The Forex quick guide

for beginners and privat e t raders

This guide was creat ed by Easy-ForexTrading Plat form, and is offered FREE t o all Forex t raders.

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In this book: (click a chapt er t it le below t o direct ly get t here)

page

Int ro 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

How t o use t his book Forex? What is it , anyway? (a simple int roduct ion, for t he
very beginners )

3 4 6 12 21 25 29 47 56 64 71 78 114

What is Forex t rading? What is a Forex deal? What is t he global Forex market ? Overview of t rading Forex online Training for success Technical Analysis: pat t erns and forecast met hods used t oday Fundament al Analysis and leading market indicat ors Day-Trading (on t he Easy-ForexTrading Plat form) Twent y issues you must consider Tips for every Forex t rader Forex glossary Disclaimer (risk warning)

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Introduction: how to use this book

This book has been developed t o help t he Forex beginner, t hough experienced and professional t raders may find it a handy reference. Beginners and novice t raders are likely t o benefit from reading t he ent ire t ext , st art ing wit h Chapt er 1, which provides a basic overview of what currency t rading is, and how t o get st art ed. The chapt ers are set out in a logical flow, but do not need t o be read in order t o make sense, as each works as a discret e unit unt o it self. You may prefer t o focus first on t hose chapt ers t hat you feel will complement your part icular knowledge base best . Chapt er 11 is a glossary of t erms (list ed alphabet ically) used in t he Forex business, t hat will prove helpful as you read t his book, and may serve as a valuable reference as you become an experienced currency t rader. Wit h t he help of t his guide, you will soon be ready t o st art t rading Forex in fact , wit h t he assist ance of t he online Easy-Forext eam, you can st art t oday. We wish you success in your t rading, and hope you find t his book int erest ing, helpful and enj oyable. Before you st art , please remember: Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. Before deciding t o undert ake such t ransact ions, a user should carefully evaluat e whet her his/ her financial sit uat ion is appropriat e for such t ransact ions. Read more in t he "RISK WARNING" sect ion on Easy-Forex sit e / Risk Disclaimer. Always ask your Forex dealer (t he TRADING PLATFORM you wish t o t rade wit h) t he quest ions we prepared for you in t his book (chapt er 9). Select ing t he appropriat e Forex TRADING PLATFORM is essent ial for success in handling your t rading and monit oring your act ivit y, as well as maximizing profit s, while minimizing losses and cost s.

Your comment s and suggest ions are highly appreciat ed (and may well be incorporat ed in our next edit ion)! Be our guest and writ e us:
ForexBooks@Forex.info

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[1] Forex? What is it, anyway?

The market The currency t rading (foreign exchange, Forex, FX) market is t he biggest and fast est growing market on eart h. It s daily t urnover is more t han 2.5 t rillion dollars. The part icipant s in t his market are cent ral and commercial banks, corporat ions, inst it ut ional invest ors, hedge funds, and privat e individuals like you. What happens in the market? Market s are places where goods are t raded, and t he same goes wit h Forex. In Forex market s, t he goods are t he currencies of various count ries (as well as gold and silver). For example, you might buy euro wit h US dollars, or you might sell Japanese Yen for Canadian dollars. It s as basic as t rading one currency for anot her. Of course, you don t have t o purchase or sell act ual, physical currency: you t rade and work wit h your own base currency, and deal wit h any currency pair you wish t o. Leverage is the Forex advantage The rat io of invest ment t o act ual value is called leverage . Using a $1,000 t o buy a Forex cont ract wit h a $100,000 value is leveraging at a 1:100 rat io. The $1,000 is all you invest and all you risk, but t he gains you can make may be many t imes great er. How does one profit in the Forex market? Obviously, buy low and sell high! The profit pot ent ial comes from t he fluct uat ions (changes) in t he currency exchange market . Unlike t he st ock market , where share are purchased, Forex t rading does not require physical purchase of t he currencies, but rat her involves cont ract s for amount and exchange rat e of currency pairs. The advant ageous t hing about t he Forex market is t hat regular daily fluct uat ions in t he regular currency exchange market s, oft en around 1%- are mult iplied by 100! (Easy-Forex generally offers t rading rat ios from 1:50 t o 1:200). How risky is Forex trading? You cannot lose more t han your init ial invest ment (also called your margin ). The profit you may make is unlimit ed, but you can never lose more t han t he margin. You are st rongly advised t o never risk more t han you can afford t o lose.

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How do I start trading? If you wish t o t rade using t he Easy-ForexTrading Plat form, or any ot her, you must first register and t hen deposit t he amount you wish t o have in your margin account t o invest . Regist ering is easy wit h Easy-Forexand it accept s payment via most maj or credit cards, PayPal, West ern Union. Once your deposit has been received, you are ready t o start trading. How do I monitor my Forex trading? Online, anywhere, anyt ime. You have full cont rol t o monit or your t rading st at us, check scenarios, change some t erms in your Forex deals, close deals, or wit hdraw profit s.

Easy-Forex wishes you enj oyable and successful Forex t rading!

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[2] What is Forex trading? What is a Forex deal?

The invest or's goal in Forex t rading is t o profit from foreign currency movement s. More t han 95%of all Forex t rading performed t oday is for speculat ive purposes (e.g. t o profit from currency movement s). The rest belongs t o hedging (managing business exposures t o various currencies) and ot her act ivit ies. Forex t rades (t rading onboard int ernet plat forms) are non-delivery t rades: currencies are not physically t raded, but rat her t here are currency cont ract s which are agreed upon and performed. Bot h part ies t o such cont ract s (t he t rader and t he t rading plat form) undert ake t o fulfill t heir obligat ions: one side undert akes t o sell t he amount specified, and t he ot her undert akes t o buy it . As ment ioned, over 95% of t he market act ivit y is for speculat ive purposes, so t here is no int ent ion on eit her side t o act ually perform t he cont ract (t he physical delivery of t he currencies). Thus, t he cont ract ends by offset t ing it against an opposit e posit ion, result ing in t he profit and loss of t he part ies involved.

Components of a Forex deal A Forex deal is a cont ract agreed upon bet ween t he t rader and t he market maker (i.e. t he Trading Plat form). The cont ract is comprised of t he following component s: The currency pairs (which currency t o buy; which currency t o sell) The principal amount (or "face", or "nominal": t he amount of currency involved in t he deal) The rat e (t he agreed exchange rat e bet ween t he t wo currencies).

Time frame is also a fact or in some deals, but t his chapt er focuses on DayTrading (similar t o Spot or Current Time t rading), in which deals have a lifespan of no more t han a single full day. Thus, t ime frame does not play int o t he equat ion. Not e, however, t hat deals can be renewed ( rolled-over ) t o t he next day for a limit ed period of t ime. The Forex deal, in t his cont ext , is t herefore an obligat ion t o buy and sell a specified amount of a part icular pair of currencies at a pre-det ermined exchange rat e. Forex t rading is always done in currency pairs. For example, imagine t hat t he exchange rat e of EUR/ USD (euros t o US dollars) on a cert ain day is 1.5000 (t his number is also referred t o as a spot rat e , or j ust rat e , for short ). If

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an invest or had bought 1,000 euros on t hat dat e, he would have paid 1,500.00 US dollars. If one year lat er, t he Forex rat e was 1.5100, t he value of t he euro has increased in relat ion t o t he US dollar. The invest or could now sell t he 1,03300 euros in order t o receive 1,510.00 US dollars. The invest or would t hen have USD 10.00 more t han when he st art ed a year earlier.
However, t o know if t he invest or made a good invest ment , one needs t o compare t his invest ment opt ion t o alt ernat ive invest ment s. At t he very minimum, t he ret urn on invest ment (ROI) should be compared t o t he ret urn on a risk-f ree invest ment . Long-t erm US government bonds are considered t o be a risk-f ree invest ment since t here is virt ually no chance of def ault - i.e. t he US government is not likely t o go bankrupt , or be unable or unwilling t o pay it s debt s.

