Forex Glossary (1)

In this section I'm going to post some terms related to forex trading in oreder to enhance your trading skills.

A

Aggregate Demand:

Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and firms in other countries for good and services.

Aggregate risk:

Size of exposure of a single customer to a market related movement.

Aggregate Supply:

Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.

Aggressor:

A trader dealing on an existing price in the market.

Appreciation:

The increase in the value of an asset.

Arbitrage:

Profiting from differences in the price of a single currency pair that is traded on more than one market.

Ask:

The price at which a currency pair or security is offered for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'offer', 'ask price', and 'ask rate'.

Asset:

An item having commercial or exchange value.

B

Back Office:

The office location, or department, where the processing of financial transactions takes place.

Base Currency:

In terms of foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. The base currency is the currency against which exchange rates are generally quoted in a given country. Examples: USD/JPY, the US Dollar is the base currency; EUR/USD, the EURO is the base currency.

Bear Market:

An extended period of general price decline in an individual security, an asset, or a market.

Bid:

The price at which an investor can place an order to buy a currency pair; the quoted price where an investor can sell a currency pair. This is also known as the 'bid price' and 'bid rate'.

Bid/Ask Spread:

The point difference between the bid and offer (ask) price.

Big Figure:

The first two or three digits of a foreign exchange price or rate. Examples: USD/JPY rate of 108.05/10 the big figure is 108. EUR/USD price of .8325/28 the big figure is .83

Bull Market:

A market which is on a consistent upward trend.

Buy Limit Order:

An order to execute a transaction at a specified price (the limit) or lower.

Buy On Margin:

The process of buying a currency pair where a client pays cash for part of the overall value of the position. The word margin refers to the portion the investor puts up rather than the portion that is borrowed.

C

Cable:

The British pound/US Dollar exchange rate GBP/USD.

Candlestick Chart:

A chart that displays the daily trading price range (open, high, low and close).

Carry (Interest-Rate Carry):

The income or cost associated with keeping a foreign exchange position overnight. This is derived when the currency pairs in the position have different interest rates for the same period of time.

Central Bank:

A bank, administered by a national government, which regulates the behavior of financial institutions within its borders and carries out monetary policy.

Chartist:

A person who attempts to predict prices by analyzing past price movements as recorded on a chart.

Closing a Position:

The process of selling or buying a foreign exchange position resulting in the liquidation (squaring up) of the position.

Closing Market Rate:

The rate at which a position can be closed based on the market price at end of the day.

Commission:

The fee levied by an institution to undertake a trade on behalf of a customer.

Confirmation:

Written acknowledgment of a trade, listing important details such as the date, the size of the transaction, the price, the commission, and the amount of money involved.

Counterpart:

A participant in a financial transaction.

Cross-Rate:

The exchange rate between 2 currencies where neither of the currencies are USD.

Currency:

Money issued by a government.

Currency Pair:

The two currencies that make up a foreign exchange rate. IE: USD/YEN.

Currency Risk:

The possibility of an unfavorable change in exchange rates.

D

Day Order:

A buy or sell order that will expire automatically at the end of the trading day on which it is entered.

Day Trade:

A trade opened and closed on the same trading day.

Day Trader:

A trader who buys and sells on the basis of small short-term price movements.

Day Trading:

Refers to a style or type of trading where trade positions are opened and closed during the same day.

Dealer:

An individual or firm that buys and sells assets from their portfolio, acting as a principal or counterpart to a transaction.

Depreciation:

A fall in the value of a currency due to market forces.

Devaluation:

The act by a government to reduce the external value of its currency.

Discretionary Account:

An account in which the customer permits a trading institution to act on the customer's behalf in buying and selling currency pairs. The institution has discretion as to the choice of currency pairs, prices, and timing-subject to any limitations specified in the agreement.

E

Euro:

The common currency adopted by eleven European nations(Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal) on January 1, 1999.

European Central Bank (ECB):

The Central Bank for the new European Monetary Union.

