Forex for a trader
Forex market meaning

Forex market meaningPart 1: What Is Forex Trading ? – A Definition & Introduction. An Introduction to FOREX Trading: This free Forex mini-course is designed to teach you the basics of the Forex market and Forex trading in a non-boring way. I know you can find this information elsewhere on the web, but let’s face it; most of it is scattered and pretty dry to read. I will try to make this tutorial as fun as possible so that you can learn about Forex trading and have a good time doing it. Upon completion of this course you will have a solid understanding of the Forex market and Forex trading, and you will then be ready to progress to learning real-world Forex trading strategies. What is the Forex market? • What is Forex? – The basics… Basically, the Forex market is where banks, businesses, governments, investors and traders come to exchange and speculate on currencies. The Forex market is also referred to as the ‘Fx market’, ‘Currency market’, ‘Foreign exchange currency market’ or ‘Foreign currency market’, and it is the largest and most liquid market in the world with an average daily turnover of $3.98 trillion. The Fx market is open 24 hours a day, 5 days a week with the most important world trading centers being located in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. It should be noted that there is no central marketplace for the Forex market; trading is instead said to be conducted ‘over the counter’; it’s not like stocks where there is a central marketplace with all orders processed like the NYSE. Forex is a product quoted by all the major banks, and not all banks will have the exact same price. Now, the broker platforms take all theses feeds from the different banks and the quotes we see from our broker are an approximate average of them. It’s the broker who is effectively transacting the trade and taking the other side of it…they ‘make the market’ for you. When you buy a currency pair…

your broker is selling it to you, not ‘another trader’. • A brief history of the Forex market. Ok, I admit, this part is going to be a little bit boring, but it’s important to have some basic background knowledge of the history of the Forex market so that you know a little bit about why it exists and how it got here. So here is the history of the Forex market in a nutshell: In 1876, something called the gold exchange standard was implemented. Basically it said that all paper currency had to be backed by solid gold; the idea here was to stabilize world currencies by pegging them to the price of gold. It was a good idea in theory, but in reality it created boom-bust patterns which ultimately led to the demise of the gold standard. The gold standard was dropped around the beginning of World War 2 as major European countries did not have enough gold to support all the currency they were printing to pay for large military projects. Although the gold standard was ultimately dropped, the precious metal never lost its spot as the ultimate form of monetary value. The world then decided to have fixed exchange rates that resulted in the U. S. dollar being the primary reserve currency and that it would be the only currency backed by gold, this is known as the ‘Bretton Woods System’ and it happened in 1944 (I know you super excited to know that). In 1971 the U. S. declared that it would no longer exchange gold for U. S. dollars that were held in foreign reserves, this marked the end of the Bretton Woods System. It was this break down of the Bretton Woods System that ultimately led to the mostly global acceptance of floating foreign exchange rates in 1976. This was effectively the “birth” of the current foreign currency exchange market, although it did not become widely electronically traded until about the mid 1990s.

(OK! Now let’s move on to some more entertaining topics!)… What is Forex Trading? Forex trading as it relates to retail traders (like you and I) is the speculation on the price of one currency against another. For example, if you think the euro is going to rise against the U. S. dollar, you can buy the EURUSD currency pair low and then (hopefully) sell it at a higher price to make a profit. Of course, if you buy the euro against the dollar (EURUSD), and the U. S. dollar strengthens, you will then be in a losing position. So, it’s important to be aware of the risk involved in trading Forex, and not only the reward. • Why is the Forex market so popular? Being a Forex trader offers the most amazing potential lifestyle of any profession in the world. It’s not easy to get there, but if you are determined and disciplined, you can make it happen. Here’s a quick list of skills you will need to reach your goals in the Forex market: Ability – to take a loss without becoming emotional. Confidence – to believe in yourself and your trading strategy, and to have no fear.

Dedication – to becoming the best Forex trader you can be. Discipline – to remain calm and unemotional in a realm of constant temptation (the market) Flexibility – to trade changing market conditions successfully. Focus – to stay concentrated on your trading plan and to not stray off course. Logic – to look at the market from an objective and straight forward perspective. Organization – to forge and reinforce positive trading habits. Patience – to wait for only the highest-probability trading strategies according to your plan. Realism – to not think you are going to get rich quick and understand the reality of the market and trading. Savvy – to take advantage of your trading edge when it arises and be aware of what is happening in the market at all times. Self-control – to not over-trade and over-leverage your trading account. As traders, we can take advantage of the high leverage and volatility of the Forex market by learning and mastering and effective Forex trading strategy, building an effective trading plan around that strategy, and following it with ice-cold discipline. Money management is key here; leverage is a double-edged sword and can make you a lot of money fast or lose you a lot of money fast.

