Afraid of Losing in Forex? Read some insights!

Before we go any further we are going to be 100% honest with you and tell you the following before you consider trading currencies:

1. All forex traders, and we mean all traders LOSE money on trades.
   Ninety percent of traders lose money, largely due to lack of planning and training and having poor money management rules. Also, if you hate to lose or are a super perfectionist, you'll probably have a hard time adjusting to trading.
2. Trading forex is not for the unemployed, those on low incomes, or who can't afford to pay their electricity bill or afford to eat.
   You should have at least $10,000 of trading capital (in a mini account) that you can afford to lose. Don’t expect to start an account with a few hundred dollars and expect to become a kazillionaire.

The Forex market is one of the most popular markets for speculation, due to its enormous size, liquidity and tendency for currencies to move in strong trends. You would think traders all over the world would make a killing, but success has been limited to very small percentage of traders.

Many traders come with the misguided hope of making a gazillion bucks, but in reality, lack the discipline required for trading. Most people usually lack the discipline to stick to a diet or to go to the gym three times a week. If you can't even do that, how do you think you're going to succeed trading?

Short term trading IS NOT for amateurs, and it is rarely the path to “get rich quick”. You can't make gigantic profits without taking gigantic risks. A trading strategy that involves taking a massive degree of risk means suffering inconsistent trading performance and often suffering large loss. A trader who does this probably doesn’t even have a trading strategy - unless you call gambling a trading strategy!

Forex Trading is not a Get-Rich-Quick Scheme!

Forex trading is a SKILL that takes TIME to learn.

Skilled traders can and do make money in this field. However, like any other occupation or career, success doesn’t just happen overnight.

Forex trading isn’t a piece of cake (as some people would like you to believe). Think about it, if it was, everyone trading would already be millionaires. The truth is that even expert traders with years of experience still encounter periodic losses.

Drill this in your head: there are NO shortcuts to Forex trading. It takes lots and lots of TIME to master.

There is no substitute for hard work and diligence. Practice trading on a DEMO ACCOUNT and pretend the virtual money is your own real money.

Do NOT open a live trading account until you are trading PROFITABLY on a demo account.

If you can't wait until you're profitable on a demo account, at least demo trade for 2 months. Hey, at least you were able to hold off losing all your money for two months right? If you can't hold out for 2 months, cut your hands off.

Concentrate on ONE major currency pair.

It gets far too complicated to keep tabs on more than one currency pair when you first start trading. Stick with one of the majors because they are the most liquid which makes their spreads cheap.

You can be a winner at currency trading, but as in all other aspects of life, it will take hard work, dedication, a little luck, a lot of common sense, and a whole lot of good judgment.

Forex vs Stocks

Forex versus Stocks Advantages
Advantage	Forex	Stocks
24-hour Trading	YES	NO
Commission Free Trading	YES	NO
Instant Execution of Market Orders	YES	NO
Short-Selling without an Uptick	YES	NO

24-Hour Market

The Forex market is a seamless 24-hour market. Most brokers are open from Sunday at 2PM EST until Friday at 4 PM EST with customer service available 24/7. With the ability to trade during the U.S., Asian, and European market hours, you can customize your own trading schedule.

Commission Free Trading

Most Forex brokers charge no commission or additional transactions fees to trade currencies online or over the phone. Combined with the tight, consistent, and fully transparent spread, Forex trading costs are lower than those of any other market. The brokers are compensated for theirs services through the bid/ask prices.

Instantaneous Execution of Market Orders

Your trades are instantly executed under normal market conditions. You also have price certainty on every market order under normal market conditions. What you click is the price you get. You’re able to execute directly off real-time streaming prices (Yeeeaah!). There's no discrepancy between the displayed price shown on the platform and the execution price to enter your trade. Keep in mind that most brokers only guarantee stop, limit, and entry orders are only guaranteed under normal market conditions. Fills are instantaneous most of the time, but under extraordinarily volatile market conditions order execution may experience delays.

Short-Selling without an Uptick

Unlike the equity market, there is no restriction on short selling in the currency market. Trading opportunities exist in the currency market regardless of whether a trader is long or short, or which way the market is moving. Since currency trading always involves buying one currency and selling another, there is no structural bias to the market. So you always have equal access to trade in a rising or falling market.

Like Forex? Check the reasons !

Reasons to Like Forex

No Middlemen

Centralized exchanges provide many advantages to the trader. However, one of the problems with any centralized exchange is the involvement of middlemen. Any party located in between the trader and the buyer or seller of the security or instrument traded will cost them money. The cost can be either in time or in fees. Spot currency trading does away with the middlemen and allows clients to interact directly with the market-maker responsible for the pricing on a particular currency pair. Forex traders get quicker access and cheaper costs.

