Forex Glossary

Rate/ratio

The rate or ratio numbers the price of a currency regarding another and can in German at the earliest with the term course be translated. The concrete value of a currency is expressed here in principle and exclusively in relation to a further currency. Thus a transaction at the foreign exchange market of the simultaneous purchase and selling values consists. For example here the US Dollar is used, in order to acquire for it euros. If for this valid course is to be expressed, then this happens in a standardised form, under denomination of both currencies and the valid rate of exchange. Three-figure abbreviations for the usual currencies became generally accepted here. Is to be defined thus, to which course US Dollar for euros to be exchanged to be able, then first for this the currency which can be acquired is called, followed of the currency, with which one buys. In the used example the common abbreviation reads thus EURUSD, EUR for euros and USD for US Dollar. Now the actual rate of exchange, usually up to four places behind the comma, follows as approximately 1.5933. The indication of course EURUSD 1, 5933 means thus that at the price of 1, 5933 US Dollar per a euro can be acquired.

Base Currency

Official numbering of a course at the foreign exchange market consists of the denomination of two currencies, followed from the concrete rate of exchange. The first currency mentioned represents the base Currency, partly also than Primary Currency, cathedral TIC Currency or Accounting Currency designation. The concrete value or course of a currency is expressed in principle in form of a pair of currencies. Currencies are excluding commercial able in pairs, since currency must be always used, in order to acquire another. Here three-figure abbreviations for the usual currencies are used, which are internationally standardised. Examples for this are USD for the US Dollar, EUR for the euro and CHF for Swiss franc, JPY for the Japanese yen or GBP for the British Pound. With an indication of course, which reads “EURUSD 1, 5933”, the correct version takes place in this form: A euro (base Currency) can be acquired at a price at a value of 1, 5933 US Dollar. To that extent the course expresses, how much is worth the base Currency.

Counter Currency

While the base Currency is defined by the first three letters of an indication of course, refer the letters four to six and thus the second currency abbreviation, on the ratio so called Currency, which is called also secondary or Counter Currency. In the context of the used nomenclature at the foreign exchange market the Counter Currency designates the second component of a pair of currencies. In the example “EURUSD” thus the component of “USD”, for the US Dollar. In the concrete meaning an indication of course, which amount of the Counter Currency must be applied numbers, in order to acquire a unit of the amount of the base in each case Currency? The example EURUSD 1,5933 means to acquire thus that 1.5933 US Dollar, shortened USD and therefore the Counter Currency, must be spent, around a euro, shortened with EUR, z.

Bid Price

If it concerns the sale of the base Currency, thus the first value of a pair of currencies, then the price becomes, for which a dealer can sell the respective currency, when Bid Price designates. Common the designation is Sell Price here likewise, while in German of the buying rate so called one speaks. If one stands as a dealer in the situation that one would like to sell the base Currency due to the current market tendency or the personal prognosis, then the Bid Price defines clearly, to which course the sale would take place up-to-date. In the context of the everyday trade at the foreign exchange market the Bid Price represents to that extent a central and important size to compute there it the Trader made possible accurately it can obtain which yield with an immediate sale. In all rule the sale will take place if the dealer assumes the value of the base Currency will drop in foreseeable time.

Ask Price

The Ask Price numbers that price, which a dealer must pay, if he liked to acquire the base Currency. Frequently this value is called also Buy Price or Offer Price, while in the German linguistic usage the designation selling rate is used. If the interest in a purchase of the base Currency exists for the dealer, then the Ask Price defines the price which can be paid for a unit of this currency, expressed in the Counter Currency. Forex Trader has then an interest in a purchase of the base Currency, if they arrive due to market events or personal analysis at the conviction that the Bid Price will rise in foreseeable time. If this is the case, while a currency is in the possession of the Forex Traders, then it realizes thereby the desired profit, if the sale takes place in time.

