Introduction to Forex By

Main terms in forex Leverage Lot , Pips Base currency Swap Spread Safe haven Margin Hedging

Main terms in forex - leverage Leverage is the investment strategy of using borrowed money specifically, the use of various financial instruments or borrowed capital to increase the potential return of an investment. If your leverage ratio is 1:100 and you have 1000$ you will be able to trade with 100K$ but bear in mind you are able to lose only your 1000$ from the 100K. Leverage can play both ways and this is why brokers allow it (EQ brokers generates more commissions and FX&CFD BROKERS count on quick losses of the clients (when your position cap is 100K and you loss 1% you lost 100% from you investment and the other way around as well) .

Main terms in forex – LOT, PIPS In general, any group of goods or services making up a transaction. In the financial markets, a lot represents the standardized quantity of a financial instrument as set out by an exchange or similar regulatory body. Each company has its own size of lot, in currencies pairs the standard lot size is 100,000 of the leading currency In commodities the lot sizes are different from one to another, for example – the lot size in gold is 1000 ounces and on the silver is 5000 ounces.

Main terms in forex –leading “Base” currency In each currency pair there is the leading currency which is the first one in the pair, for example the leading currency in the EUR/USD is the EUR The lot size that you buy will be in the currency of the leading one which means that if we buy 1 lot of EUR/USD we buy in the amount of 100K € In commodities and indices the currency are set as the currency of the market they traded in , for example the DAX price will be in EUR and the FTSE in GBP Also the pips calculation will be calculated in the leading currency.

Main terms in forex – SWAP A swap is a derivative contract through which two parties exchange financial instruments. Th ese instruments can be almost anything, but most swaps involve cash flows based on a notional principal amount that both parties agree to. The most common kind of swap is an interest rate swap. Swaps do not trade on exchanges, and retail investors do not generally engage in swaps. Rather, swaps are over-the-counter contracts between businesses or financial institutions. In simple words – If the interest rate of the currency a trader bought is higher than the interest rate of the currency a trader sold, then the trader will earn interest or “SWAP”

Main terms in forex – SPREAD The spread is the difference between the BID and the ASK price in the market quotes. The ASK price is applicable to a BUY order and the BID price is applicable to a SELL order. Fix spread – the same amount of pips between the bid/ask variable spread - will condense and widen as market conditions and liquidity change.

Main terms in forex – safe haven A safe haven is an investment that is expected to retain its value or even increase its value in times of market turbulence. Safe havens are sought after by investors to limit their exposure to losses in the event of market downturns. However, what are considered safe havens alter over time as market conditions change, and what appears to be a safe investment in one down market could be a disastrous investment in another down market. Gold is typically considered a safe haven when currency markets are volatile. United States Treasury Bills are also considered a safe haven even in a tumultuous economic climate because they are backed by the full faith and credit of the U.S. government. In the forex market, the Swiss franc is considered a safe haven currency.

Main terms in forex – MARGIN Margin is the term given to the amount of money required in your account in order to open a trade. Margin is calculated based on the current market quote of the base currency of the trader’s account vs base currency of the trader’s account, the volume requested, and the leverage level of the trader’s account. Margin may be calculated as follows: (Current Market Quote * Volume) / Leverage = $Margin Required

Main terms in forex – Hedging Hedging refers to the opening of a new position in the opposite direction of an existing position on the same instrument. For example: To hedge a 0.1 lot Buy position on AUD/USD, you would open a 0.1 lot Sell position on AUD/USD No additional margin is required to hedge a position. It is important to note that one cannot open a new position on an account with insufficient usable margin.

24/5 - The Forex is a market that never closes, except on weekends, trade from Sunday 23 p.m to Friday 23p.m. You can then trade at any time of the day, while returning from work for example which is impossible on the stock market. In addition, it allows you to avoid opening gaps that are very common on the stock market and can be very harmful for your investments. Fees - Not as brokers on the stock market, brokers on Forex do not take any fees also the commissions are lower than the stock market. significant liquidity - On the Forex, it is traded each day about 4000 billion dollars which will therefore provide significant liquidity and that without any care about the parity you want to trade. Moreover, given that your counterpart is your broker, you will always have the opportunity to trade on the parity you want. This high liuidity allow brokers to offers you low spreads.

Short - You would like to short a stock but you can’t Short - You would like to short a stock but you can’t? Yes surely because on the stock market, the only way to do it is to borrow stock according the market rules. Not all stocks are eligible to borrow - You can’t short all stocks. With the Forex, this is over. Whatever the side, the pair you choose, everything is possible by a click. You decide your trading strategy and it’s not the market that lay down its rules. Free information - Unlike the equity market, all information is immediately available through your broker or specialist websites. You do not need a subscription to reutters or Bloomberg to follow the news like this happens on stock markets , also every day you have at least 10 special events to trade on A significant leverage and Low initial deposit – while in the stock market the common leverage is 4 and the initial deposit is 25000$ (the day trader rule) , in the forex you can get up to 500 leverage and 250$-1000$ min deposit

Profit & Losses – binary options is similar to casino, the odds are against you , if you win you win 80% if you loss you loss 100% (every one who had statistics course can tell you the mean is against you) - in forex your profit is unlimited! and you can decide how much you will lose. The orders verity - in forex you can put differ kinds of complicated orders as stp, stl ,sell lmt ,buy lmt ,tp ,trailing also you can put order in advance unlike binary options. Time frame – in forex you are not limited to some time frame as binary options , you can hold position for long term unlimited time.

FOREX CORRELATIONS

Most known correlation – USD$/GOLD

Basic correlations

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