The key to money management in Forex trading is to always know the exact dollar amount you have at risk before entering a trade and be TOTALLY OK with losing that amount of money, because any one trade could be a loser. More on money management later in the course. • Who trades Forex and why? Banks – The interbank market allows for both the majority of commercial Forex transactions and large amounts of speculative trading each day. Some large banks will trade billions of dollars, daily. Sometimes this trading is done on behalf of customers, however much is done by proprietary traders who are trading for the bank’s own account. Companies – Companies need to use the foreign exchange market to pay for goods and services from foreign countries and also to sell goods or services in foreign countries. An important part of the daily Forex market activity comes from companies looking to exchange currency in order to transact in other countries. Governments Central banks – A country’s central bank can play an important role in the foreign exchange markets. They can cause an increase or decrease in the value of their nation’s currency by trying to control money supply, inflation, and (or) interest rates. They can use their substantial foreign exchange reserves to try and stabilize the market. Hedge funds – Somewhere around 70 to 90% of all foreign exchange transactions are speculative in nature. This means, the person or institutions that bought or sold the currency has no plan of actually taking delivery of the currency; instead, the transaction was executed with sole intention of speculating on the price movement of that particular currency. Retail speculators (you and I) are small cheese compared to the big hedge funds that control and speculate with billions of dollars of equity each day in the currency markets.

Individuals – If you have ever traveled to a different country and exchanged your money into a different currency at the airport or bank, you have already participated in the foreign currency exchange market. Investors – Investment firms who manage large portfolios for their clients use the Fx market to facilitate transactions in foreign securities. For example, an investment manager controlling an international equity portfolio needs to use the Forex market to purchase and sell several currency pairs in order to pay for foreign securities they want to purchase. Retail Forex traders – Finally, we come to retail Forex traders (you and I). The retail Forex trading industry is growing everyday with the advent of Forex trading platforms and their ease of accessibility on the internet. Retail Forex traders access the market indirectly either through a broker or a bank. There are two main types of retail Forex brokers that provide us with the ability to speculate on the currency market: brokers and dealers. Brokers work as an agent for the trader by trying to find the best price in the market and executing on behalf of the customer. For this, they charge a commission on top of the price obtained in the market. Dealers are also called market makers because they ‘make the market’ for the trader and act as the counter-party to their transactions, they quote a price they are willing to deal at and are compensated through the spread, which is the difference between the buy and sell price (more on this later). Advantages of Trading the Forex Market: • Forex is the largest market in the world, with daily volumes exceeding $3 trillion per day. This means dense liquidity which makes it easy to get in and out of positions. • Trade whenever you want: There is no opening bell in the Forex market. You can enter or exit a trade whenever you want from Sunday around 5pm EST to Friday around 4pm EST. • Ease of access: You can fund your trading account with as little as $250 at many retail brokers and begin trading the same day in some cases.

Straight through order execution allows you to trade at the click of a mouse. • Fewer currency pairs to focus on, instead of getting lost trying to analyze thousands of stocks. • Freedom to trade anywhere in the world with the only requirements being a laptop and internet connection. • Commission-free trading with many retail market-makers and overall lower transaction costs than stocks and commodities. • Volatility allows traders to profit in any market condition and provides for high-probability weekly trading opportunities. Also, there is no structural market bias like the long bias of the stock market, so traders have equal opportunity to profit in rising or falling markets. While the forex market is clearly a great market to trade, I would note to all beginners that trading carries both the potential for reward and risk. Many people come into the markets thinking only about the reward and ignoring the risks involved, this is the fastest way to lose all of your trading account money. If you want to get started trading the Fx market on the right track, it’s critical that you are aware of and accept the fact that you could lose on any given trade you take. Forex (FX) is the market in which currencies are traded. The forex market is the largest, most liquid market in the world, with average traded values that can be trillions of dollars per day. It includes all of the currencies in the world. Real-Time Forex Trading. BREAKING DOWN 'Forex - FX' There is no central marketplace for currency exchange; trade is conducted over the counter. The forex market is open 24 hours a day, five days a week, except for holidays, and currencies are traded worldwide.