Trade only when you expect t he currency you are buying t o increase in value relat ive t o t he currency you are selling. If t he currency you are buying does increase in value, you must sell back t hat currency in order t o lock in t he profit . An open t rade (also called an open posit ion ) is one in which a t rader has bought or sold a part icular currency pair, and has not yet sold or bought back t he equivalent amount t o complet e t he deal. It is est imat ed t hat around 95% of t he FX market is speculat ive. In ot her words, t he person or inst it ut ion t hat bought or sold t he currency has no plan t o act ually t ake delivery of t he currency in t he end; rat her, t hey were solely speculat ing on t he movement of t hat part icular currency.

Exchange rate Because currencies are t raded in pairs and exchanged one against t he ot her when t raded, t he rat e at which t hey are exchanged is called t he exchange rat e. The maj orit y of currencies are t raded against t he US dollar (USD), which is t raded more t han any ot her currency. The four currencies t raded most frequent ly aft er t he US dollar are t he euro (EUR), t he Japanese yen (JPY), t he Brit ish pound st erling (GBP) and t he Swiss franc (CHF). These five currencies make up t he maj orit y of t he market and are called t he maj or currencies or t he Maj ors . Some sources also include t he Aust ralian dollar (AUD) wit hin t he group of maj or currencies. The first currency in t he exchange pair is referred t o as t he base currency. The second currency is t he count er currency or quot e currency. The count er or quot e currency is t hus t he numerat or in t he rat io, and t he base currency is t he denominat or. The exchange rat e t ells a buyer how much of t he count er or quot e currency must be paid t o obt ain one unit of t he base currency. The exchange rat e also t ells a seller how much is received in t he count er or quot e currency when

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selling one unit of t he base currency. For example, an exchange rat e for EUR/ USD of 1.5083 specifies t o t he buyer of euros t hat 1.5083 USD must be paid t o obt ain 1 euro.

Spreads It is t he difference bet ween BUY and SELL, or BID and ASK. In ot her words, t his is t he difference bet ween t he market maker's "selling" price (t o it s client s) and t he price t he market maker "buys" it from it s client s. If an invest or buys a currency and immediat ely sells it (and t hus t here is no change in t he rat e of exchange), t he invest or will lose money. The reason for t his is t he spread . At any given moment , t he amount t hat will be received in t he count er currency when selling a unit of base currency will be lower t han t he amount of count er currency which is required t o purchase a unit of base currency. For inst ance, t he EUR/ USD bid/ ask currency rat es at your bank may be 1.4975/ 1.5025, represent ing a spread of 500 pips (percent age in point s; one pip = 0.0001). Such a rat e is much higher t han t he bid/ ask currency rat es t hat online Forex invest ors commonly encount er, such as 1.5015/ 1.5020, wit h a spread of 5 pips. In general, smaller spreads are bet t er for Forex invest ors since t hey require a smaller movement in exchange rat es in order t o profit from a t rade.

Prices, Quotes and Indications The price of a currency (in t erms of t he count er currency), is called Quot e . There are t wo kinds of quot es in t he Forex market : Direct Quot e: t he price for 1 US dollar in t erms of t he ot her currency, e.g. Japanese Yen, Canadian dollar, et c. Indirect Quot e: t he price of 1 unit of a currency in t erms of US dollars, e.g. Brit ish pound, euro. The market maker provides t he invest or wit h a quot e. The quot e is t he price t he market maker will honor when t he deal is execut ed. This is unlike an indicat ion by t he market maker, which informs t he t rader about t he market price level, but is not t he final rat e for a deal. Cross rat es any quot e which is not against t he US dollar is called cross . For example, GBP/ JPY is a cross rat e, since it is calculat ed via t he US dollar. Here is how t he GBP/ JPY rat e is calculat ed:

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GBP/ USD = 2.0000; USD/ JPY = 110.00; Therefore: GBP/ JPY = 110.00 x 2.0000 = 220.00.

Margin Banks and/ or online t rading providers need collat eral t o ensure t hat t he invest or can pay in t he event of a loss. The collat eral is called t he margin and is also known as minimum securit y in Forex market s. In pract ice, it is a deposit t o t he t rader's account t hat is int ended t o cover any currency t rading losses in t he fut ure. Margin enables privat e invest ors t o t rade in market s t hat have high minimum unit s of t rading, by allowing t raders t o hold a much larger posit ion t han t heir account value. Margin t rading also enhances t he rat e of profit , but similarly enhances t he rat e of loss, beyond t hat t aken wit hout leveraging.

Maintenance Margin Most t rading plat forms require a maint enance margin be deposit ed by t he t rader parallel t o t he margins deposit ed for act ual t rades. The main reason for t his is t o ensure t he necessary amount is available in t he event of a gap or slippage in rat es. Maint enance margins are also used t o cover administ rat ive cost s. When a t rader set s a St op-Loss rat e, most market makers cannot guarant ee t hat t he st op-loss will act ually be used. For example, if t he market for a part icular count er currency had a vert ical fall from 1.1850 t o 1.1900 bet ween t he close and opening of t he market , and t he t rader had a st op-loss of 1.1875, at which rat e would t he deal be closed? No mat t er how t he rat e slippage is account ed for, t he t rader would probably be required t o add-up on his init ial margin t o finalize t he aut omat ically closed t ransact ion. The funds from t he maint enance margin might be used for t his purpose. Import ant not e: Easy-Forex does NOT require t hat t raders deposit a maint enance margin. Easy-Forex guarant ees t he exact rat e (St op-Loss or ot her) as pre-defined by t he t rader. If you don t wish t o deposit maint enance margin , in addit ion t o t he margin required for t rading, j oin Easy-Forex: no maint enance margin , t rade from as lit t le as $100!

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Leverage Leveraged financing is a common pract ice in Forex t rading, and allows t raders t o use credit , such as a t rade purchased on margin, t o maximize ret urns. Collat eral for t he loan/ leverage in t he margined account is provided by t he init ial deposit . This can creat e t he opport unit y t o cont rol USD 100,000 for as lit t le as USD 1,000. There are five ways privat e invest ors can t rade in Forex, direct ly or indirect ly:

The spot market Forwards and fut ures Opt ions Cont ract s for difference Spread bet t ing

Please not e t hat t his book focuses on t he most common way of t rading in t he Forex market , Day-Trading (relat ed t o Spot ). Please refer t o t he glossary for explanat ions of each of t he five ways invest ors can t rade in Forex.

A spot transaction A spot t ransact ion is a st raight forward exchange of one currency for anot her. The spot rat e is t he current market price, which is also called t he benchmark price . Spot t ransact ions do not require immediat e set t lement , or payment on t he spot . The set t lement dat e, or value dat e is t he second business day aft er t he deal dat e (or t rade dat e ) on which t he t ransact ion is agreed by t he t rader and market maker. The t wo-day period provides t ime t o confirm t he agreement and t o arrange t he clearing and necessary debit ing and credit ing of bank account s in various int ernat ional locat ions.

Risks Alt hough Forex t rading can lead t o very profit able result s, t here are subst ant ial risks involved: exchange rat e risks, int erest rat e risks, credit risks and event risks. Approximat ely 80% of all currency t ransact ions last a period of seven days or less, wit h more t han 40% last ing fewer t han t wo days. Given t he ext remely

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short lifespan of t he t ypical t rade, t echnical indicat ors heavily influence ent ry, exit and order placement decisions.

