Forex Glossary Terms

American-style option An option contract that may be exercised at any time before it expires.

Ask The quoted price at which a customer can buy a currency pair. Also referred to as the 'offer', 'ask price', or 'ask rate'.

Base Currency For foreign exchange trading, currencies are quoted in terms of a currency pair. The first currency in the pair is the base currency. For example, in a USD/JPY currency pair, the US dollar is the base currency. Also may be referred to as the primary currency.

Bid The quoted price where a customer can sell a currency pair. Also known as the 'bid price' or 'bid rate'.

Bid/Ask Spread The point difference between the bid and ask (offer) price.

Call A call option gives the option buyer the right to purchase a particular currency pair at a stated exchange rate.

Counterparty The counterparty is the person who is on the other side of an OTC trade. For retail customers, the dealer will always be the counterparty.

Cross-rate The exchange rate between two currencies where neither of the currencies are the US dollar.

Currency pair The two currencies that make up a foreign exchange rate. For example, USD/YEN is a currency pair.

Dealer A firm in the business of acting as a counterparty to foreign currency transactions.

Euro The common currency adopted by eleven European nations (i.e., Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain) on January 1, 1999.

European-style option An option contract that can be exercised only on or near its expiration date.

Expiration This is the last day on which an option may either be exercised or offset.

Forward transaction A true forward transaction is an agreement that expects actual delivery of and full payment for the currency to occur on a future date. This term may also be used to refer to transactions that the parties expect to offset at some time in the future, but these transactions are not true forward transactions and are governed by the federal Commodity Exchange Act.

Interbank market A loose network of currency transactions negotiated between financial institutions and other large companies.

Leverage The ability to control large dollar amount of a commodity with a comparatively small amount of capital. Also known as 'gearing'.

Margin See Security Deposit.

Offer See ask.

Open position Any transaction that has not been closed out by a corresponding opposite transaction.

Pip The smallest unit of trading in a foreign currency price.

Premium The price an option buyer pays for the option, not including commissions.

Put A put option gives the option buyer the right to sell a particular currency pair at a stated exchange rate.

Quote currency The second currency in a currency pair is referred to as the quote currency. For example, in a USD/JPY currency pair, the Japanese yen is the quote currency. Also referred to as the secondary currency or the counter currency.

Rollover The process of extending the settlement date on an open position by rolling it over to the next settlement date.

Retail customer Any party to a forex trade who is not an eligible contract participant as defined under the Commodity Exchange Act. This includes individuals with assets of less than $10 million and most small businesses.

Security deposit The amount of money needed to open or maintain a position. Also known as 'margin'.

Settlement The actual delivery of currencies made on the maturity date of a trade.

Spot market A market of immediate delivery of and payment for the product, in this case, currency.

Spot transaction A true spot transaction is a transaction requiring prompt delivery of and full payment for the currency. In the interbank market, spot transactions are usually settled in two business days. This term may also be used to refer to transactions that the parties expect to offset or roll over within two business days, but these transactions are not true spot transactions and are governed by the federal Commodity Exchange Act.

Spread The point or pip difference between the ask and bid price of a currency pair.

Sterling Another term for British currency, the pound.

Strike price The exchange rate at which the buyer of a call has the right to purchase a specific currency pair or at which the buyer of a put has the right to sell a specific currency pair. Also known as the 'exercise price'.

Foreign Exchange

Forex is the abbreviation for foreign exchange, refers to the foreign currency or the foreign country currency expresses which can be use in the international settlement payment means and the property, mainly it includes the credit instrument, disbursement voucher, the negotiable securities and the foreign exchange cash and so on.

The International Monetary Fund defined Forex as the international creditor's rights which a country has, no matter this kind of creditor's rights are express by the foreign currency or expressed by the standard currency.

Exchange Rate
Exchange rate, also known as the exchange price, it refers by a country currency being express by another country currency, or it is also the price ratio between both countries currency, generally it is being expressed by using the price proportion of both countries. For instance: USD/JPY=105.40, is being expressed a US dollar equal to 105.40 Japanese Yen, US dollar is also known as the unit currency, the Japanese Yen is known as the price currency.