Execution:

The Process of completing an order or deal.

F

Federal Deposit Insurance Corporation (FDIC):

The regulatory agency responsible for administering bank depository insurance in the United States.

Federal Reserve (Fed):

The Central Bank of the United States.

Fill:

The process of completing a customer's order to buy or sell a currency pair.

Fill Price:

The price at which a buy or sell order was executed.

Financial Risk:

The risk that a firm will be unable to meet its financial obligations.

Flat:

Term describing a trading book with no market exposure.

Forward:

A transaction that settles at a future date.

Forward Points:

The points that are added to or subtracted from the spot rate to calculate the forward rates for a forward foreign exchange transaction. These points are based on the differential between the interest rates of the two currency pairs.

Forward Price: (See forward rates).

Forward Rates: The net price resulting from calculating the forward points and subtracting them from the existing spot rate. This is the rate at which a currency can be purchased or sold for delivery in the future.

G

Good Till Cancelled Order (GTC):

A buy or sell order which remains open until it is filled or canceled.

H

Hedge: A transaction that reduces the risk on an existing investment position.

I

Initial Margin:

The deposit a customer needs to make before being allocated a trading limit.

Initial Margin Requirement:

The minimum portion of a new security purchase that an investor must pay for in cash.

J

Jobber:

A trader who trades for small, short-term profits during the course of a trading session, rarely carrying a position overnight.

L

Limit Order:

An order to execute a transaction at a specified price (the limit) or better. A limit order to buy would be at the limit or lower, and a limit order to sell would be at the limit or higher.

Liquidity:

Refers to the relationship between transaction size and price movements. For example, a market is "liquid" if large transactions can occur with only minimal price changes.

Long Position:

In foreign exchange, when a currency pair is bought, it is understood that the primary currency in the pair is 'long', and the secondary currency is 'short'.

M

Maintenance:

A set minimum margin that a customer must maintain in his margin account

Margin:

The amount of money needed to maintain a position.

Margin Account:

An account that allows leverage buying on credit and borrowing on currencies already in the account. Buying on credit and borrowing are subject to standards established by the firm carrying the account. Interest is charged on any borrowed funds and only for the period of time that the loan is outstanding.

Margin Call:

A call for additional funds in a margin account either because the value of equity in the account has fallen below a required minimum (also termed a maintenance call) or because additional currencies have been purchased (or sold short).

Mark-to-Market:

The theoretical value of an open position at the current market price.

Market Close:

This refers to the time of day that a market closes. In the 24 hour-a-day foreign exchange market, there is no official market close. 5:00 PM EST is often referred to and understood as the market close because value dates for spot transactions change to the next new value date at that time.

Market-Maker:

person or firm that provides liquidity making two-sided prices (bids and offers) in the market.

Market Order:

A customer order for immediate execution at the best price available when the order reaches the marketplace.

Market Rate:

The current quote of a currency pair.

Market Risk:

The risks that occur when general market pressures cause the value of an investment to fluctuate.

Maturity:

The date on which payment of a financial obligation is due.

Momentum:

The tendency of a currency pair to continue movement in a single direction.

O

OCO-One Cancels the Other Order:

A combination of two orders in which the execution of either one automatically cancels the other.

Offer:

The price at which a currency pair or security is for sale; the quoted price at which an investor can buy a currency pair. This is also known as the 'ask', 'ask price', and 'ask rate'.

Open Order:

Buy or sell order that remains in force until executed or cancelled by the customer.

Open Position:

Any position (long or short) that is subject to market fluctuations and has not been closed out by a corresponding opposite transaction.

Order:

A customer's instructions to buy or sell currencies.

Overnight Position:

Trader's long or short position in a currency at the end of a trading day.

P

Pip:

The smallest increment of change in a foreign currency price, either up or down.

Price:

The price at which the underlying currency can be bought or sold.

Price Transparency:

The ability of all market participants to "see" or deal at the same price.

