Let's Learn Forex
What is Forex Trading?
• “Forex “ term is an abbreviation of two words Foreign + Exchange. Forex is a process of ex-changing one currency into another currency for a variety of reasons, generally commerce, trading, or tourism. The Forex or the FX market is a global marketplace for exchanging national currencies against one another. So where the currencies are traded is Forex “Foreign-Exchange”
• Foreign-Exchange / FX / Forex is the world’s most traded market, with turnover of $6.5 trillion per day. Isn’t it amazing ? However on the other hand U.S. stock market trades around $22.4 billion every day. Sounds like a big number but this is only a fraction of what forex trades.
• Thanks to the global reach of trade, commerce, and finance, foreign-exchange markets tend to be the largest and most liquid asset markets in the world.
• Forex market is traded 24 hours a day, 5 days a week across by banks, institutions and individual traders worldwide globally. Unlike other financial markets, there is no centralized marketplace for forex, currencies trade electronically over-the-counter (OTC),in whatever market is open at that time.
• Currencies trade against each other as exchange rate pairs. For example, GBP/USD, AUD/USD, NZD/USD, EUR/USD and much more. The price of a forex pair is how much one unit of the base currency is worth in the quote currency.
• When someone is Trading Forex it means they are buying and selling currency pairs in an effort to profit from the potential increase or decline of the price of such pairs.
• Currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney—across almost every time zone.
• The participants of the market use Forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among several other reasons.
• Foreign-Exchange “Forex” Trading involves the buying of one currency and simultaneous selling of another. In forex, traders attempt to profit by buying and selling currencies by actively speculating on the direction currencies are likely to take in the future.
• The amount of currency converted every-day can create extremely volatility in the movements of some currencies. This is what that makes Forex so lucrative to traders. One side it brings a greater chance of high profits, while also increasing the risk.
Types of Forex Market
Forex markets exist as spot (cash) markets as well as derivatives markets offering forwards, futures, options, and currency swaps.
Spot Forex market (Cash): the physical exchange of a currency pair, which takes place at the exact point the trade is settled – These are the fastest transaction involve immediate payment at the exact current exchange rate and hence called the “Spot Rate” or ‘on the spot’ or within a short period of time.
This involve spot sale and spot purchase of Forex and the rate at which transaction is settled is the “Spot Exchange Rate”. These transactions settles within 2 days of the agreed deal also known as “Spot Transaction”
Forward Forex market: Here the terms are negotiable between the two parties. In this market, a contract is agreed mutually to buy or sell a set amount of a currency at a specified price. This has to be settled at a fixed-set date in the future or within a future date range. This is usually after 90 days of the deal at an agreed fixed exchange rate and hence called “Forward Transaction” and the Exchange rate at which buyers and sellers mutually agreed to settle the transactions in the Forward Market is termed as “Forward Exchange Rate”.This way, the terms can be negotiated and tailored to the needs of the participants. It allows for more flexibility.
In many scenarios, this type of market involves a currency swap too, where two entities swap currency for an agreed-upon amount of time, and then return the currency at the end of the contract.
Therefore, the Spot Market and the Forward Market are the important kinds of foreign exchange market that often helps in stabilizing the foreign exchange rate.
Future Forex market: As per the name these transactions (buy/sell) under an agreed contract involve future payment and future delivery at an agreed exchange rate, also called the future rate. Unlike forwards, a futures contract is legally binding and standardized, which means the elements of the agreement are set and non-negotiable
Most traders speculating on forex prices will not plan to take delivery of the currency itself; instead they make exchange rate predictions to take advantage of price movements in the market. These are popular among traders who make large currency transactions and are seeking a steady return on their investments.
An option is a contract, which provide the buyer of the options the right but not the obligation to buy or sell the underlying at a future fixed date (and time) and at a fixed price. Currency options is a part of the currency derivatives, which emerged as an important and interesting new asset class for investors. Currency option provides an opportunity to take call on Exchange Rate and fulfil both investment and hedging objectives.
