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Forex Trading Basics: Glossary of Common FX Trading Terms

Article by Patrick Kalashnikov

Forex: Abbreviation for Foreign Exchange (also known as FX), Forex is the buying and selling of a country’s currency in order to turn a profit. By studying fluctuations in the economy, investors can predict whether a country’s currency will increase or decrease, thereby allowing them to buy low and sell high. The trading occurs through the simultaneous buying of one currency and selling of another. While the New York stock exchange deals with amounts of money in the millions each day, forex brokers trade over trillion daily.

PIP: One pip is the smallest change in value that a currency pair exchange rate can make, either increasing or decreasing. It is the last decimal point in a quotation; for currency’s it is equivalent to a ten thousandth (1/10,000) of a unit of that currency.

For example, if the EUR/USD is valued at 1.3114 and it is said to have raised two pips, then it will be valued at 1.3116. Although these seem like infinitesimal gains, with enough money invested and wise trades it is possible to make a substantial profit.

Limit Order: When an investor wants to control how much profit and loss he/she is willing to handle, a “limit order” is instructed to a forex broker. This is an order with specified boundaries, telling the forex broker at what point above market level to sell and at what point to purchase below market level.

Instead of having to constantly check the updates in the market, a limit order allows the trader to trust the forex broker to sell the currency when it hits a particular number, assuming that it has hit its peak and will no longer continue increasing in value. Likewise, the broker is charged with purchasing a currency when it reaches a specified level below the market price, in hopes that the currency’s value will turn around and increase shortly thereafter.

Stop- Loss Order: This is an order instructing a forex broker to cut off a current trade once a specified low is hit in order to limit losses. Sometimes currencies do not perform how their investors anticipated. A stop-loss order is an attempt to dump the currency in order to prevent further losses by setting a minimum value at which the investor is no longer willing to stick with a particular transaction.

Exotic Currency: Any currency that is not heavily or popularly being traded.

Hawkish: This an adjective used to describe any forex trading person or group that takes an aggressive stance in regards to a particular economic situation. It is most commonly used in reference to the economy or interest rates of a country.

For example, if the Bank of England suggested that they were going to increase interest rates in order to reduce high inflation, they would be considered “hawkish” in their aggressive actions.

Dovish: This adjective is used to describe a passive or non-aggressive viewpoint in response to an economic event, particularly in regards to a country’s interest rates or economy.

An example would be bankers who prefer economic expansion and the creation of jobs rather than tightening interest rates, allowing the market to correct itself with little government interference.

About the Author

Patrick Kalashnikov is a freelance writer who’s got a bunch of great info on general forex trading and popular forex trading platforms. To get in touch with a forex broker that offers free practice accounts, visit http://www.vertifx.com

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Avoid These Common Stock Investing Mistakes

Avoid These Common Stock Investing Mistakes

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Home Page > Finance > Avoid These Common Stock Investing Mistakes

Avoid These Common Stock Investing Mistakes

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Posted: Dec 11, 2008 |Comments: 0
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People have been trading stocks for hundreds of years. It is one of the best ways to ensure a financially sound future for you and your loved ones. With a good broker and some knowledge you can go a long way toward success in stock trading. However, you do need to be wary of making some of the common mistakes that can cost you money. Let’s review some of these mistakes in order to help you avoid them.

Probably the single most crucial mistake is postponing the start of your investing until you have ‘extra’ money. This can cost you millions because the value of money invested compounds across time in such a way that the same amount invested in your twenties can bring you literally double the earnings by age 65 as the same amount invested a mere ten years later. If you can’t afford to start with 0 a month or even 0 a month try to set aside or so for steady monthly investing. Time really is money when you are talking about stock investing.

Another common mistake is not researching stocks adequately before buying them. All stocks are not created equal by any means. Take the time to thoroughly look into the history of the company you are interested in, its current state, future plans as they are known. How is the present leadership doing? What are recent trends in the relevant industry sector? And watch yourself carefully for the tendency to make investment decisions based on emotion rather than good, hard facts.

Always take the time to look into your options carefully. The same applies to choosing a broker or financial advisor. Don’t grab the first one you meet without doing research, considering alternatives and investigating the person’s investing philosophy and experience. Do ask for recommendations from friends and acquaintances, even family, but be sure you consider how qualified the person doing the recommending is to evaluate a financial professional.

Keep in mind at all times that investing in the stock market is not playing a game. Don’t gamble with your funds or your future. Remember that you are trying to build a solid financial foundation not “get rich quick.” You will hear of people who appear to make large profits from day trading for instance. Day trading is rapid trading in and out of stocks as their value rises and falls in the course of minutes or even hours. It ignores underlying value and concentrates solely on quick profit from market moves.