The forex is the largest market in the world in terms of the total cash value traded, and any person, firm or country may participate in this market. The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX." The global foreign exchange market is the largest and the most liquid financial market in the world, with average daily volumes in the trillions of dollars. Forex transactions take place on either a spot or a forward basis. There is no centralized market for forex transactions, which are executed over the counter and around the clock. The largest foreign exchange markets are located in major financial centers like London, New York, Singapore, Tokyo, Frankfurt, Hong Kong and Sydney. Just How Large Is the Forex Market? The forex market is unique for several reasons, mainly because of its size. Trading volume is generally very large. As an example, trading in foreign exchange markets averaged $5.1 trillion per day in April 2016, according to the Bank for International Settlements, which is owned by 60 central banks, and is used to work in monetary and financial responsibility.

The world's largest trading centers can be found in London, New York, Singapore and Tokyo. How to Trade in the Forex Market. The market is open 24 hours a day, five days a week across major financial centers across the globe. This means that you can buy or sell currencies at any time during the day. The foreign exchange market isn't exactly a one-stop shop. There are a whole variety of different avenues that an investor can go through in order to execute forex trades. You can go through different dealers or through different financial centers, which use a host of electronic networks. From a historic standpoint, foreign exchange was once a concept for governments, large companies and hedge funds. But in today's world, trading currencies is as easy as a click of a mouse — accessibility is not an issue, which means anyone can do it. In fact, many investment firms offer the chance for individuals to open accounts and to trade currencies however and whenever they choose. When trading in the forex market, you're buying or selling the currency of a particular country. But there's no physical exchange of money from one party to another. That's what happens at a foreign exchange kiosk — think of a tourist visiting Times Square in New York City from Japan.

He may be converting his (physical) yen to actual U. S. dollar cash (and may be charged a commission fee to do so) so he can spend his money while he's traveling. But in the world of electronic markets, traders are usually taking a position in a specific currency, with the hope that there will be some upward movement and strength in the currency they're buying (or weakness if they're selling) so they can make a profit. A spot deal is for immediate delivery, which is defined as two business days for most currency pairs. The major exception is the purchase or sale of U. S. dollars vs. Canadian dollars, which is settled in one business day. The business day calculation excludes Saturdays, Sundays and legal holidays in either currency of the traded pair. During the Christmas and Easter season, some spot trades can take as long as six days to settle. Funds are exchanged on the settlement date, not the transaction date. The U. S. dollar is the most actively traded currency. The euro is the most actively traded counter currency, followed by the Japanese yen, British pound and Swiss franc. Market moves are driven by a combination of speculation, especially in the short term; economic strength and growth; and interest rate differentials. Forward Transactions. Any forex transaction that settles for a date later than spot is considered a "forward." The price is calculated by adjusting the spot rate to account for the difference in interest rates between the two currencies. The amount of the adjustment is called "forward points." The forward points reflect only the interest rate differential between two markets. They are not a forecast of how the spot market will trade at a date in the future.

A forward is a tailor-made contract: it can be for any amount of money and can settle on any date that's not a weekend or holiday. Transactions with maturities longer than a year are relatively unusual, but are possible. As in a spot transaction, funds are exchanged on the settlement date. A "future" is similar to a forward in that it's for a date longer than spot, and the price has the same basis. Unlike a forward, it's traded on an exchange, and can only be executed for specified amounts and dates. With a futures contract, the buyer pays a portion of the value of the contract up front. That value is marked-to-market daily, and the buyer either pays or receives money based on the change in value. Futures are most commonly used by speculators, and the contracts are usually closed out before maturity. Differences Between Forex and Other Markets.

There are some major differences between the forex and other markets: Fewer rules : This means investors aren't held to as strict standards or regulations as those in the stock, futures or options markets. There are no clearing houses and no central bodies that oversee the forex market. Fees and commissions : Since trades don't take place on a traditional exchange, you won't find the same fees or commissions that you would on another market. Full access : There's no cut-off as to when you can and cannot trade. Because the market is open 24 hours a day, you can trade at any time of day. Ease : Because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford. Foreign Exchange (Forex) Foreign Exchange (FOREX) refers to the foreign exchange market . It is the over-the-counter market in which the foreign currencies of the world are traded. It is considered the largest and most liquid market in the world. How it works (Example): Foreign Exchange has no centralized market . Instead, a foreign exchange market exists wherever the trade of two foreign currencies are taking place. It is open 24 hours a day, five days a week. This foreign exchange market exists to ease investment and trade. The primary trading centers are London, Paris, New York, Tokyo, Zurich, Frankfurt, Sydney, and Singapore. All levels of traders, from central banks to speculators, trade currencies with one another. Without this mechanism in place, foreign trade and investment would be impeded.

