Learn Forex terms with this free glossary:
Forex Competition
Forex competition is fierce. The Forex market is a vast global market and the associated segments are hotly contested. Retails Forex brokers have a high degree of competition as each broker ties to out-perform their rivals.
Some Forex brokers organise competitions for traders to entice traders to open a live trading account, again, another tactic to out-do their competition.
Forex Trade Signals
Forex trade signals can be defined as software or services designed to broadcast buy/sell recommendations to a subscriber base.
The subscriber will pay a yearly fee or monthly subscription for access to these signals or recommendations. Forex trade signals can be a trading opportunity which is acted upon by the subscriber. This enables the subscriber to trade with proven and trusted strategies produced by experts.
Forex trade signals can be delivered by any digital or mobile devise and traded immediately by the subscriber.
Forex Mini Account
A Forex mini account is one that enables a trader to open a live trading account with very small capital or on other trading accounts, trade with smaller lot sizes limited by the broker. This capital requirement and lot size limit varies according to the Forex broker the trader chooses to use.
Many traders find that a Demo account is unrealistic in trading as this does not allow you a real trading experience because your own capital is not at stake. A Forex mini account will therefore allow you the trading experience using the trader’s own money but kept to a minimum loss.
Forex Brokerage
The Forex brokerage is invaluable transaction resource for the retail trader. The importance of the Forex brokerage for this sector of traders is growing as this segment of the market grows in both size and importance.
There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. The Forex brokerage serves as an agent of the customer in the broader Forex market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. The Forex brokerage will charge a commission or mark-up in addition to the price obtained in the market.
Dealers or market makers, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal at—the customer has the choice whether or not to trade at that price.
Forex Pairs
There are four major Forex pairs which are considered to be the most heavily traded in the Forex market. The four major pairs are: EUR/USD, USD/JPY, GBP/USD, USD/CHF. These currency pairs are considered by many to drive the global Forex market and are the most heavily traded.
Although it is widely regarded that the major pairs consist of only four pairs, some believe that the USD/CAD and USD/AUD pairs should also be regarded as majors. However, these two pairs can be found in the group of pairs known as the “commodity pairs” due to their association with their country’s production of commodities.
Forex Currencies
Forex currencies can be seen traded in pairs, against one another. Forex currencies exist as a method of trading through an online brokerage account. Electronic currency trading involves converting base currency to a foreign currency at the market exchange rates through an online brokerage account.
Each currency pair exists as an individual trading product and is traditionally noted XXXYYY or XXX/YYY, The first currency (XXX) is the base currency that is quoted relative to the second currency (YYY), called the counter currency (or quote currency). For instance, the quotation EURUSD (EUR/USD) 1.5465 is the price of the euro expressed in US dollars, meaning 1 euro = 1.5465 dollars. Historically, the base currency was the stronger currency at the creation of the pair.
However, when the euro was created, the European Central Bank mandated that it always be the base currency in any pairing.
Forex CFD
Forex Contract-For-Difference, otherwise known as Forex CFD were originally developed in the early 1990s in London. A Forex CFD is a contract between two parties, typically described as “buyer” and “seller”, stipulating that the seller will pay to the buyer the difference between the current value of a currency and its value at contract time. (If the difference is negative, then the buyer pays the price difference to the seller.)
In effect Forex CFDs allow investors to take advantage of prices moving up (long positions) or prices moving down (short positions) and are often used to speculate on the Forex market. It wasn’t until the late 1990s that Forex CFDs were first introduced to retail traders.
Forex Margin
Forex margin is associated with the leverage used in the Forex trading transaction. Your Forex broker account will show how much margin is required for the transaction to take place. If you are opening a position, there will be a minimum amount shown as to the required capital you need to make the trade.
When a trader then closes their position, if the trade has been successful then the profit will be added to the trading account and the margin needed for the next trade will change accordingly.
Forex Profits
The opportunity for making Forex profits is huge. This is what draws bankers, investment firms and retail traders alike. Traders can make profits from Forex by judging the market correctly as they enter trades in the right direction.
A trader can make profits from the Forex market when they buy the base currency – entering a trade to go long, expecting the currency to strengthen, which ends in a correct trade. When a trader closes a correct trade, they will take their profits. A trader can increase Forex profits by trading more than one currency pair at a time and by increasing the amount of lot/price per pip they will trade with.
Forex Foreign Exchange
Forex Foreign Exchange trading is an over-the-counter market where buyers and sellers conduct foreign exchange transactions. The Forex foreign exchange market is useful because it helps enable trade and transactions between countries.