You don t need Brit ish pounds or Japanese yens t o t rade wit h t hem. Use your own account base currency at Easy-Forex.

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[3] What is the global Forex market?

Today, t he Forex market is a nonst op cash market where currencies of nat ions are t raded, t ypically via brokers. Foreign currencies are cont inually and simult aneously bought and sold across local and global market s. The value of t raders' invest ment s increases or decreases based on currency movement s. Foreign exchange market condit ions can change at any t ime in response t o real-t ime event s. The main at t ract ions of short -t erm currency t rading t o privat e invest ors are:

24-hour t rading, 5 days a week wit h nonst op access (24/ 7) t o global Forex dealers. An enormous liquid market , making it easy t o t rade most currencies. Volat ile market s offering profit opport unit ies. St andard inst rument s for cont rolling risk exposure. The abilit y t o profit in rising as well as falling market s. Leveraged t rading wit h low margin requirement s. Many opt ions for zero commission t rading.

A brief history of the Forex market

The following is an overview int o t he hist orical evolut ion of t he foreign exchange market and t he root s of t he int ernat ional currency t rading, from t he days of t he gold exchange, t hrough t he Bret t on-Woods Agreement , t o it s current manifest at ion.

The Gold exchange period and the Bretton-Woods Agreement The Bret t on-Woods Agreement , est ablished in 1944, fixed nat ional currencies against t he US dollar, and set t he dollar at a rat e of USD 35 per ounce of gold. In 1967, a Chicago bank refused t o make a loan in pound st erling t o a college professor by t he name of Milt on Friedman, because he had int ended t o use t he funds t o short t he Brit ish currency. The bank's refusal t o grant t he loan was due t o t he Bret t on-Woods Agreement . Bret t on-Woods was aimed at est ablishing int ernat ional monet ary st abilit y by prevent ing money from t aking flight across count ries, t hus curbing speculat ion in foreign currencies. Bet ween 1876 and World War I, t he gold exchange st andard had ruled over t he int ernat ional economic syst em. Under t he gold

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st andard, currencies experienced an era of st abilit y because t hey were support ed by t he price of gold. However, t he gold st andard had a weakness in t hat it t ended t o creat e boombust economies. As an economy st rengt hened, it would import a great deal, running down t he gold reserves required t o support it s currency. As a result , t he money supply would diminish, int erest rat es would escalat e and economic act ivit y would slow t o t he point of recession. Ult imat ely, prices of commodit ies would hit rock bot t om, t hus appearing at t ract ive t o ot her nat ions, who would t hen sprint int o a buying frenzy. In t urn, t his would inj ect t he economy wit h gold unt il it increased it s money supply, t hus driving down int erest rat es and rest oring wealt h. Such boom-bust pat t erns were common t hroughout t he era of t he gold st andard, unt il World War I t emporarily discont inued t rade flows and t he free movement of gold. The Bret t on-Woods Agreement was founded aft er World War II, in order t o st abilize and regulat e t he int ernat ional Forex market . Part icipat ing count ries agreed t o t ry t o maint ain t he value of t heir currency wit hin a narrow margin against t he dollar and an equivalent rat e of gold. The dollar gained a premium posit ion as a reference currency, reflect ing t he shift in global economic dominance from Europe t o t he USA. Count ries were prohibit ed from devaluing t heir currencies t o benefit export market s, and were only allowed t o devalue t heir currencies by less t han 10% . Post -war const ruct ion during t he 1950s, however, required great volumes of Forex t rading as masses of capit al were needed. This had a dest abilizing effect on t he exchange rat es est ablished in Bret t on-Woods. In 1971, t he agreement was scrapped when t he US dollar ceased t o be exchangeable for gold. By 1973, t he forces of supply and demand were in cont rol of t he currencies of maj or indust rialized nat ions, and currency now moved more freely across borders. Prices were float ed daily, wit h volumes, speed and price volat ilit y all increasing t hroughout t he 1970s. New financial inst rument s, market deregulat ion and t rade liberalizat ion emerged, furt her st oking growt h of Forex market s. The explosion of comput er t echnology t hat began in t he 1980s accelerat ed t he pace by ext ending t he market cont inuum for cross-border capit al movement s t hrough Asian, European and American t ime zones. Transact ions in foreign exchange increased rapidly from nearly $70 billion a day in t he 1980s, t o more t han $3 t rillion a day t wo decades lat er.

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The explosion of the euro market The rapid development of t he Eurodollar market , which can be defined as US dollars deposit ed in banks out side t he US, was a maj or mechanism for speeding up Forex t rading. Similarly, Euro market s are t hose where currencies are deposit ed out side t heir count ry of origin. The Eurodollar market came int o being in t he 1950s as a result of t he Soviet Union deposit ing US dollars earned from oil revenue out side t he US, in fear of having t hese asset s frozen by US regulat ors. This gave rise t o a vast offshore pool of dollars out side t he cont rol of US aut horit ies. The US government react ed by imposing laws t o rest rict dollar lending t o foreigners. Euro market s were part icularly at t ract ive because t hey had far fewer regulat ions and offered higher yields. From t he lat e 1980s onwards, US companies began t o borrow offshore, finding Euro market s an advant ageous place for holding excess liquidit y, providing short t erm loans and financing import s and export s. London was and remains t he principal offshore market . In t he 1980s, it became t he key cent er in t he Eurodollar market , when Brit ish banks began lending dollars as an alt ernat ive t o pounds in order t o maint ain t heir leading posit ion in global finance. London's convenient geographical locat ion (operat ing during Asian and American market s) is also inst rument al in preserving it s dominance in t he Euro market .

Euro-Dollar currency exchange The euro t o US dollar exchange rat e is t he price at which t he world demand for US dollars equals t he world supply of euros. Regardless of geographical origin, a rise in t he world demand for euros leads t o an appreciat ion of t he euro. Fact ors affect ing t he Euro t o US dollar exchange rat e Four fact ors are ident ified as fundament al det erminant s of t he real euro t o US dollar exchange rat e:

The int ernat ional real int erest rat e different ial bet ween t he Federal Reserve and European Cent ral Bank Relat ive prices in t he t raded and non-t raded goods sect ors The real oil price The relat ive fiscal posit ion of t he US and Euro zone

The nominal bilat eral US dollar t o euro exchange is t he exchange rat e t hat at t ract s t he most at t ent ion. Not wit hst anding t he comparat ive import ance of

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bilat eral t rade links wit h t he US, t rade wit h t he UK is, t o some ext ent , more import ant for t he euro. The following chart illust rat es t he EUR/ USD exchange rat e over t ime, from t he inaugurat ion of t he euro, unt il mid 2006. Not e t hat each line (t he EUR/ USD, USD/ EUR) is a mirror image of t he ot her, since bot h are reciprocal t o one anot her. This chart is illust rat es t he st eady (general) decline of t he USD (in t erms of euro) from t he beginning of 2002 unt il t he end of 2004.

EUR-USD rates 1998-2008

In t he long run, t he correlat ion bet ween t he bilat eral US dollar t o euro exchange rat e, and different measures of t he effect ive exchange rat e of Euroland, has been rat her high, especially when one looks at t he effect ive real exchange rat e. As inflat ion is at very similar levels in t he US and t he Euro area, t here is no need t o adj ust t he US dollar t o euro rat e for inflat ion different ials. However, because t he Euro zone also t rades int ensively wit h count ries t hat have relat ively high inflat ion rat es (e.g. some count ries in Cent ral and East ern Europe, Turkey, et c.), it is more import ant t o downplay nominal exchange rat e measures by looking at relat ive price and cost development s.

