Technical Term

Forex School

Technical Term


One, currency

New traders are often difficult to understand the concept of trading currency pairs. They may ask, "why not just buy the euro at all? "Why must be paired with a dollar? "On the currency is on the right in order to determine the value of the currency, without it, we would not be able to base currency (currency pair currency to the left of) the assignment. If money is not matched, then we will not be able to determine what a currency relative to the gain or loss. Two currency pairs, we can determine the value of one currency relative to another currency fluctuations.

ISO Standardization (ISO) for national and foreign exchange currency pair abbreviations developed standards. Since the foreign currency according to the value of one currency for another currency since the quote, Forex currency pairs by the acronym consisting of two currencies, by a slash "/" separated.

Currencies are always traded in pairs, such as EUR/USD, andUSD/JPY. Each position requires buying one currency and selling another currency. When a person says that he is "buy EUR/USD", that is, says he is buying euros and selling dollars.

There are many other Forex currencies available for trading, such as danmaikelang, the Mexican peso and the Russian rouble. However, these currency pairs are trading less, they are not considered major currency.

1.   Currency

Currency issued by a Government or central bank transactions in monetary value such as units of measurement.

2.   Base currency

Base currency mean the first currency in a currency pair, as well as fixed currencies determining the price of a currency pair. As far as daily turnover on foreign exchange markets, the US dollar (USD) and the euro (EUR) is the most important benchmark. Pound sterling (GBP), also known as Sterling, was the third-base currency. In USD as the base currency currency pairs including USD / JPY, USD / CHF and USD / CAD; currency including the euro as the base currency in euros / USD, EUR / JPY, EUR / GBP and EUR / CHF. Pounds are pounds / dollar and the British pound / Japanese Yen currency for the base currency. Australian dollar (AUD) is the Australian dollar / US dollar (AUD/USD), the base currency of the currency pair.

3.   Major currency pairs

Most currency transactions involving "majors", including the pound (GBP), euro (EUR), Japanese Yen (JPY), Swiss franc (CHF) and US dollar (USD). Many traders also Canadian (CAD) and Australian dollar (AUD) fall into this category.

6 on the currency pair is widely recognized as the major currency pairs:

Cross currency pairs

Does not include dollar currency pairs are often referred to as cross-currency pairs. Cross currency transactions in a new field open for speculators currency markets. Some cross-currency change very slowly and moves very well. Cross currency pairs is changing very fast and erratic; daily average more than 100 points.

Many cross-currency swap value of high. Swap is the daily interest rates are credited or debited. When traders holding positions overnight, they will credit or debit interest based on the interest rate. Cross-currency are usually higher than the interest rates of the major currencies.

Second, the bid and ask prices

Exchange price or quotation is similar to other financial products of "purchase-money" and "sell". Price refers to the foreign exchange market is ready to sell a certain currency pair price, the price traders sell the currency pair (more) at a price. Price (sometimes also known as the "Offer") is a Forex trading with market ready to buy a certain currency pair price, the price traders sell the currency pair (empty) at a price. Buyer / price combination based on the exchange rate quotation. Quotation on purchase price column in front, the selling price column in the post. Such as USD/JPY offer price for 120.93/96.

The difference between bid and ask price spreads, reflects the market, wants to sell a certain currency pair price difference is willing to pay the price of a currency pair. Less money in the foreign exchange market trading on the spreads tend to be higher for the major currency pairs traded spreads. And instead of stock market, Forex market, who made a typically do not charge Commission, and point values to make a profit.

1.   Read quotes

Reading forex quotes might be a bit confusing initially. However, remember two points is easy:

1.   Lists the first currency is the base currency

2.   Base currency is always 1

116.04   USD/JPY quotes that say 1 dollar (USD) =116.04 Yen (JPY). When the dollar is the basic unit and currency prices, the dollar value, while another currency in the currency pair (often referred to as the quote currency) devaluation. In this USD/JPY , for example, if USD/JPY 116.04 up to 117.51(147 points), the dollar was stronger, because it can now buy more yen than before.