Since many currencies abound along with a few major players like the U. S. dollar, the British pound, and the euro, this apparatus provides a clearinghouse to trade those major currencies. InvestingAnswers is the only financial reference guide you’ll ever need. Our in-depth tools give millions of people across the globe highly detailed and thoroughly explained answers to their most important financial questions. We provide the most comprehensive and highest quality financial dictionary on the planet, plus thousands of articles, handy calculators, and answers to common financial questions -- all 100% free of charge. What is the 'Forex Market' The forex market is the market in which participants can buy, sell, exchange, and speculate on currencies. The forex market is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The currency market is considered to be the largest financial market with over $5 trillion in daily transactions, which is more than the futures and equity markets combined. Forex Options Trading. BREAKING DOWN 'Forex Market' The foreign exchange market is not dominated by a single market exchange, but a global network of computers and brokers from around the world. Forex brokers act as market makers as well, and may post bid and ask prices for a currency pair that differs from the most competitive bid in the market. The forex market is made up of two levels; the interbank market and the over-the-counter (OTC) market. The interbank market is where large banks trade currencies for purposes such as hedging, balance sheet adjustments, and on behalf of clients. The OTC market is where individuals trade through online platforms and brokers.

From Monday morning in Asia, to Friday afternoon in New York, the forex market is a 24-hour market, meaning it does not close overnight. This differs from markets such as equities, bonds, and commodities, which all close for a period of time, generally in the New York late afternoon. However, as with most things there are exceptions. Some emerging market currencies closing for a period of time during the trading day. The US dollar is by far the most traded currency, making up close to 85 percent of all trades. Second is the euro, which is part of 39 percent of all currency trades, and third is the Japanese yen at 19 percent. (Note: these figures do not total 100 percent because there are two sides to every FX transaction). According to the 2015 Euromoney survey, Citigroup and Deutsche Bank were the two biggest banks in the forex market, combining for more that 30 percent of the global market share. The price at which the market is prepared to sell a product. Prices are quoted two-way as BidAsk.

The Ask price is also known as the Offer. In FX trading, the Ask represents the price at which a trader can buy the base currency, shown to the left in a currency pair. For example, in the quote USDCHF 1.452732, the base currency is USD, and the Ask price is 1.4532, meaning you can buy one US dollar for 1.4532 Swiss francs. In CFD trading, the Ask also represents the price at which a trader can buy the product. For example, in the quote for UK OIL 111.13111.16, the product quoted is UK OIL and the Ask price is ?111.16 for one unit of the underlying market.* At best An instruction given to a dealer to buy or sell at the best rate that can be obtained at a specific time. At or better An instruction given to a dealer to buy or sell at a specific price or better. AUS 200 A term for the Australian Securities Exchange (ASX 200), which is an index of the top 200 companies (by market capitalization) listed on the Australian stock exchange. Aussie Refers to the AUDUSD (Australian DollarU. S. Dollar) pair. Also "Oz" or "Ozzie". A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar; the opening price, which is marked with a horizontal line to the left of the bar; and the closing price, which is marked with a horizontal line to the right of the bar. Barrier level A certain price of great importance included in the structure of a Barrier Option. If a Barrier Level price is reached, the terms of a specific Barrier Option call for a series of events to occur. Barrier option Any number of different option structures (such as knock-in, knock-out, no touch, double-no-touch-DNT) that attaches great importance to a specific price trading.

In a no-touch barrier, a large defined payout is awarded to the buyer of the option by the seller if the strike price is not 'touched' before expiry. This creates an incentive for the option seller to drive prices through the strike level and creates an incentive for the option buyer to defend the strike level. Base currency The first currency in a currency pair. It shows how much the base currency is worth as measured against the second currency. For example, if the USDCHF (U. S. DollarSwiss Franc) rate equals 1.6215, then one USD is worth CHF 1.6215. In the forex market, the US dollar is normally considered the base currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the euro and the Australian dollar. Base rate The lending rate of the central bank of a given country. Basing A chart pattern used in technical analysis that shows when demand and supply of a product are almost equal. It results in a narrow trading range and the merging of support and resistance levels. Basis point A unit of measurement used to describe the minimum change in the price of a product. BearishBear market Negative for price direction; favoring a declining market. For example, "We are bearish EURUSD" means that we think the euro will weaken against the dollar. Bears Traders who expect prices to decline and may be holding short positions. Bidask spread The difference between the bid and the ask (offer) price.

