primary currency exchange rates.
Today, foreign exchange market maker brokers are able to break down the larger sized interbank units, and offer small traders the opportunity to buy or sell any number of these smaller units (lots). These brokers give virtually any size trader, including individual speculators or smaller companies, the option to trade the same rates and price movements as the large players who once dominated the market. Market makers quote buying and selling rates for currencies, and they profit on the difference between their buying and selling rates. :-from forexrealm.com
Four major currency pairs are usually used for investment purposes. They are: Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, and US dollar against Swiss franc. The following notation is used for these currency pairs: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. You may consider them as "blue chips" of the FOREX market. No dividends are paid on currencies. The investment profits come from well known "buy low - sell high".
If you think one currency will appreciate against another, you may exchange that second currency for the first one and stay in it. In case everything goes as planned, some time later you may make the opposite deal - exchange this first currency back for that other - and collect profits.
Transactions on the FOREX market are fulfilled by dealers at major banks or FOREX brokerage companies. FOREX is the world wide market, so when you are sleeping in the North America some dealers in Europe are trading currencies with their Japanese counterparties. Therefore the FOREX market is active 24 hours a day and dealers at major institutions are working in three shifts. Clients may place take-profit and stop-loss orders with brokers for overnight execution.
Price movements on the FOREX market are very smooth and without gaps that you face almost every morning on the stock market. The daily turnover on the FOREX market is about $1.2 trillion, so investor can enter and exit position without problems. The fact is that the FOREX market never stops, even on the day of September-11, 2001 you could obtain two-side quotes on currencies.
The currency foreign exchange market is the largest and oldest financial market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world, and it is traded mainly through the 24 hour-a-day inter-bank currency market - the primary market for currencies. The forex market is a cash (or "spot") inter-bank market. By comparison, the currency futures market is only one per cent as big.
Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.
In the past, the forex inter-bank market was not available to small speculators due to the large minimum transaction sizes and often-stringent financial requirements. Banks, major currency dealers and the occasional huge speculator used to be the principal dealers. Only they were able to take advantage of the currency market's fantastic liquidity and strong trending nature of many of the world's primary currency exchange rates.
Today, foreign exchange market maker brokers such as FX Solutions are able to break down the larger sized inter-bank units, and offer small traders the opportunity to buy or sell any number of these smaller units (lots).
These brokers give virtually any size trader, including individual speculators or smaller companies, the option to trade the same rates and price movements as the large players who once dominated the market. Market makers quote buying and selling rates for currencies, and they profit on the difference between their buying and selling rates.
Forex is the acronym for Foreign Exchange Market. This is the biggest and most liquid market of the entire world today. One to three trillion dollars exchange hands at Forex every day. Thatis a huge amount of money. No stock market exchange of any country come close to this.
This market is huge. It is a sea of money full of sharks and dangerous waters, but it is also the only market where you at least hypothetically can make $1,000,000 in two weeks starting with only $1,000.
I say hypothetically because what happens often is that people blindly gamble their money at Forex without knowing anything about it and they lose their shirt. That is why I say to you: be careful! This market is profitable, but you need to learn the basics well, do your homework and demo trade a lot.
Just remember that 95% of traders lose money, 5% make it and less than 1% become rich at Forex. The nice thing about this market is that you can make money without creating any product or service, selling anything, nor advertising. You just trade some cash and get paid depending on your knowledge and expertise.
This is the market where banks, transnational corporations and individual traders exchange one currency for another. I am talking about the spot Forex market. You can trade at huge leverage as much as 400 to 1, meaning that for every dollar that you have for trading you can trade 400. For example if you have $1,000 on your account you can trade as much as $400,000.
This is dangerous. Most experienced traders won it use such a high leverage. In the other hand, high leverage can be good if you learn how to use it in your favor. Anyway, that is enough for the basics. If you want to learn more about how this market emerged, its history and so, then read my other articles.
Now let us talk about the strategies and how some traders make money at Forex. Let us start by saying that what works for me may not necessary work for you. Trading currencies is risky. That is a fact. But ultimately I discovered a few strategies that could give novice traders a winning edge.
Trading Forex is not as easy as most people think. Today you may be earning a lot and tomorrow you are losing 40% of your starting capital. Novice traders often make the same mistakes over and over again. I will enumerate a few of them bellow.
1. Do not look for a holly grail of trading.
This is for people who are afraid to lose or are too greedy and want to get rich quick. Even when it seems so, The Forex Market is not the place to get rich quick. Yes, you can make a lot of money over time and yes you dont have to sell anything, nor create or advertise any products. Still you have to learn a whole lot about what makes this market tick and what moves the price of the currencies plus how to manage your money effectively so you dont lose your shirt.
Many novice traders spend a LOT of time searching a perfect strategy that will allow them to always win-win and never lose. They want to have guaranteed profits because they cant stand to lose and/or they want to make too much (millions) quick so they can retire fast and buy a mansion in a far distant beautiful tropical island. It doesnt happen.
Dont waist your time. A trading strategy that allows you to have guaranteed profits do not exist. Trading is very risky. That is why it is so profitable. Remember: no risk, no reward." So, do not try to always win on every trade. It is simply not possible. There is no way to get rid of the fact of uncertainty. What I mean is that no matter how effective your trading strategy may be, sometimes it will fail and you have to be ready to face this fact.
By not trying to find a perfect strategy that turns you into a millionaire fast, you will just save a ton of your own time and efforts. It doesnt exist. If you find it, please dont tell me about it. First I wont believe you. Second I dont need it. You will find out bellow why I say that I wont need it.
2. Use technical analysis and fundamental analysis.
When I started trading I didnt believe in this. I wanted to find a strategy which consisted of money management alone (which I explain bellow). This is not good! Money management is important but you still need the other two. You define (predict") where the market is heading to depending on how effective your technical and fundamental strategies are.