Spread

The Spread defines the difference between Bid Price and Ask Price and to that extent also as Bid/Ask Spread, Market Spread or course span is designated. In the context of the Forex of trade the Spread represents thus a central variable, which is used by the Trader, in order to compute potential profits or losses and to identify a suitable time for purchases and sales. As difference between purchase and selling price obtain the Spread the business potential, which results from the up-to-date valid rates of exchange? The concrete height of Spreads is rather small within the Forex of trade. This represents an important distinction criterion to other financial markets. Speculations within the fourth place after the comma are quite usual at the foreign exchange market and can be used in connection with a suitable lever, in order to obtain also in the context of small investments clear profits.

PIP/BLIP

The trade at the Forex market is connected with the exhaustion of even smallest differences between purchase price and selling price. The difference is called here Spread and measured in the unit Pip. Also the terms POINTS or points are quite common. The Pip defines the smallest possible unit, which finds within the trade with foreign currencies consideration. Usually it represents thereby the step size within the fourth decimal place of a course. Forex Trader are used to it to count on this unit since course differences, which take place within the range of the first two decimal places, occur only rarely. Even if thereby the concrete Spread fails for each unit very small, then the purposeful use of lever effects ensures for the fact that also small exchange rate fluctuations can bring clear profits or losses with it.

PLUMB BOB (mini plumb bob, Micro plumb bob)

Over the term guide trips one very frequently in the foreign-exchange trading, But which is a plumb bob at all? With a plumb bob it concerns a size unit in the foreign-exchange trading. Since brokers want to act under normal conditions no small or small sums, since it brings you more trouble than incomes, the Trader is on mostly guides fixed. A standard plumb bob are 100,000 currencies (e.g. 100,000 euros if you a plumb bob in EUR/USD invest), a mini plumb bob are 10,000 currencies and a Micro plumb bob (sometimes also micro plumb bob) covers 1,000 currencies. Please consider it origin capital on the account naturally first on the plumb bob size become “high-levered”. They must possess naturally only 500 EUR on your depot account with a 200:1 lever, in order to be able to move a standard plumb bob (100,000 currencies) of EUR/USD!

Day Trading

At a financial market if values are again sold within very short time intervals ge and, then one speaks of Day Trading. Dealers in this segment pursue the goal of using even smallest exchange rate fluctuations in order to generate thereby profits. Classical areas of application are here the foreign exchange market, the trade with shares, options, certificates and Futures. The purchase takes place in one moment, in which the course is comparatively low, connected with the goal, the position again to push off, as soon as the course rose to the desired level. This can be within few seconds, minutes or also hours the case and it is left to the Trader to constantly examine the performance in order to make its decision to the sale at the optimal time. This form of the trade became possible only by the surface covering spreading of fast data communication. Modern on-line connections permit the trade within seconds and put ambitious dealers into the position without reacting to time delay to market changes and trends of prices, in order to generate profits.

Transaction Cost

Under the term Transaction Cost are paid those fees and impacts together seized, some Forex Trader, in the context of a completed transaction, at that, which accomplishes the business for him. If the Forex trade is made by one of the available platforms in the Internet, then functions their operator in this case as Market Maker and mediate thus between the Trader and the foreign exchange market. Usually those cover the difference between Bid Price and Ask Price, which are usually about three blips for this to basic costs. In individual cases the concrete costs of the recourse to of the respective mediators of the Forex Trader should be examined and compared, since excessive fees diminish the attainable profits. Due to the comparability of available offers the fee structure adapted itself strongly.

Stop Loss

Within the range of the Forex of trade the stop so called Loss represents a variant, which permits it to the Trader to limit its risk effectively. If this option is selected e.g. in the context of the purchase of a currency, then the automatic sale takes place, as soon as it comes to falling below a certain course. This limit value is specified actively by the Trader, which prevents in this way that excessive dropping of the course, beyond its expectation, leads to a high loss. Thus the stop Loss represents a fuse element that it permits above all risers to exclude unexpected risks. Nearly all officers work with a mandatory stop Loss, in order to prevent hereby that the account balance of the Traders develops negatively. Here no purposeful value is specified for the sale; instead the system reacts to course changes, which would bring an account balance less than zero for the Trader with itself. Here the appropriate transaction is terminated automatically, in order to prevent a further dropping.