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The fall of the US dollar The st eady and orderly decline of t he US dollar from early 2002 t o early 2007 against t he euro, st erling, Aust ralian dollar, Canadian dollar and a few ot her currencies (i.e. it s t rade-weight ed average, which is what count s for purposes of t rade adj ust ment ), remains significant . In t he wake of t he sub-prime mort gage crises in t he US, dollar losses escalat ed and cont inued t o feel t he backlash. The Fed responded wit h several rounds of rat e hikes while weighing t he balance of domest ic growt h and inflat ion fears.

When was t he last t ime t he EUR-JPY pair was over 150.00? (Have a look at Easy-Forex professional charts).

The basic theories underlying the US dollar to euro exchange rate Law of One Price: In compet it ive market s, free of t ransport at ion cost barriers t o t rade, ident ical product s sold in different count ries must sell at t he same price when t he prices are st at ed in t erms of t he same currency. Interest rate effects: If capit al is allowed t o flow freely, exchange rat es become st able at a point where equalit y of int erest is est ablished.

The dual forces of supply and demand These t wo reciprocal forces det ermine euro vs. US dollar exchange rat es. Various fact ors affect t hese t wo forces, which in t urn affect t he exchange rat es: The business environment: Posit ive indicat ions (in t erms of government policy, compet it ive advant ages, market size, et c.) increase t he demand for t he currency, as more and more ent erprises want t o invest in it s place of origin. Stock market: The maj or st ock indices also have a correlat ion wit h t he currency rat es, providing a daily read of t he mood of t he business environment . Political factors: All exchange rat es are suscept ible t o polit ical inst abilit y and ant icipat ion about new government s. For example, polit ical inst abilit y in

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Russia is also a flag for t he euro t o US dollar exchange, because of t he subst ant ial amount of German invest ment in Russia. Economic data: Economic dat a such as labor report s (payrolls, unemployment rat e and average hourly earnings), consumer price indices (CPI), producer price indices (PPI), gross domest ic product (GDP), int ernat ional t rade, product ivit y, indust rial product ion, consumer confidence et c., also affect currency exchange rat es. Confidence in a currency is t he great est det erminant of t he real euro t o US dollar exchange rat e. Decisions are made based on expect ed fut ure development s t hat may affect t he currency.

Types of exchange rate systems An exchange can operat e under one of four main t ypes of exchange rat e syst ems: Fully fixed exchange rat es In a fixed exchange rat e syst em, t he government (or t he cent ral bank act ing on it s behalf) int ervenes in t he currency market in order t o keep t he exchange rat e close t o a fixed t arget . It is commit t ed t o a single fixed exchange rat e and does not allow maj or fluct uat ions from t his cent ral rat e. Semi-fixed exchange rat es Currency can move wit hin a permit t ed range, but t he exchange rat e is t he dominant t arget of economic policy-making. Int erest rat es are set t o meet t he t arget exchange rat e. Free float ing The value of t he currency is det ermined solely by supply and demand in t he foreign exchange market . Consequent ly, t rade flows and capit al flows are t he main fact ors affect ing t he exchange rat e. The definit ion of a float ing exchange rat e syst em is a monet ary syst em in which exchange rat es are allowed t o move due t o market forces wit hout int ervent ion by nat ional government s. The Bank of England, for example, does not act ively int ervene in t he currency market s t o achieve a desired exchange rat e level. Wit h float ing exchange rat es, changes in market supply and demand cause a currency t o change in value. Pure free float ing exchange rat es are rare - most government s at one t ime or anot her seek t o manage t he value of t heir currency t hrough changes in int erest rat es and ot her means of cont rols.

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Managed float ing exchange rat es Most government s engage in managed float ing syst ems, if not part of a fixed exchange rat e syst em.

The advant ages of fixed exchange rat es Fixed rat es provide great er cert aint y for export ers and import ers and, under normal circumst ances, t here is less speculat ive act ivit y - t hough t his depends on whet her dealers in foreign exchange market s regard a given fixed exchange rat e as appropriat e and credible. The advant ages of float ing exchange rat es Fluct uat ions in t he exchange rat e can provide an aut omat ic adj ust ment for count ries wit h a large balance of payment s deficit . A second key advant age of float ing exchange rat es is t hat it allows t he government / monet ary aut horit y flexibilit y in det ermining int erest rat es as t hey do not need t o be used t o influence t he exchange rat e.

The EUR-USD has dropped? So w hat !

(you can profit in any direct ion it t akes, provided you chose t he winning direct ion )

Who are the participants in todays Forex market? In general, there are two main groups in the Forex marketplace: Hedgers account for less t han 5% of t he market , but are t he key reason fut ures and ot her such financial inst rument s exist . The group using t hese hedging t ools is primarily businesses and ot her organizat ions part icipat ing in int ernat ional t rade. Their goal is t o diminish or neut ralize t he impact of currency fluct uat ions. Speculators account for more t han 95%of t he market . This group includes privat e individuals and corporat ions, public ent it ies, banks, et c. They part icipat e in t he Forex market in order t o creat e profit , t aking advant age of t he fluct uat ions of int erest rat es and exchange rat es. The act ivit y of t his group is responsible for t he high liquidit y of t he Forex market . They conduct t heir t rading by using leveraged invest ing, making it a financially efficient source for earning.

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Market making
Since most Forex deals are made by (individual and organizat ional) t raders, in conj unct ion wit h market makers, it s import ant t o underst and t he role of t he market maker in t he Forex indust ry. Questions and answers about 'market making' What is a market maker? A market maker is t he count erpart t o t he client . The Market Maker does not operat e as an int ermediary or t rust ee. A Market Maker performs t he hedging of it s client s' posit ions according t o it s policy, which includes offset t ing various client s' posit ions, and hedging via liquidit y providers (banks) and it s equit y capit al, at it s discret ion. Who are the market makers in the Forex industry? ), who buy and Banks, for example, or t rading plat forms (such as Easy-Forex sell financial inst rument s make t he market . That is cont rary t o int ermediaries, which represent client s, basing t heir income on commission. Do market makers go against a client's position? By definit ion, a market maker is t he count erpart t o all it s client s' posit ions, and always offers a t wo-sided quot e (t wo rat es: BUY and SELL). Therefore, t here is not hing personal bet ween t he market maker and t he cust omer. Generally, market makers regard all of t he posit ions of t heir client s as a whole. They offset bet ween client s' opposit e posit ions, and hedge t heir net exposure according t o t heir risk management policies and t he guidelines of regulat ory aut horit ies. Do market makers and clients have a conflict of interest? Market makers are not int ermediaries, port folio managers, or advisors, who represent cust omers (while earning commission). Inst ead, t hey buy and sell currencies t o t he cust omer, in t his case t he t rader. By definit ion, t he market maker always provides a t wo-sided quot e (t he sell and t he buy price), and t hus is indifferent in regards t o t he int ent ion of t he t rader. Banks do t hat , as do merchant s in t he market s, who bot h buy from, and sell t o, t heir cust omers. The relat ionship bet ween t he t rader (t he cust omer) and t he ; et c.) is simply market maker (t he bank; t he t rading plat form; Easy-Forex based on t he fundament al market forces of supply and demand.

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Can a market maker influence market prices against a clients position? Definit ely not , because t he Forex market is t he nearest t hing t o a perfect market (as defined by economic t heory) in which no single part icipant is powerful enough t o push prices in a specific direct ion. This is t he biggest market in t he world t oday, wit h daily volumes reaching 3 t rillion dollars. No market maker is in a posit ion t o effect ively manipulat e t he market . What is the main source of earnings for Forex market makers? The maj or source of earnings for market makers is t he spread bet ween t he bid and t he ask prices. Easy-Forex Trading Plat form, for inst ance, maint ains neut ralit y regarding t he direct ion of any or all deals made by it s t raders; it earns it s income from t he spread. How do market makers manage their exposure? The way most market makers hedge t heir exposure is t o hedge in bulk. They aggregat e all client posit ions and pass some, or all, of t heir net risk t o t heir liquidit y providers. Easy-Forex , for example, hedges it s exposure in t his fashion, in accordance wit h it s risk management policy and legal requirement s. For liquidit y, Easy-Forex works in cooperat ion wit h world's leading banks providing liquidit y t o t he Forex indust ry: UBS (Swit zerland) and RBS (Royal Bank of Scot land).