Buy/Sell programs do not control the market

How many times have you heard that "fund A" was selling "X" or buying "Z"? Rumor had it that the funds were taking profits because of the end of the financial year or because today is "triple witching day", all as an explanation of why this stock is up or the market in general is down or positive on the session. The stock market is very susceptible to large fund buying and selling.

In spot trading, the liquidity of the Forex market makes the likelihood of any one fund or bank to control a particular currency very slim. Banks, hedge funds, governments, retail currency conversion houses and large net-worth individuals are just some of the participants in the spot currency markets where the liquidity is unprecedented.

Analysts and brokerage firms are less likely to influence the market

Have you watched TV lately? Heard about a certain Internet stock and an analyst of a prestigious brokerage firm accused of keeping its recommendations, such as "buy" when the stock was rapidly declining? It is the nature of these relationships. No matter what the government does to step in and discourage this type of activity, we have not heard the last of it.

IPO's are big business for both the companies going public and the brokerage houses. Relationships are mutually beneficial and analysts work for the brokerage houses that need the companies as clients. That catch-22 will never disappear.

Foreign exchange, as the prime market, generates billions in revenue for the world's banks and is a necessity of the global markets. Analysts in foreign exchange don't drive the deal flow, they just analyze the forex market.

Selecting Forex Broker

Before trading Forex you need to set up an account with a Forex broker. So what exactly is a broker? In simplest terms, a broker is an individual or a company that buys and sells orders according to the trader's decisions. Brokers earn money by charging a commission or a fee for their services.

You may feel overwhelmed by the number of brokers who offer their services online. Deciding on a broker requires a little bit of research on your part, but the time spent will give you insight into the services that are available and fees charged by various brokers.

Is the Forex broker regulated?

When selecting a prospective Forex broker, find out with which regulatory agencies it is registered with. The Forex market is labeled as an “unregulated” market, and it basically is. Regulation is typically reactive, meaning only after you’ve been bamboozled out of your entire savings will something be done.

In the United States a broker should be registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CFTC) and a NFA member. The CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices.

You can verify Commodity Futures Trading Commission (CFTC) registration and NFA membership status on this Web site at www.nfa.futures.org/basicnet/.

They’ve also developed a Forex Online Learning Program, an interactive self-directed program explaining how retail forex contracts are traded, the risks inherent in forex trading and steps individuals should take before opening a forex account. Both the brochure and the online learning program are available at no charge to the public.

Order Types

Basic Order Types

There are some basic order types that all brokers provide and some others that sound weird. The basic ones are:

• Market order
  A market order is an order to buy or sell at the current market price. For example, EUR/USD is currently trading at 1.2140. If you wanted to buy at this exact price, you would click buy and your trading platform would instantly execute a buy order at that exact price. If you ever shop on Amazon.com, it's (kinda) like using their 1-Click ordering. You like the current price, you click once and it's yours! The only difference is you are buying or selling one currency against another currency instead of buying Britney Spears CDs.
• Limit order
  A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. For example, EUR/USD is currently trading at 1.2050. You want to go long if the price reaches 1.2070. You can either sit in front of your monitor and wait for it to hit 1.2070 (at which point you would click a buy market order), or you can set a buy limit order at 1.2070 (then you could walk away from your computer to attend your ballroom dancing class). If the price goes up to 1.2070, your trading platform will automatically execute a buy order at that exact price. You specify the price at which you wish to buy/sell a certain currency pair and also specify how long you want the order to remain active (GTC or GFD).
• Stop-loss order
  A stop-loss order is a limit order linked to an open trade for the purpose of preventing additional losses if price goes against you. A stop-loss order remains in effect until the position is liquidated or you cancel the stop-loss order. For example, you went long (buy) EUR/USD at 1.2230. To limit your maximum loss, you set a stop-loss order at 1.2200. This means if you were dead wrong and EUR/USD drops to 1.2200 instead of moving up, your trading platform would automatically execute a sell order at 1.2200 and close out your position for a 30 pip loss (eww!). Stop-losses are extremely useful if you don't want to sit in front of your monitor all day worried that you will lose all your money. You can simply set a stop-loss order on any open positions so you won't miss your basket weaving class.

