dec Case B: Leverage Case B: Leverage 1. You open a position of 1 lot, which 1. You were right. Euro depreciates against 2. Euro depreciates against the dollar to 1. close your trade and take your profits. Result: The euro fell by pips 1.

Your profit is x 1 - 1. Section 01 Introduction and key concepts How much should I invest? Traders should look to use an effective leverage of to1 or less. Research shows that the amount of capital in your trading account can affect your profitability. With smaller investment you will not get enough profits as the average changes in the currency rates are small. If you haven't heard of these terms already, you undoubtedly will as you begin to invest.

The terms bull market and bear market describe upward and downward market trends, respectively, and can be used to describe either the market as a whole or specific sectors and securities. These images will help you memorize which is which. Doji - when the opening and closing price are equal. Long-Legged Doji - after small candlesticks, they indicate a potential trend change.

Normally only seen on thinly traded pairs. Your Capital may be at risk. That is, on the most fundamental level, a currency rallies because there is a demand for that currency. Regardless of whether the demand is for hedging, speculative, or conversion purposes, true movements are based on the need for the currency.

Currency values decrease when there is excess supply. Supply and demand should be the real determinants for predicting future movements. However, how to predict supply and demand is not as simple as many would think.

Two of the primary factors affecting supply and demand of currencies are interest rates and the overall strength of the economy. There are many factors that contribute to the net supply and demand for a currency and the strength of the economy. Read on to uncover the main drivers that influence the exchange rates. The number of economic announcements made each day from around the world can be intimidating, so we will focus just on the most important ones.

How are they divided The drivers are divided into three major groups: Geo-political, Economic and Market Psychology. Here they are: Kathy Lien Chief Currency Strategist at Forex Capital Markets LLC. Former Currency trader at JPMorgan Chase. TOP 9 Unemployment NFP or Non Farm 1 Payroll 6 Retail sales Will US employment continue to grow? For example, if the U. trade the U. more dollars flow out of the U.

and the value of the U. currency depreciates. ongoing uncertainty for the U. If the deficit is greater than Stretch, London-based head of market expectations however, it can trigger a foreign-exchange strategy at CIBC.

negative price movement. After three straight years of gains, strategists All traderswill find it are forecasting the U. currency will be a world beater again in , strengthening valuable to know when against seven of 10 developed-world peers important economic data by the end of the year, according to the median estimate in a Bloomberg survey. This world keep them flat or lower.

economic monetary policy. Section 02 Key drivers of currency movements Key indicators A closer look at some indicators Stock market Even day and swing traders will find it valuable to keep up with incoming economic reports from the conditions major economies.

Stock markets have a significant impact on exchange rate movements because they are a major place for high-volume currency movements. When foreign investors There are times where sentiment in the equity move their money to a markets will be the precursor to major moves in the forex market. If the stock equity market is particular stock equity rising, investment dollars generally come in to seize the opportunity. Alternatively, falling equity market, they convert markets could prompt domestic investors to sell their capital in a their shares of local publicly traded firms to take advantage of investment opportunities abroad.

domestic currency and To understand this further, let's imagine that the push the demand for it UK economy is booming, and its stock market is higher, making the performing well. Meanwhile, in the United States, a lackluster economy is creating a shortage of currency appreciate. investment opportunities. In this type of environment U. investors will feel When the equity more inclined to sell their U. dollars and buy British pounds to participate in the markets are outperformance of the UK economy.

When they elect to do so, it results in the outflow of capital experiencing recessions, from the United States and the inflow of capital however, foreign into the United Kingdom. pushing the domestic currency down. Section 02 Key drivers of currency movements Key indicators The most overrated indicator GDP is no longer a big deal GDP report has also become one of least important economic indicators on the U.

calendar, as it has led to some of the smallest relative movements in the EURUSD. One possible explanation is that GDP is released less frequently than other data in our study it comes out quarterly versus monthly , but in general, the GDP report is more prone to ambiguity and misinterpretation.

For example, surging GDP brought about by rising exports will be positive for the home currency; however, if GDP growth is a result of inventory buildup, the effect on the currency may actually be negative. Also, a large number of the components that comprise the GDP report are known in advance of the release.

Section 02 Key drivers of currency movements Most volatile news reports That traders should follow closely Volatility and profits in forex are measured in pips. The bigger the volatility the more pips and money a trader can make from a certain trade. Keep this chart by your side and make sure to mark these reports in your calendar! Unemployment indicator, showing if U. employment is growing or not. interest rates.