Easy-Forexguarant ees t he accuracy, securit y and int egrit y of all t ransact ions. Read more here

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[4] Overview of trading Forex online

How a Forex system operates in real time Online foreign exchange t rading occurs in real t ime. Exchange rat es are const ant ly changing, in int ervals of seconds. Quot es are accurat e for t he t ime t hey are displayed only. At any moment , a different rat e may be quot ed. When a t rader locks in a rat e and execut es a t ransact ion, t hat t ransact ion is immediat ely processed; t he t rade has been execut ed.

Up-to-date exchange rates As rat es change so rapidly, any Forex soft ware must display t he most up-t odat e rat es. To accomplish t his, t he Forex soft ware is cont inuously communicat ing wit h a remot e server t hat provides t he most current exchange rat es. The rat es quot ed, unlike t radit ional bank exchange rat es, are act ual t radable rat es. A t rader may choose t o lock in t o a rat e (called t he freeze rate ) only as long as it is displayed.

Trading online on Forex platforms The int ernet revolut ion caused a maj or change in t he way Forex t rading is conduct ed t hroughout t he world. Unt il t he advent of t he int ernet -Forex age at t he end of t he 1990 s, Forex t rading was conduct ed via phone orders (or fax, or in-person), post ed t o brokers or banks. Most of t he t rading could be execut ed only during business hours. The same was t rue for most act ivit ies relat ed t o Forex, such as making t he deposit s necessary for t rading, not t o ment ion profit t aking. The int ernet has radically alt ered t he Forex market , enabling around t he clock t rading and conveniences such as t he use of credit cards for fund deposit s.

Forex on the internet: basic steps In general, t he individual Forex t rader is required t o fulfill t wo st eps prior t o t rading: Regist er at t he t rading plat form Deposit funds t o facilit at e t rading

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Requirement s vary wit h each t rading plat form, but t hese st eps bear furt her discussion:

Regist ering Regist rat ion is done online by t he individual t rader. There are various forms used in t he indust ry. Some are quit e simple, where ot hers are longer and more t ime-consuming. In part , t his can be at t ribut ed t o government al or ot her aut horit ies requirement s, t hough some Forex plat forms require more informat ion t han is act ually needed. Some even require a face-t o-face meet ing, or t o obt ain hard copies of required document s such as a passport , or driver s license. The key requirement s for regist rat ion are t he t rader s full name, t elephone, e-mail address, residence, and somet imes also t he t rader s yearly income or capit al (equit y) and an ID number (passport / driver s license / SSN / et c.). Typically, t he Forex plat form is not required t o run a t horough check, but rely on t he regist rant t o be t rut hful. Nevert heless, each Forex plat form conduct s cert ain rout ines, in order t o check and verify t he aut hent icit y of t he det ails provided. Regist rant s are required t o declare t hat funds used for t rading are not in quest ion, and are not t he result of any criminal act or money laundering act ivit y. This is mandat ory as part of a global ant i-money laundering effort .

It is advised t hat t he reader becomes familiar wit h Ant i-Money Laundering regulat ions, and t he procedures associat ed wit h t he prevent ion of t his criminal act ivit y.

Deposit ing funds New regist rant s must deposit funds t o facilit at e t rading. However, t he maj orit y of t he Forex plat forms t oday require t hat , in addit ion t o funds used for act ual t rading, an addit ional amount be deposit ed. Oft en called maint enance margin or act ivit y collat eral , it s purpose is for t he plat form t o have an addit ional guarant ee. Some of t he plat forms t hat require an addit ional deposit do pay int erest on t he collat eral, which is frozen under t he t rader s name. The Easy-ForexTrading Plat form does NOT require any addit ional guarant ee, and allows t rading wit h 100% of t he amount deposit ed. Easy-Forexis able t o

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provide t hese advant ages because it assures guarant eed rat es and St opLoss . That means t hat t here will never be any addit ional requirement for funds as a result of a gap t hat causes you t o surpass t he St op-Loss. See 20 issues you must consider (Chapt er 9) for more.

Trading online The t rading plat form operat es 24 hours a day j ust as t he global Forex market runs around t he clock. However, many online Forex market makers require t he download and inst allat ion of soft ware specific t o t heir own t rading plat form. Consequent ly, accessibilit y is limit ed t o t hose t erminals t hat have t he soft ware. Since Forex t rading is borderless, and may be performed at any given t ime, it is obviously advant ageous t o have access t o t rading from as many locat ions as possible. The Easy-Forex Trading Plat form is a fully web-based syst em, which means t rading can be conduct ed from any comput er connect ed t o t he int ernet . Traders are only required t o log-in, ensure t hey have available funds t o t rade, or make new deposit s, and commence t rading.

The Trading Platform: real-time software The main feat ure of any Forex t rading plat form is real t ime access t o exchange rat es, t o deal and order making, t o deposit s and wit hdrawals, and t o monit oring t he st at us of posit ions and one s account . The Easy-Forex Trading Plat form syst em uses web services t o cont inuously fet ch t he most current exchange rat es. The most recent dat a displays wit hout t he need for a page refresh. This includes account st at us screens such as My Posit ion , which updat es cont inually t o reflect changes in rat es and ot her real t ime element s.

Easy-Forexguarant ees t he accuracy, securit y and int egrit y of all t ransact ions. Read more here

Transaction processing and storage As soon as a t ransact ion is execut ed, t he relevant dat a is processed securely and sent t o t he dat a server where it is st ored. A backup is creat ed on a different server farm, t o ensure dat a int egrit y and cont inuit y. All of t his happens in real t ime, wit h no human int ervent ion.

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Trading via brokers and dealing rooms (by phone) Performing Forex t rading via Dealing Room dealers (over t he phone) requires knowledge about t he way dealing rooms work, and t he t erminologies used in t he course of t rading. At st art , t he client should specify whet her he/ she is int erest ed in obt aining a QUOTE (in order t o make a deal) or j ust an INDICATION. In t he case of an indicat ion, t he price given does not bind t he dealer, but rat her provides informat ion about market condit ions. When asking for QUOTE, t he t rader must specify t he currency pair and t he deal amount (volume). For example: Need a quot e for EUR/ USD in EUR100,000 . It is wise t o wit hhold from t he dealer t he int ended direct ion of t he deal, specifying t he pair only. Accordingly, t he dealer t hen provides a quot e comprising t wo prices, buy and sell ( bot h sides quot e ). The quot e binds t he dealer for t he very second it is given. If t he t rader does not immediat ely ask for execut ion, t hen t he price is no longer in force. The dealer would t hen t ell t he cust omer risk , or change , meaning t he price quot ed is no longer in force. In such case, t he t rader should ask for a new price. On t he ot her hand, in order t o make a deal, t he t rader must proclaim buy or sell , t oget her wit h t he currency (or t he price). An example: The t rader asks for a quot e for EUR/ USD. The dealer says 1.5010/ 15 . If t he t rader want s t o buy EUR, he/ she says buy" (or "buy EURO , or 15 . If t he t rader want s t o sell EUR, he/ she says sell" (or "sell EURO , or 10 .

The moment t he t rader says buy (or sell ) he/ she is bound t o t he deal, regardless of t he market sit uat ion.