Weird Sounding Order Types

• GTC (Good ‘til canceled)
  A GTC order remains active in the market until you decide to cancel it. Your broker will not cancel the order at any time. Therefore it's your responsibility to remember that you have the order scheduled.
• GFD (Good for the day)
  A GFD order remains active in the market until the end of the trading day. Because foreign exchange is a 24-hour market, this usually means 5pm EST since that that's U.S. markets close, but I’d recommend you double check with your broker.
• OCO (Order cancels other)
  An OCO order is a mixture of two limit and/or stop-loss orders. Two orders with price and duration variables are placed above and below the current price. When one of the orders is executed the other order is canceled. Example: The price of EUR/USD is 1.2040. You want to either buy at 1.2095 over the resistance level in anticipation of a breakout or initiate a selling position if the price falls below 1.1985. The understanding is that if 1.2095 is reached, you will buy order will be triggered and the 1.1985 sell order will be automatically canceled.

Always check with your broker for specific order information and to see if any rollover fees will be applied if a position is held longer than one day. Keeping your ordering rules simple is the best strategy.

Summary

The basic order types (market, stop loss, and limit) are usually all that most traders ever need. Unless you are a veteran trader (yeah right), don’t get fancy and design a system of trading requiring a large number of orders sandwiched in the market at all times – stick with the basic stuff first.

Make sure you fully understand and are comfortable with your broker’s order entry system before executing a trade.

DO NOT make a trade with real money until you have an extremely high comfort level with the trading platform and order entry system.

How do I calculate my profit and loss?

Let’s look at how you calculate your profit or loss.

Let’s buy US dollars and Sell Swiss Francs.

The rate you are quoted is 1.4525 / 1.4530. Because you are buying US you will be working on the 1.4530, the rate at which traders are prepared to sell.

So you buy 1 lot of $100,000 at 1.4530.

A few hours later, the price moves to 1.4550 and you decide to close your trade.

The new quote for USD/CHF is 1.4550 / 14555. Since you're closing your trade and you initially bought to enter the trade, you now sell in order to close the trade so you must take the 1.4550 price. The price traders are prepared to buy at.

The difference between 1.4530 and 1.4550 is .0020 or 20 pips.

Using our formula from before, we now have (.0001/1.4550) x $100,000 -= $6.87 per pip x 20 pips = $137.40

Remember, when you enter or exit a trade, you are subject to the spread in the bid/offer quote.

When you buy a currency you will use the offer price and when you sell you will use the bid price.

So when you buy a currency, you pay the spread as you enter the trade but not as you exit. And when you sell a currency you don't pay the spread when you enter but only when you exit.

What is PIP in forex?

The most common increment of currencies is the Pip.

If the EUR/USD moves from 1.2250 to 1.2251, that is ONE(1) PIP.
A pip is the last decimal place of a quotation. The Pip is how you measure your profit or loss.

As each currency has its own value, it is necessary to calculate the value of a pip for that particular currency. In currencies where the US Dollar is quoted first, the calculation would be as follows.

Let’s take USD/JPY rate at 119.80
*notice this currency pair only goes to two decimal places, most of the other currencies have four decimal places

In the case of USD/JPY, 1 pip would be .01

Therefore,

USD/JPY:

119.80
.01 divided by exchange rate = pip value
.01 / 119.80 = 0.0000834

This looks like a very long number but later we will discuss lot size.

USD/CHF:

1.5250
.0001 divided by exchange rate = pip value
.0001 / 1.5250 = 0.0000655

USD/CAD:

1.4890
.0001 divided by exchange rate = pip value
.0001 / 1.4890 = 0.00006715

In the case where the US Dollar is not quoted first and we want to get the US Dollar value, we have to add one more step.

EUR/USD:

1.2200

.0001 divided by exchange rate = pip value
so
.0001 / 1.2200 = EUR 0.00008196

but we need to get back to US dollars so we add another calculation which is

EUR x Exchange rate
So
0.00008196 x 1.2200 = 0.00009999

When rounded up it would be 0.0001

GBP/USD:

1.7975

.0001 divided by exchange rate = pip value
So

.0001 / 1.7975 = GBP 0.0000556

But we need to get back to US dollars so we add another calculation which is

GBP x Exchange rate

So
0.0000556 x 1.7975 = 0.0000998

When rounded up it would be 0.0001

You’re probably windering if you need to do this manually and the answer is NO. All forex brokers will work this out automatically and its just for you to know what's really going on.

What the heck is a Lot?

Spot Forex is traded in lots. The standard size for a lot is $100,000. There is also a mini lot size and that is $10,000. As you already know, currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments, you need to trade large amounts of a particular currency in order to see any significant profit or loss.

Let’s assume we will be using a $100,000 lot size. We will now recalculate some examples to see how it affects the pip value.

USD/JPY at an exchange rate of 119.90
(.01 / 119.80) x $100,000 = $8.34 per pip

USD/CHF at an exchange rate of 1.4555
(.0001 / 1.4555) x $100,000 = $6.87 per pip

In cases where the US Dollar is not quoted first, the formula is slightly different.

