What is the Forex Market

The Foreign Exchange market is also referred to as the "Forex", "FX" market, "Cash" Forex and Spot Forex market and is the largest financial market in the world, with a daily average turnover of well over US$1 trillion -- 30 times larger than the combined volume of all U.S. equity markets.

"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).

There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation. And that's where Forex.ca can help!

The most commonly traded (and therefore most liquid) currencies are called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.

The Cash Forex market is considered an Over The Counter (OTC) or 'interbank' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Forex trading is not centralized on an exchange like the stock and futures markets.

Trailing Stop
A stop-loss order that follows the prevailing price trend.

Trend
The general drift or tendency of a currency to move in a specific direction. An upward trend is categorized as having higher highs and higher lows. A downward trend is categorized as having lower highs and lower lows.

Trend Channel
A parallel price range centered about the most likely price line. An area between the base trend line and the reaction trend line defined by price moves against the prevailing trend.

Trend Day
A day in which the price of a currency moves consistently away from the opening range and does not return to the opening range prior to the close.

Trend-following
Moving in the direction of the prevailing price movement.

Trending Market
Price moves in a single direction.

Trend less
Price movement that changes but a clear trend cannot be identified.

Trend line
A line drawn that connects either a series of highs or lows in a trend. The trend line can represent either support as in an up trend line or resistance as in a down trend line. Consolidations are marked by horizontal or converging trend lines.
VolatilityA measure of the amount by which an asset price is expected to fluctuate over a given period. Normally measured by the annual standard deviation of daily price changes (historic).

Weighing Quotes
This can happen if the Broker/IB takes the opposite trade in a transaction and in effect is competing with their own client. In this case, there could be situations where the quotes could favour the Broker at the back-end. http://www.forexreports.blogspot.com will not be associated with any market maker that practices this. We succeed if you succeed! It's that simple.

World BankA bank made up of members of the IMF whose aim is to assist in the development of member states by making loans where private capital is not available.

Account Balance
The net The net dollar amount of an account.

Autotrading
A computer automatically issues pre-defined buy and sell signals directly to the dealer.

Back Testing
The process of testing a trading idea or strategy using historical price data. Then to apply the strategy to the new data to see if the results are consistent.

Balance of Payments
The record of all transactions carried out by a country with the rest of the world within a certain time frame, including trade balances and capital flows.

Bar Chart
Used to plot price movements using vertical bars indicating price ranges.

Base Currency
The first currency in a pair is called the BASE CURRENCY.

Bear Market
A market characterized by declining prices.

Bid and Ask
Highest price and lowest price that an investor will pay for a currency.

Black Box
A proprietary, computerized trading system whose rules are not disclosed or readily accessible.

Bull Market
A market characterized by rising prices.

Candlestick Charts
A charting method originally developed in Japan, where the highs and lows are plotted as a single line and are referred to as shadows. The price range between the open and the close is plotted as a narrow rectangle and is referred to as the body. (If the close is above the open, the body is white. If the close is below the open, the body is black).

Capital Flows
Capital Flows measure the net amount of a currency that is being purchased or sold due to capital investments.

CFTCThe Commodity Futures Trading Commission, the US Federal regulatory agency for futures traded on commodity markets. Charts
A display or picture of a currency pair that plots price data. The chart is the foundation of technical analysis, and over the years, many different types of charts have been developed.

Congestion Area or Pattern
A series of trading days or periods in which there is no major change in price. Typically a trend-less area of price data.

Consolidation
Also known as a congestion period. A pause that allows participants in a market to re-evaluate the market and sets the stage for the next price move.

Cross Currency
The second currency in a pair is called the CROSS CURRENCY.

Cross Rate An exchange rate between two currencies.
CurrencyThe type of money that a country uses. It can be traded against other currencies on the foreign exchange market, so each currency has a value relative to another.

Curve-Fitting
Developing complicated rules that map known conditions while back-testing a strategy.

Doji
A candlestick formation in which the open and close are the same (or almost the same). Different varieties of doji lines (such as a gravestone or long-legged doji) depend on where the opening and close are in relation to the entire range. Doji lines are among the most important individual candlestick lines. They are also components of important candlestick patterns.

Entry
The point at which a trader gets into a position in the market.

Exit
The point at which a trader closes out of a trade.

Foreign ExchangeThe purchase or sale of a currency against another.

ForexAn abbreviation of foreign exchange.
Fundamental Analysis
Fundamental Analysis focuses on the economic, social and political forces that drive supply and demand.

G7
The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy. G10G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

Gold StandardThe original system for supporting the value of currency issued. This system was active before 1973 when the fixed exchange rates were prevalent.

Margin
This is a percentage of the total value of a transaction that a trader is required to deposit as collateral.
Market Makers
Organizations that maintain a firm bid and offer price in a given currency pair by standing ready to buy or sell at these executable prices (called making a market).