Mastering technical analysis is the ability to predict future price movements by analyzing past price data and graphical patterns. You get a graphic of certain currencies. Check the data that you observe and based on your knowledge of technical analysis you predict" with certain degree of accuracy where the market is going.
Many brokers allow you to add technical indicators to the graphs while you are trading. You can try this on a demo account and see how well you are able to define the future price movement of the currencies you plan to trade.
There are many technical indicators. I cant tell which one will be more effective for you. Every trader is different. This is something that you will have to discover by yourself. There is not a hidden secret or magic formula for trading Forex. It is what you do every minute when you are in front of the graphics and checking the news what really counts.
The secret is in your overall knowledge and your decisions. This comes with experience and practice. If you open an account with one of these online brokers you can trade on paper before you trade with real money, so you can learn and practice before you risk any capital.
You can use the MACD (Moving average convergence divergence), the Bollinger Bands, Pivot Points, RSI, Stochastic, Fibonacci, EMA, Elliot Waves and many others. There are in fact many technical indicators but these are among the most widely known and used.
When you add technical indicators to the graphic the brokers software will automatically perform mathematical calculations to reveal interesting facts and patterns about the graphics that you cant readily see without said indicators. You can use the technical indicators to create your own technical systems.
These systems will never work 100% of the time, but if they work 70% - 80% it may be enough. Thats because you can control your risks with money management techniques as I describe bellow.
To further increase your probability of winning and reduce your probability of losing on every trade you can use fundamental analysis. I think that most traders choose one or the other but many traders use both.
Fundamental analysis is to trade the news. What is going on with the countriess economies of the currencies that you are trading? What is the unemployment index? Did something suddenly happen that could drastically affect the price of the currencies?
Trading the news is another effective way to predict" where the market is going. Many online brokers offer you a link with important financial news.
3. Use money management strategies.
You need money management techniques. This is what makes you or breaks you. Put it this way, most traders invest far too much of their trading capital on every trade. It is as follows . . . Expect to make too much and you will make too little, expect to make little and you will make a lot."
What does it mean? It means that if you try to make a fortune on every trade you will lose your shirt. If you expect to make a little on every trade and you compound your profits, you may make a lot of money over the long run.
The first rule of money management says that you should not risk more than 1% of the money that you have on your account. You control this risk with stop loss and limit orders. When you start trading this may seem as little profits specially if you start with little trading capital. In the other hand if you compound some or all of your profits you may increase your account exponentially over time.
The magic of compound interest is amazing! This is the way that most fortunes are created on the financial markets, little by little. If you gamble your money you may lose it fast.
Many traders do exactly the opposite. Imagine that you open an account with $5,000 and you enter a trade for $1,000. Let us say that the market moves against you and you lose those $1,000. Now you have $4,000 on your account. You think that the price for the currencies is too low, so it should recover. In fact you are pretty sure that it will come back.
Then you invest $1,500 to recover from the previous loss plus realize a $500 profit. The market moves again against you. It kept going in the same direction, something that you didnt expected. What happens? Now you have $2,500 on your account. That is 50% of your initial trading capital. It will be very hard for you to recover from that loss.
In the other hand, if you risk 1% of your money on every trade, you will have $4,900 on your account after that initial loss. It will be much easier for you to recover from those trades.
The second rule of money management is to expect always to receive more profits than the money that you risk to lose. This can be accomplished through limit and stop orders as well as trailing stops.
For example if you expect to make a 25 pips profits on every trade, then you put the stop order at 15 pips bellow or above your entry price. A better way to have a greater expectancy ratio is to use trailing stops as I describe above. A trailing stop allows you to cut the loses short and let your winners ride.
These are the basic techniques that a successful trader should use to generate consistent profits at the Forex Market. This is basic information, but I realize that many people out there dont even know what Forex is, so I didnt want to get into more complex strategies here. You will find information about complex and advanced Forex strategies on my website.
And in brief
The currency (foreign exchange) market is the largest market in the world. It is also called the foreign exchange market, or "FOREX" or "FX" market for short. It is the biggest and most liquid market in the world, and it is traded mainly through the 24 hour-a-day Interbank currency market - the primary market for currencies. The FOREX market is a cash (or "spot") interbank market. By comparison, the currency futures market is only one percent as big.
Foreign Exchange simply means the buying of one currency and selling another at the same time. In other words, the currency of one country is exchanged for those of another. The currencies of the world are on a floating exchange rate, and are always traded in pairs - Euro/Dollar, Dollar/Yen, etc. In excess of 85 percent of all daily transactions involve trading of the major currencies - Australian Dollar, British Pound, Canadian Dollar, Japanese Yen, Swiss Franc, and the U.S. Dollar.
Unlike the futures and stock markets, trading of currencies is not centralized on an exchange. Forex literally follows the sun around the world. Trading moves from major banking centers of the U.S. to Australia and New Zealand, to the Far East, to Europe and finally back to the U.S.
In the past, the FOREX interbank market was not available to small speculators due to the large minimum transaction sizes and often-stringent financial requirements. Banks, major currency dealers and the occasional huge speculator used to be the principal dealers. Only they were able to take advantage of the currency market's fantastic liquidity and strong trending nature of many of the world's primary currency exchange rates.
Today, foreign exchange market maker brokers are able to break down the larger sized interbank units, and offer small traders the opportunity to buy or sell any number of these smaller units (lots). These brokers give virtually any size trader, including individual speculators or smaller companies, the option to trade the same rates and price movements as the large players who once dominated the market. Market makers quote buying and selling rates for currencies, and they profit on the difference between their buying and selling rates. :-from forexrealm.com
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