EUR/USD at an exchange rate of 1.1930
(.0001 / 1.1930) X EUR 100,000 = EUR 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip

GBP/USD at an exchange rate or 1.8040
(.0001 / 1.8040) x GBP 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.

Your broker may have a different convention for calculating pip value relative to lot size but whichever way they do it, they'll be able to tell you what the pip value is for the currency you are trading is at the particular time. As the market moves, so will the pip value depending on what currency you are currently trading.

New to Forex?

Come with me and lets learn together the basics of Forex. According to babypips.com that a successful trader is having the ability to do 3 things.

1. Make pips
2. Keep pips
3. Repeat

For Forex defination, click here or visit my old post about it.

What is traded on the Foreign Exchange?

The answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro dollar and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).

e.g.
(EUR/USD) - EUR is the base currency / USD - quotes

When Can Currencies Be Traded?

The spot FX market is unique within the world markets. It’s like a Super Wal-Mart where the market is open 24-hours a day. At any time, somewhere around the world a financial center is open for business, and banks and other institutions exchange currencies every hour of the day and night with generally only minor gaps on the weekend.

The foreign exchange markets follow the sun around the world, so you can trade late at night (if you’re a vampire) or in the morning (if you’re an early bird). Keep in mind though, the early bird doesn’t necessarily get the worm in this market - you might get the worm but a bigger, nastier bird of prey can sneak up and eat you too…

Time Zone	New York	GMT
Tokyo Open	7:00 pm	0:00
Tokyo Close	4:00 am	9:00
London Open	3:00 am	8:00
London Close	12:00 pm	17:00
New York Open	8:00 am	13:00
New York Close	5:00 pm	22:00

Why Trade Foreign Currencies?

There are many benefits and advantages to trading Forex. Here are just a few reasons why so many people are choosing this market:

• No commissions.
  No clearing fees, no exchange fees, no government fees, no brokerage fees. Brokers are compensated for their services through something called the bid-ask spread.
• No middlemen. Spot currency trading eliminates the middlemen, and allows you to trade directly with the market responsible for the pricing on a particular currency pair.
• No fixed lot size.
  In the futures markets, lot or contract sizes are determined by the exchanges. A standard-size contract for silver futures is 5000 ounces. In spot Forex, you determine your own lot size. This allows traders to participate with accounts as small as $250 (although we explain later why a $250 account is a bad idea).
• Low transaction costs.
  The retail transaction cost (the bid/ask spread) is typically less than 0.1 percent under normal market conditions. At larger dealers, the spread could be as low as .07 percent. Of course this depends on your leverage and all will be explained later.
• A 24-hour market.
  There is no waiting for the opening bell - from Sunday evening to Friday afternoon EST, the Forex market never sleeps. This is awesome for those who want to trade on a part-time basis, because you can choose when you want to trade--morning, noon or night.
• No one can corner the market.
  The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank) can control the market price for an extended period of time.
• Leverage.
  In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum. For example, Forex brokers offer 200 to 1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $10,000 worth of currencies. Similarly, with $500 dollars, one could trade with $100,000 dollars and so on. But leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.
• High Liquidity.
  Because the Forex Market is so enormous, it is also extremely liquid. This means that under normal market conditions, with a click of a mouse you can instantaneously buy and sell at will. You are never "stuck" in a trade. You can even set your online trading platform to automatically close your position at your desired profit level (a limit order), and/or close a trade if a trade is going against you (a stop loss order).
• Free “Demo” Accounts, News, Charts, and Analysis. Most online Forex brokers offer 'demo' accounts to practice trading, along with breaking Forex news and charting services. All free! These are very valuable resources for “poor” and SMART traders who would like to hone their trading skills with 'play' money before opening a live trading account and risking real money.
• “Mini” and “Micro” Trading:
  You would think that getting started as a currency trader would cost a ton of money. The fact is, compared to trading stocks, options or futures, it doesn't. Online Forex brokers offer "mini" and “micro” trading accounts, some with a minimum account deposit of $300 or less. Now we're not saying you should open an account with the bare minimum but it does makes Forex much more accessible to the average (poorer) individual who doesn't have a lot of start-up trading capital.

Thanks for babypips.com for the info.

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Life Insurance

Do you work in a dangerous occupation? According to the Bureau of Labor Statistics, the top 10 most dangerous jobs are:

1. Timber cutters
2. Airplane pilots
3. Construction laborers
4. Truck drivers
5. Farm occupations
6. Groundskeepers
7. Laborers
8. Police and detectives
9. Carpenters
10. Sales occupations

Maybe it's time to say "I want to have Life Insurance". You can say that when you have much profit from your forex work.