Banks are closed at night s, weekends and holidays. Trade, deposit and wit hdraw at Easy-Forex, 24x7

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[5] Training for success

Underst anding t he nuances of t he Forex market requires experience and t raining, but is crit ical t o success. In fact , ongoing learning is as import ant t o t he vet eran t rader as it is t o t he beginner. The foreign currency market is massive, and t he key t o success is knowledge. Through t raining, observat ion and pract ice, you can learn how t o ident ify and underst and where t he Forex market is going, and what cont rols t hat direct ion. To invest in t he right currencies at t he right t ime in a large, nonst op and global t rading arena, t here is much t o learn. Forex market s move quickly and can t ake new direct ions from moment t o moment . Forex t raining helps you assess when t o ent er a currency based on t he direct ion it is t aking, and how t o forecast it s direct ion for t he near fut ure.

Training with Easy-Forex Easy-Forexoffers one of t he most effect ive forms of t raining t hrough handson experience. For as lit t le as USD 25 at risk per t rade, you can st art t rading while learning in real-t ime. Easy-Forex st rongly recommends st art ing wit h very small volumes, and deposit ing an amount t o cover a series of t rades. Learn t he basics of t he foreign exchange market , t rading t erminology, advanced t echnical analysis, and how t o develop successful t rading st rat egies. Discover how t he Forex market offers more opport unit ies for quick financial gains t han almost any ot her market .

To learn more about t he t rading advant ages of Easy-Forex , j oin Easy-Forex (regist rat ion is quick and free, no obligat ion)

The many available resources and tools to train yourself There are many free t ools and resources available in t he market , part icularly online. Among t hese, you will find: Chart s There are many kinds of chart s (see Chapt er 6, Technical Analysis). St art wit h simple chart s. Try t o ident ify t rends and maj or changes, and t ry t o relat e t hem t o t echnical pat t erns as well as t o macro event s (news, eit her financial

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or polit ical). Make an effort t o det ermine t he general magnit ude of each change on t he chart (meaning: what is t he $ value of t he change, if you were t rading at t hat point ). Guided t ours Most plat forms provide guided t ours, demos or t ut orials, eit her online or via download. News / breaking news Keep abreast of world news. Read all t he headlines, part icularly t hose direct ly relat ed t o Forex. Check t he impact of such news, if any, on t he chart s. Forex out looks Read daily/ weekly out looks post ed on Forex or general financial sit es. Many include alert s t o upcoming report s and event s such as market indicat ors and int erest rat e decisions.

To read t oday s professional out look and view det ailed chart s, j oin EasyForex(regist rat ion is quick and free, no obligat ion):
www.Easy-Forex.com

Forecast s Read forecast s, some of which are available free of charge. Bear in mind t hat forecast s and predict ions are made by people, none of whom can guarant ee t he occurrence of fut ure event s Indices Follow t he indices of t he leading market s (e.g. Dow-Jones, NASDAQ; Nikkei; et c.). Compare t hem t o t he changes in t he Forex market , as well as t o changes in part icular currency pairs. Economic indicat ors Pay at t ent ion t o t he release of economic indicat ors (for example t he mont hly unemployment rat e in t he USA), and t ry t o ident ify t heir impact on t he market in general, and on specific currency pairs in part icular. Glossary Don t hesit at e t o browse Forex glossaries, which are offered free on many plat forms. A given word may have different meaning as it relat es t o Forex and t o t he t erminology used by t he Forex market part icipant s.

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Seminars and courses Try t o at t end professional Forex seminars. Some seminars are offered free, oft en as part of a client recruit ment process by a given plat form; many are, nevert heless, wort h at t ending. Educat ional courses are offered online and by many post -secondary inst it ut ions. Forex books Read, or even j ust browse. Many books are offered free, or as part of a service package t o t he t rader. For many, hist orical background and t echnical analysis are t opics bet t er covered in books t han in an educat ional set t ing. Int ernet forums / blogs Visit and part icipat e in Forex forums. This gives you an opport unit y t o learn from t he experience of ot hers. Of course, remember t hat some forum part icipant s may be biased, promot ing a given Forex plat form or t heir own agenda.

No commissions? How about profit wit hdrawal fees? (No hidden cost s at Easy-Forex . Join and t rade wit hout banking cost s or ot her indirect cost s. Read more: www.Easy-Forex.com/ - Spreads and Commissions)

So much to consider To succeed as a Forex t rader, you must t ake int o considerat ion a wide variet y of fact ors such as: spread ( pips ); commissions and fees; ease of access t o t he t rading plat form; minimum amount s needed for t rading; addit ional amount s needed (if any); cont rol over act ivit y and posit ions; t he plat form soft ware requirement s; ease of deposit s and wit hdrawals; personal service and support provided by t he plat form; t he plat form s business part ners; t he plat form s management , offices and out reach; t he product s offered onboard t he plat form; and many ot hers.

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Online training, no downloads Easy-Forex is dedicat ed t o educat ing it s cust omers. Cust omers can access FREE one-on-one online t raining. The t raining goal is t o t each people specific st rat egies for t rading currencies over t he int ernet . Bot h novice invest ors and expert day t raders have benefit ed from t he t raining provided by Easy-Forex .

The demo account idea Many Forex plat forms offer new regist rant s a demo account . A t ypical example would provide 10,000 demo dollars t hat can be t raded as a means of learning how t o succeed in Forex. Easy-Forex does not offer demo account s. Coming t o underst and t hat reason must rule over emot ion is t he most import ant lesson a t rader can learn, and it cannot be done wit h play money. If t here is no consequence t o indulging in emot ional responses t o t he market , t here is no learning, so demo account s t end t o have lit t le educat ional value. Rat her, Easy-Forex allows you t o st art t rading wit h j ust $100, including full access t o one-on-one t raining. New regist rant s are t hus able t o garner bot h an educat ional and experient ial benefit unavailable t hrough simulat ed sit uat ions.

To get personal assist ance and free t raining, Join Easy-Forex (regist rat ion is quick and free, no obligat ion)

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[6] Technical Analysis:

Patterns and forecast methods used today
Basic Forex forecast methods: Technical analysis and fundamental analysis This chapt er and t he next one provide insight int o t he t wo maj or met hods of analysis used t o forecast t he behavior of t he Forex market . Technical analysis and fundament al analysis differ great ly, but bot h can be useful forecast ing t ools for t he Forex t rader. They have t he same goal - t o predict a price or movement . The t echnician st udies t he effect s, while t he fundament alist st udies t he causes of market movement s. Many successful t raders combine a mixt ure of bot h approaches for superior result s. If bot h Fundament al analysis and Technical analysis point t o t he same direct ion, your chances for profit able t rading are bet t er.

In this chapter
The cat egories and approaches in Forex Technical Analysis all aim t o support t he invest or in det ermining his/ her views and forecast s regarding t he exchange rat es of currency pairs. This chapt er describes t he approaches, met hods and t ools used t o t his end. However, t his chapt er does not int end t o provide a comprehensive and/ or professional level of knowledge and skill, but rat her let t he reader become familiar wit h t he t erms and t ools used by t echnical analyst s. As t here are many ways t o cat egorize t he t ools available, t he descript ion of t ools in t his chapt er may somet imes seem repet it ive. The sect ions in t his chapt er are:
[6.1] [6.2] [6.3] [6.4] Technical Analysis: background, advant ages, disadvant ages; Various t echniques and t erms; Chart s and diagrams; Technical Analysis cat egories / approaches: a. Price indicat ors; b. Number t heory; c. Waves; d. Gaps; e. Trends; [6.5] Some ot her popular t ools. [6.6] Anot her way t o cat egorize Technical Indicat ors.