Inflation indicator. for month prior to the release of the report. Section 02 Key drivers of currency movements Economic indicators What you need to know about them Part 1 What are Economic Indicators? Economic indicators are snippets of financial and economic data published regularly by governmental agencies and the private sector. These statistics help market observers monitor the economy's pulse - so it's no surprise that they're followed by almost everyone in the financial markets.

With so many people poised to react to the same information, economic indicators have tremendous potential to generate volume and move prices. It might seem like you need an advanced economics degree to parse all this data accurately - but in fact traders need only keep a few simple guidelines in mind when making trading decisions based on this data.

Mark Your Economic Calendars Watching the economic calendar not only helps you consider trades around these events, it helps explain otherwise unanticipated price actions during those periods. Consider this scenario: it's Monday morning and the USD has been falling for 3 weeks, with many traders short USD positions as a result.

On Friday, however, U. employment data is scheduled to be released. If that report looks promising, traders may start unwinding their short positions before Friday, leading to a short-term rally in USD through the week.

Know exactly when each economic indicator will be released. You can find these calendars at the New York Federal Reserve Bank's site. What does This Data Mean for the Economy? You need not understand every nuance of each data release, but you should try to grasp key, large-scale relationships between reports and what they measure in the economy.

For example, you should know which indicators measure the economy's growth gross domestic product, or GDP versus those that measure inflation PPI, CPI or employment strength non-farm payrolls. Not All Economic Indicators can Move Markets The market may pay attention to different indicators under different conditions.

That focus can change over time and from one currency to another. For example, if prices inflation are not a crucial issue for a given country, but its economic growth is problematic, traders may pay less attention to inflation data and focus on employment data or GDP reports. Section 02 Key drivers of currency movements Economic indicators What you need to know about them Part 2 Watch for the Unexpected Often the data itself may not be as important as whether or not it falls within market expectations.

If a given report differs widely and unexpectedly from what economists and market pundits were anticipating, market volatility and potential trading opportunities may result. At the same time, be careful of pulling the trigger too quickly when an indicator falls outside expectations.

Each new economic indicator release contains revisions to previously released data. Don't Get Caught Up in Details While your macroeconomics professor may appreciate all the nuances of an economic report, traders need to filter data to focus on the numbers that can inform their trading decisions.

For example, many new traders watch the headlines of the employment report, for example, assuming that new jobs are key to economic growth. That may be true generally, but in trading terms non-farm payroll is the figure traders watch most closely and therefore has the biggest impact on markets.

Similarly, PPI measures changes in producer prices generally - but traders tend to watch PPI excluding food and energy as a market driver. Food and energy data tend to be much too volatile and subject to revisions to provide an accurate reading on producer price changes.

There are Two Sides to Every Trade Just remember that no trader's knowledge can be complete all the time. You might have a great handle on economic data published in Europe - but there are times when data published in the U. or Australia might have a surprising impact on your currency market. Doing your homework before trading any currency can help you make better decisions. unemployment rate is expected to increase.

Imagine that last month the unemployment rate was at 8. With a consensus at 9. economy, and as a result, a weaker dollar. They will go ahead and start selling off their dollars for other currencies before the actual number is released.

What the heck! This is because the big players have already adjusted their positions way before the news report even came out and may now be taking profits after the run up to the news event. The market players thought the unemployment rate would rise to 9.

Now that the report is released and it says something totally different from what they had anticipated, they are all trying to adjust their positions as fast as possible. This would also happen if the actual report released an unemployment rate of The only difference would be that instead of the dollar rallying, it would drop like a rock!

Since the market consensus was 9. looks a lot weaker now than when the forecasts were first released. Instability in the world likelihood of Clinton becoming the next market prods investors to pull out of their president, Lim Say Boon, chief investment financial positions, leading to currency officer at DBS Bank Ltd.

in Singapore, wrote depreciation. in a report. The Super Tuesday results are being seen as "an outcome for continuity over the disruption threatened by Trump and Sanders," he said. You must remember that investors hate uncertainty! Similar effects have occured with Clinton and Obama. For Trump the upward trend was also there due to his promise to lower taxes and increase government spending on infrastrucure.

Section 02 Key drivers of currency movements Market psychology The golden rule of economic indicators The currency rates often start moving even before the actual data comes out due to forecasts and market sentiment! Sentiment analysis is a kind of FX analysis that concentrates on indicating and consequently measuring the overall psychological and emotional state of all participants of the foreign exchange market.