It's a fact that some occupations are riskier than others. But no matter what you do for a living, take a look at your life insurance needs. Life insurance can help you financially protect your loved ones after you die. If you're single, and no one is depending upon your income for support, you probably don't need life insurance. But if any of the following is true, consider buying life insurance:

• You're married and your spouse depends on your income
• You have children
• You have an aging parent or disabled relative who depends on your income
• Your retirement savings, pension, or other cash accounts won't adequately support your loved ones after you die
• You have a large estate and expect to owe estate taxes
• You own a business

Forex Analysis

Why Trade FX?

Foreign exchange is by far the preferred market choice for aggressive traders. The FX market offers unparalleled liquidity, no slippage, market transparency, trending markets, 24-hour access, low to zero transaction cost, high leverage, low account minimums, no bear-only market, and most importantly, above average profit potential.

Enormous Liquidity

The FX market is the most liquid market in the world. It can absorb trading volumes and per-trade sizes that may overwhelm any other market. Trading essentially consists of two parts: opening a position and closing of that position. Liquidity, which is highly correlated with volume, qualitatively evaluates how easily traders can enter and exit positions. A liquid market enables participants to execute large volume transactions with little impact on market prices. On the simplest level, the enormous liquidity alone is powerful enough to attract any investor to the FX market, as it suggests the freedom to open or close a position at will. In addition, technical analysis, the study of price movements, operates better in liquid markets. Illiquid markets make it much more difficult to accurately determine entry and exit points.


No Slippage

Traders in illiquid markets may experience delays and subsequently, suffer from slippage. In these markets, there may be delays in the execution of traders’ orders and thus, market orders could potentially be filled at a different price from the market rate when the order was initially placed. Furthermore, traders may experience difficulty in exiting or selling positions, which greatly compromises the ability to clear profitable trades. In the FX market, there is absolutely no slippage — traders will always get in and out at the price they placed their orders. This is due to the tremendous amount of volume that the FX market generates.


Market Transparency

Market transparency is highly desired in a trading environment. It is a condition in which market participants are able to observe

the detailed information in the trading process. Ultimately, the greater the market transparency, the more efficient the market becomes. The FX market offers the highest level of market transparency out of all financial markets.

Informed traders are better off than uninformed traders because most financial markets could be exploited by those with private information. Traders in all financial markets rely on market transparency because it allows them to see a transparent spread, which enables them to employ their premeditated strategies while still flexible enough to accommodate an ever-changing marketplace. With the transparency of information, traders can exercise their risk management strategies in accordance to their fundamental and technical approaches.



For example, in the case of Enron, inaccurate reporting by officers of the company resulted in the downfall of the company and losses of many shareholders. Markets where this could occur are considered a poor trading market. Furthermore, market transparency ensures the ability to trade from live, executable prices. Markets that do not offer executable prices and force traders to absorb slippage, obviously compromise traders’ profit potential.



Trending Markets

Although currency prices in the FX market may be volatile, they generally repeat themselves in cycles, creating trends. The trends can be analyzed by traders using technical tools. Since technical analysis statistically works better in markets characterized by cycles and trends, traders benefit from this attribute of Forex. The entire premise of technical analysis is based on the study of price movements. Through this analysis, traders can identify trends and capture key entry and exit points at which they should execute their trades and maximize their profit potential.



24-hour Access

Forex is a true 24-hour, 6 days a week, market. FX trading begins each day in Australia and moves around the globe as the business day begins in each financial center — first to Tokyo, then London, and New York.

Forex Basics

What is traded on the Foreign Exchange?

The simple answer is money. Forex trading is the simultaneous buying of one currency and the selling of another. Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro dollar and the US dollar (EUR/USD) or the British pound and the Japanese Yen (GBP/JPY).

Because you're not buying anything physical, this kind of trading can be confusing. Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.


Which Currencies Are Traded?

The most popular currencies along with their symbols are shown below:

Symbol Country Currency Nickname
USD United States Dollar Buck
EUR Euro members Euro Fiber
JPY Japan Yen Yen
GBP Great Britain Pound Cable
CHF Switzerland Franc Swissy
CAD Canada Dollar Loonie
AUD Australia Dollar Aussie
NZD New Zealand Dollar Kiwi

Forex currency symbols are always three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country’s currency.

Forex Trading Terms

A - Z Forex Trading Terms :

Appreciation - A rise in the price or value of a currency (or other asset) over time.
Arbitrage - The purchase of securities on one market for simultaneous or immediate resale on another market with the goal of profiting from a price discrepancy. Currency traders often arbitrage against exchange risk by buying a currency for immediate delivery but also selling that currency on the forward market at the same time.
Ask Rate - The price at which sellers offer currencies to buyers.
Asset - Any item of economic value owned by an individual or corporation, especially that which could be converted to cash.
Asset Allocation - The division of funds between different assets (items of value such as property, financial instruments, commodities and cash) with the goal of diversifying ones personal holdings to manage specific risk / reward expectations.

