Forex Knowledge Base 2017

FOREX TRADING – WHAT`S IT ALL ABOUT?

Trading on Forex market, as well as on others financial markets consists in exchanging on thing for the other when the rates are favorable. Simply speaking we buy cheap, sell expensive – and the other way round – we sell expensive in order to buy cheaper. In the Forex market it is possible to trade from both directions, the long side i.e. buying and also from the short side i.e. selling.

Let’s take into account EUR/USD currency pair. If we think that the rate of this pair is going to fall we would then ‘sell’ it, so we open what is called a short position. We would have a short EUR/USD position and if the exchange rate goes lower then we would have a profitable position.

If we think that the rate of this pair is going to go up, then we ‘buy’ currency pair EUR/USD. So this time it means that we have a long position in EUR/USD and profit from a rising exchange rate

FOREX – GLOSSARY

Bar Chart – 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 little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.

Broker – An agent who handles investors’ orders to buy and sell currency. For this service, a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated. On Forex a broker is a company which render accessible to trade platform i.e. Gain Capital.

Candlestick Chart – A chart that indicates the trading range  for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded.

Chart – The graphic representation of changing price.

Close – The last price (from the last minute, hour, day).

Closed Position – The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will ‘square’ the position.

Demo – On Forex the term means the trading account connected to the platform, that enables you to make transactions but only on virtual money. It was made to give people free practice.

Forward – A deal that will commence at an agreed date in the future.

Hedging – A hedging transaction is a purchase or sale of a financial product, having as its purpose the elimination of loss arising from price fluctuations. With regards to currency transactions it would protect one against fluctuations in the foreign exchange rate.

High/Low – Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.

Leverage – The use of borrowed funds at a fixed rate of interest in an effort to boost the rate of return from an investment. Increased leverage causes the risk and return on an investment to also increase.

Limit Order – An order to buy at or below a specified price or to sell at or above a specified price.

Lot – For general equities, this refers to a block or a portion of a trade (a unit of trading). In the context of the futures market, this is another name for a contract. For real estate, this refers to a parcel or tract of land having set boundaries.

Open Position – Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.

Order – An instruction to execute a trade at a specified rate.

Pip (or Points) – The term used in currency market to represent the smallest incremental move an exchange rate can make.

Platform – Software enabling trading on Forex market. It is a interface, thanks to it via the internet we can make transactions.

Position – An investor’s commitment in a security or market. To take a long position in a stock, you buy shares. To take a short position, you sell shares. Price – temporary rate level that is divided into ‘sell’ price and ‘buy’ price.

Rate of exchange – The amount of currency of one nation that may be purchased on a specific date with a specified amount of the currency of another nation.

Spot – A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.

Spread – The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.

Stop Loss Order – An order to buy or sell at the market when a particular price is reached, either above or below the price that prevailed when the order was given.

Trend – simply the direction of the market, usually broken down to three categories: major, intermediate and short-term trends. Three directions are also associated with a trend; that is, up trend, downtrend, and a sideways trend.

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