What Is Forex
The foreign exchange market is the “place” where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business.
A currency pair is the quotation and pricing structure of the currencies traded in the forex market; the value of a currency is a rate and is determined by its comparison to another currency.
Major currency pairs
These are the most frequently traded and most liquid pairs. They involve the U.S. dollar (USD) paired with one of the other major currencies (EUR, JPY, GBP, CHF, CAD, AUD, NZD).
Cross Currency Pairs
These are pairs which do not contain the U.S. dollar. Main crosses are also known as Minor Currency Pairs and include pairs between the major currencies.
Exotics consist of one major currency paired with the currency of an emerging economy.
The size, or volume, of a trade, is often calculated in lots. In FX trading, one lot represents 100,000 units of the base currency of the pair you are trading.
The standard size for a lot is 100,000 units. There are also mini-lots of 10,000 and micro-lots of 1,000.
|Lot||Number Of Units|
Leverage allows you to trade larger volumes and is expressed as a ratio. Look at the following table to see how it affects your trade size:
|Initial Investment||Leverage||Trade Size|
|$1000||1:1 (no leverage)||$1,000|
Margin is the percentage of your account balance that is required to secure your positions. The more leverage you use, the less of your account balance is required as margin.
A pip is the smallest increment in which a currency pair can move. It is usually the fourth decimal place of the quote currency in a pair. In the case of the Japanese yen (JPY), the pip is the second decimal place of the quote currency.
Pips help traders determine profit or loss, which are calculated according to the number of pips that a currency rises or falls in relation to the price at which it was bought or sold.
The bid price is the price on the left and is lower than the Ask price. It is the price at which you can sell a currency pair.
The ask price is the price on the right, and is also known as the Offer price. It is the price at which you can buy a currency pair
The difference between bid price and ask price is known as spread.
MetaTrader 4, also known as MT4, is an electronic trading platform widely used by online retail foreign exchange speculative traders. It was developed by Meta Quotes Software and released in 2005. The software is licensed to foreign exchange brokers who provide the software to their clients.
Types of orders
Buy stop order
A buy stop order is an order to buy a security which is entered at a price above the current offering price. It is triggered when the market price touches or goes through the buy stop price.
Sell stop order
A sell stop order in meta trader refers to an pending order to sell a security at a price which is lower than current price.
Buy limit order
It’s a pending order which is put to buy a security at a lower level than current price.
Sell limit order
Itís a pending order which is put to sell a security at higher than current price.
Types of market
Over-the-counter (OTC) market
In an OTC market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency. A trade can be executed between two participants in an OTC market without others being aware of the price at which the transaction was effected.
Exchange traded market
Where a regulated physical body works as an intermediate for buyers and sellers of securities.
It ís the part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments
It ís the market where you purchase securities directly from company rather than other traders or investors
It ís the market place where you purchase securities from other investors not from company itself.
Initial public offering (IPO)
An act of offering the stock of a company on a public stock exchange for the first time
Equity share holder has ownership in the company and has a voting right also. Such a shareholder has to share the profits and also bear the losses incurred by the company.
a share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends.
A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).
A share buyback is a program by which a company buys back its own shares from the marketplace, usually because management thinks the shares are undervalued, reducing the number of outstanding shares.
A stock split is a corporate action that increases the number of the corporation’s outstanding shares by dividing each share, which in turn diminishes its price. The stock’s market capitalization, however, remains the same
Futures and options F&O
A contract for assets (especially commodities or shares) bought at agreed prices but delivered and paid for later.
A long (or long position) is the buying of a security such as a stock, commodity or currency with the expectation the asset will rise in value.
The Short Position is a technique used when an investor anticipates that the value of a stock will decrease in the short term
A short sell transaction the investor borrows the shares of stock from the investment firm to sell to another investor.
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. An option, just like a stock or bond, is a security.
An American option is an option that can be exercised anytime during its life. American options allow option holders to exercise the option at any time prior to and including its maturity date
A European option is an option that can only be exercised at the end of its life, at its maturity.
An option to buy assets at an agreed price on or before a particular date.
An option to sell assets at an agreed price on or before a particular date.
Spot price is the current market price at which an asset is bought or sold for immediate payment and delivery
Conversely, a commodity futures price is quoted for a financial transaction that will occur on a future date and is the settlement price of the future contract.
The price at which a put or call option can be exercised
Intrinsic value in options is the in-the-money portion of the option’s premium. For example, if a call options strike price is $15 and the underlying stock’s market price is at $25, then the intrinsic value of the call option is $10, or $25 – $15.
At the money option
At the money is a situation where an option’s strike price is identical to the price of the underlying security.
In the money option
In the money means that a call option’s strike price is below the market price of the underlying asset or that the strike price of a put option is above the market price of the underlying asset.
Out of the money
Out of the money (OTM) is term used to describe a call option with a strike price that is higher than the market price of the underlying asset, or a put option with a strike price that is lower than the market price of the underlying asset.
Time Value of option
The part of an option price that is based on its time to expiration. If you subtract the amount of intrinsic value from an option price, youíre left with the time value. If an option has no intrinsic value (i.e., its out-of-the-money) its entire worth is based on time value.
A commodity market is a market that trades in primary economic sector rather than manufactured products.
Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar.
Hard commodities are mined, such as gold and oil.
Cash commodity or “actual” refer to the physical goods e.g. wheat, corn, soybeans, crude oil, gold, silver, that someone is buying/selling/trading as distinguished from derivatives.