This kind of Forex analysis strives to quantify what percentage of FX market participants are bullish or bearish, in other words being optimistic or pessimistic. If the forecast promised a positive growth and the actual data comes out even better than forecasted, it amplifies the rise of the currency even more.

Overlap between two The Foreign Exchange market operates 24 hours a day, making it nearly impossible sessions for a single trader to track every market Generally, whenever there is an overlap in movement and respond immediately at the market e. In period. For instance, every morning during order to devise an effective and London Open session.

Euro pairs are active time-efficient investment strategy, it is and if you have a good strategy, you could important to understand how much get pips. liquidity there is around the clock to maximize the number of trading opportunities during a trader's own 2. News Release market hours. Fundamentals drive the market.

During News Release, volatility is experienced and Besides liquidity, a currency pair's trading some pairs could move over pips range is also heavily dependent on depending on the type of news.

For example geographical location and macroeconomic Non-Farm Payroll is the most volatile news factors. release and dollar based currency pairs could move hundreds of pips in seconds. Knowing what time of day a currency pair However, trading news is risky if you are not has the highest or narrowest trading knowledgeable about it. volatility will undoubtedly help traders improve their investment utility due to better capital allocation.

Central Bank Govenor's Speech High volatility offers lucrative profit Speeches from these guys could make pairs potentials to short-term traders. Lower go hundred's of pips and even change volatility under 80 pips per day is better market sentiment with effects lasting into for risk-averse traders, because there are months. However, its risky to trade these less iregular market movements caused by speeches except you are subscribed to some aggressive intraday speculation.

Section 03 Forex timing What Are the Best Times to Trade Forex We strongly advice you to avoid all resources that traders can then purchase currencies from tell you Forex market is a fairy-tale place where different continents.

The timing in forex trading is is usually the most active as it involves many crucial! countries of the European Union. The US market comes next, so the time when the London session The Forex market is open 24 hours a day, but it is intersects with the US session usually provides the not active all this time! In Forex trading money is biggest returns.

Expert traders consider 10 AM to made when the market is active when traders are be the best time as this is the period when the bidding on the prices so it is crucial for you to London market is preparing to close the trades learn about the most productive hours of the day and traders are getting ready to move to US and of the week for trading the forex!

This creates big swings in currency prices thus opening great opportunities for profit. There are three major trading sessions of the Forex market: London, US and Tokyo session. Fridays are busy as well, but only until PM and during the second half of the day the movements can be very unpredictable. While it is crucial to understand when is the best time to analyze the charts and make the bids, it is equally important to know when NOT to open positions.

A thin market also comes with higher commissions spreads for each trade due to the decreased liquidity. In simple words: if you want to sell a currency, it is harder to find potential buyers, so the broker or bank must increase the commission as it takes a risk of not finding a buyer so quickly.

A good example of chaotic trading is shortly before, during and shortly after important news events. In these times of uncertainty, the currency rates can swing wildly and unpredictably, thus messing up trading by creating execution lags, triggering stop-loss orders, etc.

Usually, the higher the liquidity, the lower the volatility, and therefore the tighter the spread Spread is like a commission that you pay for the trade. However, even major pairs can experience wider than normal spreads during volatile periods, such as interest rates announcements, GDP reports, unemployment figures, to name a few examples. There will also be wider spreads during off market hours, when there is only a fraction of the participants in the market, so the liquidity is lower.

This can be seen when the markets open for the Asian session, at GMT Sunday, for example. This widening occurs typically around news announcements or off-market hours.

Most forex brokers allow you to trade all weekend, but spreads will be significantly wider during weekends when liquidity is almost non-existent. Dealing desk or market making brokers are going to widen their spreads coming into economic announcements to offset the risk they take on by filling orders. Unfortunately, banks do the same thing, so an average forex broker could be better, but only marginally. What happens before or during important announcements. The volatility jumps before important anouncements and the drastic movements can hit the stop-losses, resulting in a lost trade and investment.

wild swings based on rumours etc. So I generally close the position or wait out the increased spread unless it is really pumping.

This should not be a problem if you are trading the higher time frames as your stop will probably be quite large and so increasing it by 5 or 10 pips probably won't be too significant risk increase better yet - factor in the widened spread when you calculate your position size as you know that if the trade works out you will be holding for a few days or more, in which time there will be anouncements.

If you can't be at your computer when the news anuncement hits, I would suggest leaving your stop wider for the periods that you can't manage the trade unless there are no announcements over that period.