Back Office - The departments and processes related to the settlement of financial transactions.
Bank Wire - A computer message system linking major banks. It is used as a mechanism to advise the receiving bank of some action that has occurred, i.e., the payment by a customer of funds into that bank's account.
Base Currency - In the following pair USD/EUR, the first currency (in this case USD) is referred to as the base currency. The primary base currency is the US dollar, meaning that quotes are most commonly expressed as a unit of $1 USD per the other currency quoted in the pair.
Basis Point - One hundredth of a percentage point - 0.01%.
Bear (bearish) - Someone who expects the price of a given financial instrument or the overall value of a given financial marketplace to decline in value and thereby is a seller of the instrument(s). This individual is said to be bearish on the instrument / marketplace. Opposite of bull (bullish).
Bear Market - A market distinguished by declining prices.
Big Figure - Dealer expression referring to the first few digits of an exchange rate. These digits rarely change in normal market fluctuations, and therefore are omitted in dealer quotes, especially in times of high market activity. For example, a USD/Yen rate might be 107.30/107.35, but would be quoted verbally without the first three digits i.e. "30/35".
Bid Rate - The price at which buyers offer to buy currencies from sellers.
Bid / Ask Spread - The difference between the buy (bid) and sell (ask) price. In the following example - 0.9853/58 the spread is 0.0005 or 5 PIPs.
Bretton Woods Agreement - An agreement signed by the original United Nations members in 1944 that established the International Monetary Fund (I.M.F.) and the post-World War II international monetary system of fixed exchange rates.
Broker - Any individual or firm in the business of buying and selling securities for itself and others. When acting as a broker, a broker/dealer executes orders on behalf of his/her client.
Bull (bullish) - Someone who expects the price of a given financial instrument or the overall value of a given financial marketplace to rise in value and thereby is a purchaser of the instrument(s). This individual is said to be bullish on the instrument / marketplace. Opposite of bear (bearish).
Bull Market - A market distinguished by rising prices.
Buying / Selling FX - An investor/speculator buys a currency pair (takes a long position), if he/she believes the base currency will go up relative to the quote currency, or equivalently that the corresponding exchange rate will go up. Selling the currency pair implies selling the first, base currency, and buying the second, quote currency. An investor / speculator sells a currency pair (takes a short position), if he/she believes the base currency will go down relative to the quote currency, or equivalently, that the quote currency will go up relative to the base currency.

Cable - Refers to the Sterling/US Dollar exchange rate. Derived from mid-1800s practice of New York sending sterlings dollar rate to London via a transatlantic cable.
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.
Chartist - An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader.
Clearing - The process of settling a trade.
Commission - Fee charged by a broker for executing a trade.
Confirmation - A document exchanged by counterparts to a transaction that states the terms of said transaction.
Contract - The standard unit of trading.
Counterparty - One of the participants in a financial transaction.
Cross Rate – Refers+ to an exchange rate between two non-US dollar currencies. Trading between two non-US dollar currencies usually occurs by first trading one currency against the US Dollar and then trading the US Dollar against the second non-US dollar currency.
Currency - Any form of money issued by a government or central bank and used as legal tender and a basis for trade.
Currency Risk - The probability of an adverse change in exchange rates.

Day Trader / Day Trading - Speculators trying to take advantage of market movements in very short time periods --- buying a currency and then selling it again may happen within hours or even minutes. Day traders are attracted to currency trading because of the size, liquidity, volatility, and accessibility of the market.
Dealer - An individual who acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission.
Delivery - A trade where both sides make and take actual delivery of the currencies traded. Delivery is not the norm in FX trading. More commonly, an FX trade involves cash settlement of the difference between spot and delivery prices. Spot refers to any delivery within two business days. Forward refers to delivery beyond two days and usually quoted one year out in increments of 30 days (i.e. 1 month, 2 month, etc.).
Directional Forecast - A projection of bid/ask prices for a currency pair for a point in the future. The forecast displays the most likely future direction of prices. This direction reflects the latest price fluctuations as they are influenced by economic and political events. Directional Forecasts are designed for: Investors and traders who trade small to large volumes in the foreign exchange markets daily Professionals who do business internationally and who want to minimize foreign exchange risk due to currency price fluctuations. To find out more about directional forecasting, visit www.oanda.com.
Dollar Rate - The exchange rate of a foreign currency as quoted against the US dollar (USD). Some currencies are typically only quoted against the US dollar, such as the Algerian dinar (DZD) and the Andorran franc (ADF). The exchange rate of the Algerian dinar against the Andorran franc is thus computed from DZD-USD and ADF-USD.