There are currently four involve dollars, but the dollar is not the base currency of the currency pair. These exceptions is the Australian dollar (AUD), British pound (GBP), euro (EUR) and New Zealand (NZD). 1.7600 GBP/USD quotes a pound equal to 1.7600 dollars. If the price of a currency pair, then the value of the base currency in terms of the quote currency will also increase. Conversely, if the price of a currency pair are falling, that is, the weaker value of the base currency in terms of the quote currency.


2.   What factors affect prices?

The foreign exchange market and prices mainly affected by the impact of international trade and investment flows. It is also influenced by the same factors that affect stock and bond markets affected, but to a smaller degree, these factors: the political and economic situation, in particular interest rates, inflation and political stability (but usually political instability). While economic factors do have a long-term effect, but is usually a direct response of the daily price fluctuations, which enables foreign exchange transactions have a great attraction for day traders. Currency trading can provide another level of diversification for investors. Currency can be seen as means to guard against adverse changes in the stock and bond markets, the change will also affect mutual funds. You should bear in mind that off-Exchange foreign currency trading in the market is one of the riskiest transactions form, you may want to only a fraction of your venture capital in this market.

Third, exchange rates

Exchange rate, also known as the exchange rate, refers to a country's currency to another country's currency prices, or is the parity between the two currencies. On the foreign exchange market, the exchange rate is a five-digit display, such as:
EuroEUR 0.9705
Japanese yenJPY 119.95
SterlingGBP 1.5237
Swiss francCHF 1.5003
Smallest unit of change in the exchange rate to a point, that is the last digit of a number changes, such as:
EuroEUR 0.0001
Japanese yenJPY 0.01
SterlingGBP 0.0001
Swiss francCHF 0.0001
According to international practice, usually with three letters of the alphabet to represent the name of the currency, this Chinese name in English to English, of the currency code.

1.   Cross rates

In the international market, almost all currencies against the US dollar had a rate of Exchange. A non-United States dollar currencies against a non-US dollar currency exchange rate, often need both sets against the US dollar, and the cross exchange rates is called a cross rate. A notable feature is a cross rate involved in the exchange rate is the exchange rate between two currencies other than the dollar. How to calculate foreign exchange cross offer? There are several ways to calculate cross rate:

a. To directly quote currency
Buying selling
USD/JPY: 120.00 120.10
Crossing divides ) the purchase price offer
DEM/JPY = 66.33 66.43
USD/DEM: 1.8080 1.8090

b. With the indirect quote currency
Buying selling
(Cross divides) the purchase price offer
EUR/GBP = 0.6873 0.6883

c. Quoted currency directly and indirectly quoted currency bid ask
USD/JPY: 120.10 120.20
Divide in the same direction ) the purchase price offer

EUR/JPY = 132.17 132.40
EUR/USD: 1.1005 1.1015

2.   Fixed and floating exchange rates

Exchange rates are divided into two types: fixed exchange. Floating exchange rates determined by market forces to determine the currency's value. Fixed exchange rate is subject to a fixed value, a currency fixed one, several or even a certain amount of a product.

Fixed exchange rate of one currency with another currency exchange rates fixed exchange rates. In 19 century early 20 century, 30 years of the gold standard, the second world war after 70 years in United States dollars as the center of the international monetary system, a fixed exchange rate system. Fixed exchange rate is not the currency entirely stationary, but around the upper and lower bounds of a relatively fixed parity swings. As in dollars as the center of the fixed exchange rate system after World War II, members of the International Monetary Fund currency's official exchange rate against the dollar is cheap, the currencies of Member States only in parity from top to bottom 1% fluctuations, intervention by the Central Bank.

Floating exchange rate of one currency with another currency fluctuations of exchange rates have not been lower and upper limits, and supply and demand in the foreign exchange market to decide. 1971 years 8 months, 15 days, new economic policy of the United States, allowed the dollar to float freely, the 1973 year, universal implementation of the floating exchange rate system. Is also from that time onward, the foreign exchange market with the development keep fluctuations in exchange rates.

Four, direct quotation and indirect quotation

Exchange rate list price mode is divided into two kinds: direct quotation and indirect quotation.

