Forex for a trader
Forex brokerage meaning

Forex brokerage meaningforeign exchange market. Foreign exchange market. Foreign Exchange Market. foreign exchange market. The foreign exchange market by its very nature is multinational in scope. The leading centres for foreign exchange dealings are London, New York and Tokyo. Foreign currencies can be transacted on a ‘spot'basis for immediate delivery (see SPOT MARKET), or can be bought and sold for future delivery (see FORWARD MARKET). Some two-thirds of London's foreign exchange dealings in 2000 were spot transactions. The foreign exchange market may be left unregulated by governments, with EXCHANGE RATES between currencies being determined by the free interplay of the forces of demand and supply (see FLOATING EXCHANGE RATE SYSTEM), or they may be subjected to support buying and selling by countries' central banks in order to fix them at particular rates (see FIXED EXCHANGE RATE SYSTEM). foreign exchange market. The foreign exchange market, by its very nature, is multinational in scope. The leading centres for foreign exchange dealings are London, New York and Tokyo.

Foreign currencies can be transacted on a ‘spot’ basis for immediate delivery (see SPOT MARKET) or can be bought and sold for future delivery (see FUTURES MARKET). Some two-thirds of London's foreign exchange dealings in 2004 were spot transactions. The foreign exchange market may be left unregulated by governments, with EXCHANGE RATES between currencies being determined by the free interplay of the forces of demand and supply (see FLOATING EXCHANGE RATE SYSTEM), or they may be subjected to support-buying and selling by countries’ CENTRAL BANKS in order to fix them at particular rates. See FIXED EXCHANGE RATE SYSTEM, TOBIN TAX. 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. 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: 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. Part 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. DEFINITION of 'Forex Broker' Forex brokers are firms that provide currency traders with access to a trading platform that allows them to buy and sell foreign currencies. A currency trading broker, also known as a retail forex broker, or forex broker, handles a very small portion of the volume of the overall foreign exchange market. Currency traders use these brokers to access the 24-hour currency market. Online Currency Exchange. BREAKING DOWN 'Forex Broker' Forex brokers are compensated two ways; firstly through the bid-ask spread of a currency pair. For example, a retail forex broker may buy euros for 1.2010 U. S. dollars and, at the same time, sell euros for 1.2015 U. S. dollars. The spread, in this case, is $0.0010, or 10 pips. Secondly, brokers will often charge a fee per transaction. However, competition in the forex broker has increased in the last five years, which has seen many offer free or very small transaction costs. Forex brokers will allow customers to trade all major currency pairs; EURUSD, GBPUSD, USDJPY, and USDCHF as well as the remaining g10 currencies and all the cross rates. Additionally, most brokers will allow customers to trade emerging market currencies.

(Further reading: What are the most common currency pairs traded in the forex market? ) Before trading, a forex broker will require customers to deposit money into their account as collateral. However, through leverage, customers can trade larger amounts than what is deposited in their account. It is valuable to do some research to find out whether a broker has an excellent reputation and has the functionality that you are looking for in a broker. Most major forex brokers will allow prospective clients to use a practice account so that they can get a good understanding of what the system is like. It is a wise idea to test out as many platforms as possible before deciding on which broker to use. Furthermore, because the forex market is a 24-hour market, most quality forex brokers will provide 24-hour customer service. (Further reading: 5 Tips For Selecting A Forex Broker ) foreign exchange market. Foreign exchange market. Foreign Exchange Market.

foreign exchange market. The foreign exchange market by its very nature is multinational in scope. The leading centres for foreign exchange dealings are London, New York and Tokyo. Foreign currencies can be transacted on a ‘spot'basis for immediate delivery (see SPOT MARKET), or can be bought and sold for future delivery (see FORWARD MARKET). Some two-thirds of London's foreign exchange dealings in 2000 were spot transactions. The foreign exchange market may be left unregulated by governments, with EXCHANGE RATES between currencies being determined by the free interplay of the forces of demand and supply (see FLOATING EXCHANGE RATE SYSTEM), or they may be subjected to support buying and selling by countries' central banks in order to fix them at particular rates (see FIXED EXCHANGE RATE SYSTEM). foreign exchange market. The foreign exchange market, by its very nature, is multinational in scope. The leading centres for foreign exchange dealings are London, New York and Tokyo. Foreign currencies can be transacted on a ‘spot’ basis for immediate delivery (see SPOT MARKET) or can be bought and sold for future delivery (see FUTURES MARKET).