Bid price The price at which the market is prepared to buy a product. Prices are quoted two-way as BidAsk. In FX trading, the Bid represents the price at which a trader can sell the base currency, shown to the left in a currency pair. For example, in the quote USDCHF 1.452732, the base currency is USD, and the Bid price is 1.4527, meaning you can sell one US Dollar for 1.4527 Swiss francs. In CFD trading, the Bid also represents the price at which a trader can sell the product. For example, in the quote for UK OIL 111.13111.16, the Bid price is ?111.13 for one unit of the underlying market.* Big figure Refers to the first three digits of a currency quote, such as 117 USDJPY or 1.26 in EURUSD. If the price moves by 1.5 big figures, it has moved 150 pips. BIS The Bank for International Settlements located in Basel, Switzerland, is the central bank for central banks. The BIS frequently acts as the market intermediary between national central banks and the market.

The BIS has become increasingly active as central banks have increased their currency reserve management. When the BIS is reported to be buying or selling at a level, it is usually for a central bank and thus the amounts can be large. The BIS is used to avoid markets mistaking buying or selling interest for official government intervention. Black box The term used for systematic, model-based or technical traders. Blow off The upside equivalent of capitulation. When shorts throw in the towel and cover any remaining short positions. BOC Bank of Canada, the central bank of Canada. BOE Bank of England, the central bank of the UK. BOJ Bank of Japan, the central bank of Japan. Bollinger bands A tool used by technical analysts. A band plotted two standard deviations on either side of a simple moving average, which often indicates support and resistance levels. Bond A name for debt which is issued for a specified period of time. Book In a professional trading environment, a book is the summary of a trader's or desk's total positions. British Retail Consortium (BRC) shop price index A British measure of the rate of inflation at various surveyed retailers. This index only looks at price changes in goods purchased in retail outlets. Broker An individual or firm that acts as an intermediary, bringing buyers and sellers together for a fee or commission.

In contrast, a dealer commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. Buck Market slang for one million units of a dollar-based currency pair, or for the US dollar in general. BullishBull market Favoring a strengthening market and rising prices. For example, "We are bullish EURUSD” means that we think the euro will strengthen against the dollar. Bulls Traders who expect prices to rise and who may be holding long positions. Bundesbank Germany's central bank. Buy Taking a long position on a product. Buy dips Looking to buy 20-30-pippoint pullbacks in the course of an intra-day trend. One of approximately five times during the forex trading day when a large amount of currency must be bought or sold to fill a commercial customer’s orders.

Typically these times are associated with market volatility. The regular fixes are as follows (all times NY): 10:00am - WMHCO (World Market House Company) 11:00am - WMHCO (World Market House Company) - more important. Flat or flat reading Economic data readings matching the previous period's levels that are unchanged. Flatsquare Dealer jargon used to describe a position that has been completely reversed, e. g. you bought $500,000 and then sold $500,000, thereby creating a neutral (flat) position. Follow-through Fresh buying or selling interest after a directional break of a particular price level. The lack of follow-through usually indicates a directional move will not be sustained and may reverse. FOMC Federal Open Market Committee, the policy-setting committee of the US Federal Reserve. FOMC minutes Written record of FOMC policy-setting meetings are released three weeks following a meeting. The minutes provide more insight into the FOMC's deliberations and can generate significant market reactions. Foreign exchangeforexFX The simultaneous buying of one currency and selling of another. The global market for such transactions is referred to as the forex or FX market. Forward The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based on the interest rate differential between the two currencies involved. Forward points The pips added to or subtracted from the current exchange rate in order to calculate a forward price. FRA40 A name for the index of the top 40 companies (by market capitalization) listed on the French stock exchange. FRA40 is also known as CAC40.

FTSE 100 The name of the UK 100 index. Fundamental analysis The assessment of all information available on a tradable product to determine its future outlook and therefore predict where the price is heading. Often non-measurable and subjective assessments, as well as quantifiable measurements, are made in fundamental analysis. Funds Refers to hedge fund types active in the market. Also used as another term for the USDCAD (U. S. DollarCanadian Dollar) pair. Future An agreement between two parties to execute a transaction at a specified time in the future when the price is agreed in the present. Futures contract An obligation to exchange a good or instrument at a set price and specified quantity grade at a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange - Traded Contacts - ETC), versus Forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange. Illiquid Little volume being traded in the market; a lack of liquidity often creates choppy market conditions.

IMM International Monetary Market, the Chicago-based currency futures market, that is part of the Chicago Mercantile Exchange. IMM futures A traditional futures contract based on major currencies against the US dollar. IMM futures are traded on the floor of the Chicago Mercantile Exchange. IMM session 8:00am - 3:00pm New York. INDU Abbreviation for the Dow Jones Industrial Average. Industrial production Measures the total value of output produced by manufacturers, mines and utilities. This data tends to react quickly to the expansions and contractions of the business cycle and can act as a leading indicator of employment and personal income data. Inflation An economic condition whereby prices for consumer goods rise, eroding purchasing power. Initial margin requirement The initial deposit of collateral required to enter into a position. Interbank rates The foreign exchange rates which large international banks quote to each other.