1.   Direct quotation

Direct quotation, also known as cope with price, as well as units (1, and100, and1000, and10000) as standard to calculate how much should be paid in foreign currency units of national currency. Is equivalent to calculating how much currency to buy certain units of foreign currency, so called meet the price. Most countries in the world, including China, are using direct quotation. At the international foreign exchange market, Japanese yen, Swiss franc, Canadian dollar are considered as direct quotation, as Yen 119.05 dollar to 119.05 yen.

2.   Indirect quotation

Receivable in indirect quotation, also known as quotation. It is based on certain units ( 1 unit) domestic currency standard, to calculate the number of units of the foreign currency receivable. At the international foreign exchange market, euro, British pound, Australian dollar are considered as indirect quotation.

Euro 0.9705 euro 1 trillion.

In indirect quotation in the national currency amount remains the same, the amount of foreign currency as the local currency and subject to change.

Quotations in currency markets generally two-way quote, quote and quote their bid and ask price, determined solely by the customer trading direction. Bid and ask price difference smaller mean lower costs for investors.

Interbank trading offers spreads as normal to 2-3 , with banks (or dealer) offer spreads to the customer in accordance with individual situations vary greatly, the current foreign bond trading offers spreads in 3-5 Hong Kong 6-8 , domestic banks is trading at 10-40 points.


Five, what is the point (PIP)?

Foreign exchange transactions a "point (point)" price changes as "point (PIP)", it is equivalent to a last bit of digital. About currency pairs (such as USD/JPY), a point from the second digit after the decimal point, such as 120.94. All other do not contain Japanese Yen currency pair, the "point" refers to the fourth decimal place, 1.3279. For example, EUR/USD currency pair, in Exchange for 1 euro needs to 1.3279 dollars.

Six, spread

The difference between bid and ask price spreads, to sell a certain currency pair price difference is willing to pay the price of a currency pair. Typically used to measure market liquidity, price difference is smaller, usually indicates that the more liquid; larger spreads, it generally means that less liquidity. Therefore, less money in the foreign exchange market trading on the spreads tend to be higher for the major currency pairs traded spreads. And instead of stock market, Forex market, who made a typically do not charge Commission, and point values to make a profit.

Seven, or short

Long positions are a trader buys a currency at a specific price, and want to sell it at a higher price, other market called the "buy low, sell high". In the foreign exchange market, when the currency for the price of one currency to another currency prices, and vice versa. If traders think a certain currency pair price will fall, and you want to buy at a lower price in the future, which is short, and more, on the contrary.

Each Forex transaction is a currency against another currency. Trader, trading currency for the currency before defining his / her position. Currency pair currency as the base currency of the former, and the latter currency is the currency. As with traders buying the base currency, he / she made to the currency pairs, if traders are selling the base currency, he / she made to the currency pairs available. See forex charts below to understand the definition.


1.   How to read forex charts

Current exchange rate marked by a Brown line, and the price of a currency pair in brown box in the display. In the previous figure,USD/JPY currency pair at the current exchange rate (120.93), in Exchange for 1 dollar Yen price required. Different calculation methods for exchange rates, which represent for the base currency (the former currency) of relative currency (the latter currency) amount. Therefore, the exchange rate and usually score thing contrary. When the benchmark rose --- that is, in the case of dollar --- exchange rate rise (see blue candle). If Exchange rates from 120.93 changed to 121.50, in Exchange for the United States dollar equivalent you need more yen. When the situation is reversed, that is, Yen prices, decline in price of a currency pair (see the red bar), also said that in Exchange for the United States dollar equivalent need fewer yen than it was before.

If traders to 120.93 buying dollars and selling yen, this means that the trader longs to buy USD/JPY position. If the traders to sell dollars and buy yen, it means that he / she sell USD/JPY currency pair (that is, null). The term system is used to avoid buy / sell a currency pair when the concept is not clear. If the currency pair, traders expect the currency in the currency pair price to sell, if the exchange rate rose to 121.50, then changes to "57".

Eight, margin and leverage

Foreign exchange market has been able to attract small private traders because of the industry's high leverage options. Lever for traders to deduct the profit-making opportunities were created. Leverage works both ways, it can create a high income, can also pose a higher risk, therefore, the use of leveraged trading with high return and high risk.