Some two-thirds of London's foreign exchange dealings in 2004 were spot transactions. The foreign exchange market may be left unregulated by governments, with EXCHANGE RATES between currencies being determined by the free interplay of the forces of demand and supply (see FLOATING EXCHANGE RATE SYSTEM), or they may be subjected to support-buying and selling by countries’ CENTRAL BANKS in order to fix them at particular rates. See FIXED EXCHANGE RATE SYSTEM, TOBIN TAX. 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. 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. 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. Leverage, Margin, Balance, Equity, Free Margin, Margin Call And Stop Out Level In Forex Trading. I always see that so many traders who trade forex, don’t know what margin, leverage, balance, equity, free margin and margin level are. As a result, they don’t know how to calculate the size of their positions. Indeed, they have to calculate the position size according to the the risk and the stop loss size. Margin and leverage are two important terms that are usually hard for the forex traders to understand. It is very important to understand the meaning and the importance of margin, the way it has to be calculated, and the role of leverage in margin.

In order to understand what margin is in Forex trading, first we have to know the leverage. “Leverage” is a feature offered by the brokers. It is like an special offer indeed. It helps the traders to trade the larger amounts of securities through having a smaller account balance. For example, when your account leverage is 100:1, you can buy $100 by paying $1. Therefore, to buy $100,000 (one lot), you should pay only $1000. This was just an example to understand what leverage means. I know that nobody pays US dollar to buy US dollar ?? A small exercise: How much do you have to pay to buy 10 lots USD through an account that its leverage is 50:1? You have to pay $20,000 to buy 10 lots or $1,000,000 USD: $1,000,000 50 = $20,000. Leverage was so easy to understand, right? I had to explain it first, to become able to talk about the other term which is margin. What Is the Required Margin? Margin is calculated based on the leverage. But to understand the margin, let’s forget about the leverage for now and assume that your account is not leveraged or its leverage is 1:1 indeed. “Required Margin” is the amount of the money that gets involved in a position or trade as collateral.

Let’s say you have a $10,000 account and you want to buy €1,000 against USD. How much US dollars do you have to pay to buy €1,000? Let’s assume that the EURUSD rate is 1.4314. It means each Euro equals $1.4314. Therefore, to buy €1,000, you have to pay $1,431.40: €1,000 = 1000 x $1.4314. If you take a 1000 EURUSD long position (you buy €1000 against USD), $1,431.4 from your $10,000 account has to be locked in this position as collateral. When you set the volume to 0.01 lot (1000 unit) and then you click on the buy button, $1,431.4 from your account will be paid to buy 1000 Euro against USD. This “locked money” which is $1,431.4 in this example, is called Required Margin. – If You Close Your Position. Now, if you close your EURUSD position, this $1,431.4 will be released and will be back to your account balance. Now let’s assume that your account has a 100:1 leverage. To buy 1000 Euro against USD, you have to pay 1100 or 0.01 of the money that you had to pay when your account was not leveraged. Therefore, to buy 1000 Euro against USD, you have to pay $14.31: $1,431.4 100 = $14.31. Now, please tell me that if you take a one lot EURUSD position with an account with the leverage of 100:1, how much margin will be locked in this trade? One lot EURUSD = 100,000 Euro against USD EURUSD rate: 1.4314 100,000 x 1.4314 = 143,140.00 Therefore: One lot EUR =$143,140.00. Margin = $143,140.00 100 = $1,431.40. Therefore, to have a one lot EURUSD position with a 100:1 account, a $1,431.40 margin is needed, while the EURUSD rate is 1.4314.

This needed $1,431.40 margin is called “required margin”. You can use the below margin calculator to calculate the required margin in your trades: What Is the Account Balance? When you have no open positions, your account balance is the amount of the money you have in your account. For example, when you have a $5000 account and you have no open positions, your account balance is $5000. Equity is your account balance plus the floating profitloss of your open positions: Equity = Balance + Floating ProfitLoss. When you have no open position, and so no floating profitloss, then your account equity and balance are the same. When you have some open positions and for example they are $1,500 in profit in total, then your account equity is your account balance plus $1,500. If your positions is $1,500 in loss, then your account equity would be your account balance minus $1,500. What Is the Free Margin? Free margin is the difference of your account equity and the open positions’ required margin: Free Margin = Equity – Required Margin. When you have no positions, no money from your account is used as the required margin. Therefore, all the money you have in your account is free. As long as you have no positions, your account equity and free margin are the same as your account balance. Let’s say you have a $10,000 account and you have some open positions with the total required margin of $900 and your positions are $400 in profit.

