FOREX TERMS BY Saad Ali Forex Beginners Academy
Long vs Short
Most people think of trading as buying at a lower price and selling at a higher price, but that's only part
of what traders do. Traders can also sell at a high price and buy back at a lower price.
Long simply means to buy. When you’re in a long trade you’re said to have a ‘long position’,
which means that you have bought a security or in our case a currency pair. In this type of trade,
we want the market to rise above the point where we went long (bought).
Short simply means to sell. When you’re in a short trade you’re said to have a ‘short position’,
which means you have sold a security or in our case a currency pair. In this type of trade, we
want the market to fall below the point where we went short (sold).
Bullish vs Bearish
Bullish - The term "bull" or "bullish" comes from the bull, who strikes upward with his horns,
thus pushing prices higher.
Being long, or buying, is a bullish action for a trader to take. Put simply, being a bull or having a
bullish attitude stems from a belief that an asset will rise in value. To say "he's bullish on gold,"
for example, means that he believes the price of gold will rise.
Bearish - The term "bear" or "bearish" comes from the bear, who strikes downward with its
paws, thus pushing prices down.
Being short, or selling, is a bearish action for a trader to take. Put simply, being a bear or having
a bearish attitude stems from a belief that an asset will fall in value. To say "he's bearish
on gold," for example, means that he believes the price of gold will fall.
Core Liquidity Provider
A core liquidity provider is a financial institution that acts as a middleman in the securities
markets. The providers buy large volumes of securities from the companies that issue them and
then distribute them in batches to financial institutions who then make them available directly to
retail investors. This is often facilitated by ECN brokers.
The term core liquidity provider describes the function of these firms: They may simultaneously
buy and sell shares of a security with the goal of ensuring that it is always available on-demand.
A core liquidity provider is also known as a market maker.
Core liquidity providers are typically institutions or banks that underwrite or finance equity or
debt transactions and then make a market or assist in the trading of the securities.
Key Takeaways
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The core liquidity provider is a middleman in the securities markets.
The provider's role is to ensure that buyers and sellers have on-demand access to the
securities they represent.
To achieve that, the provider may simultaneously buy and sell shares of the security,
keeping it "liquid" or available.
ECN Broker
An ECN broker is a forex financial expert that uses electronic communications networks (ECNs)
to give clients direct access to other participants in currency markets. Because an ECN broker
consolidates price quotations from several market participants, it can generally offer its clients
tighter bid/ask spreads than would be otherwise available to them.
Basics of an ECN Broker
ECN brokers are non-dealing desk brokers, meaning that they do not pass on order flow to
market makers. Instead, they match participants in a trade electronically and pass the orders to
liquidity providers.
Since an ECN broker only matches trades between market participants, it cannot trade against
the client, an allegation often directed against some unscrupulous retail forex brokers. Because
ECN spreads are much narrower than those used by everyday brokers, ECN brokers charge
clients a fixed commission per transaction.
An ECN broker facilitates trades for interested investors across the ECN. Working with brokers
of this nature often results in lower fees as well as additional trading time availability because of
how the ECN functions.
Key Takeaways
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ECN brokers are brokers that use electronic communication networks (ECNs) that help
clients directly access currency markets.
They offer transparency and deep liquidity without a middleman.
Margin
Margin is the amount of money that a trader needs to put forward in order to open a trade. When
trading forex on margin, you only need to pay a percentage of the full value of the position to
open a trade.
Leverage
Leverage is the use of borrowed money (called capital) to invest in a currency, stock, or security.
By borrowing money from a broker, investors can trade larger positions in a currency. As a
result, leverage magnifies the returns from favorable movements in a currency's exchange rate.
However, leverage is a double-edged sword, meaning it can also magnify losses. It's important
that forex traders learn how to manage leverage and employ risk management strategies to
reduce forex losses.
Key Takeaways
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Leverage is the use of borrowed money to invest.
By borrowing money from a broker, investors can trade larger positions in a currency.
Leverage can magnify wins and losses.
Many brokers require a percentage money to be held in cash as collateral (Margin)
Margin Call
Margin Call is a notification which lets you know that you need to deposit more money in your
trading account, or close losing positions in order to free up more margin. Margin Calls warn
traders that the Stop Out level is approaching. This normally occurs at 80% margin level. If no
action is taken, the broker will automatically close losing positions to prevent large negative
balance losses for both you and the broker since you are trading with mostly borrowed money.
Key Takeaways
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Margin Call and Stop Out Levels are safety features to prevent large losses.
You are responsible for any negative balance.
Always use good risk management and set a stop-loss to maximin protection of your
trading funds.