A call option gives the right to buy and a put option gives the right to sell. As currencies are traded in pairs, so if we buy one currency against other it means one currency is bought and another sold. So the buy Currency is (Call) and the Sold currency is (Put)
For example: EUR / USD : Buy EURO and Sell USD is EUR (Call) and USD (Put)
Who are the Participants in Forex Market ?
• There are almost five different types of entities considered to be a part of the Forex markets on a daily basis.
• Central Banks: Each country has a central bank to manage its monetary supply and they are the official players in this market,
• Commercial Banks: They are the main source of currency transactions in the Forex Market and hence considered as the leaders in this market.
• Traditional Users: These are the entities that perform business across national borders.
• Brokers: They work as go- in between for banks, typically during large transactions. Brokers generally handle only a very small portion of the volume of the overall foreign exchange market.
• Traders and Speculators: They work to take advantage of short-term trends in the market to earn Gain/Profits.
Where does the Foreign-Exchange (Forex trading transactions) happens ?
Unlike the New York Stock Exchange, with a large physical building, Foreign Currency exchange transactions takes place all over the entire world. They don’t have any/no central physical building.
Most transactions are done by phone or computer. The majority of transactions take place in London, New York and Tokyo, with cities such as Singapore, Zurich, Frankfurt and Hong Kong handling transactions as well. We do not have to wait for the opening bell to ring to start trading in the Forex. The Forex market starts, from the Monday morning opening of the Sydney session to the afternoon close session of New York session. This allows us to trade anytime we prefers without giving much attention on what time it is.
What is a Base and Quote (Counter) currency?
The base currency is the first currency that is listed in any Forex currency pair, while the second currency is called the quote or the counter currency. Till now we already know Forex trading always involves selling of one currency in order to buy the other therefore it is quoted in pairs. The price of the base currency is always calculated in units of the quote / counter currency. The price of a Forex pair is how much one unit of the base currency is worth in the quote currency. There are approximately 180 legal currencies in circulation globally. So it is practically possible to exchange any of those currency v/s rest 179 currencies.
Currency quotations uses the abbreviations for currencies which are prescribed by the International Organization for Standardization (ISO) in standard ISO 4217. Each currency in the pair is denoted as a three-letter code, which signifies two letters stand for the region, and one standing for the currency itself. For example, USD / JPY is a currency pair that involves buying the United States Dollar while selling the Japanese Yen.
Popular Currencies in Forex Trading
United States of
United States Dollar
Great Britain Pound
Confoederatio Helvetica Franc (Confoederatio Helvetica is the Latin name of Swiss Confederation)
New Zealand Dollar
Classification of Currency Pairs in Forex Market
Currencies which are traded actively
Some currency pairs made up of
Pairs that are Trading Actively but
Pairs that are Classified by Region. i.e
All other pairs, that, make up less
EUR / USD
EUR / GBP
NZD / USD
AUD/SGD (Australian Dollar vs Singapore Dollar)
GBP / USD
CHF / GBP
AUD / USD
USD / CHF
GBP / JPY
CAD / USD
USD / JPY
What do we mean by Long Position and Short Positions in Forex Market ?
A ‘position’ is the term used to describe a trade in progress. When a trader expect a currency price to go higher / increase in value and Buy it is called a “Long position”. And when the trader sells that currency back to the market it is said that the “long position has been closed” and the trade is completed for that position.
When a trader sells a currency expecting its value to decrease, and/or anticipate to buy it back at a lower price is called a “Short Position”. A short position is said to be “Closed” when the trader buys back the same.
So, Trading is all about Buy (Lower Price to Sell higher later – Long Position) and Sell (Higher price then he paid for it to Buy later – Short Position) to earn Profits 🙂
Forex Education from Kinder-Garden to Graduation- All FREE – Step by Step
If you are really looking forward to Learn Forex Step-By-Step with a solid foundation. Then I would strongly recommend you to start with https://www.babypips.com/learn/forex . I really respect and recommend this Website to educate yourself at any level. You can learn and pass each class gradually as you did in your schooling. In short its a Forex School but you need to Learn and Educate yourself sincerely & honestly. Don’t skip in between and at the end of the course you will feel how much you gained being disciplined. Apply your learning principles in real trading, creating your own strategies, Plans. Execute them, Test them, learn from them. Good Luck
Keep yourself Updated with the market movements When, Why, How and much more
It is really important to keep yourself updated with the market movements and to understand Why, How, When etc to take a wiser trading decision / strategy. I would suggest the below Websites to refer on a regular basis.