Equity = $10,000 + $400 = $10,400. Free Margin = $10,400 – $900 = $9,500. What Is the Margin Level? Margin level is the ratio of the equity to the margin: (Equity Margin) x 100. Margin level is very important. Brokers use it to determine whether the traders can take any new positions when they already have some positions. Different brokers have different limits for the margin level, but this limit is usually 100% with most of the brokers. This limit is called Margin Call Level . What Is the Margin Call Level? 100% margin call level means if your account margin level reaches 100%, you can still close your open positions, but you cannot take any new positions. Indeed, 100% margin call level happens when your account equity, equals the required margin: Equity = Required Margin => 100% Margin Call Level. It happens when you have losing position(s) and the market keeps on going against you. As a result, when your account equity equals the margin, you will not be able to take any new positions anymore.

Let’s say you have a $10,000 account and you have a losing position with a $1000 required margin. If your position goes against you and it goes to a -$9000 loss, then the equity will be $1000 ($10,000 – $9,000), which equals the required margin: Equity = $10,000 – $9,000 = $1000 = Required Margin. Therefore, the margin level will be 100%. If the margin level reaches 100%, you will not be able to take any new positions, unless the market turns around and your equity becomes greater than the required margin. But, what if the market keeps on going against you? If the market keeps on going against you, the broker will have to close your losing positions. Different brokers have different limits and policies for this too. This limit is called Stop Out Level . What Is the Stop out Level? For example, when the stop out level is set to 5% by a broker, the system starts closing your losing positions automatically if your margin level reaches 5%. It starts closing from the biggest losing position first. Usually, closing one losing position will take the margin level higher than 5%, because it will release the required margin of that position, and so, the total used margin will go lower and therefore the margin level will go higher. The broker’s system takes the margin level higher than 5% by closing the biggest losing position first. However, if your other losing positions keep on losing and the margin level reaches 5% again, the system will close another losing position. Why the broker closes your positions when the margin level reaches the Stop Out Level? The reason is that the broker cannot allow you to lose more than the money you have deposited in your account.

The market can keep on going against you forever and you lose all the money you have in your account and then get a negative balance if nobody closes your losing positions. If you don’t pay the negative balance, the broker has to pay it to the liquidity provider. As it is almost impossible to take the loss from the trader, brokers close the losing positions when the margin level reaches the Stop Out Level, to protect themselves. Cancelled By the Dealer: Imagine you have some open positions and some pending orders at the same time. Then the market reaches where one of your pending orders are placed while you have no enough free margin in your account. Therefore, the pending order will not be triggered or will become cancelled automatically. This is called “Cancelled by the Dealer”. The traders who don’t know what “cancelled by the dealer” is, will complain when they see that a pending order is cancelled or not triggered. They think that the broker had not been able to carry their orders, because their liquidity providers had no enough liquidity or because the broker is a bad one. But the the truth is that the pending orders could not be triggered or were cancelled because there was no enough free margin in the account. You have to have free money in your account to take a new position. When you don’t, you can’t take any new positions. There is a margin check that tests for what the MT4 account margin level will be after the trade is open. If the the MT4 account margin level is within the acceptable limits, it let’s the trade through. The threshold for measuring the post-trade margin ratio is set by the broker usually at 120%. It means that the bridge will calculate what the used margin will be in the MT4 account after the new trade opens. If the account equity is less than 120% of the post-trade used margin, the trade will fail margin check and will be automatically cancelled by the bridge MT4 dealer accounts.

Of course different brokers have different post-trade margin ratio settings, but it is usually 120%. What Do You Have to Calculate on Your Own? You don’t have to calculate any of the above parameters that I explained above, because the system calculates them automatically. However, you have to know what they are and what they mean. As I explained above, the only parameter that you have to calculate, is your position size that has to be calculated based on the stop loss size of the position you want to take, leverage, and the percentage of the risk you want to take in that position. How to Check Your Account Balance, Equity, Margin and Margin Level? You can see all of these parameters by checking the MT4 terminal. Open the MT4 and press Ctrl+T. The terminal will be opened and it shows your account balance, equity, margin, free margin and margin level. This is how the terminal looks when you have no open position: And this is how it looks when having an open position: This can be different in other platforms. Balance will change only when you close a position. The profitloss will be addeddeducted to the initial balance and the new balance will be displayed. Balance – Floating ProfitLoss = Equity $10,000 – $50 = $10,050. Margin = $2,859.52 (200,000 x 1.4300) 100 = $2,860.00. Equity – Margin = Free Margin $10,050 – $2,859.52 = $7,190.48. (Equity Margin) x 100 = Margin Level ($10,050 $2,859.52) x 100 = 351.46% I hope you are not confused. It is very easy to understand the above terms and parameters.