In the foreign exchange market, the exchange rate is demonstrated by five numerals, for example:

Euro/US dollar: EUR/USD 1.3325

US dollar/Japanese Yen: USD/JPY 104.95

Pound/US dollar: GBP/USD 1.9337

US dollar/Swiss Franc: USD/CHF 1.2303

The exchange rate smallest change unit is, namely a final one-figure number digital change, is called an exchange rate basic point (Pip), abbreviation exchange rate spot, for example:

Euro EUR 0.0001

Japanese Yen JPY 0.01

Pound GBP 0.0001

Swiss Franc CHF 0.0001

Foreign Exchange (Forex) Market

Presently, there are various kinds of financial market, it is divided into: Stock market, interest market (including bond, commercial bill and so on), gold market (including gold, platinum, silver), futures market (including grain, cotton and kapok, oil and so on), option market and foreign exchange market or forex market and so on.

The foreign exchange market is a place to trade foreign exchange currency, or it is also a place for the transaction of all foreign currency. The foreign exchange market therefore is existence, because of:

Trade and investment
Import and export business, people pays one kind of currency when doing business, but when earns another kind of currency when receive the commodity. This means that, when settling account, business people will pay and receive different currencies. Therefore, they must convert the currencies that they received into the currencies that they could buy commodities. With this similar, when buying a foreign property a company must use the concerned country's currency to make payment, therefore, it needs to convert the domestic currency is concerned country's currency.

Speculation
Currencies exchange rates could fluctuate according to the demand and supply between two currencies. A Forex trader buys up one kind of currency in an exchange rate, but up casts this currency in another more advantageous exchange rate, he may gain. Speculation has occupied most of the Forex market.

Hedging
Due to the fluctuation between two currencies, those companies who owns foreign asset (for example factory), when these companies convert these properties into cost country currencies, there consist of certain risks. When the value of a foreign asset which is estimated based on foreign currencies remained unchanged, if the exchange rate changes, when converting this property value according to the domestic currency, there could be profit and loss. The company may eliminate such hidden risk through hedging. This carries out a foreign currency trading, its transaction result just counterbalances the foreign currency property profit and loss which produces by the exchange rate change.

Forex Market Development
The history of the Forex market as an international capital speculation market is much shorter compared the stock, the gold, the stock, the interest market, but it is developing in an astonishing speed. Today, the foreign exchange market daily trading volume has amounted to 150 billion US dollars, it’s scale has gone far beyond the stock, the stock and other finance commodity markets, it has became the world's most biggest sole finance market and the also the speculation market. Since the birth of the foreign exchange market, the fluctuation of the exchange rate of the Forex market is becoming bigger. In September 1985, 1 US dollar exchanged 220 Japanese Yen, but in May 1986, 1 US dollar only could exchange 160 Japanese Yen, in 8 months, the Japanese Yen has revalued 27%. In recent years, the foreign exchange market wave amplitude has been bigger, on September 8, 1992, 1 pound exchanged 2.0100 US dollars, on November 10, 1 pound exchanged 1.5080 US dollars, in the short two months, the pound exchanged US dollar exchange rate to fall more than 5,000, depreciated 25%. Not only that, presently, everyday the fluctuation of the exchange rate of the Forex market enlarges unceasingly, within a day the rise and drop 2% to 3% is commonly seen. On September 16, 1992, the pound exchanged US dollar from 1.8755 to fall to 1.7850, the pound on first lowers 5%.

Due to the large fluctuation of the Forex market, it has created more opportunities for the investor, attracted more and more investors to join this ranks.

Famous Forex Quotes

1. “If you get in on Jones’ tip; get out on Jones’ tip”. If you are riding another person’s idea, ride it all the way.
   
   
2. Run early or not at all. Don't be an eleven o'clock bull or a five o'clock bear.
   
   
3. Woodrow Wilson said, "a governments first priority is to organize the common interest against special interests". Successful traders seek out market opportunities capitalizing on the reality that government's first priority is rarely achieved.
   
   
4. People who buy headlines eventually end up selling newspapers.
   
   
5. If you do not know who you are, the market is an expensive place to find out.
   
   
6. Never give advice-the smart don't need it and the stupid don't heed it.
   
   
7. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word-nobody! Thus the successful trader bases no moves on what supposedly will happen but reacts instead to what does happen.
   
   
8. Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.
   
   
9. Except in unusual circumstances, get in the habit of taking your profit too soon. Don't torment yourself if a trade continues winning without you. Chances are it won't continue long. If it does console yourself by thinking of all the times when liquidating early preserved gains you would otherwise have lost.
   
   
10. When the ship starts to sink, don't pray-jump!
    
    
11. Life never happens in a straight line. Any adult knows this. But we can too easily be hypnotized into forgetting it when contemplating a chart. Beware of the chartist's illusion.
    