Interest Adjustments in cash to reflect the effect of owing or receiving the notional amount of equity of a CFD position. Intervention Action by a central bank to affect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates. Introducing broker A person or corporate entity which introduces accounts to a broker in return for a fee. INX Symbol for S&P 500 index. IPO A private company’s initial offer of stock to the public. Short for initial public offering. ISM manufacturing index An index that assesses the state of the US manufacturing sector by surveying executives on expectations for future production, new orders, inventories, employment and deliveries. Values over 50 generally indicate an expansion, while values below 50 indicate contraction. ISM non-manufacturing An index that surveys service sector firms for their outlook, representing the other 80% of the US economy not covered by the ISM Manufacturing Report. Values over 50 generally indicate an expansion, while values below 50 indicate contraction.

In CFD trading, the Ask represents the price a trader can buy the product. For example, in the quote for UK OIL 111.13111.16, the product quoted is UK OIL and the ask price is ?111.16 for one unit of the underlying market.* Offered If a market is said to be trading offered, it means a pair is attracting heavy selling interest, or offers. Offsetting transaction A trade that cancels or offsets some or all of the market risk of an open position. On top Attempting to sell at the current market order price. One cancels the other order (OCO) A designation for two orders whereby if one part of the two orders is executed, then the other is automatically cancelled. One touch An option that pays a fixed amount to the holder if the market touches the predetermined Barrier Level. Open order An order that will be executed when a market moves to its designated price. Normally associated with good 'til cancelled orders. Open position An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal. Option A derivative which gives the right, but not the obligation, to buy or sell a product at a specific price before a specified date. Order An instruction to execute a trade.

Order book A system used to show market depth of traders willing to buy and sell at prices beyond the best available. Over the counter (OTC) Used to describe any transaction that is not conducted via an exchange. Overnight position A trade that remains open until the next business day. A rollover is the simultaneous closing of an open position for today's value date and the opening of the same position for the next day's value date at a price reflecting the interest rate differential between the two currencies. In the spot forex market, trades must be settled in two business days. For example, if a trader sells 100,000 Euros on Tuesday, then the trader must deliver 100,000 Euros on Thursday, unless the position is rolled over. As a service to customers, all open forex positions at the end of the day (5:00 PM New York time) are automatically rolled over to the next settlement date. The rollover adjustment is simply the accounting of the cost-of-carry on a day-to-day basis. Learn more about FOREX. com's rollover policy. Round trip A trade that has been opened and subsequently closed by an equal and opposite deal. Running profitloss An indicator of the status of your open positions; that is, unrealized money that you would gain or lose should you close all your open positions at that point in time. RUT Symbol for Russell 2000 index. The time remaining until a contract expires. Tokyo session 09:00 – 18:00 (Tokyo). Tomorrow next (tomnext) Simultaneous buying and selling of a currency for delivery the following day. TP Stands for “take profit.

” Refers to limit orders that look to sell above the level that was bought, or buy back below the level that was sold. Trade balance Measures the difference in value between imported and exported goods and services. Nations with trade surpluses (exports greater than imports), such as Japan, tend to see their currencies appreciate, while countries with trade deficits (imports greater than exports), such as the US, tend to see their currencies weaken. Trade size The number of units of product in a contract or lot. Trading bid A pair is acting strong andor moving higher; bids keep entering the market and pushing prices up. Trading halt A postponement to trading that is not a suspension from trading. Trading heavy A market that feels like it wants to move lower, usually associated with an offered market that will not rally despite buying attempts. Trading offered A pair is acting weak andor moving lower, and offers to sell keep coming into the market. Trading range The range between the highest and lowest price of a stock usually expressed with reference to a period of time. For example: 52-week trading range. Trailing stop A trailing stop allows a trade to continue to gain in value when the market price moves in a favorable direction, but automatically closes the trade if the market price suddenly moves in an unfavorable direction by a specified distance. Placing contingent orders may not necessarily limit your losses. Transaction cost The cost of buying or selling a financial product.