Principal Value:

The original amount invested by the client.

Forex Glossary (1)

a

Top Ten Myths About Forex Trading

Forex is a market where exchange of one currency with another currency takes place. It’s the market which provides accessibility and liquidity to the traders to buy and sell one foreign currency in exchange of another.

Forex traders seek profit in buying currencies low and selling them high. This kind of trading became more popular with the widespread of the on-line Forex brokers. There is a lot of information available about Forex on the web. However there also many myths surrounding the foreign exchange market:

Forex trading is easy: Many people that want to dive into the world of the foreign exchange market believe that the Forex trading is easy — you just read a book or two and then you will be able to earn daily profits with just 2-3 hours trading daily. Others think that they can buy a profitable strategy and it will make them rich in Forex. In reality that’s just a myth. Succeeding in Forex isn’t easier than mastering any other profession — it takes time, money and a lot of practice.

"I will make money in Forex, if I can trade stocks successfully" Success in stock market doesn’t imply that you will get success in Forex market — there are many differences between trading stocks and the spot currencies. First of all, Forex market requires a lot of hard work and dedication as this market is open for 24 hours a day. You cannot just sit in front of your computer for the whole day and night, so the best way is that you should find the most suitable time periods for trading. Second, “buy&hold„ strategy simply won’t work in Forex market. Third, you don’t have that much information about currencies as you can get from the companies’ reports and statistics.

"I can make profit whenever I want if Forex market is open 24 hours a day" Once again, you won’t be sitting in front of your PC for the whole day to be able to trade 24 hours. You’ll have to develop automated trading software to get the advantage of 24 hours a day working schedule.

"I can be a successful Forex trader just following someone else’s signals" Many beginning traders get burned by the blind signal-following. That’s like putting away the whole responsibility for your actions to someone else. That may sound cool, but in reality you end up with the huge losses. Learn to rely on your own knowledge and skills. Remember that there were no great signal-followers in any financial market.

No commission is to be paid in Forex market: You only have to pay the spread, but you don’t have to pay the commission. And what’s spread? It is the difference between the buy and sell price of the currency pair at the same moment. You may end up with the major part of your profits in the broker’s hands if you plan to rely on the short-term trading.

Forex is a scam: Some skeptics and disappointed traders think that Forex is just some new fad to scam people for their hard earned money. Although there are many scams that are hiding behind the "brand" of Forex, that doesn’t mean that the Forex itself is a scam. There are many institutional Forex brokers, regulated Forex account managers and other solid companies in the market to whom you can trust.

"I need to exactly predict the market outcome to be profitable in Forex" There is no scientific method to know something in advance in the market with a 100% certainty. There would be no Forex market if you could know the exact currency rates beforehand. Trading is not the game of certainties; it’s a game of odds. One of the first things that new traders learn is to think in the terms of probabilities and risk-to-reward ratios.

"I need to use a very complex strategy to be successful in Forex" It’s a popular myth, in which many on-line sellers would want you to believe. The main requirement to be successful in Forex is a self-discipline and money management. There are many traders that make consistent profits with rather simple and old strategies.

"I need to have a lot of starting capital to get profit in Forex" Big capital investment won’t help you in Forex. You don’t need a lot of money to diversify in currencies and you can’t move the currency rates with your trading orders (you’d need billions of dollars to do that). Actually you can trade with a very a little capital, because Forex trading is almost always leveraged with the broker’s money.

Forex is gambling because it’s completely random: Although there is no certainty in Forex (as in any financial market) it doesn’t mean that it’s completely random. And it’s certainly not a gambling, since your success in this market depends mostly on your skills and experience, not on your luck.

Forex Automated The Key To Trading Flexibility.

Forex Automated The Key To Trading Flexibility Expert Traders often use the automated trading methodology to execute market orders when they are not able to be in front of their computer. The Forex market, like its counterparts (Stock and Bonds) does not have a central exchange. All trades are conducted online through a trading software 24 hours a day and 5 days a week.