Individuals who trade in the Forex typically look carefully at a country’s economic and political situation, as these factors can influence the direction of it’s currency. Foreign exchange trading is attractive for both corporate and retail traders as it is a vast global market turning over $3 trillion every day. Both liquidity and leverage are high, making this a relatively easy market compared to others to make successful transactions with.
Forex Leverage
Forex leverage is often described as using something small to control something large. In Forex, using leverage gives traders the ability to make large trades with a limited amount of money.
So for example, to trade $100,000 of currency, with a margin of 1%, an investor will only have to deposit $1,000 into his or her margin account. The leverage for Forex provided on a trade like this is 100:1. Forex leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market.
Although 100:1 Forex leverage may seem extremely risky, the risk is significantly less when you consider that currency prices usually change by less than 1% during intraday trading. If currencies fluctuated as much as equities, brokers would not be able to provide as much leverage.
Forex Investing
Forex investing takes place when an investor looks to the long term expected values of currencies and then chooses to trade and hold over the long term.
The Forex investor will look to the longer time frames on charting software to determine likely trends, entry and exit points. Forex investing requires more flexibility of account size as there will be big swings and therefore a sizeable stop loss will need to be placed to allow for these swings in price.
Learn To Trade Forex
Traders will learn to trade Forex so they can become more successful as this is a complex profession. The best way to learn to trade Forex is to be trained by someone who is experienced and has been personally recommended. You can also learn to trade Forex by reading books, online tutorials, video tutorials, tips and advice on strategies. There are courses which teach you how to trade and range in price, duration and quality.
A new Forex trader will need to learn how to write a trading plan and be able to act out that trading plan keeping detached from the market.
In order to fully learn to trade Forex, time and experience will need to be accrued so that the trader makes consistently good trading decisions enabling them to become successful.
Forex MetaTrader
Forex Metatrader is often referred to as MT with the most common version being 4. MT4 is downloadable free software for Forex trading, giving live feed data to traders, especially useful for retail traders.
Forex Metatrader is easy to use with many of the best scripts, indicators already installed. This software is popular with retail traders as it is highly customisable. There are many add-ons, scripts, Expert Advisors, charts and additional free and paid for plugins for Forex Metatrader plus the facility for back-testing strategies.
Many traders use this software and is highly recommended.
Forex Pip
Forex Pip stands for ‘Percentage In Point’. It is the smallest price unit of a currency. In the Forex market prices are mostly quoted to the fourth decimal point.
A Forex Pip, although very small individually, show that there is strength in numbers. Once you get to multiplying those pip values by the moderate price changes in the Forex market and the thousands of dollars you’re likely to leverage, you’ll see the huge profit potential of Forex trading.
Forex Futures
Forex futures are an exchange-traded contract to buy or sell a specified amount of a given currency at a predetermined price on a set date in the future.
All Forex futures are written with a specific termination date, at which point delivery of the currency must occur unless an offsetting trade is made on the initial position.
Forex Charting
Forex charting software packages give the trader choice of which information they use to define their trading plan, strategies and trading rules. Forex charting software will often be live feed data directly on to the traders monitor with prices being constantly updated.
It is then for the trader to use the Forex charting indicators and scripts to decide when and how to enter trades and when to pull out. Developers are constantly working on new versions of Forex charting software with a good number of upgrades as this area of Forex trading is hotly contested.
Forex Indicators
Forex indicators are essential tools for the trader. Indicators are a series of data points used in an attempt to predict a currency pairs movement. Forex indicators come in two formats – leading and lagging.
Most Forex indicators are lagging as these will be based on algorithms taken from historical prices over a defined period. These are still important as the Forex market tends to repeat itself – often stalling and retracing around the same price points. Leading indicators such as the CCI will oscillate between two horizontals with the extreme points being the most important for a trader to watch for.
Scalping Forex
Scalping Forex usually involves opening and closing a position in seconds or minutes for a few pips of profit. Even though scalping involves the use of leverage and higher leverage means higher risk, the short period of time a forex scalper is in a trade decreases the exposure risk that’s inherent in trading or investing due to the holding of a position. If done correctly, scalping provides this additional degree of “risk control” that is not even present in regular day trading.
Scalping the Forex will normally allow the trader the use the tick and minute charts as these will give the most up to date prices to trade from.
Forex Spread Betting
Forex spread betting allows the trader to trade a live account, making a ‘bet’ or trade based on which way the trader thinks the price will move. The Forex broker will quote the trader two prices – the difference between the price being the spread and where this type of trading takes its name.
The Forex spread betting quote will contain the ‘Bid’ and ‘Ask’ price. If the trader thinks the price will go up, they will buy at the ‘Bid’ price. If the trader anticipates the price of the currency pair to go down, the the trader will look to enter the market to sell at the ‘Ask’ price.