Entry Order - An order to buy/sell a currency pair when the market reaches a specified price.
EURO - The currency of the European Union (EU) since January 1, 1999. The following countries have adopted the EURO in addition to maintaining their own unique currency: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain.
Exchange Rate - The price of one country's currency expressed in another country's currency.
Exchange Rate Risk - The potential loss that could be incurred from a movement in bid/ask prices, or exchange rates.
Exposure - The risks that an investor accepts when holding an open position. When an investor buys EUR/USD, he exposes himself to risks associated with changes in the valuation of the EURO and/or USD markets.

Flat/square - Dealer slang used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.
Foreign Exchange Market - Market for trading currencies internationally. The foreign exchange market, also referred to as the Forex and FX market, is a decentralized market that has no physical exchange floor. Trading is done over the counter via phone, fax or electronic distribution networks. Turnover in this market is approximately $1.5 trillion USD daily, making it the largest, most liquid financial marketplace.
Forex - (see foreign exchange market).
Forward - The pre-set exchange rate for an FX contract that settles at a pre-determined future date. The forward rate is based upon the interest rate differential between the two currencies involved. Forward rates can be calculated easily given the fixed term interest rates of each currency and their current spot rates.
Forward Points - The PIPS added to or subtracted from the current exchange rate to calculate a forward price. If points are added, then the forward is priced at a premium. If points subtracted, then the forward is priced at a discount.
Fundamental Analysis - The study and analysis of economic, political and social data/events to predict the future movements of the market and guide ones FX trading decisions.

Gearing - (refer to margin trading or leverage)
Good 'Til Cancelled Order (GTC) - An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.

Hedging - A strategy used to offset market risk, whereby one position protects another. Traders and investors in foreign exchange hedge to protect their investment or portfolio against currency price fluctuations.

Initial margin - The initial deposit of collateral required to enter into a position as a guarantee on future performance.
Interbank Prices - Currency prices/rates quoted between the large international banks, typically on transactions of US $1 million or more. These rates differ and are often more favorable than those quoted for smaller, retail transactions.
Interest Rate - Differential In FX trading, interest rate charges are determined by the difference between the interest rate on the base currency less the interest rate on quote currency. Interest rates are only paid on positions held over night.

Leverage - Refers to margin trading or gearing. The use of credit or borrowed funds to increase ones buying power.
Letter of credit - A document issued by a bank which guarantees the payment of a customer's drafts for a specified period and up to a specified amount.
Limit Order - An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 102.00/05, then a limit order to buy USD would be at a price below 102. (ie 101.50)
Liquidity - Refers to the ability to buy and sell with little or no impact on price stability. The number of players in a market/security has a direct impact on this ability. The FX market is the most liquid market in the world.
Long - To go long is to buy a currency / security. For example, if an investor believes that the Japanese economy is getting stronger and that, as a result, the Japanese Yen will appreciate in value, then he/she may want to buy Japanese Yen and take what is called a long position.

Margin - Collateral (could be cash, securities and/or unrealized profit) that an investor is required to keep on deposit to cover potential losses. If the margin requirement is 10% and a speculator wishes to buy $1 million EURO/USD, that speculator must have $100 thousand EUROS in value in his/her account.
Margin Call - A call for additional capital to bolster the equity in an investors margin account. Occurs when equity in the account is in danger of going below the required margin percentage threshold.
Market Maker - A pricing source that regularly quotes a two-sided market, meaning it supplies executable bid and ask prices.
Market Order - An order to buy/sell at the best price available when the order reaches the market.
Marking to Market - Common valuation method for calculating ones foreign exchange exposure at current market prices. Adjusting book value of holdings to reflect current market value.

Offer - The rate at which a dealer is willing to sell a currency.
One Cancels the Other Order (OCO) - A designation for two orders whereby one part of the two orders is executed the other is automatically cancelled.
Open position - A deal not yet reversed or settled with a physical payment.
Open Order - An open order is a request that a trade should be made automatically when the exchange rate of the specified currency pair crosses a specified threshold. The request will remain open until the specified threshold is reached. (see entry order)
Over-The-Counter Market (OTC) - A market, such as the FX market, in which counterparties trade via telephone, fax or electronic distribution network rather than from a physical exchange location.
Overnight - A trade that remains open until the next business day.

PIP - Typically stands for the smallest unit of measurement denoting price movement. One basis point (0.0001 or .01%) but depends on currency pair in reference. (see basis point)
Position - The aggregation of all trades made in a currency pair. If the position is open, it is exposed to market risk. If a position is closed, profit/loss has been realized.