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[6.1] Technical analysis

Technical analysis is a met hod of predict ing price movement s and fut ure market t rends by st udying what has occurred in t he past using chart s. Technical analysis is concerned wit h what has act ually happened in t he market , rat her t han what should happen, and t akes int o account t he price of inst rument s and t he volume of t rading, and creat es chart s from t hat dat a as a primary t ool. One maj or advant age of t echnical analysis is t hat experienced analyst s can follow many market s and market inst rument s simult aneously. Technical analysis is built on t hree essent ial principles: 1. Market action discounts everything! This means t hat t he act ual price is a reflect ion of everyt hing t hat is known t o t he market t hat could affect it . Some of t hese fact ors are: fundament als (inflat ion, int erest rat es, et c.), supply and demand, polit ical fact ors and market sent iment . However, t he pure t echnical analyst is only concerned wit h price movement s, not wit h t he reasons for any changes. 2. Prices move in trends. Technical analysis is used t o ident ify pat t erns of market behavior t hat have long been recognized as significant . For many given pat t erns t here is a high probabilit y t hat t hey will produce t he expect ed result s. There are also recognized pat t erns t hat repeat t hemselves on a consist ent basis. 3. History repeats itself. Forex chart pat t erns have been recognized and cat egorized for over 100 years, and t he manner in which many pat t erns are repeat ed leads t o t he conclusion t hat human psychology changes lit t le over t ime. Since pat t erns have worked well in t he past , it is assumed t hat t hey will cont inue t o work well int o t he fut ure.

Disadvantages of Technical Analysis Some crit ics claim t hat t he Dow approach ( prices are not random ) is quit e weak, since t oday s prices do not necessarily proj ect fut ure prices; The crit ics claim t hat signals about t he changing of a t rend appear t oo lat e, oft en aft er t he change had already t aken place. Therefore, t raders who rely on t echnical analysis react t oo lat e, hence losing about 1/ 3 of t he fluct uat ions; Analysis made in short t ime int ervals may be exposed t o noise , and may result in a misreading of market direct ions;

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The use of most pat t erns has been widely publicized in t he last several years. Many t raders are quit e familiar wit h t hese pat t erns and oft en act on t hem in concern. This creat es a self-fulfilling prophecy, as waves of buying or selling are creat ed in response t o bullish or bearish pat t erns.

Advantages of Technical Analysis Technical analysis can be used t o proj ect movement s of any asset (which is priced under demand/ supply forces) available for t rade in t he capit al market ; Technical analysis focuses on what is happening, as opposed t o what has previously happened, and is t herefore valid at any price level; The t echnical approach concent rat es on prices, which neut ralizes ext ernal fact ors. Pure t echnical analysis is based on obj ect ive t ools (chart s, t ables) while disregarding emot ions and ot her fact ors; Signaling indicat ors somet imes point t o t he imminent end of a t rend, before it shows in t he act ual market . Accordingly, t he t rader can maint ain profit or minimize losses.

Be disciplined, don t be greedy. Close your Forex t he posit ion as you originally planned.

[6.2] Various techniques and terms

Many different t echniques and indicat ors can be used t o follow and predict t rends in market s. The obj ect ive is t o predict t he maj or component s of t he t rend: it s direct ion, it s level and t he t iming. Some of t he most widely known include:

Bollinger Bands - a range of price volat ilit y named aft er John Bollinger, who invent ed t hem in t he 1980s. They evolved from t he concept of t rading bands, and can be used t o measure t he relat ive height or dept h of price. A band is plot t ed t wo st andard deviat ions away from a simple moving average. As st andard deviat ion is a measure of volat ilit y, Bollinger Bands adj ust t hemselves t o market condit ions. When t he market s become more volat ile, t he bands widen (move furt her away from t he average), and during less volat ile periods, t he bands cont ract (move closer t o t he average).

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Bollinger Bands are one of t he most popular t echnical analysis t echniques. The closer prices move t o t he upper band, t he more overbought is t he market , and t he closer prices move t o t he lower band, t he more oversold is t he market . Support / Resist ance The Support level is t he lowest price an inst rument t rades at over a period of t ime. The longer t he price st ays at a part icular level, t he st ronger t he support at t hat level. On t he chart t his is price level under t he market where buying int erest is sufficient ly st rong t o overcome selling pressure. Some t raders believe t hat t he st ronger t he support at a given level, t he less likely it will break below t hat level in t he fut ure. The Resistance level is a price at which an inst rument or market can t rade, but which it cannot exceed, for a cert ain period of t ime. On t he chart t his is a price level over t he market where selling pressure overcomes buying pressure, and a price advance is t urned back. Support / Resist ance Breakout - when a price passes t hrough and st ays beyond an area of support or resist ance. CCI - Commodit y Channel Index - an oscillat or used t o help det ermine when an invest ment inst rument has been overbought and oversold. The Commodit y Channel Index, first developed by Donald Lambert , quant ifies t he relat ionship bet ween t he asset 's price, a moving average (MA) of t he asset 's price, and normal deviat ions (D) from t hat average. The CCI has seen subst ant ial growt h in popularit y amongst t echnical invest ors; t oday's t raders oft en use t he indicat or t o det ermine cyclical t rends in equit ies and currencies as well as commodit ies. The CCI, when used in conj unct ion wit h ot her oscillat ors, can be a valuable t ool t o ident ify pot ent ial peaks and valleys in t he asset 's price, and t hus provide invest ors wit h reasonable evidence t o est imat e changes in t he direct ion of price movement of t he asset . Hikkake Pat t ern a met hod of ident ifying reversals and cont inuat ion pat t erns, t his was discovered and int roduced t o t he market t hrough a series of published art icles writ t en by t echnical analyst Daniel L. Chesler, CMT. Used for det ermining market t urning-point s and cont inuat ions (also known as t rending behavior). It is a simple pat t ern t hat can be viewed in market price dat a, using t radit ional bar chart s, or Japanese candlest ick chart s. Moving averages - are used t o emphasize t he direct ion of a t rend and t o smoot h out price and volume fluct uat ions, or noise , t hat can confuse int erpret at ion. There are seven different t ypes of moving averages:

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simple (arit hmet ic) exponent ial t ime series weighed t riangular variable volume adj ust ed

The only significant difference bet ween t he various t ypes of moving averages is t he weight assigned t o t he most recent dat a. For example, a simple (arit hmet ic) moving average is calculat ed by adding t he closing price of t he inst rument for a number of t ime periods, t hen dividing t his t ot al by t he number of t ime periods. The most popular met hod of int erpret ing a moving average is t o compare t he relat ionship bet ween a moving average of t he inst rument s closing price, and t he inst rument s closing price it self. Sell signal: when t he inst rument s price falls below it s moving average Buy signal: when t he inst rument s price rises above it s moving average

The ot her t echnique is called t he double crossover, which uses short t erm and long-t erm averages. Typically, upward moment um is confirmed when a short -t erm average (e.g., 15-day) crosses above a longer-t erm average (e.g., 50-day). Downward moment um is confirmed when a short -t erm average crosses below a long-t erm average.

