What is Forex?
FOREX stands for Foreign Exchange.The FOREX market is a non-stop cash market where currencies of nations are traded, typically via Brokers.Foreign currencies are constantly and simultaneously bought and sold across local and global markets and trader's investments increase or decrease in value based upon currency movements.Scroll down to learn more on Fundamental Analysis, Technical Analysis and the Forex Terms used in industry.
What are the advantages in Forex Currency Trading?
The main enticements of Forex Currency Trading is that it is a 24/5 non-stop market over global exchanges,an enormous liquid market that makes it easy to trade in most currencies,lucrative profit opportunities,leveraged trading with low margin requirements and options based on zero commission trading.Learn more with Forex Terms.
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FUNDAMENTAL
ANALYSIS
WORLD BANK
TECHNICAL
ANALYSIS
FOREX KILLER
FOREX FXPS
FOREX TRADING
ASCENDING TREND
ASCENDING TRIANGLE
FOREX TERMS:
BOLLINGER BANDS
CANDLESTICK CHART
CANDLESTICK SYMBOLS
LONG V/S SHORT 
DEMARKER INDICATOR
DESCENDING TREND
DESCENDING TRIANGLE
DOUBLE TOP/BOTTOM
ELLIOT WAVE THEORY
5 WAVE PATTERN
FIBONACCI UPSWING
FIBONACCI DOWNSWING
FIBONACCI EXTENSION
GANN ANGLES
GANN ANGLES
HANGING MAN
HEAD AND SHOULDERS
HORIZONTAL TREND
INVERTED HEAD AND SHOULDER
CANDLESTICK DOJIS
MOVING AVERAGE
SMA PATTERN
EMA PATTERN
MACD PATTERNS
MOMENTUM GRAPH
OSCILLATOR (1)
OSCILLATOR (2)
PARABOLIC SAR (1)
PARABOLIC SAR (2)
PIVOT POINTS
RELATIVE STRENGTH INDEX CHART
RELATIVE VIGOR INDEX CHART
STOCHASTIC OSCILLATOR CHART
RISING WEDGE PATTERN
What is Forex Currency Trading?
FOREX Trading or Forex Currency Trading is done in currency pairs.Usually this would be in USD/EUR, USD/JPY, USD/GBP, USD/CHF, USD/AUD etc.The first currency in the pair (as in USD in the examples) is known as Base Currency and its value is always considered at a base value of 1.The second currency of the pair (as in EUR,JPY,GBP,CHF,AUD in example) is called the Counter Currency or Quote Currency.The Exchange Rate tells a buyer how much of a counter currency must be paid to obtain 1 unit of the base currency(See Ask Price).Similarly for the seller it tells how much will be received in counter currency when selling 1 unit of base currency(See Bid Price).Example EUR/USD of 1.2083 tells the buyer of Euro (EUR) that 1.2083 USD must be paid to obtain 1 EUR.
The most common increment of currency trading is a PIP.
Forex Currency Trading involves two major streams of research namely Fundamental Analysis and Technical Analysis.
What is Forex Fundamental Analysis?
Fundamental Analysis goes by a country's Political, Social, Economic and Technological indicators. A general idea prevails that if a country has strong economy then it has a strong currency and vice versa.(See these Forex Terms Fundamental Analysis, Economic Indicators, Trade Balance).
What is Forex Technical Analysis?
Technical Analysis is a Trend Analysis that is performed based on certain chart characteristics. (See Chart Patterns / Indicators).It involves analyzing previous price patterns and extrapolating future predictions.There are 3 basic charts used in this Analysis - Line Chart, Bar Chart and Candlestick Chart.
Some of the other Forex Terms applied in Technical Analysis are:
Trend Lines - Ascending Triangle, Descending Triangle, Descending Trend Channel, Horizontal Trend Channel.
Reversal Patterns - Double Top / Double Bottom, Head and Shoulder
Oscillators - Price Oscillator, Volume Oscillator, Stochastic Oscillator.
Pivot Points - See Pivot Point.
Fibonacci - Fibonacci Retracement Levels, Fibonacci Extension Levels
Moving Averages - SMA, EMA, MACD, DeMarker Indicator, Directional Movement Index.
Momentum and Volatility - Bollinger Bands, Momentum, RSI, RVI
Elliot Wave Theory
What are the Forex Terms used in the market?
A
Arbitrage - Positioning of currency rates across different global exchanges at the same time to benefit from small price differences in related markets.