Moving Average (simple)
A mathematical procedure to smooth or eliminate the fluctuations in data and to assist in determining when to buy and sell. Moving averages emphasize the direction of a trend, confirm trend reversals and smooth out price and volume fluctuations or "noise" that can confuse interpretation of the market; the sum of a value plus a selected number of previous values divided by the total number of values.

Moving Average Crossovers
The point where the various moving average lines intersect each other or the price line on a moving average price bar chart. Technicians use crossovers to signal price-based buy and sell opportunities.

PIP
Price Interest Point. The smallest decimal point in an exchange rate.

Resistance
A price level at which rising prices have stopped rising and either moved sideways or reversed direction. Resistance can become a support area. It is an important area because it is where selling is expected to take place.

Rollover Where the settlement of a deal is carried forward to another value date based on the interest rate differential of the two currencies.

Roll-Over Interest
Traders that hold a position overnight pay interest on the currency they borrow and earn interest on the currency they purchase. Typically roll-over interest is applied at 5PM EST (NY Time).

Skimming Pips
This can happen if the Broker/ IB varies what quotes are shown to specific clients or adds a pip or two to the quote screen to make an extra buck. At Forex.ca we charge no commissions and skim no pips.* We are forthright and disclose that we make our profit on the forex spread on all trades. As do most reputable market makers.

SMA
Simple Moving Average.

Spot Forex Prices
Same as cash price. The price at which a currency is selling at a particular time and place.

Spread
In cash forex trading it is the difference between the bid price and ask price.

Stops
Buy stops are orders that are placed at a predetermined price over the current price of the market. The order becomes a "buy at the market" order if the market is at or above the price of the stop order. Sell stops are orders that are placed with a predetermined price below the current price. Sell-stop orders become "Sell at the market" orders if the market trades at or below the price of the stop order.

Support
A historical price level at which falling prices have stopped falling and either moved sideways or reversed direction. Support can become a resistance area later in the chart. It is an important level because it is where the buying is expected to take place.

Technical Analysis
Technical traders focus on price movements and use historical data to forecast the direction of future prices. Technicians also attempt to identify price trends in a market using charts and modeling techniques.
Technical CorrectionAn adjustment to price not based on market sentiment but technical factors such as volume and charting.
Tick
The minimum fluctuation of a currency.

Trade Flows
Trade Flows represent a country’s net trade balance of exported goods minus imported goods.

Trading Range
The difference between the high and low prices traded during a period of time.

Main Principles of Trading

The Main Principles of Trading In contrast to exchange transactions with real supply or real currency the participants of FOREX use trading with a margin deposit; i.e. marginal or leverage trading. In marginal trading, each transaction has two obligatory stages (they can be divided by period of time, which can be as long as you like): buying (selling) of currency at one price, and then selling (buying) it at another (or at the same) price. The first transaction is called opening the position, the second one, closing the position. Opening a position, a trader furnishes a deposit sum from 0.5 to 4 per cent of the credit line, granted for the transaction. So, in order to buy or sell 100,000 US dollars for Japanese yens, you will not need the whole sum, but only from 500 to 2000 US dollars depending on your policy of controlling risks. When the position is closed, the deposit sum returns, and calculation of profits or losses is done. All the profit or losses caused by the change of currency rates is credited on your account.

Forex: fundamental analysis

Fundamental analysis is an analysis of current situations in the country of the currency, such as its economy, political events, and rumors. The country's economy depends on the rate of inflation and unemployment, on the interest rate of its Central Bank, and on tax policy. Political stability also influences the exchange rate. Policy of the Central Bank has a special role, as concentrated interventions or refusal from them greatly influence the exchange rate. At the same time one should not consider fundamental analysis just as an analysis of the economic situation in the country itself. A far bigger role in the FOREX market belongs to the expectations of the market participants and their assessment of these expectations. Various prognoses and bulletins, issued by the participants, have a strong influence on the expectations. Very often an effect of the so-called self-filfilling prophecy occurs when market players raise or lower the exchange rates according to the prognosis. But a deep and thorough fundamental analysis is available only for big banks with a staff of professional analysts and constant access to a wide field of information.

Forex : technical analysis

A technical analysis is founded on three suppositions: Movement of the market considers everything; Movement of prices is purposeful; History repeats itself. That is, technical analysis is a statistical and mathematical analysis of previous quotes and a prognosis of coming prices. A number of technical indicators have been installed into the PRO-CHARTS trading system. Analyzing the indicators one can come to the conclusion about further movements of the quoted currencies. For a more detailed description of the indicators, analyzing price charts and volumes of trading, click here.

Situation of market

In order to assess the situation in the market a trader has to be able to use fundamental and/or technical analysis, as well as to make decisions in the constantly changing current of information about political and economic character. Most small and medium players in financial markets use technical analysis. Technical analysis presupposes that all the information about the market and its further fluctuations is contained in the price chain. Any factor, that has some influence on the price, be it economic, political or psychological, has already been considered by the market and included in the price. The initial data for a technical analysis are prices: the highest and the lowest prices, the price of opening and closing within a certain period of time, and the volume of transactions.