    
12. Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.
    
    
13. Whatever you do, whether you bet with the herd or against, think it through independently first.
    
    
14. Repeatedly reevaluate your open positions. Keep asking yourself: would I put my money into this if it were presented to me for the first time today? Is this trade progressing toward the ending position I envisioned?
    
    
15. It is a safe bet that the money lost by (short term) speculation is small compared with the gigantic sums lost by those who let their investments "ride". Long term investors are the biggest gamblers as after they make a trade they often times stay with it and end up losing it all. The intelligent trader will . By acting promptly-hold losses to a minimum.
    
    
16. As a rule of thumb good trend lines should touch at least three previous highs or lows. The more points the line catches, the better the line.
    
    
17. Volume and open interest are as important to the technician as price.
    
    
18. The clearest and easiest way to determine a trend is from previous highs and lows. Higher highs and higher lows mark an uptrend, lower highs and lower lows mark a downtrend.
    
    
19. Don't sell a quiet market after a fall because a low volume sell-off is actually a very bullish situation.
    
    
20. Prices are made in the minds of men, not in the soybean field: fear and greed can temporarily drive prices far beyond their so called real value.
    
    
21. When the market breaks through a weekly or monthly high, it is a buy signal. When it breaks through the previous weekly or monthly low, it is a sell signal.
    
    
22. Every sunken ship has a chart.
    
    
23. Take a trading break. A break will give you a detached view of the market and a fresh look at yourself and the way you want to trade for the next several weeks.
    
    
24. Assimilate into your very bones a set of trading rules that works for you.
    
    
25. The final phase in a bull move is an accelerated runaway near the top. In this phase, the market always makes you believe that you have underestimated the potential bull market. The temptation to continue pyramiding your position is strong as profits have now swelled to the point that you believe your account can stand any setback. It is imperative at this juncture to take profits on your pyramids and reduce the position back to base levels. The base position is then liquidated when it becomes apparent that the move has ended.

TRADING ONLY WITH MOVING AVERAGE

At the moment I am rather busy. Moving to a new place and house. The house still needs a lot of work. As a result, I do not have time to update this blog. Trading is still going on but on a shorter timeframe. Result is consistent now. AudUsd is very kind at the moment with no sudden movement.

In the next few weeks I will show you how to trade using only MA. As usual what works for me may not work for you. This is because some of you may not be able to follow the rules of the game.

RULES OF THE GAME
1. Trade based on your capital and the time that you have. The bigger your capital the longer the TF. The more time you have the longer the TF. Vice versa.

2. Only trade at the direction pointed by the MA pairs. If the MA pairs is showing mixed direction, do not trade. The MA pairs must be pointing at the same direction.

3. If a trade suddenly change direction, do not hesitate to close it at a loss and turn the trade. This is the hardest part where most of you failed. Free your mind or become a loser all your life.

4. Keep in mind, there is no such thing as winning all the time. Just make sure you win a lot more than you lose. In the end your profit will grow along with your confident.

Simple system with simple rules. I like to keep it simple. No point of having the most complex system when simple system can have the same result. With this system you will be out of the market most of the time. This is because you will only be taking the big move and avoiding the small move and market noise.

Last advise. Do not anticipate. Forex is not a game of inteligence eventhough this system at full swing will show you possible turning point. I am having a possible turning point for audusd at 0.7200 but I will not take it coz there will be market swing before the actual turn. Why wast time waiting for the big move when you can actually see when its going to move.

In the mean time, good luck for all of you. I will be back once my pc is online again. At the moment I am posting this on a laptop. I dont like laptop, too small keypad, makes it hard to do speed typing.

A DIFFICULT MARKET CONDITION

It is not looking particularly well for GBPUSD. In the other hand, EURUSD and AUDUSD is looking good for a long term trade. I am taking the long position. It may take a very long time to profit but looking at the chart from a technical view, EURUSD and AUDUSD is in a good position for a long term trading.

I dont exactly know the entry point but I do know the direction. It is time to monitor the shorter time frame in order to find the best possible entry and to minimize stop loss.

It may take sometime but I dont care. I have been waiting for this moment almost 2 months. Look at the charts and see the formation of daily, 4 hour, 30 minute and 5 minute. You may see something that took me over 2 years to see.

Only time can tell if my calculation is correct. At the moment I am still waiting for the 5 minute chart to give and entry signal.

The Best Forex Market Hours

The Best Forex Market Hours

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