Ask Price - This represents how much would be paid in counter currency when buying one unit of base currency.
Ascending Triangle - It is a chart pattern having a bullish indicator and recognized by price highs and price lows that tend to converge at a point.If we draw a line with the upper and lower thresholds,we will get a straight line and a sloped line forming a triangle.This is a buy trend.
B
Balance of Trades - The difference between a countries imports from its exports.
Bear Market - Market where prices are declining.
Bid Price- This represents how much would be received in counter currency when selling one unit of base currency.
Bollinger Bands - A Technical Analysis tool used to measure the market volatility.It consists of 3 lines. The center line is the 21 day moving average of the price of an Asset.The upper and lower bands are calculated as two standard deviations above and below the center line value.When market becomes volatile the Bollinger Bands expand and when market is less volatile they contract.If the Asset value falls beyond the band,it indicates that the Asset is either overbought or oversold. Floating Exchange Rate - Market driven exchange rates. Forwards - Forwards make 46% of Forex Currency Trading.A forward transaction is an agreement between two parties whereby one party buys a currency at a certain price by a certain date that is usually greater than two business days of the spot transaction. Offer - The selling price of a currency that a dealer has agreed to. Over The Counter (OTC) - A market conducted directly between dealers and principals via telephone or computer network rather than a regulated exchange trading floor. P Relative Strength Index (RSI) - The RSI measures the ratio of UP moves to DOWN moves in a ratio of 1-100.If RSI is greater than 70 that indicates the instrument is overbought i.e the prices have risen more than market expectations.A RSI less than 30 means oversold i.e prices have fallen more than market expectations. S
Bull Market - Market where prices are rising.
C
Candlestick Chart - Chart that provides information on the days price range with opening and closing values.The 3 basic Candlestick Chart patterns are the Doji, Spinning Tops and Marubozu.(Also see Hanging Man Candlestick).
Carry Trade - A trading strategy where assets with lower yielding interest rates are sold to fund assets of high yield interest rates. Example such as sell JPY to buy AUD or GBP.
Chart Patterns / Indicators - Following are some of the Chart indicators: Bollinger Bands, MACD, Parabolic SAR, Stochastics, Relative Strength Index RSI, Moving Average, SMA, EMA, Momentum, Volatility, Standard Deviation, Elliot Wave etc.
Collateral - It is a guarantee in the form of something of tradable value in lieu of a borrowed loan.
Consumer Price Index CPI - The CPI is an inflation index that denotes the measure of price change over time paid by consumers for a market basket of goods and services. If CPI is high,that indicates inflation and central bank increase interest rates.
Control Risk FOREX Strategy - One can control risk by capping loss.Stop/Loss orders allow traders to set an exit point for a losing trade.
D
Day Trading - It is a currency exchange deal which renew automatically every night at 22.00 GMT starting the day the deal was made and untill it ends.The deal may end by termination by trader,by a predifined stop/loss level or the actual deal end date.As long the deal is open it is charged a renewal fee at 22.00 GMT every night.
DeMarker Indicator - A Technical Analysis indicator that resembles high risk buying or selling patterns.The indicator is the difference between two highs (called DeMax) or two subsequent lows in prices (called DeMin).The indicator value is calculated as the Moving Average of DeMax divided by sum of Moving Averages of DeMax and DeMin.On a scale of 0 to 1, anything above 0.7 indicates that prices will fall and below 0.3 indicate that prices will rise.This gives traders idea on buy or sell.
Derivative - A financial contract that depends on the commodity's value and properties.
Descending Trend Channel - This pattern is used in Technical Analysis. A Descending Trend Channel is observed by drawing two trendlines; one through high prices of an asset and the other through the low prices.If the trend in prices is downwards then the space between the trend lines form the Descending Trend Channel.As long as the prices fall in this band,the analysts can predict future movements.If there is a sudden break such that prices go up or down the barriers,one can predict a bull or bear market scanario.
Descending Triangle - This symbolizes a bearish market and is reverse pattern to Ascending Triangle.
Directional Movement Index - Similar to DeMarker Indicator.
Divergence
Double Top/ Double Bottom - These are reversal patterns used in Technical Analysis.A Double Top looks like a M and indicates a drop in price after the second peak and conversely a Double Bottom looks like a W that indicates a possibility of sharp price increase after the second price dip.Both these patterns provide traders with Entry and Exit points.