Stop Hunting

The term stop Hunting is named a business practice of dubious FOREX brokers. The behaviour at the market knows each Trader: They e.g. open a purchase position with a stop Loss with -20 BLIPS. The market movement is not particularly strong - the price oscillates easily back and forth. After short time the price falls around these exactly 20 to rise 21 or 22 BLIP only over thereafter again and change over into a beautiful upward trend.


This is however implausible with more exact view: If you over a STP or an ECN broker act hand the broker your positions in the final result anyway only through. It must have rather an interest in the fact that you make as much profit as possible thereby you still long over it continue to act and he makes thus still much money at you. And you should act over a Retail broker, and then this should charge your positions anyway and hedge according to total amount. Thus it is all the same whether you wins or loses - a zero-sums game for the broker remains.

Leverage effect

The Forex trade lives on slight course changes, which usually within the range less blip lays. If the commitment would be limited to the actually used capital, then thereby also the attainable profits would be limited drastically. Even a strong improvement in prices would only affect itself with an investment of 1,000 euros in form less cent. In order to make also with small employment clear profits possible, works the Forex market with a lever, which is called Leverage effect. The consideration is appropriate for this principle to reason that it is sufficient, if the dealer actively uses that amount, which corresponds to the maximally conceivable risk of a transaction. Like that it is possible for the Trader to already move with small capitals a multiple of the material deposited amount. The Leverage effect is expressed in a numerical ratio. If an offered with a Leverage of 200:1 works, then this means that with a capital at a value of 1,000 euros transactions up to an order of magnitude can be transacted by 200,000 euros. Here the material deposited amount that represents risk of a transaction maximally which can be expected. In practice this, related to the example mentioned means that with the order of magnitude by 200,000 euros on a maximum loss at a value of 1,000 euros must be counted.

Margin

The Margin designates that amount, which must be deposited for the security of a transaction in the form of material money within Forex business. Here the Leverage effect provides for an effective lever, regarding which maximally possible commitment, which is possible as a function of the brought in capital. If the Forex Trader uses an amount at a value of 1,000 euros for the trade on a Forex platform and moves this on the appropriate account, then this insert is called Margin. Depending upon Leverage it is now possible for the Trader to transact business in an order of magnitude which amounts to a multiple of the capital stock. Usual Leverage level is here 25:1, 50:1, 100:1, 200:1 and 400: 1. The numerical ratio gives information over it, which may move how much fold value of the material deposited Margin of the Trader, in the context of its transactions. The Margin permits a form of the trade, which goes by far beyond the actual financial fortune, without being suspended thereby incalculable risks to investors with limited financial means. The Forex trade on the basis of Margin and Leverage is thereby one of the convincing reasons for the popularity and constant spreading of the trade at the foreign exchange market.

Fundamental analysis

The Forex trade causes the employment of a purposeful strategy by the Trader. This can be based on different bases and is connected strongly from the fundamental convictions of the investor. The basis of a successful strategy in most cases forms thereby the analysis of specific market data, information and messages. If the Trader draws with priority economic, political and social data for the evaluation of concrete market chances to rate, then in this connection of a fundamental analysis one speaks. This proceeds from the principle that recognizable changes of a national economy have immediate and regular effects on the concrete development of the exchange rates. Here the concrete analysis and interpretation are subject to that, usually publicly accessible, information always also the individual attitudes, experiences and knowledge of the Traders.

Technical analysis

Many analysts assume that individual markets determined within their development, recurring samples to follow. The thorough analysis and interpretation of statistic data, which stand for market which can be regarded in each case in connection with that, can make thus conclusions possible on future developments. This beginning is called technical analysis and forms the strategic basis of many successful Forex Trader. Here the personal adjustment is reflected both in the concrete selection of the considered values, and in their interpretation again. The kind of the analysis represents thereby only a rough adjustment of the individual investor, since complex commercial strategies are based mostly on a combination of different instruments and techniques. While a risers and beginners at the Forex market use usually standardised methods of analysis, advanced users develop usually own strategies, which are completed and perfected in the course of the time.

 

 

 

Recommended Forex Articles
 

Forex trading is highly