It maybe 3 in the morning, but a trader using the automated technology will not miss a trade. All he has to do is input the currency pair and targeted amount that he wants to buy or sell. To execute the trade, he has to set a deadline, which if hit, executes the trade.

One can limit automated trading sessions according to their needs. It can be a 24 hour period or even longer if required. It depends upon the opportunity and the trading strategy. As a follow up, a trader can setup multiple set of trades, all on automation.

Automated trading kills trading indecisions

In trading, indecision is a common element. A trader may see an opportunity, but maybe weary of executing it, regardless of how good it maybe. Using the right software, the trader can avoid the volatility of the mind. The trader can set the right rules and can also edit any of the trades he manually set. Automated trading at times offers peace of mind.

Online trading is virtual. There is nothing tangible bought or sold. Since a country’s economy can change due to extreme external influences like natural disasters, Geo-political wars, etc, it is not recommended to take part, unless experienced in the market behavior. The initial account opened should be a test account to understand and test automated trading.

Automated trading, while offering peace of mind and emotionless trading, can be disastrous in certain conditions. Since it cannot sense and judge external events, it can, many of the times, lead to heavy capital losses.

Lastly, it is all about experience. Once you have gained enough understanding as well as confidence in your automated strategy, you can take the risk of trading while you sleep, or even if you are out of town celebrating your big wins.

Some Ways To Safe Yourself From Forex Scams.

Do not let your hard-earned money go to individuals who do not deserve any part of it. If you are into Forex trading or any other marketing ventures or trade schemes, be very careful. Of course, this must be applied in every aspect of your life. But when it involves money and your future, study your way through all the paths of the venture to avoid mishaps along the way.

Scams Everywhere

Did you know that fraudulent acts in Forex trades are becoming more and more common? This is because this kind of trading is also becoming more prominent. So as the number of individual traders increases, so does the group who commits fraud to such people who want to increase their savings.

Be vigilant, if you do not want to end up having nothing left in your accounts. You can find some help through reading and asking around. But the trick will all depend on you. If you don't succumb easily to acts that seem to be good to be true, then you are on the right track to becoming a successful trader.

The Preventive Measures

The most useful tip that you may be getting from the traders themselves is to educate yourself further before you become too involved in the trading system. But the scammers are also improving as time passes. The technology is evolving so fast that they are also benefiting from it.

Your only hope as the trader is that the Forex trade also comes up with high-tech solutions to prevent such bad acts. But while they are still thinking of such, you can opt for some measures to protect your claims and stocks.

The CTFC

There are warnings and additional explanations that can be read through the Commodity Futures Trading Commission (CTFC) Forex Fraud. Read those carefully and apply what's applicable when entering into any negotiation.

The NFA

The National Futures Association (NFA) can also be your ally on this task. Before trading with a group, check with the NFA to see if they are a member of this organization. This way, you can be assured of the companies, groups and individuals that you're dealing with before you are fooled into any scams.

The Better Business Bureau

In Forex Trading, you can also check the group or company that you'll be dealing with at the Better Business Bureau. This way, you can investigate on them first, research about their background and decide on your own if they are worthy to be trusted.

How To Turn Off Investment Swindlers?

After discussing about who are investment swindlers and the techniques they use to cheat the investors, lets talk about some techniques that one can use to turn off these swindlers and save himself/herself from the upcoming fraud. Ive been reading this article about 'Questions That Can Turn Off An Swindler', the article was so good so i am posting some of the major points of that article.

The first line of defense against investment fraud is your inalienable right to ask questions and--until you get the right answers--to say "No." And mean no. Not surprisingly, this is usually an investment swindler's first point of attack. To keep you from asking questions, he asks them! Invariably, the questions have "yes" answers, such as "You would at least be interested in hearing about such a fantastic investment opportunity, wouldn't you?" or "You would like to make a large amount of money in a short period of time with little or no risk, right?"