E
Economic Calendar -
Economic Indicators - A statistic used by the government of a country to estimate economic growth and stability. Some of the Economic Indicators are Gross Domestic Product (GDP), Consumer Price Index (CPI), Employee Cost Index, Producer Price Index, Retail Sales Data etc.
Elliot Wave Theory
EMA - It stands for Exponential Moving Average.See MACD for more details.
Equity Correlator
Exchange - A physical location where commodities and futures are traded.
Exit FOREX Strategy - This allows the FOREX traders to exit the Forex market at pre-defined profit targets.If you sold a currency pair a limit order is placed below the current market price because this is profit zone,similarly if you bought a currency pair you place a take limit order above the current market price.This is a disciplined approach to Forex market.
F
Fading - This is part of Technical Analysis wherein a short position is held by a trader in an upward price movement assuming that the price is overhiked and is succeptible to fall.
Fibonacci Numbers- The number sequence is achieved by adding consecutive numbers to arrive at the third(1,1,2,3,5,8,13,21,34...).The ratio of any number to the next larger number is always at 62% which is the Fibonacci Retracement Number.The inverse of 62% which is 38% is also the retracement number.
FOREX Forecasting - The FOREX forecasting is understanding the future behavior of the FOREX market.This is done in two ways; Technical Analysis and Fundamental Analysis.The Technical analyst studies the effect while the Fundamental analyst the cause of the market movement.Many successful traders combine both for optimized results.
Forex Signals - See Chart Patterns and associated Forex Terms.
Fundamental Analysis - A specialized branch of Forex research that predicts price movements based on Political, Social, Environmental and Technological conditions. Besides these factors the analysts also weigh inflation, unemployment rate, fiscal policy shifts, stocks, bonds and money markets.
Futures - A Future contract is a forward contract with fixed currency amounts and maturity dates.They are traded on Future Exchanges and not on Interbank Foreign Exchange markets.
G
Gann Angle - It is a analytical derivative technique that is based on Gann Angles devised by William Delbert Gann. Gann's technique associates price rise or price falls in equal increments in price and time, that occur at an angle of 45'(called a 1x1 angle). This means if a price is increasing at a linear 45' or more with respect to time it is a bull market else a bear market indication.
Gross Domestic Product (GDP) - It is measured by the goods and services produced by a country, regardless of who owns the assets and who produced it. GDP = Consumption + Investment + Government Spending + (Exports - Imports)
H
Hanging Man Candlestick - It occurs when a security moves significantly lower after the open, but rallies above the intra-candle low.The same candlestick in its decline is called Hammer.
Head and Shoulder - It is a reversal technique that is depicted by three highs and two dips.The center high which is the peak is the head and the two subordinate highs to the left and right of the head are the shoulders.A break out through the head and shoulder curves indicate a good sell opportunity whereas a break out of an inverted head and shoulder curve indicates good buy opportunity.It takes around 2-3 months to get a proper head and shoulder curve and once that happens its a good time to short sell.
Hedge - A combination of buys or sells using Technical Analysis to mitigate risks.
Horizontal Trend Channel - Part of Technical Analysis, horizontal trend channels are formed by drawing trend lines for both high and low points on a chart.If the asset prices remain constant over some time then the lines will remain horizontal and this is horizontal trend channel.If prices break beyond the upper esistance,it is buy signal else a sell opportunity.Also see following Forex Terms Ascending Triangle, Descending Triangle, Descending Trend Channel.
I
Intra-Day Trading - Trading within the day.
Inverted Head and Shoulder - See Head and Shoulder.
J
Japanese Candlestick - See Candlestick Chart.
L
Leading Indicator - Any statistics or an Economic Indicator that provides future economic activity.
Leveraged Financing - It is the use of credit such as trade purchased on a margin.The loan leveraged in the margin account is collaterized by the initial deposit.
LIBOR - London Inter-Bank Offered Rate. It is used by banks to borrow assets/money from another bank.
Long Position - A position that is held supplementing a prediction that market prices will rise. A benchmark value is set in future option,which when materialized benefits traders in totality.In Forex world a long position is indicative of the Base Currency bought in the currency pair.
M
MACD - It stands for Moving Average Convergence/Divergence.It is essentially the average of price with respect to some time interval and a means of showing differences between a fast EMA and slow EMA (Exponential Moving Average) at closing.A fast EMA is considered with a time sample of 12 days and a slow EMA with interval of 26 days.