Transaction date The date on which a trade occurs. Trend Price movement that produces a net change in value. An uptrend is identified by higher highs and higher lows. A downtrend is identified by lower highs and lower lows. Turnover The total money value or volume of all executed transactions in a given time period. Two-way price When both a bid and offer rate is quoted for a forex transaction. TYO10 Symbol for CBOE 10-Year Treasury Yield Index. Foreign Exchange Market: Meaning, Functions and Kinds. Foreign Exchange Market: Meaning, Functions and Kinds! Meaning: Foreign exchange market is the market in which foreign currencies are bought and sold. The buyers and sellers include individuals, firms, foreign exchange brokers, commercial banks and the central bank. Like any other market, foreign exchange market is a system, not a place.

The transactions in this market are not confined to only one or few foreign currencies. In fact, there are a large number of foreign currencies which are traded, converted and exchanged in the foreign exchange market. Functions of Foreign Exchange Market : Foreign exchange market performs the following three functions: It transfers purchasing power between the countries involved in the transaction. This function is performed through credit instruments like bills of foreign exchange, bank drafts and telephonic transfers. It provides credit for foreign trade. Bills of exchange, with maturity period of three months, are generally used for international payments. Credit is required for this period in order to enable the importer to take possession of goods, sell them and obtain money to pay off the bill. When exporters and importers enter into an agreement to sell and buy goods on some future date at the current prices and exchange rate, it is called hedging. The purpose of hedging is to avoid losses that might be caused due to exchange rate variations in the future.

Kinds of Foreign Exchange Markets : Foreign exchange markets are classified on the basis of whether the foreign exchange transactions are spot or forward accordingly, there are two kinds of foreign exchange markets: (ii) Forward Market. Spot market refers to the market in which the receipts and payments are made immediately. Generally, a time of two business days is permitted to settle the transaction. Spot market is of daily nature and deals only in spot transactions of foreign exchange (not in future transactions). The rate of exchange, which prevails in the spot market, is termed as spot exchange rate or current rate of exchange. The term ‘spot transaction’ is a bit misleading. In fact, spot transaction should mean a transaction, which is carried out ‘on the spot’ (i. e., immediately). However, a two day margin is allowed as it takes two days for payments made through cheques to be cleared. (ii) Forward Market: Forward market refers to the market in which sale and purchase of foreign currency is settled on a specified future date at a rate agreed upon today. The exchange rate quoted in forward transactions is known as the forward exchange rate. Generally, most of the international transactions are signed on one date and completed on a later date. Forward exchange rate becomes useful for both the parties involved in the transaction. Forward Contract is made for two reasons: (a) To minimize the risk of loss due to adverse changes in the exchange rate (through hedging); Foreign Exchange Market. Foreign exchange (FOREX). Any type of financial instrument that is used to make payments between countries is considered foreign exchange.

The list of instruments includes electronic transactions, paper currency, checks, and signed, written orders called bills of exchange. Large-scale currency trading, with minimums of $1 million, is also considered foreign exchange and can be handled as spot price transactions, forward contract transactions, or swap contracts. Spot transactions close at the market price within two days, and the others are set to close at an agreed-upon price and an agreed-upon date in the future. Want to thank TFD for its existence? Tell a friend about us, add a link to this page, or visit the webmaster's page for free fun content. What Does a Spread Tell Traders? Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to Walker England. You can manage you subscriptions by following the link in the footer of each email you will receive.

An error occurred submitting your form. Please try again later. Trading Cost Talking Points. Spreads are based off the Buy and Sell price of a currency pair. Costs are based off of spreads and lot size. Spreads are variable and should be referenced from your trading software. Every market has a spread and so does Forex. It is imperative that new Forex traders become familiar with spreads as this is the primary cost of trading between currencies . T oday we will review the basics of reading a spread and what the spread tells us in regards to the costs of our transaction. Every market has a spread and so does Forex . A spread is simply defined as the price difference between where a trader may purchase or sell an underlying asset. Traders that are familiar with equities will synonymously call this the Bid: Ask spread. Below we can see an example of the spread being calculated for the EURUSD.

First we will find the buy price at 1.35640 and then subtract the sell price of 1.35626. What we are left with after this process is a reading of .00014. Traders should remember that the pip value is then identified on the EURUSD as the 4 th digit after the decimal, making the final spread calculated as 1.4 pips. Now we know how to calculate the spread in pips, let’s look at the actual cost incurred by traders. Spreads Costs and Calculations. Since the spread is just a number, we now need to know how to relate the spread into Dollars and Cents. The good news is if you can find the spread, finding this figure is very mathematically straight forward once you have identified pip cost and the number of lots you are trading. Using the quotes above, we know we can currently buy the EURUSD at 1.3564 and close the transaction at a sell price of 1.35474.That means as soon as our trade is open, a trader would incur 1.4 pips of spread.