Commonly Used FOREX Terms, Definitions-Glossary
- Abandoned Baby: A Japanese candlestick pattern signaling a reversal. It consists of three candles. In a downtrend, a long black candle is followed by a Doji that gaps lower. A third candle, with a long white body gaps above the Doji’s high.
- Absolute Drawdown: The lowest point a trader’s balance reaches below the Initial Deposit.
- Account – a record in the database, which contains information about a user and other objects of the system.
- Account History: History of performed trades on a specific account on the MT4 platform.
- Actionary Waves: In Elliott Wave Theory, there are waves that move in the direction of the trend of one larger degree.
- Accumulation/Distribution: A technical Indicator developed by Mark Chaikin. When the close price is above the mid-point of the daily range, then a positive number is returned implying buying pressure (accumulation). Similarly, when the close price is below the mid-point of the range, then a negative number is returned implying a selling pressure (distribution). The daily volume is multiplied by the above number to determine the weight of the price in the calculation of the indicator. Calculation: [ (close – low) – (high – close) x volume] / (high – low)
- Accrual: The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (interest arbitrage) deals, over the period of each deal.
- Acquisition: When one company decides to take over another one, it is referred to as an acquisition. The acquiring company will do this by purchasing either the majority or entirety of the ownership stake of the company being taken over.
- Adaptive Moving Average: A technical Indicator developed by Perry Kaufman to account for market volatility.
- ADP Non-Farm Employment Change: Estimated change of US employed people, excluding the farming and the government sector. Released by Automatic Data Processing, Inc. about two days before the official NFP report.
- Advance Block: A Japanese candlestick bullish reversal pattern. Also known as Three White Soldiers. It consists of three long white candles with short or non-existent shadows. Each open is below the previous close. Each close is above the previous close
- Adjustment: Official action normally occasioned by a change either in the internal economic policies to correct a payment imbalance or in the official currency rate.
- ADR: An American Depositary Receipt (or ADR, for short) is a way in which US investors can trade shares of non-US companies without using their local exchanges.
- ADX: Advance Directional Movement Index. It’s a technical indicator designed by Welles Wilder to determine the presence of price trend. A reading above 25 indicates the presence of a trend. Buy/Sell signals are provided by the crossing of +DI and -DI.
- AED: UAE Dirham. The currency of the United Arab Emirates. It is subdivided into 100 fils.
- AFN: Afghani. The currency of Afghanistan. It is subdivided into 100 pul.
- Aggregate Risk: When a bank or financial body is exposed to forex contracts from a single customer.
- Aggressive: Traders and/or price action are acting with conviction.
- Alerts: Also known as trading alerts – allow you to set specific criteria and be notified immediately once that criteria has been met. There are three main types: economic announcements, price alerts and indicator alerts.
- Algorithmic Trading: Step by step programming instructions on how to carry out trading orders in electronic financial markets. Discipline and emotion- free trades are the advantages of this type of trading.
- ALL: Lek. The currency of Albania. It is subdivided into 100 qindarka.
- Alligator: A technical Indicator designed by Dr. Bill Williams. It consists of 3 moving average lines: The Alligator’s Jaw (blue line) is a 13-period Smoothed Moving Average shifted into the future, by 8 bars. The Alligator’s Teeth (red line) is an 8-period Smoothed Moving Average shifted into the future by 5 bars. The Alligator’s Lips (green line) is a 5-period Smoothed Moving Average shifted into the future by 3 bars.