Some day traders can sometimes make great profits but overall day trading is a losing game for most people. Avoid the temptation to follow a day trading style. Also avoid the tendency to become fascinated with trendy stocks that everyone is pushing but which carry a huge risk for investors. Don’t try to gain by gambling. Rather, steadily invest money over time into good solid companies that are known for giving results year in and year out. Resist the impulse to listen to those who want to give you a “great lead” on a stock they think is “set to explode.”  Don’t try to shortcut the research and careful consideration that good investors need to do.

One more area to watch carefully is the diversification of your investments. Put money into a variety of companies and industries. This gives you protection against unexpected trouble with any one company. It also allows you to even out the ups and downs that afflict entire industry sectors from time to time. Research, diversified investments and balance are your best investing tools.

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Common Mistakes While Trading Forex

Common Mistakes While Trading Forex

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Home Page > Finance > Currency Trading > Common Mistakes While Trading Forex

Common Mistakes While Trading Forex

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Posted: Nov 26, 2010 |Comments: 0
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Forex currency trading is a lucrative field that attracts millions of merchants worldwide. According to estimates, the daily volume of transactions of foreign exchange market is over two billion dollars.While the currency exchange market is an easy option of making extra money, it requires skills and subject knowledge to succeed. It is also important to avoid the pitfalls that can lead to financial disaster.

Forex Currency Trading: What Not To Do

Here are some of the most common mistakes that eat on the potential profit in the forex currency trading:

Many forex traders enter into the Market Without doing proper home work. Do not follow the visual cues: many traders enter the market without doing the appropriate homework. They create an account with a platform online forex currency trading and departure. Due to lack of forex education, features and services provided by the trading platform do little good for them. They are unable to decipher simple visual indicators that greatly assist in the negotiation.

Although trading is news Requires specialist skills, Keeping Track of News Is essential for all traders. No new analysis: Although the exchange of new demands specialized skills, monitoring of news is essential for all traders. News helps us to understand major ups and downs in the market.

“If you are Entering a trade after a” significant delay after The Real entry, you are Compromising On The profit making potential. Do not understand the input and output: If you enter a trade after a significant delay after the actual input, you are compromising on making profit potential. The same is true if you’re leaving a lot of trade before the actual closing.

Understanding currency pair trends Is the only benchmark to successful trading. Do not follow trends: Understanding trends currency pair is the only reference to the successful negotiation.Novice operators should attempt to capitalize on trends in the following as soon as possible. However, as you gain essential knowledge, you can try to cash in on trends do not contradict.

Always Rely on Experienced Forex Brokers That Are Regulated by The Concerned Authorities. Become a part of the scam forex always count on the experienced forex brokers are regulated by the relevant authorities. Forex scams are a common phenomenon that the new target for traders to make money.

In addition, the most common mistake is to not develop a plan of forex trading. To protect your money and make profits, you must develop a business plan that governs the entry strategies and exit.

Discover the “Black Box” system that enabled a BROKE,STRUGGING,MATHS STUDENT HAUL in 3,037 in just 2 months www.Fxloophole.com

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Hi Can you tell me what parameters do you use for trading Forex currency pairs?
What is the best approach to use forex signal in forex trading? Is this driven by fundamental aspect of trading?
How can we register Forex trading company in india.? Is there any law for Online Forex Trading Business in Indian Govt. ?

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Choosing a Forex Broker – The Common Sense Way

Choosing a Forex Broker – The Common Sense Way

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Home Page > Finance > Currency Trading > Choosing a forex broker – The Common Sense Way

Choosing a Forex Broker – The Common Sense Way

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Posted: Aug 09, 2009 |Comments: 0
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Choosing a forex broker is a difficult process. There are literally thousands of companies competing for your money – tantalizing you with seductive ads, hoping you will trust them enough to deposit your money with them. It gets exhausting trying to decipher the hype from the facts, and the real brokers from the scam artists.

There are 5 essential factors to consider before deciding on a forex broker:
• Credibility
• Low Spreads
• Platform
• Leverage
• Word of Mouth

Credibility. Like most people, I have a 9 to 5 job that pays the bills. I work hard for my money, so I am very careful of whom I trust my money with. I won’t trust my money with a stranger, nor would I trust my money with a forex broker that I’ve never heard of.

When I choose my forex broker, I’m looking for big names. I’m looking for brokers with a long history and sustainability. I want a broker that I know won’t be bankrupt tomorrow or the day after. I will rather pay a premium to trade with a reputable company than risk the chance that I may lose my entire bankroll with an unknown broker.

Remember, forex is highly unregulated, and scammers do exist. Beware of them, and take a look at the CFTC’s advisory http://www.cftc.gov/opa/enf98/opaforexa15.htm. Your forex broker should definitely be registered with the Futures Commission Merchant (FCM) and the Commodity Futures Trading Commission (CFTC). It’s your money! Do your research and due diligence before signing up.