You may need to read the above explanations for a few times to completely digest the terms I explained. Briefly and in Very Simple Words: Is the bonus you receive from the broker to become able to trade large amounts with having a small amount of money in your account. When the leverage is 100:1, it means you can trade 100 times more than the money you have in your account. Or, you can trade 100 units with one unit of you account balance. Is the money that will be placed and locked in the positions that you take. For example, to buy $1000 with the leverage of 100:1, $10 from your account will be locked in the position ($1000 100 = $10). You can not use this $10 to take any other positions, as long as the position is still open. If you close the position, the $10 margin will be released. Is the total amount of the money you have in your account before taking any position. When you have an open position and its profitloss goes up and down as the market moves, your account balance is still the same as it was before taking the position. If you close the position, the profitloss of the position will be added to or deducted from your account balance, and the new account balance will be displayed. Equity is your account balance plus the floating profitloss of your open positions. For example when you have an open position which is $500 in profit while your account balance is $5000, then your account equity is $5,500. If you close this position, the $500 profit will be added to your account balance and so your account balance will become $5,500. If it was a losing position with -$500 loss, then while it was opened, your account equity would be $4,500 and if you close it, $500 will be deducted from your account balance and so your account balance will be $4,500. When you have no open positions, your account equity will be the same as your account balance.

Free margin is the money that is not engaged in any trade and you can use it to take more positions. You remember what the margin or required margin was, right? Free margin is the difference of the equity and the required margin. In the above example, your position margin is $10. Let’s say the equity is $1000. Therefore, your free margin will be $990 ($1000 – $10). If your open positions make money, the more they go to profit, the greater equity you will have, and so you will have more free margin. Margin level is the ratio (%) of equity to margin. For example, when the equity is $1000 and the margin is also $1000, margin level will be $1000 $1000 = 1 or in fact 100%. If the equity was $2000, then the margin level would be 200%. Is the level that if your margin level goes below, you will not be able to take any new positions. It is the broker who determines the Margin Call Level. When Margin Call Level setting is 100%, you will not be able to take any new positions if your margin level reaches 100%. While having losing positions, your margin level goes down and becomes close to the margin call level. When you have winning positions, your margin level goes up. Is the level that if your margin level goes below, the system starts closing your losing positions.

It closes the biggest losing position first. If this helps the margin level go above the stop out level, then it doesn’t close any more positions. Then if your other losing positions keep on losing and the margin level goes below the stop out level again, the system closes another losing position which is the biggest open losing position. Just before you go, did you check This System? Make sure to do it now, otherwise you will regret. Read related articles: + Click Here to learn who we are and why this site was created. + Click Here to receive our eBook for free. thanks to the writer. he made it so easy. I would just like to thank you. Good information to understand. Thanks.

Thank you very much. Nice explanation. Thanks for explaining in details and with examples. I was surching for some helpfull material to understand term. I found that this artical is very helpful and easy to understand for me. Thanks buddy. Thank you so much. That really helped me a lot. Thanks Dr Chris. Can you please tell me if I trade with $1000 then is 400:1 leverage suitable for it? If you calculate your risk and you do not take too much risk, yes. Tell me if the margin % percentage is 0.56% and the balance is 744.04 dollar is there a possibility of losing such a balancd. Can you please let me know how to calculate this for a account currency is Euro.

For example i have a Euro account and want to open a long position on GBPJPY. How can i calculate margin here ratio is 100:1. This is the best explanation I’ve come across so far. Thanks heaps! Really there is lot of information and have easy way to understand. I think this is best where is lot of knowledge and better site. thanks. I really am very thankful for this article. This made everything clearer to me now. Thanks much. I am currently trading with a broker who leverage 1:500, should I close my account? I also have tried to contact him many times but get no feedback, however I still receive daily reports from him. Lately he has lost a lot of trades which worries me. Your advice would be appreciated. I would close my account if I were you. What if I start a trade risking the whole account with balance equals equity equals margin right at the very beginning? So no free margin available.