If you are trading lower time frames however, your stops will inevitably be smaller and the increase in stop size may substantially increase your risk. In this case, you may have to decide to close the position before the anouncment or close enough of the position so that the increased stop will equal the same loss as the originally intended loss. But make no mistake - you will have to widen your stop. The spread will get you. Even if the announcement is in your favour, price generally whips up and down at least a few pips before taking direction.

If your stop is anywhere near price just prior to news, chances are you will be taken out not matter what the result. Just be aware of the anouncement times and factor this in when deciding wether or not to take a trade. It may often seem that these indicators are contradictory. Analyses of longer time periods show tendencies, ignoring accidental changes, whereas daily, hourly ir minute graphs help in choosing the moment to open and close positions.

Example Multiple time frame analysis time X Let us look at a daily graph. What do most traders do when they see such a curve? Aug Sep Okt Nov Dec Conclusion For successful and precise market analysis, you must use at least time frames!

Section 04 Time frames Time frame choice of pros The shortest time frame that traders should start looking at when their trading day starts are daily charts, even if you are trading on a 5-minute time frame! The most common form of multiple time frame analysis is to use daily charts to identify the overall trend and then use the hourly charts to determine specific entry levels. As a matter of principle, all good traders I know use 2—3 time frames 3 being the best spaced enough so that each timeframe above encompasses 4—8 bars from the lower time frame.

GNP Gap The difference between the actual real GNP and the potential real GNP. If the gap is negative an economy is overheated.

GNP Deflator Removes inflation from the GNP figure. Usually expressed as a percentage and based on an index figure. G7 The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

G5 The five leading industrial countries - US, Germany, Japan, France, UK. G10 G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions.

Switzerland is sometimes peripherally involved. Futures exist in currencies, money market deposits, bonds, shares and commodities. They are traded on an exchange with the clearing corporation guaranteeing the contract and moreover the trade is done on a mark to market basis.

Futures Contract A contract traded on a futures exchange which requires the delivery of a specified quality and quantity of a commodity, currency or financial instruments a specified future month, if not liquidated before the contract matures. May apply to certain exchange traded currency contracts offered on a number of exchanges. Fundamentals The macro economic factors that are accepted as forming the foundation for the relative value of a currency, these include inflation, growth, trade balance, government deficit, and interest rates.

Fundamental Analysis Analysis based on economic and political factors. Free Reserves Total reserves held by a bank less the reserves required by the authority. Fractional Pips Fractional pips are a new pricing feature which allows you to see more price action detail and will help you to make more informed trading decisions. A fractional pip is a tenth of a pip and the addition of this feature to your account allows you to take advantage of smaller price increments and moves in the market.

Forward Rate The rate at which a foreign exchange contract is struck today for settlement at a specified future date which is decided at the time of entering into the contract.

The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction. The base currency with the higher interest rate is said to be at a discount to the lower interest rate quoted currency in the forward market.

Therefore the forward points are subtracted from the spot rate. Similarly, the lower interest rate base currency is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate. Forward Points The interest rate differential between two currencies expressed in exchange rate points. The forward points are added to or subtracted from the spot rate to give the forward or outright rate depending on whether the currency is at a forward premium or discount.

Forward Contract Sometimes used as synonym for "forward deal" or "future". More specifically, for arrangements with the same effect as a forward deal between a bank and a customer. Forex An abbreviation of foreign exchange. Forex Deal The purchase or sale of a currency against the sale or purchase of another currency.

The maximum time for a deal is defined when the deal opens, the deal can be closed at any moment until the expiry date and time. A deal cannot be closed in its first 3 minutes, due to technical reasons. Foreign Position A position under which one party agrees to purchase from or sell to the other party an agreed amount of foreign currency.

Foreign Exchange The purchase or sale of a currency against the sale or purchase of another. Floor 1 An agreement with a counterparty that sets a lower limit to interest rates for the floor buyer for a stated time. screen based trading , normally the trading area is referred to as a pit in the commodities and futures markets.

Floating Exchange Rate When the value of a currency is decided by the market forces dictating the demand and supply of that particular currency. Float 1 see Floating exchange rate. Fixing A method of determining rates by normally finding a rate that balances buyers to sellers. Such a process occurs either once or twice daily at defined times. Used by some currencies particularly for establishing tourist rates. The system is also used in the London Bullion market.

Fixed Exchange Rate Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention by the central bank. Federal Reserve System The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership of the Fed is compulsory for banks chartered by the Comptroller of Currency and optional for state chartered banks.

Federal Reserve Board The board of the Federal Reserve System, appointed by the US President for 14 year terms, one of whom is appointed for four years as chairman. Fed The United States Federal Reserve.

