Forex Beginner

Question 1

Ask Rate

Answer 1

The rate at which a financial instrument if offered for sale (as in bid/ask spread).

Question 2

Base Currency

Answer 2

The currency listed first in a currency pair. The US Dollar is normally considered the “base” currency for quotes, meaning that quotes are expressed as a unit of $1 USD vs the other currency quoted in the pair. The primary exceptions to this rule are the British Pound, the Euro, the Australian Dollar and the New Zealand Dollar.

Question 3

Bear Market

Answer 3

A market distinguished by declining prices and lower lows

Question 4

Bretton Woods Agreement of 1944

Answer 4

An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and pegged the price of gold at US $35 per ounce. The agreement lasted until 1971, when President Nixon overturned the Bretton Woods agreement and established a floating exchange rate for the major currencies. Thus creating the Forex Market.

Question 5

Bull Market

Answer 5

A market distinguished by rising prices and higher highs

Question 6

Candlestick Chart

Answer 6

A chart that indicates the trading range for the period illustrated by candlesticks that reflect the opening and closing price as well as the high and low price.

Question 7

Commission

Answer 7

A transaction fee charged by a broker on each trade.

Question 8

Currency

Answer 8

Any form of money issued by a government or central bank and used as legal tender and a basis for trade.

Question 9

Day Trading

Answer 9

Refers to positions which are opened and closed on the same trading day. Day traders can be short term or long term

Question 10

Economic Indicator

Answer 10

Foundation of fundamental analysis. A government issued statistic that indicates current economic growth and stability. Common indicators include employment rates, Gross Domestic Product (GDP), inflation, retail sales, etc.

Question 11

EURO/EUR

Answer 11

The currency of the European Monetary Union (EMU). A replacement for the European Currency Unit (ECU). Aka “Fiber”

Question 12

Foreign Exchange (Forex, FX)

Answer 12

The simultaneous buying of one currency and selling of another.

Question 13

Fundamental analysis

Answer 13

Analysis of economic and political information with the objective of determining future movements in a financial market.

Question 14

Limit order

Answer 14

A pending order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is 102.00/05, then a limit order to buy USD would be at a price below 102. (i.e., 101.50)

Question 15

Liquidity

Answer 15

The ability of a market to accept large transactions with minimal to no impact on price stability.

Question 16

Long position

Answer 16

A position that appreciates in value if market prices increase. Buy position.

Question 17

Margin call

Answer 17

A request from a broker or dealer for additional funds or other collateral to guarantee performance on a position that has moved against the customer.

Question 18

Market order

Answer 18

A order that is instantly executed in the market based on the current ask or bid price

Question 19

Offer

Answer 19

The rate at which a dealer is willing to sell a currency. Also known as bid price

Question 20

Over the Counter (OTC)

Answer 20

Used to describe any transaction that is not conducted over an exchange.

Question 21

Pipette

Answer 21

Smallest fractional value of calculating a pip. Typically, the fifth decimal place in most major currency pairs. Third decimal place in Yen pairs.

Question 22

Pips

Answer 22

Percentage in Points. Increment for calculating rate fluctuations in the market. Typically, the fourth decimal place in most major currency pairs. Second decimal place in Yen pairs.

Question 23

Position Trading

Answer 23

Refers to positions which are held long term usually weeks, months and sometimes years.

Question 24

Quote Currency

Answer 24

An indicative market price for the “quoted” or counter currency.

Question 25

Rate

Answer 25

The price of one currency in terms of another, typically used for dealing purposes.

Question 26

Resistance

Answer 26

A term used in technical analysis indicating a specific price level at which analysis concludes people will sell.

Question 27

Risk

Answer 27

Exposure to uncertain change, most often used with a negative connotation of adverse change.

Question 28

Scalp Trading

Answer 28

Refers to positions which are opened and closed very quickly within seconds or minutes.

Question 29

Short Position

Answer 29

An investment position that benefits from a decline in market price. Sell position

Question 30

Spread

Answer 30

The difference between the bid and ask prices.

Question 31

Stop Loss Order

Answer 31

Order type whereby an open position is automatically liquidated at a specific price. Often used to minimize exposure to losses if the market moves against an investor’s position. As an example, if an investor is long USD at 156.27, they might wish to put in a stop loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.

Question 32

Support Levels

Answer 32

A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance.

Question 33

Swing Trading

Answer 33

Refers to positions which are opened for several days at a time, usually 2 - 7 days.

Question 34

Take Profit Order

Answer 34

A pending order to close an open position in profit at a specified price

Question 35

Technical Analysis

Answer 35

An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc.

Question 36

Technical Indicators

Answer 36

Mathematical formulas designed to be added to the chart to assist with technical analysis of trends, momentum and volatility.