To find the total cost, we will now need to multiply this value by pip cost while considering the total amount of lots traded. When trading a 10k EURUSD lot with a $1 pip cost, you would incur a total cost of $1.40 on this transaction. Remember, pip cost is exponential. This means you will need to multiply this value based off of the number of lots you are trading. As the size of your positions increase, so will the cost incurred from the spread. Changes in the Spread. It is important to remember that spreads are variable meaning they will not always remain the same and will change sporadically. These changes are based off of liquidity, which may differ based off of market conditions and upcoming economic data . To reference current spread rates, always reference your trading platform.

We expanded more about this topic on page 9 of our free New to Forex Guide. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Forex trading definition. Forex trading has a particular significance in relation to IG's platform. Here, we define forex trading in general investing and explain what it means to you when trading with IG. Forex trading is the act of taking part in the forex market in order to speculate and attempt to make a profit. It can also be known as FX trading, foreign exchange or currencies trading. Forex trading is always over-the-counter, or OTC. That means that it is decentralised, and doesn’t take place via exchanges. Instead, forex trades are taken care of electronically by a global network of banks, and are available 24 hours. Trading forex means buying one currency while simultaneously selling another currency. For this reason, forex quotes are always given in the form of currency pairs made up of the quote currency (the currency being sold) and the base currency (which is being bought). Major currency pairs include EURUSD, USDJPY and GBPUSD. Currency movements are measured in pips (points), usually meaning a one-digit move in the fourth decimal place of a currency, or 0.0001.

Currencies that have low values, like the Yen, are an exception to this where the second decimal represents a one-point move. As currencies change in price, forex traders hope to make profit. The price movements in currencies are governed by a wide variety of factors, but tend to reflect the state of their countries’ economy. With IG. We offer forex derivatives trading via spread betting and CFD trading. Both enable you to speculate on the forex market without FX trading via a broker or a bank. Our forex DMA allows you to get prices directly from major banks and currency providers, so you can trade over the counter with pricing from a number of sources. Visit our forex trading section. Get answers about your account or our services. Or ask about opening an account on 0800 195 3100 or newaccounts. [email protected] com. We're here 24hrs a day from 8am Saturday to 10pm Friday. Follow us online: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit.

All trading involves risk. The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results. CFD, share dealing and stocks and shares ISA accounts provided by IG Markets Ltd, spread betting provided by IG Index Ltd. IG is a trading name of IG Markets Ltd (a company registered in England and Wales under number 04008957) and IG Index Ltd (a company registered in England and Wales under number 01190902). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. Both IG Markets Ltd (Register number 195355) and IG Index Ltd (Register number 114059) are authorised and regulated by the Financial Conduct Authority. The information on this site is not directed at residents of the United States, Belgium or any particular country outside the UK and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Leverage and Margin Explained. Let’s discuss leverage and margin and the difference between the two. We know we’ve tackled this before, but this topic is so important, we felt the need to discuss it again. The textbook definition of “leverage” is having the ability to control a large amount of money using none or very little of your own money and borrowing the rest. For example, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1. You’re now controlling $100,000 with $1,000 . Let’s say the $100,000 investment rises in value to $101,000 or $1,000. If you had to come up with the entire $100,000 capital yourself, your return would be a puny 1% ($1,000 gain $100,000 initial investment). This is also called 1:1 leverage. Of course, I think 1:1 leverage is a misnomer because if you have to come up with the entire amount you’re trying to control, where is the leverage in that? Fortunately, you’re not leveraged 1:1, you’re leveraged 100:1 . Now we want you to do a quick exercise. Calculate what your return would be if you lost $1,000. If you calculated it the same way we did, which is also called the correct way, you would have ended up with a -1% return using 1:1 leverage and a WTF! -100% return using 100:1 leverage.

As you can see, these cliches weren’t lying. So what about the term “margin”? Excellent question. Let’s go back to the earlier example: In forex, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1. You’re now controlling $100,000 with $1,000. The $1,000 deposit is “margin” you had to give in order to use leverage. Margin is the amount of money needed as a “good faith deposit” to open a position with your broker. It is used by your broker to maintain your position. Your broker basically takes your margin deposit and pools them with everyone else’s margin deposits, and uses this one “super margin deposit” to be able to place trades within the interbank network. Margin is usually expressed as a percentage of the full amount of the position . For example, most forex brokers say they require 2%, 1%, .5% or .25% margin. Based on the margin required by your broker, you can calculate the maximum leverage you can wield with your trading account. If your broker requires 2% margin, you have a leverage of 50:1. Here are the other popular leverage “flavors” most brokers offer:



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