Forex Platforms
Forex platforms are an essential tool for any Forex trader. Due to the increased popularity of retail trading, there has been high demand for developers to provide the industry with different types of Forex platforms and tools intended for the use of banks, retail brokers and retail traders.
Accuracy of the various Forex platforms on offer to traders is essential as it is fundamental in the transaction process between the trader and broker.
Forex platforms are developed to a high degree, offering the trader a live feed which stream live prices directly to the trader’s PC.
Automated Forex Trading
Automated Forex trading allows the trader to use a plugin and leave facility to profit from the vast global Forex market. These automated Forex trading systems come in different forms. These include managed accounts, to automated Forex trading systems offered by Forex brokers, systems available from private developers.
An automated Forex trading system typically undergoes extensive testing and is commonly based on mathematic algorithms. These systems are usually based on short term trading periods.
Forex Trading Signals
Forex trading signals can be defined as software or services designed to broadcast buy/sell recommendations to a subscriber base.
The subscriber will pay a yearly fee or monthly subscription for access to these signals or recommendations. Forex trading signals can be a trading opportunity which is acted upon by the subscriber. This enables the subscriber to trade with proven and trusted strategies produced by experts.
Forex trading signals can be delivered by any digital or mobile devise and traded immediately by the subscriber.
Forex Spread
The bid/ask spread is the difference between the price at which a bank or market maker will sell (“ask”, or “offer”) and the price at which a market taker will buy (“bid”) from a wholesale or retail customer. The customer will buy from the market-maker at the higher “ask” price, and will sell at the lower “bid” price, thus giving up the “spread” as the cost of completing the trade. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EURUSD might be 1.2200/1.2203 on a wholesale broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard “lot”.
The Forex spread on popular currencies are usually no more than 3 pips wide (i.e., 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.
Forex Day Trading
When Forex day trading, a trader will hold a trade open over the course of a day and close out the position by the close of the day. The Forex market is a 24 hour a day market but a broker will have set times they will close open positions and then immediately re-open them. If a trade isn’t closed by the end of the day, then the trade is either charged or credited with interest.
With Forex day trading, a trader will use time frames to trade according to a day trading strategy and will have specific set ups based on day trading.
Forex Demo
A Forex demo account is mostly used by a trader to test a Forex strategy and to get to know a broker’s software. This is one of the fundamental stages of becoming a good Forex trader as knowing the software is vital to success as a trader. A Forex demo account acts like a virtual Forex trading account as the trader will utilise the same functionality they would if they were trading a live account.
The trader will be allocated an virtual amount of trading capital and the trader will use this facility to be consistent with their trading plan.
Once this has been mastered, it is a good idea for the trader to then move on to trading a live account, as some see the Forex demo as unrealistic and not true to trading a live account.
Forex Trading Strategies
Forex trading strategies will be devised by every trader. This will typically be a set of rules with which to activate a trade using a Forex broker account of Forex software. Every trader is looking for an edge to set them apart from other traders and will develop different Forex trading strategies exist in many forms and commonly consist of chart patterns, indicators, oscillators, Moving Averages and other scripts and plugins for which can be installed on to a traders preferred software package.
Some Forex trading strategies can be bought, typically for a recurring monthly fee from a more superior and experienced trader and traded in a group format or individually..
Short term Forex strategies are used by scalpers with differing Forex strategies used by intra-day traders, swing traders and longer term traders and investors.
Forex Course
A Forex course should be well structured and offer the new trader opportunities to learn how to master every aspect of Forex trading. As Forex trading is an indepth subject, the Forex course should also allow its students on-going help, guidance and support.
Research and personal recommendations are always a good way to make sure the Forex course will communicate the right information in an easy to digest format and that the teaching is from an experienced trader.
Forex Robot
A Forex robot exists as an automatic account manager which performs transactions on the foreign exchange market on behalf of an account holder. The main investors to benefit from such a Forex robot are traders who are inexperienced or wish to make profits from Forex trading but don’t have time.
A Forex robot is mostly used for short term trading as the market can change quickly and algorithms used to calculate trading opportunities cannot be accurate in the long term.
Managed Forex
A managed Forex account can give an investor who cannot watch the market 24 hours a day an opportunity to participate in the vast world of Forex trading. A managed Forex account is available for the investor who prefers to have his capital managed by professionals. It is a viable solution for individuals or companies looking to diversify into Forex without hands-on involvement.
Typically, managed Forex account programs use liquid currency pairs, like EUR/USD, GBP/USD, USD/JPY, etc., as well as liquid crosses such as, EUR/GBP, EUR/CHF and EUR/JPY for maximum return on the managed Forex account.