Low Spreads. Unlike your discount stock broker who charges you a fixed dollar amount per trade, forex brokers make their money from the spread. This is also where the unsuspecting forex trader can go broke.

The spread is the difference between the BUY and SELL price, and is measured in pips. For example, if the EUR/USD pair is 1.2810/1.2813, there is a 3 pip spread. When you buy the currency, you will buy it at the asking price of 1.2813. If you were to sell it at that precise moment, you will lose 3 pips (around 30 dollars in a regular lot) because the market is only willing to buy it at the bid price of 1.2810. This means that the currency pair must gain 3 pips for you to break even.

This is why a lower spread is desirable since you will need less movement of the currency before you start profiting. The typical spread ranges from 3 pips to 6 pips.

Platform. The platform is the software that your broker uses and you should be comfortable with the software since this is what you will be using to make trades. Most brokers have their proprietary software, and most offers advanced charting features, real-time quotes, and fast execution.

There are two types of platforms: web based, and client based. Web based platform like Easy-Forex are convenient since you can use it without ever having to download or install the software. The best part is you don’t have to be on your own computer to make a trade. You can trade while vacationing in the South of France sipping on a rum and coke.

Client based software will require you to install the software on your computer, but is generally slightly faster once everything is up and running. Installation is usually pretty straight forward, and the broker’s customer service will be more than happy to help you if you run into any trouble installing it.

Leverage. Everybody loves leverage. Leverage gives us control to more money than we can reasonably expect to accumulate on our own. It probably gives us control to more money than we should have access to. With 1:100 leverage, you can trade 100,000 dollars worth of currency with just 1000 dollars. Now that’s impressive.

However, leverage is a double edged sword. It is powerful if you know how to use it properly, but can easily destroy you if it is misused. Remember what Aunt May said to Peter Parker, “With great power comes great responsibility”. Make sure you use leverage responsibly.

Know what your broker offers in terms of leverage. Typical leverages are 1:25, 1:50, 1:100, 1:250, and 1:400. Usually it is nice to have the option to use high leverage, as long as you know what you are doing.

Word of Mouth. This is the most important factor of all. When it all comes down to it, it doesn’t matter whether one broker has a slightly better spread than another, or they use cutting

Common Stock Investing Mistakes

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Home Page > Finance > Common Stock Investing Mistakes

Common Stock Investing Mistakes

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Posted: Feb 25, 2008 |Comments: 0
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As we go into 2008, let us recap some of the common mistakes we all make and strive to avoid making them in 2008.

1. Trading too often. This largely depends on the size of your asset base. If you only have ,000 to invest, making about 50 trades a year at a trade is 0, or 5% of your asset base! That is just about one trade a week, but it takes up 5% of your money. So even if you make 12% returns (beating the historical returns of the market), you will only make 7%, well below the historical returns of the market. If you have a large asset base, you can afford to trade more often. But for most people, try to keep commissions low.

2. Selling scared. Sometimes, it is time to face the music and sell a stock that has been a loser. However, you should not sell just because you are scared. You should sell if you think it makes rational, logical sense to close a position. Many times, people sell stocks because the market had a bad day and they’re afraid it will go lower or the stock itself had a bad day. This later turns out to be a bad decision when the stock shoots back up.

3. Not keeping any cash on the side. I have to credit Jim Cramer with this tip. This was one of the biggest newbie mistakes he talked about on his Mad Money show. When you are fully invested and have no cash, you can not take advantage of the market when it has a bad day. You are also more prone to panic selling and making other fear-related decisions. He recommends keeping at least 10% of your portfolio in cash, which I think is a pretty good tip.

4. Buying fad stocks. Sometimes, popular cool stocks do well. Examples from 2007 would be Chipotle and Apple, both of which more than doubled (in full disclosure, I own shares of Chipotle currently). These companies are solid companies with excellent growth, so the gains are justified. Often times though, people buy shares in a stock just because other people are buying shares. The obvious example is the tech bubble, when people were paying exorbitant prices for companies that were not even close to turning a profit. The psychology behind people’s willingness to buy these stocks was largely because other people were buying them, so they figured people would continue to buy them. That is not a good reason to invest in a company (in fact, it is a horrible one for long-term investing). When investing for the long-term, always make sure the fundamentals are good.

5. Investing in too many stocks. This is another tip I am borrowing from Jim Cramer. Too many of us buy too many stocks and can not follow-up with the companies. We often barely know what we are investing in and have no game plan in regards to the stock. I know I make this mistake often. If we want to diversify, it is easy enough to just buy an index fund or ETF. If we end up investing in 50-100 individual stocks, we effectively become our own mutual fund, but without the resources to adequately monitor the companies we are invested in.

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