In short it is the foreign exchange market. It is the largest financial market in the world with approx, $2 trillion dollars worth of transactions occurring every day. The different currencies are traded in pairs e.g U.S dollar/Yen or Euro/pound sterling. It is the simultaneous purchase of one currency and selling of another for higher value.
Who participates in Forex?
All types of Banks (Central, commercial and investment), financial managers, brokers, multi-national companies, traders and private investors.
When is the Forex market open?
Forex is a 24/7 market open from Sunday evening to Friday evening. Due to differing time zones one market will always be open.
What are the most common currencies on Forex?
The US dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar
What are the short and long positions?
A Short position is the anticipation of a downturn in other words benefiting from an incoming decline.
Long positions are taken when a trader buys a currency at a low price to sell it later for more. This allows investors to benefit from changing market prices.
A key point to remember is that because currencies are traded in pairs, every forex position inevitably requires the investor to go short in one currency and long in the other.
What is a pip?
Pip is an acronym for "percentage in point" and it is the smallest amount that a Forex cross price changes. Currency pairs are given to four decimal places, meaning that a movement from 1.2332 to 1.2333 for a currency pair would be one 'pip'. Follow this example.,The EURUSD is quoted with four decimals, so for a given position you can multiply the position amount by the value of one pip, or USD 0.0001. So, a EURUSD 100,000 contract, one pip would equal USD 10. On a USDJPY 100,000 contract, one pip is equal to JPY 1,000 because USDJPY is quoted with only two decimals (meaning 1 pip = JPY 0.01).
What is spot?
A spot is a direct trade on a market price with a standard settlement date or Value date of 2 business days following the initial trade date.
What is the spread?
A spread is the difference between the price of the bid (the price you can sell the trading instrument) and the ask price (the buying price for the trading instrument).
What does Value Date mean?
The date that the funds will be settled for a trade transaction will take place in your account. This is usually at spot (2 days following the trade), but it can be more or less. This is to allow time for paperwork and cash transfers to be fully arranged.
What is a Forward Outright?
Forward Outright is an order to trade a Forex instrument at a fixed price on a specific fixed date. The price of the forward outright is configured by adjusting the spot rate to the difference in interest rate between two currencies until maturity. Forex forward outright's enable you to take advantage of the difference in interest rates between currencies and to forego foreign exchange exposure risks. By purchasing a currency at a future date with a fixed price using a forward outright, you avoid being exposed to the fluctuating foreign exchanges.
How can I use a Limit Order?
Limit orders are used to enter a market and to take profit at predetermined levels. Limit orders to buy are placed below the current market price and are proceeded when the Ask price reaches or exceeds the specified price level. If it is placed above the current market price, the order is then filled at the best available price, either at the limit price or below. Limit orders to sell are placed above the current market price and are executed when the Bid price exceeds the price level specified. If placed below the current market price, the order is filled at the best available price either at the level price or above. When a limit order is triggered, it is filled as quickly as possible at the price that is currently obtainable on the market. Note that if the price at which your order is filled it may be different from the price you had set for the order , if the opening price of the market is better than your limit price.
How can I use a Stop Order?
Forex Stop orders are used for exit positions and to add protection to investments in the event that the market moves against an open position. Stop orders to sell are placed below the current market level and are executed when the Bid price reaches or exceeds the price level that is specified. Stop orders to buy are placed above the current market and are executed when the Ask price reaches or exceeds the price level specified.
Stop orders are mostly utilised to buy the applicable currency pair in a market that is on the rise. If the price level specified in the order is actually on the market, the order will be filled at the price offered by the market maker. For example, if you sold GBPUSD at 1.4280, with a Stop Bid at 1.4330, the position would be closed, if the price reached or exceeded 1.4330. We recommend the use of Stop if Bid orders only to buy Forex positions. The use of Stop orders to sell Forex positions may result in positions being closed prematurely, if a market event causes the Bid/Ask spread to temporarily widen.
Stop if Offered orders are used to sell the applicable currency pair in a falling market. If the price level specified is on the market, the order will be filled at the price bid by the market maker. For example, if you bought USDJPY at 132.00, with a Stop Offer at 131.50, the position would be closed if the price reaches or exceeds 131.50. We recommend the use of Stop if Offered orders only to sell Forex positions. The use of Stop if Offered orders to buy Forex positions can result in positions being prematurely closed if a market event causes the Bid/Ask spread to temporarily widen.
What are Related Trade Orders?
Related Trade Orders otherwise referred to as contingent orders are trade orders that link together to make a complex trading strategy. There are different types of contingent orders, one of the most popular one being 'If Done' and 'O.C.O orders'. If Done orders (sometimes known as slave orders) is where a slave order becomes active if the first one is executed. For example, you place a limit order to buy EURUSD following the order being filled, a subsequent limit order to sell EURUSD if the spot price reaches a specific level. One Cancels the Other (O.C.O) is the order pattern where the execution of one order subsequently negates the other order. O.C.O orders are commonly utilised to place both a stop loss and profit taking order on a single position the first of the orders that executes will automatically cancel the other order in place thus ensuring a continually healthy trading position. Learn more at learnforex-trading.com/go1