Bid-Ask Spread
In return for executing buy or sell orders, the forex broker will charge a commission per trade or
a spread. That is how forex brokers make their money. The difference between the bid and ask
price is the broker's spread. A broker could also charge both a commission and a spread on a
trade. An individual looking to sell will receive the bid price while one looking to buy will pay
the ask price.
Swap Fee
A swap/rollover fee is charged when you keep a position open overnight. A forex swap is the
interest rate differential between the two currencies of the pair you are trading, and it is
calculated according to whether your position is long or short. The ECN broker passes on this fee
to the retail trader which is charged by the liquidity provider.
Triple swap Wednesday
Triple swap rates are charged on Wednesday. The reason for this is that spot Forex contracts
have a two-day settlement period. For example, a spot Forex contract that occurred on Monday
settles on Wednesday, a trade that occurred on Tuesday settles on Thursday, a trade that occurred
on Wednesday settles on Friday, but a trade that occurred on Thursday settles on the following
Monday. In this example, the trade that occurred on Thursday rolled through the weekend
because the banks are closed on Saturday and Sunday. Triple rollover interest is applied to
positions held open at 5pm New York time on Wednesday as this time marks the beginning of
the new 24-hour trading day (Thursday).
You should note that swap rates can be negative or positive, depending on the currency pair
traded and the prevailing interest rates at that time.
Day Trader
Day trading refers to the practice of purchasing and selling a security within a single trading day.
While it can occur in any marketplace, it is most common in the foreign exchange (forex) and
stock markets. Day traders typically use high amounts of leverage and short-term trading
strategies to capitalize on small price movements that occur in highly liquid stocks or currencies.
Day traders use numerous intraday strategies. These strategies include:
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Scalping: this strategy attempts to make numerous small profits on small prices changes
throughout the day
Range trading: this strategy primarily uses support and resistance levels to determine buy
and sell decisions.
News-based trading: this strategy typically seizes trading opportunities from the
heightened volatility around news events
Swing Trader
Swing trading refers to the medium-term trading style that is used by forex traders who try to
profit from price swings. Swing traders identify a possible trend and then hold the trade(s) for a
period of time, from a minimum of two days to several weeks.
Scalp Trader
Scalping in the forex market involves trading currencies based on a set of real-time analysis. The
purpose of scalping is to make a profit by buying or selling currencies and holding the position
for a very short time and closing it for a small profit.
Fundamental Analysis
Fundamental analysis involves assessing the economic well-being of a country, and by
extension, the currency. It does not take into consideration currency price movements. Rather,
fundamental forex traders will use data points to determine the strength of a particular currency.
We use Forex Economic calendars to research upcoming news that we see on our charts.
Technical Analysis
Technical analysis is the framework in which traders study price movement. The theory is that a
person can look at historical price movements and determine the current trading conditions and
potential price movement.
Currency Pair
A currency pair is a price quote of the exchange rate for two different currencies traded in FX
markets. When an order is placed for a currency pair, the first listed currency or base currency
is bought while the second listed currency in a currency pair or quote currency is sold.
Example: USD/CAD = $1 USD bought is worth $1.31 CAD
Lot
A lot is also known as trade size. A standard 1 lot is the equivalent of 100,000 units of the base
currency in a forex trade. Historically, spot forex has only been traded in particular lots of 100,
1,000, 10,000 or 100,000 units. More recently, however, non-standard lot sizes are also available
to forex traders. Beginner traders will place trades with a lot size of 0.01. 0.01 lots represents a
position size that is equal to 1,000 units of the base currency.
Pip
A pip, short for point in percentage, represents a tiny measure of the change in a currency pair in
the forex market. It can be measured in terms of the quote or in terms of the underlying currency.
A pip is a standardized unit and is the smallest amount by which a currency quote can change.
Market Hours
Trading in the forex is not done at one central location but is conducted between participants by
phone and electronic communication networks (ECNs) in various markets around the world. The
market is open 24 hours a day in different parts of the world, from 5 p.m. EST on Sunday until 4
p.m. EST on Friday
https://www.forexmarkethours.com/
Market Session
Since this market operates in multiple time zones, it can be accessed at nearly any time of the
day. The forex market can be broken up into four major trading sessions: the Sydney session, the
Tokyo session, the London session, and the New York session.
Historically, the forex market has three peak trading sessions.
Traders often focus on one of the three trading periods, rather than attempt to trade the markets
24 hours per day.
These sessions consist of the Asian, European, and North American sessions, which are also
called Tokyo, London, and New York sessions.
Major sessions are:
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London session
US session
London/US Overlap
Tokyo session
Minor sessions are:
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Wellington/Auckland
Sydney
Frankfurt
Hong Kong
Singapore