Federal Deposit Insurance Corporation Membership is compulsory for Federal Reserve members. Fed Funds Cash balances held by banks with their local Federal Reserve Bank. The normal transaction with these funds is an interbank sale of a Fed fund deposit for one business day. Straight deals are where the funds are traded overnight on an unsecured basis.

Fed Fund Rate The interest rate on Fed funds. This is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported. FX Foreign Exchange. FOMC Federal Open Market Committee, the committee that sets money supply targets in the US which tend to be implemented through Fed Fund interest rates etc.

Exposure The total amount of money loaned to a borrower or country. Banks set rules to prevent overexposure to any single borrower. In trading operations, it is the potential for running a profit or loss from fluctuations in market prices. Expiry Date The last date on which an option can be bought or sold. Expiration Month The month in which an option expires. Exotic Currency A foreign exchange term for a thinly traded currency.

Exotic currencies are illiquid, lack market depth and trade at low volumes. Trading an exotic currency can be expensive, as the bid-ask spread is usually large. Examples: Thai baht, Nok, Mexico peso. Exercise Price Strike Price The price at which an option can be exercised. European Union Is a politico-economic union of 28 member states that are located primarily in Europe. Exchange Rate Risk The potential loss that could be incurred from an adverse movement in exchange rates.

Effective Exchange Rate An attempt to summarise the effects on a country's trade balance of its currency's changes against other currencies. Economic Indicator A data release which indicates current economic growth rates and trends such as retail sales and employment. Economic Exposure Reflects the impact of foreign exchange changes on the future competitive position of a company in the sense of the impact it can have on the future cash flows of the company.

ERM Exchange Rate Mechanism. EOE European Options Exchange. EMU European Monetary Union. EMS European Monetary System. EFT Electronic Fund Transfer. ECB The European Central Bank.

Value may vary from Euro deposits due to taxation and varying market practices. Discount Less than the spot price. For example, forward discount. Direct Quotation Quoting in fixed units of foreign currency against variable amounts of the domestic currency. Devaluation Deliberate downward adjustment of a currency against its fixed parities or bands which is normally accompanied by formal announcement. Details All the information required to finalise a foreign exchange transaction, i. name, rate, dates, and point of delivery.

Desk Term referring to a group dealing with a specific currency or currencies. Derivatives A security whose price is dependent upon or derived from one or more underlying assets.

The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset.

The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterised by high leverage. Delta The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative.

Also referred as the "hedge ratio". Delta Spread A ratio spread of options established as a neutral position by using the deltas of the options concerned to determine the hedge ratio. Delta Hedging A method used by option writers to hedge risk exposure of written options by purchase or sale of the underlying instrument in proportion to the delta. Delivery The settlement of a transaction by receipt or tender of a financial instrument or currency. Delivery Date The date of maturity of the contract, when the final settlement of transaction is made by exchanging the currencies.

This date is more commonly known as the value date. Deficit Shortfall in the balance of trade, balance of payments, or government budgets. Dealers trade for their own account and risk in contrast to the brokers who trade only on behalf of their clients. Deal Ticket The primary method of recording the basic information relating to a transaction. Deal Date The date on which a transaction is agreed upon. Day Trading A Day Trading deal is a currency exchange deal which renews automatically every night at GMT time starting the day the deal was made and until it ends.

The deal ends in one of the following events: 1. Termination initiated by you. The day trading rate has reached the Stop-Loss or Take Profit rate you predefined.

The deal end date. As long as the deal is open, it is charged a renewal fee every night at GMT time. Day Order An order that if not executed on the specific day is automatically canceled. Cycle The set of expiration dates applicable to different classes of options. Current Balance The value of all exports goods plus services less all imports of a country over a specific period of time, equal to the sum of trade and invisible balances plus net receipt of interest, profits and dividends from abroad.

Current Account The net balance of a country's international payment arising from exports and imports together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.

Currency The type of money that a country uses. It can be traded for other currencies on the foreign exchange market, so each currency has a value relative to another. ECU or SDR. Sometimes used by currencies to fix their rate often on a trade weighted basket. Cross-Trade A cross-trade transaction is a transaction where either the buy broker and the sell broker are the same, or the buy broker and the sell broker belong to the same firm.

Cross Rate An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, as most currencies are quoted against the dollar. Cross Hedge A technique using financial futures to hedge different but related cash instruments based on the view that the price movements between the instruments move in concert. Cross Deal A foreign exchange deal entered into involving two currencies, neither of which is the base currency.