MACD = EMA[12] of price - EMA[26] of price
EMA of 9 days , EMA[9] of price is considered as the signal line.It is plotted over the above MACD result.
If MACD falls below the signal line then bear or sell market else buy market.
Margin/ Margin Trading - Banks and online trading providers need collateral to ensure that the investor can pay in case of loss.This collateral is called margin and also known as minimum security in FOREX market.It is a deposit to the trader's account that is intended to cover any trading loss in future.(More on Margin Trading)
Market Order - It is a financial transaction made at the current market price.
Market View
Maturity - It is the date of settlement for a financial obligation.
Momentum - It is part of Technical analysis and it resembles the rate of change in price of an asset.It is taken as the slope of the trendline that tracks the price levels of assets.Sometimes Forex Traders consider the market volume when considering momentum.So if prices are changing rapidly then traders are either buying or selling assets in volumes to push the price change in either direction.A high momentum means that the asset has been overbought and a low momentum means that the asset is oversold.
Moving Average - See SMA.
N
NASDAQ - National Association of Securities Dealers Automated Quotation System.
O
Open Position - An active trade that is pending closure.
Options - A Currency Option is similar to a futures contract,however the buyer of the Option is only purchasing the right and not the obligation to purchase a fixed amount of currency at a fixed price by a certain date in future.The price is known as Premium and is lost if the buyer does not exercise the option.
Oscillators - An oscillator denotes the relationship between two SMA's at any given set points in time.It can be expressed as percentage or as a number.There are two types of oscillators - Price Oscillator and Volume Oscillator.
Parabolic SAR - It is a predictive algorithm that is calculated before a day's trading starts. It takes into account the extreme high or low value of an asset from previous day's trading and a parabolic plot is charted above or below the price line.When the SAR points cross below the price line long positions should be closed and when the SAR cross above the price line ,short positions should be closed.Since SAR is calculated pre-trade,it allows traders to set stop/loss positions.
PIPS - Also called points. 1pip = 0.0001 point.
Pivot Points - A crucial Technical Analysis term representing the juncture at which a total reversal in price occur.Pivot Points could be calculated Daily, Weekly or Monthly basis.
Position Trading - Passive traders who like to hold the same position for a considerably long time.They believe in positive negative balances in price to mitigate their risks.
Producer Price Index PPI - PPI is a monthly report released by the Bureau of Labor and Statistics detailing purchase price of various consumer goods.Forex traders use PPI to calculate price inflations.
R
Relative Vigor Index (RVI) - It is a Technical indicator used to analyze price movements based on open and close values of market and comparing with the preceding highs and lows.
RVI = (Close - Open) / (High - Low)
Resistance - An estimated price level at which people will sell.
Revaluation - An increase in price governed by the Central Bank.
Rising Wedge - It is a part of Technical Analysis chart pattern created by drawing two ascending trendlines,one representing high prices and the other low prices for the asset.The slope of the high prices is less than that of the low prices indicating that low prices are increasing more rapidly than the high prices.A rising wedge symbolizes a strong sell.
Rollover - A rollover takes place when the settlement date is shifted to a future value date.
Scalping - Scalping involves making small profits on dozens or hundreds of trades in a day based on the differentials of bid and ask prices.
Short Positioning - This is when Base Currency is sold due to price declines.
SMA - It stands for Simple Moving Average.It is calculated by taking average price values over a given time frame. For example a 30 day SMA would average prices taken over a 30 day interval.
Spread / Spread Trading- The difference between the bid and the ask price of a currency.(More on Spread Trading)
Spot Transaction- It is the straight forward exhange of one currency for the other.The spot rate is the current market price, also called Benchmark price.
Stochastic Oscillator - This is used to indicate overbought/oversold conditions on a scale of 1-100%.The indicator is based on the observation that in a strong up trend,period closing prices tend to concentrate in the higher part of the period's range.Conversely, as prices fall in a strong down trend,closing prices tend to be near the extreme low of the period range.This gives a power trading signal to the FOREX trader.
Swap / Swap Trading- The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another.In other words it is borrowing one currency and lending another currency,for the same time period.(More on Swap Trading)
T
Technical Analysis - It involves the use of charts to determine patterns or trends in the currency market.Unlike Fundamental Analysis, Technical Analysis focuses on the effects of market movement rather than the cause.
Trade Balance - It is the ratio of exports to imports of a given country.
