forex introductory theory Flashcards
what is a broker?
works as an intermediary between you and the liquidity provider
what do brokers use?
They use multiple banks for pricing, and they’ll offer you the best one
what are the three types of currency pairs?
major pairs
minor pairs
exotic pairs
major currency pair
they all contain the USD in them
They are the most traded pairs in the market.
(EUR/USD) (GBP/USD) (USD/JPY) (…)
minor currency pairs
They are a fusion of 2 Major Pairs, called also crosses.
Example: EUR/USD + USD/JPY = EUR/JPY
(GBP/JPY) (EUR/JPY) (GBP/AUD) (…)
exotic currency pairs
made up of one major currency with another currency of an emerging economy
what is a Pip
A pip is the measure of the price movement of a currency pair
if there are 5 decimals in a currency, where is the pip?
in the fourth decimal
if there are 3 decimals in a currency, where is the pip?
In the second decimal
what are lots
They are the number of currency units you are buying or selling
how much is 1 lot or standard lot
100 000 Units of the currency
or
≈ 10$/pip
how much is 0.1 lot or mini-lot
10 000 Units of the currency
or
≈ 1$/pip
how much is 0.01 lot or micro-lot
1000 Units of the currency
or
≈ 0.10$/pip
what is leverage
borrowing a certain amount of money from the broker so that you can open bigger positions in the market
what does it mean when you buy a currency pair
it means that we are buying the base currency by selling the quote currency
ex: We are buying EUR/JPY, it means we are buying EUR and selling JPY
what does it mean when you sell a currency pair
it means that we are selling the base currency by buying the quote currency.
ex: We are selling GBP/NZD, it means we are selling GBP and buying NZD
what are limit orders?
A limit order is an order to buy or sell at a specified price
when are limit orders most useful?
when you’re not in front of a screen
what is buying at STOP
you wanna buy order at a higher price than the market current price
what is selling at stop
you wanna sell at a lower price than the current market price
what is buying at limit
you place your order at a price below the current market price
what is selling at limit
you sell at a higher order price than the current market price
what is the fundamental analysis
the study of the overall state of a certain economy
We also look at social and political news that could influence the currency
40%
what is market sentiment
This is how financial institutions and retail traders position themselves in the market
Usually they are going to be against each other
25%
what is price action
Price action is a trading technique
allows you to understand where the price wants to go by studying the candlesticks
10%
whats technical analysis
Technical Analysis is finding:
the best price to enter the trade
to execute your fundamental idea
to optimize your trade
Always the last step
25%