- Alpha: Alpha is the measurement of an investment portfolio’s performance against a certain benchmark –usually a stock market index. In other words, it’s the degree to which a trader has managed to ‘beat’ the market over a period of time. The alpha can be positive or negative, depending on its proximity to the market.
- AMD: Armenian Dram. The currency of Armenia. It is subdivided into 100 luma
- Amortisation: Amortisation is the process of spreading the repayment of a loan, or the cost of an intangible asset, over a specific timeframe. This is usually a set number of months or years, depending on the conditions set by banks or copyright agencies. Amortisation will often incur interest payments, set at the discretion of the lender.
- Analyst: A financial professional who has expertise in evaluating investments and puts together buy, sell and hold recommendations for clients.
- Andrews’ Pitchfork: A technical analysis tool developed by Dr. Alan Andrews. It is drawn by selecting 3 major consecutive tops and bottoms. The result is a line study of 3 parallel lines acting just like support and resistance.
- Annual general meeting (AGM): An annual general meeting (AGM) is a yearly gathering between the shareholders of a company and its board of directors. Generally, this is the only time that the directors and shareholders will meet throughout the year, so it is a chance for the directors to present the company’s annual report
- ANG: Netherlands Antillean Guilder. The currency of Curaçao and Sint Maarten (Dutch part). It is subdivided into 100 cents.
- AOA: Kwanza. The currency of Angola. It is subdivided into 100 centimos.
- Appreciation: A product is said to ‘appreciate’ when it strengthens in price in response to market demand.
- Arbitrage: The act of taking advantage of countervailing prices within different markets through the sale or purchase of a currency. Thus, simultaneously taking an equal and opposite position in a related market to profit from small price differentials.
- Asian Central Banks: Refers to the central banks or monetary authorities of Asian countries. These institutions have been increasingly active in major currencies as they manage growing pools of foreign currency reserves arising from trade surpluses. Their market interest can be substantial and influence currency direction in the short-term.
- Asian Session: 23:00 – 08:00 GMT.
- ASK (Offer Price): “Ask” (or “ask price”) is a term used to describe the price at which a trader accepts to buy a particular currency. In FX trading, the Ask represents the price at which a trader can buy the base currency, shown to the left in a currency pair. For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the Ask price is 1.4532, meaning you can buy one US dollar for 1.4532 Swiss francs.
- In CFD trading, the Ask also represents the price at which a trader can buy the product. For example, in the quote for UK OIL 111.13/111.16, the product quoted is UK OIL and the Ask price is £111.16 for one unit of the underlying market.*
- Asset: “Asset” refers to an item or resource of value, such as a currency or currency pair. It can be owned or controlled to return a profit, or a future benefit. In financial trading, the term asset relates to what is being exchanged on markets, such as stocks, bonds, currencies or commodities.
- Asset Class: An asset class is a category of financial instrument – these can be physical assets or financial assets. The instruments are grouped into asset classes based on whether they show similar characteristics, behave in the same way on the market, or are governed by the same laws and regulations.
- AT Best: An instruction given to a dealer to buy or sell at the best rate that can be obtained at a specific time.
- AT OR Better: An instruction given to a dealer to buy or sell at a specific price or better.
- ATM (At the Money): At the money (ATM) is a term used to describe an options contract with a strike price that is identical to the underlying market price. At the money options see a lot of trading activity, because they are so close to becoming profitable.
- Auction: An auction market is an environment that facilitates competition between buyers and sellers. In an auction market, buyers indicate the maximum price that they are willing to pay for an asset, while sellers express the lowest price that they would be comfortable accepting.
- AUS 200: A term for the Australian Securities Exchange (ASX 200), which is an index of the top 200 companies (by market capitalization) listed on the Australian stock exchange.
- AUSSIE: Refers to the AUD/USD (Australian Dollar/U.S. Dollar) pair. Also “Oz” or “Ozzie”.
- Automated trading – a method of trading when special programs execute orders on the trader’s behalf, based on a particular system, but without the trader’s participation.
- Averaging Down: When a trader purchases an asset, the asset’s price drops, and if the trader purchases more, it is referred to as averaging down.