1. Where did you get my name?

If the response is that you were chosen from a "select list of intelligent and prudent investors," that select list may be the telephone directory, or a purchased list of persons who've bought certain types of books, subscribed to particular magazines, or responded to newspaper ads. If you have made ill-advised investments in the past, you can be pretty sure your name is on someone's alumni list. It's the list swindlers prize most: Easy preys who are eager to recoup (but are doomed to repeat) their earlier losses.

2. Can you send me a written explanation of your investment so I can consider it at my leisure?

For someone peddling fraudulent investments, that can be a double turnoff. For one thing, most crooks are reluctant to put anything in writing that might cause them to run afoul of postal authorities or provide material that, at some point, might become evidence in a fraud trial. Secondly, swindlers don't want you to do anything at your leisure. They want your money now.

3. Would you mind explaining your investment proposal to some third party, such as my attorney, accountant, investment advisor or banker?

If the answer goes something along the lines of "normally, I'd be glad to, but there isn't time for that," or if the salesman snaps back by asking "can't you make your own investment decisions?" these are virtually certain clues that your final answer should be an emphatic "No."

4. Can you give me the names of your firm's principals and officers?

Although some persons who establish and operate dishonest firms change their own names as often as they change their firms' names, even the hint that you are the kind of investor who checks into things like that can be a fast turn-off for a swindler.

5. Can you provide references?

Not just another list of other investors who supposedly became fabulously wealthy (the names you get may be the salesman's boss or someone sitting at the next phone), but reputable and reliable recommendations such as a bank or well-known brokerage firm that you can easily contact.

6. Are the investments you are offering traded on a regulated exchange, such as a securities or futures exchange?

Some bona fide investments are and some aren't, but fraudulent investments never are. Exchanges have strict rules designed to assure fair dealing and competitive price determination. There are also in-place mechanisms to provide for rule enforcement and to impose severe sanctions against those who fail to observe the rules.

7. How long has your company been in business?

In any kind of business activity, there can be advantages to dealing with a known, established company. This isn't to say that new businesses aren't starting up all the time or that the vast majorities aren’t perfectly reputable. But if you find yourself talking with someone who doesn't seem to have a past, it can be worthwhile to find out why. Many swindlers have been running scams for years but understandably aren't anxious to talk about it.

8. What has your track record been?

Before you accept a salesman's assurance that he can make money for you, you have the right to know what his performance has been in making money for others. And ask to have the information (if there is any) in writing. Boasting over the phone is one thing; putting it down on paper is quite another. In any case, even if you are able to obtain a documented performance record, don't lose sight of the fact that past performance in itself provides no assurance of future performance.

9. When and where can I meet with you or with another representative of your firm?

Chances are a crooked operator--particularly if he is operating out of a telephone boiler-room--isn't going to take
the time to visit with you and even more certainly doesn't want you to see his place of business.

10. Where, exactly, will my money be? And what type of regular accounting statements do you provide?

In many investment areas, such as futures trading, firms are required to maintain their customers' funds in segregated accounts at all times. Any mingling of investors' funds with those of the firm or its principals is prohibited. You might also want to find out what, if any, routine outside audits the firm's account records are subject to.

Some Techniques Swindlers Use.

Their techniques are as varied as their methods of establishing contact. If there is a common denominator, however, it is their ability to be convincing. The skills that make them successful are essentially the same skills that enable any good salesperson to be successful.

But swindlers have a decided advantage: They don't have to make good on their promises. In the absence of this responsibility, they have no reluctance to promise whatever it takes to persuade you to part with your money.

The first line of defense against investment fraud is your inalienable right to ask questions and--until you get the right answers--to say "No." And mean no. Not surprisingly, this is usually an investment swindler's first point of attack. To keep you from asking questions, he asks them! Invariably, the questions have "yes" answers, such as "You would at least be interested in hearing about such a fantastic investment opportunity, wouldn't you?" or "You would like to make a large amount of money in a short period of time with little or no risk, right?"