Credit Risk The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered. Crawling Peg Adjustable Peg An exchange rate system where a country's exchange rate is "pegged" i.

fixed in relation to another currency. The official rate may be changed from time to time. Covered Interest Rate Arbitrage An arbitrage approach which consists of borrowing currency A, exchanging it for currency B, investing currency B for the duration of the loan, and, after taking off the forward cover on maturity, showing a profit on the entire set of deals. It is based on the theorem of interest rate parity one of the key theoretical economic relationships which says that the return on a hedged foreign investment will just equal the domestic interest rate on investments of identical risk.

When the covered interest rate differential between the two money markets is zero, there is no arbitrage incentive to move funds from one market to another. Cover 1 To take out a forward foreign exchange contract. Coupon 1 On bearer stocks, the detachable part of the hide behind nominee status.

A certificate exchangeable for dividends. Coupon Value The annual rate of interest of a bond. Counterparty Risks The risk to each party of a contract, that the counterparty will not live up to its contractual obligations. Counterparty risk as a risk to both parties and should be considered when evaluating a contract.

Counterparty The customer or bank with which a foreign exchange deal is executed. Cost of Carry The interest rate parity, where the forward price is determined by the cost of borrowing money in order to hold the position.

Correspondent Bank The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e. to facilitate the transfer of funds. In the US this often occurs domestically due to inter state banking restrictions. Contract An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future See Futures contract.

Contract Month The month in which a futures contract matures or becomes deliverable if not liquidated or traded out before the date specified.

Contract Expiration Date The date on which a currency must be delivered to fulfill the terms of the contract. For options, the last day on which the option holder can exercise his right to buy or sell the underlying instrument or currency.

Confirmation A memorandum to the other party describing all the relevant details of the transaction. Compound Option An option on an option, the dates and price of such option being fixed. Commission The fee that a broker may charge clients for dealing on their behalf. Comex Commodity Exchange of New York.

Coincident Indicator An economic indicator that generally moves in line with the general business cycle such as industrial production.

Closed Position Executing a security transaction that is the exact opposite of an open position, thereby nullifying it and eliminating the initial exposure.

Closing a long position in a security would entail selling it, while closing a short position in a security would involve buying it back. Chartist An individual who studies graphs and charts of historic data to find trends and predict trend reversals which include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.

Certificate of Deposit CD A negotiable certificate in bearer form issued by a commercial bank as evidence of a deposit with that bank which states the maturity value, maturity rate and interest rate payable. CDs vary in size with maturities ranging from a few weeks to several years. CDs may normally be redeemed before maturity only by sale on the secondary market but may also be redeemed back to issuing bank through payment of a penalty.

Central Rate Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band. Central Bank A central bank provides financial and banking services for a country's government and commercial banks. It implements the government's monetary policy, as well, by changing interest rates.

Cash Normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries which rely for foreign exchange services on these markets because of time zone preference i.

Latin America. In Europe and Asia, cash transactions are often referred to as value same day deals. Cash and Carry The buying of an asset today and selling a future contract on the asset.

A reverse cash and carry is possible by selling an asset and buying a future. Cash Settlement A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery. Carry The interest cost of financing securities or other financial instruments held. Capital Account A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public and private international investments flowing in and out of a country.

Call An option that gives the holder the right to buy the underlying instrument at a specified price during a fixed period. Call Option A call option confers the right but not the obligation to buy stock, shares or futures at a specified price.

Cable Transfer Telegraphic transfer of funds from one centre to another. Now synonymous with interbank electronic fund transfer. CPSS Committee on Payment and Settlement Systems. CPI Consumer Price Index. Monthly measure of the change in the prices of a defined basket of consumer goods including food, clothing, and transport. Countries vary in their approach to rents and mortgages.

Contracts for Difference CFD An arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than the delivery of physical goods or securities.

CME Chicago Mercantile Exchange. CHIPS The New York clearing house clearing system. Clearing House Interbank Payment System. Most Euro transactions are cleared and settled through this system. CHAPS Clearing House Automated Payment System. CFTC The Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets, including financial futures. CBOT or CBT Chicago Board of Trade. CBOE Chicago Board Options Exchange.

Butterfly Spread 1 A futures butterfly spread is a spread trade in which multiple futures months are traded simultaneously at a differential. The trade basically consists of two futures spread transactions with either three or four different futures months at one differential. The trade basically consists of two options spread transactions with either three or four different options months and strikes at one differential Bulldogs Sterling bonds issued in the UK by foreign institutions.