Quotation - Often shortened to quote and also referred to as bid-asked. The highest bid or lowest offer price currently available on a security/commodity.
Quote - An indicative market price, normally used for information purposes only.

Rate - The price of one currency in terms of another, typically used for dealing purposes.
Realized and Unrealized P/L - Realized P/L is equal to the value in an investor/speculators balance minus the amount of funds he/she has transferred into the account. Unrealized P/L is the amount of profit or loss that is held in current open positions. If one were to clear all open positions, then this amount would be added to the Realized P/L amount.
Resistance - A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.
Risk - The degree of uncertainty or exposure associated with an investment. Investments with greater inherent risk must promise higher expected returns if investors are to be attracted to them. The main types of foreign exchange risk are: 1) exchange rate risk 2) interest rate risk 3) credit risk (aka counterparty) 4) country risk (includes political). (each of these risks can be referred to in other sections of this document).
Risk Management - The process of actively monitoring /controlling exposure to various types of risks while attempting to maximize returns. Typically involves utilizing a variety of trading techniques, models and financial analyses.
Roll-Over - Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies.

Settlement - A trade is settled when the trade and its counterparts have been entered into the books/records. In regards to FX trading, it is important to note that settlement may or may not involve the actual physical exchange of currencies.
Short (Short Position) - To go short is to sell a currency / security. For example, if an investor believes that the Japanese economy is getting weaker and that, as a result, the Japanese Yen will depreciate in value, then he/she may want to sell Japanese Yen and take what is called a short position. It is not necessary to own the quote currency prior to selling, as it is sold short.
Spot Market / Spot Rate - The spot market refers to instruments that are traded and settle within two business days of the transaction. The spot rate refers to the current market rate for a currency. Interest is either added on (premium) or subtracted from (discount) this rate to determine pricing for non-spot trades, which are referred to as forwards in the FX market.
Spread - (see bid / ask spread)
Stochastic oscillator - A technical indicator which compares a stock's closing price to its price range over a given period of time. The belief is that in rising market stocks will close near their highs, while in a falling market they will close near their lows.
Stockholder / shareholder - One who owns shares of stock in a corporation or mutual fund. For corporations, along with the ownership comes a right to declared dividends and the right to vote on certain company matters, including the board of directors.
Stop-Loss Order - Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor’s position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.
Support Levels - A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.
Swap - A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate.
Swissy - Slang for Swiss Franc.

Take-Profit Order - An order to automatically liquidate a position if the exchange rate reaches a specified level. Take profit orders are typically used to lock-in profit.
Technical Analysis - Studying charts that display the historic behavior of market data/statistics (price open, high, low and close, volume, open interest, etc.) in order to forecast future performance.
Tick - A price movement.
Transaction Cost - The cost of buying or selling a financial instrument.
Turnover - The total money value of all executed transactions in a given time period; volume.
Two-Way Price - When both a bid and offer rate is quoted for a FX transaction.

Uptick - a new price quote at a price higher than the preceding quote.
Unrealized and Realized P/L - Unrealized P/L is the amount of profit or loss that is held in current open positions. If one were to clear all open positions, then this amount would be added to the Realized P/L amount. Realized P/L is equal to the value in an investor/speculators balance minus the amount of funds he/she has transferred into the account.

Value Date - The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date.
Variation Margin - Funds a broker must request from the client to have the required margin deposited. The term usually refers to additional funds that must be deposited as a result of unfavorable price movements.
Volatility - A measure by which an exchange rate is expected to fluctuate or has fluctuated over a given period. Volatility figures are often expressed as a percentage per annum.

Whipsaw - slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Yard - Slang for a billion.

What is Forex?

Foreign Exchange (FOREX) is the arena where a nation's currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with the equivalent of over $1.9 trillion changing hands daily; more than three times the aggregate amount of the US Equity and Treasury markets combined. Unlike other financial markets, the Forex market has no physical location and no central exchange. It operates through a global network of banks, corporations and individuals trading one currency for another. The lack of a physical exchange enables the Forex market to operate on a 24-hour basis, spanning from one zone to another in all the major financial centers.

How to Get Started

People are introduced to the exciting world of foreign exchange in many ways: friends, current events, newspapers, television, and many others. For those of you who are new to forex, the following guidelines cover the basics of currency trading.

Step 1: "Practice makes perfect"

Demo trade. The demo account was designed to help traders gain familiarity with the speed and movements of the market. When you are demo trading, you should learn how to: 1) place market orders to enter a trade, 2) place stop-loss orders to protect your positions, and limit orders to take profits, 3) place OCO orders and If Done Orders to execute more advanced strategies.