Can new positionslots be added if the equity increases and thus free margin becomes greater zero? Hi Martin, The answer is yes. This is a suicidal strategy for an idiot: transactions are automatically hedged by Metatrader and other ‘brokers’ (crooks) to flatten your account and liquidate you. Don’t hope by placing a stoploss you can save such a position: the brokers all hunt stops regularly and liquidate accounts this way too. Anyway, like i said it is a suicidal and idiotic ‘strategy.’ The way the systems work (Metatrader especially) is to apply logical algos to retail accounts on a regular basis (not constantly…only when conditions are optimal) in order to rapidly hedge the account (flatten it so that the broker has absolutely no risk exposure) by applying equal opposite trades to the ones you place, automatically until the account is liquidated through ‘margin calls.’ The entire thing is automated and you are helplessly enmeshed once you place a single order: your account will not survive unless you use many combined strategies to prevent the liquidation UNTIL such time as a ‘news release’ (bomb attack; psyop; fake news release) IN YOUR FAVOR comes out and your equity ‘recovers’ above the margin requirement or beyond. But the crooks who rigged the system know that it can be MONTHS before such ‘news’ happens and, in the meantime, they are charging you interest on rollover and spread commission. And that is not to mention the false price spikes they cause to liquidate clients, stop hunting, and numerous other methods to steal your money, just like the lying Jews in the Temple, whom Jesus chased into the dirt. Your explanation is very helpful and really I did all the mistakes you warned about and right now I’m losing USD 25,000!! The situation right now, the buying position equal the selling position and my account is on Margin Call. I need your advise what I should do? And how can I keep my account alive? Your prompt advise is appreciated, cause I have one weak to act otherwise my account will be wiped out. Hi Fayeq. You mean you have hedged and you have taken a long and a short position of the same currency pair at the same time? How much is your total account balance?

How much is your losing and winning position each? Not Hedging, what happened the positions I had reached a losses nearly equal my balance, the system made new positions equal the opened ones which makes the Equity and free Margin almost zero instead of closing positions one by one as you said. Right now, the balance is USD 22,650 same as total losses. This is really strange, because how the system can take new positions while your losing position equals your account balance? There was no free margin in your account for taking any new position. I think you have nothing to lose now if you hold your positions. If you close, you will lose all you have in your balance. However, if you hold, then chances are the price turns around and you get out of this trap. If the price keeps on going against you, then you will lose no more than your balance which is already lost indeed. In spite of what I suggested, it is your own choice to close or hold your positions. Excellent! thank you. Very good and clear, Thanks.

after 2 yrs, I reopened my bookmark to read this article again and refresh my knoweledge. it’s the best one on entry google. what is the best margin call and stop out level that should i take to be a good trader? Margin call and stop out levels are broker side settings. You have no control on them. Thanks for tutorial. I’m studying for an exam and there is a question related with this topic where they ask me about margin coverage and I don’t know how to arrive to the correct answer, please find the question below, apparently the false one is “2.”. Can somebody tell me how to get the margin coverage with the information they give me? Thanks! Which of the following is false? 1. If the free margin is 293,701.2, the margin used is 7046, and the call level is 90, then the margin coverage is 4,258.3. 2. If the free margin is 375,365.4, the margin used is 8616, and the call level is 85, then the margin coverage is 9,441.6. 3. If the free margin is 548,598.5, the margin used is 2008, and the call level is 115, then the margin coverage is 27,435.6. 4. If the free margin is 782,244.6, the margin used is 1485, and the call level is 100, then the margin coverage is 52,776.4. Margin Coverage = Margin Level*100. 1. Free Margin = 293,701.20 ; Used Margin = 7046 ; Equity = Free Margin + Used Margin = 300,747.20 ; Margin Level = EquityUsed Margin = 42.68339483 %. Margin Coverage = 4268.3. 2. Free Margin = 375,365.40 ; Used Margin = 8616; Equity = 383,981.40 ; Margin Level = 44.56608635%. Margin Coverage = 4456.6. 3. Free Margin = 548,598.50 ; Used Margin = 2008; Equity = 550,606.50; Margin Level = 274.2064243 %. Margin Coverage = 27420.64. 4. Free Margin = 782,244.60 ; Used Margin = 1485 ; Equity = 783,729.60; Margin Level = 527.7640404; Margin Coverage = 52776.4. Your correct answer is #4. A little error in the text => Margin = $2,859.52 (200,000 x 1.4300) 100 = $2,860.00 => this is not accurate. The price is not the good one. 1.42976 (buy price) should have been taken (not the actual price: 1.43001) in the Margin calculation. (1.42976 x 200 000)100 = 2859.52 as shown in the Trade section of MT4. I’m new to yet I find your minute contributions which are usually published on this site to be extraordinary. I’m about to start demo trading.

All I have to say is thank you. Could you please explain what volume set to 0.01 lot (1000 unit) means when one is about to execute an order? I know there must be logic & probably a little arithmetic that govern it. One standard lot is 100,000 unit. So 0.01 lot means 1000 unit. The most lucid style of exp



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