Bull A person who believes that prices will rise. Bull Market A market characterised by rising prices. Broker An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties.

There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries. Break Out In the options market, undoing a conversion or a reversal to restore the option buyer's original position.

Break Even Point The price of a financial instrument at which the option buyer recovers the premium, meaning that they make neither a loss nor a gain. In the case of a call option, the break even point is the exercise price plus the premium.

Booked The recording of a transaction outside the country where the transaction is itself negotiated. It is widely used in the currency markets.

Binary Options A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money. Bilateral Clearing A system used where foreign currency is limited. Payments are usually routed through the central banks, and sometimes require that the trade balance is equaled every year. Big Figure Refers normally to the first three digits of an exchange rate that dealers treat as understood in quoting.

Together, the two prices constitute a quotation; the difference between the two is the spread. The bid-ask spread is stated as a percentage cost of transacting in foreign exchange. Bear A person who believes that prices will decline. Bear Market A market in which prices decline sharply against a background of widespread pessimism opposite of Bull Market. Basket A group of currencies normally used to manage the exchange rate of a currency.

Sometimes referred to as a unit of account. Basis The difference between the cash price and futures price. Basis Trading Taking opposite positions in the cash and futures market with the intention of profiting from favourable movements in the basis.

Basis Price The price expressed in terms of yield maturity or annual rate of return. Basis Point One per cent of one per cent.

Base Rate A term used in the UK for the rate used by banks to calculate the interest rate to borrowers. Top quality borrowers will pay a small amount over base. Base Currency The currency in which the operating results of the bank or institution are reported. Barrier Option A family of path dependent options whose pay-off pattern and survival to the expiration date depend not only on the final price of the underlying currency but also on whether or not the underlying currency breaks a predetermined price level at any time during the life of the option.

Bank of England Central Bank of the United Kingdom. Bank Rate The rate at which a central bank is prepared to lend money to its domestic banking system. Bank Notes 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.

Band The range in which a currency is permitted to move. A system used in the ERM. Balance of Trade The value of exports less imports. Invisibles are normally excluded, and is otherwise referred to as mercantile or physical trade. Average Rate Option A contract where the exercise price is based on the difference between the strike price and the average spot rate over the contract period. Sometimes called an "Asian option".

Auction Sale of an item to the highest bidder. Small investors are given preferential access to the bills. The average issuing price is then computed on the basis of the competitive bids accepted.

In some circumstances for government auctions it is the yield rather than the price which is bid. At or Better An order to deal at a specific rate or better.

We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. When a market is making a clear, sustained move upwards or downwards, it is called a trend. Identifying the beginning and end of trends is a key part of market analysis. Trends can apply to individual assets, sectors, or even interest rates and bond yields.

In trading, spot refers to the price of an asset for immediate delivery, or the value of an asset at any exact given time. The bearish decline is running out of steam as shown by the presence of the Doji, which signals uncertainty as it is contained by the previous long body. The weakness of the bearish market to push prices lower and the presence of the pattern at the end of a decline, signals possible bullish implications. Just like Harami, a small candlestick body- follows a candlestick of a long white body.

MetaTrader 4 also comes in a mobile version, allowing traders to trade over their mobile devices. to send small slices of the order out to the market over time. They were developed so that traders do not need to constantly watch a stock and repeatedly send those slices out manually.

Liquidity — the feature of one asset to change for another one. A bigger liquidity gives an opportunity to make a big deal without being affected by a significant change in price. Flat — a period, when the price stays within the same range and does not express the direction of growth or decrease. Day trading — trading operations that are completed within a day. Central bank — a bank that provides financial services to the government and the commercial banks of its country. Buy limit — pending order to buy at a price lower than the current price level.

Trade — A forex trade is always made with one currency against another. You buy dollars against British pounds or You now sell your thousand dollars worth at a profit. XM uses cookies to ensure that we provide you with the best experience while visiting our website. Some of the cookies are needed to provide essential features, such as login sessions, and cannot be disabled.

In the case of forex, money is usually borrowed from a broker. Describes the price movement of a financial asset when the overall direction is upward. This may take place because of unforseen circumstances e. Diversification — a strategy, that aims to reduce risks by allocating investments in different financial instruments or objects of investment. Dealing spread The difference between the buying and selling price of a contract.

Deficit A negative balance of trade or payments. Delivery A trade where both sides make and take actual delivery of the product traded. Delta The ratio between the change in price of a product and the change in price of its underlying market.

The spread value is different for each currency. Volatile currency pairs commonly have a tighter spread, while crosses suffering low liquidity usually have a higher spread.

We shall examine the behavior of scalpers at a later time. This is the smallest price change, which a given exchange rate can make. Follow these 10 steps to forming your first trading strategy: 1. Step 1: Form Your Market Ideology. Step 2: Choose a Market For Your Trading Strategy. Step 3: Choose A Trading Time Frame. Step 4: Choose A Tool To Determine The Trend Or Lack Of 5. Step 5: Define Your Entry Trigger. Step 6: Plan Your Exit Trigger. Ascending wedges typically conclude with a downside breakout and descending wedges typically terminate with upside breakouts.

Whipsaw Slang for a highly volatile market where a sharp price movement is quickly followed by a sharp reversal. Wholesale prices Measures the changes in prices paid by retailers for finished goods.

Inflationary pressures typically show earlier than the headline retail. For example, this might happen during high market volatility. Scalping — a trading strategy, where a trader executes a big amount of orders during a short period and fixes profit in several pips.

When a currency is traded indirectly against the US Dollar. USD is the base currency with any other currency serving as the Quote Currency. Parabolic Stop and Reverse is a technical indicator developed by Welles Wilder. It is based on the premise that a strong trend will continue to increase in strength and hence it will follow a parabolic arc. The best-known examples are the Euro and the US dollar, but British pound sterling, Canadian dollar and Swiss franc are also common currencies.

LIBOR — the rate at which banks lend money to each other in the London Interbank market, and is a commonly used benchmark interest rate. Interest Rates — The rates of interest charged for lending money from a bank or credit provider. Generally, central banks control the levels of interest rates, which is critical to the strength or weakness of a currency. The tools of analysis used to forecast future market activity by analyzing market data such as charts, price trends, and volume.

A Stop Order is an order to sell at the market only when the market moves down to a specific price, or to buy at the market only when the market moves up to a specific price. In an uptrend, two long white candles with a rising window in between are followed by a long black candle that fills the window i. During the course of an uptrend the presence of three tops at about the same level and the breaking of the corresponding two bottoms, signal a reversal.

During the course of a downtrend the presence of three bottoms at about the same level and the breaking of the corresponding two tops, signal a reversal. Parallel line — Draw a parallel line from the top of the base to the triangle side.

The minimum target is estimated at the parallel line with an approximate time forecast the intersection of the 2 triangle sides. It is characterized by equal tops and bottoms. It is one of the two major schools of market analysis, with the other being fundamental analysis. A support level is the price at which an asset may find difficulty falling below as traders look to buy around that level.

In trading, short describes a trade that will incur a profit if the asset being traded falls in price. A micro lot is worth of a given currency, a mini lot is 10, and a standard lot is , For example, you can trade seven micro lots or three mini lots or 75 standard lots. The position size you take on the market determines the size of your profits and losses in dollar value by affecting the value of a single pip.

In the Forex market, one standard lot equals to Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Skip to content Posted in Education.

Posted by By Mary Davis May 17, No Comments. Table of Contents Economic Risk Can I Teach Myself To Trade Forex? Forex Pairs And Quotes Basic Terms Of Forex Trading Packed With The Knowledge Of The Basic Terms, You Are One Step Ahead In Making Your Trading Journey A Prosperous One Fixed Exchange Rate We recommend that you seek independent advice and ensure you fully understand the risks involved before trading.

When we have a distinctive trend however, the market can move in two possible directions — up or down, or as it is most often referred to — a bull or bear market. Stop loss order This is an order placed to sell below the current price , or to buy above the current price. Oscillators usually give false signals in the beginning of a trend as they move too fast in the overbought area.

The default value is 14 but 9 may also be used. Liquidity is the efficiency and cost effectiveness related to trade in a financial market. Economic Risk MetaTrader 4 also comes in a mobile version, allowing traders to trade over their mobile devices.

Can I Teach Myself To Trade Forex? Forex Pairs And Quotes This may take place because of unforseen circumstances e. Basic Terms Of Forex Trading The spread value is different for each currency. How do I create a forex strategy? Mary Davis. My name is Mary Davis.

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Home Forex Trading Terminology Forex Trading Terminology Uploaded by: MREACE Elijah 0 0 December PDF Bookmark Embed Share Print Download. Range The difference between the highest and lowest price of a future recorded during a given trading session. Unfortunately, banks do the same thing, so an average forex broker could be better, but only marginally. Band The range in which a currency is permitted to move. Existential Psychotherapy Yalom Pdf November

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