MACD - Moving Average Convergence/ Divergence - a t echnical indicat or, developed by Gerald Appel, used t o det ect swings in t he price of financial inst rument s. The MACD is comput ed using t wo exponent ially smoot hed moving averages (see furt her down) of t he securit y's hist orical price, and is usually shown over a period of t ime on

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a chart . By t hen comparing t he MACD t o it s own moving average (usually called t he "signal line"), t raders believe t hey can det ect when t he securit y is likely t o rise or fall. MACD is frequent ly used in conj unct ion wit h ot her t echnical indicat ors such as t he RSI (Relat ive St rengt h Index, see furt her down) and t he st ochast ic oscillat or (see furt her down). Moment um is an oscillat or designed t o measure t he rat e of price change, not t he act ual price level. This oscillat or consist s of t he net difference bet ween t he current closing price and t he oldest closing price from a predet ermined period. The formula for calculat ing t he moment um (M) is: M = CCP OCP Where: CCP current closing price OCP old closing price

Momentum and rate of change (ROC) are simple indicat ors showing t he difference bet ween t oday's closing price and t he close N days ago. "Moment um" is simply t he difference, and t he ROC is a rat io expressed in percent age. They refer in general t o prices cont inuing t o t rend. The moment um and ROC indicat ors show t hat by remaining posit ive, while an upt rend is sust ained, or negat ive, while a downt rend is sust ained. A crossing up t hrough zero may be used as a signal t o buy, or a crossing down t hrough zero as a signal t o sell. How high (or how low, when negat ive) t he indicat ors get shows how st rong t he t rend is. RSI - Relat ive St rengt h Index - a t echnical moment um indicat or, devised by Welles Wilder, measures t he relat ive changes bet ween t he higher and lower closing prices. RSI compares t he magnit ude of recent gains t o recent losses in an at t empt t o det ermine overbought and oversold condit ions of an asset . The formula for calculat ing RSI is: RSI = 100 [100 / (1 + RS)] Where: RS - average of N days up cl oses, divided by average of N days down closes N - predet ermined number of days The RSI ranges from 0 t o 100. An asset is deemed t o be overbought once t he RSI approaches t he 70 level, meaning t hat it may be get t ing overvalued and is a good candidat e for a pullback. Likewise, if t he RSI approaches 30, it is an indicat ion t hat t he asset may be get t ing

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oversold and t herefore likely t o become undervalued. A t rader using RSI should be aware t hat large surges and drops in t he price of an asset will affect t he RSI by creat ing false buy or sell signals. The RSI is best used as a valuable complement t o ot her st ock-picking t ools. St ochast ic oscillat or - A t echnical moment um indicat or t hat compares an inst rument 's closing price t o it s price range over a given t ime period. The oscillat or's sensit ivit y t o market movement s can be reduced by adj ust ing t he t ime period, or by t aking a moving average of t he result . This indicat or is calculat ed wit h t he following formula: % K = 100 * [(C L14) / (H14 L14)]
C= t he most recent closing price; L14= t he low of t he 14 previous t rading sessions; H14= t he highest price t raded during t he same 14-day period.

The t heory behind t his indicat or, based on George Lane s observat ions, is t hat in an upward-t rending market , prices t end t o close near t heir high, and during a downward-t rending market , prices t end t o close near t heir low. Transact ion signals occur when t he % K crosses t hrough a t hree-period moving average called t he % D . Trend line - a sloping line of support or resist ance. Up t rend line st raight line drawn upward t o t he right along successive react ion lows Down t rend line st raight line drawn downwards t o t he right along successive rally peaks

Two point s are needed t o draw t he t rend line, and a t hird point t o make it valid t rend line. Trend lines are used in many ways by t raders. One way is t hat when price ret urns t o an exist ing principal t rend line it may be an opport unit y t o open new posit ions in t he direct ion of t he t rend in t he belief t hat t he t rend line will hold and t he t rend will cont inue furt her. A second way is t hat when price act ion breaks t hrough t he principal t rend line of an exist ing t rend, it is evidence t hat t he t rend may be going t o fail, and a t rader may consider t rading in t he opposit e direct ion t o t he exist ing t rend, or exit ing posit ions in t he direct ion of t he t rend.

Don t fall in love wit h your Forex posit ion. Never t ake revenge of your Forex posit ion.

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[6.3] Charts and diagrams

Forex chart s are based on market act ion involving price. Chart s are maj or t ools in Forex t rading. There are many kinds of chart s, each of which helps t o visually analyze market condit ions, assess and creat e forecast s, and ident ify behavior pat t erns. Most chart s present t he behavior of currency exchange rat es over t ime. Rat es (prices) are measured on t he vert ical axis and t ime is shown of t he horizont al axis. Chart s are used by bot h t echnical and fundament al analyst s. The t echnical analyst analyzes t he micro movement s, t rying t o mat ch t he act ual occurrence wit h known pat t erns. The fundament al analyst t ries t o find correlat ion bet ween t he t rend seen on t he chart and macro event s occurring parallel t o t hat (polit ical and ot hers). What is an appropriat e t ime scale t o use on a chart ? It depends on t he t rader s st rat egy. The short -range invest or would probably select a day chart (unit s of hours, minut es), where t he medium and longrange invest or would use t he weekly or mont hly chart s. High resolut ion chart s (e.g. minut es and seconds) may show noise , meaning t hat wit h fine det ails in view, it is somet imes harder t o see t he overall t rend. The maj or t ypes of chart s: Line chart The simplest form, based upon t he closing rat es (in each t ime unit ), forming a homogeneous line. (Such chart , on t he 5-minut es scale, will show a line connect ing all t he act ual rat es every 5 minut es). This chart does not show what happened during t he t ime unit select ed by t he viewer, only closing rat es for such t ime int ervals. The line chart is a simple t ool for set t ing support and resist ance levels.

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Point and figure chart s - chart s based on price wit hout t ime. Unlike most ot her invest ment chart s, point and figure chart s do not present a linear represent at ion of t ime. Inst ead, t hey show t rends in price. Increases are represent ed by a rising st ack of Xs, and decreases are represent ed by a declining st ack of Os. This t ype of chart is used t o filt er out non-significant price movement s, and enables t he t rader t o easily det ermine crit ical support and resist ance levels. Traders will place orders when t he price moves beyond ident ified support / resist ance levels.

Bar chart This chart shows t hree rat es for each t ime unit select ed: t he high, t he low, t he closing (HLC). There are also bar chart s including four rat es (OHLC, which includes t he Opening rat e for t he t ime int erval). This chart provides clearly visible informat ion about t rading prices range during t he t ime period (per unit ) select ed.

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Candlest ick chart This kind of chart is based on an ancient Japanese met hod. The chart represent s prices at t heir opening, high, low and closing rat es, in a form of candles, for each t ime unit select ed. The empt y (t ransparent ) candles show increase, while t he dark (full) ones show decrease. The lengt h of t he body shows t he range bet ween opening and closing, while t he whole candle (including t op and bot t om wicks) show t he whole range of t rading prices for t he select ed t ime unit .

Following is a candlest ick chart (USD/ JPY) wit h some explanat ions:

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Pattern recognition in Candlestick charts Pat t ern recognit ion is a field wit hin t he area of machine learning . Alt ernat ively, it can be defined as t he act of t aking in raw dat a and t aking an act ion based on t he cat egory of t he dat a . As such, it is a collect ion of met hods for supervised learning . A complet e pat t ern recognit ion syst em consist s of a sensor t hat gat hers t he observat ions t o be classified or described; a feat ure ext ract ion mechanism t hat comput es numeric or symbolic informat ion from t he observat ions; and a classificat ion or descript ion scheme t hat does t he act ual j ob of classifying or describing observat ions, relying on t he ext ract ed feat ures. In general, t he market uses t he following pat t erns in candlest ick chart s:

Bullish patterns: hammer, invert ed hammer, engulfing, harami, harami cross, doj i st ar, piercing line, morning st ar, morning doj i st ar. Bearish patterns: shoot ing st ar , hanging man, engulfing, harami, harami cross, doj i st ar, dark cloud cover, evening st ar, evening doj i st ar.

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Chart system available at Easy-ForexTrading Platform The Easy-ForexTrading Plat form offers t he following chart ing t ools, for bot h professional and beginner t raders. The chart t ypes:

The t ime scales:

The view t ypes:

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The "drawing line on t he chart " t ypes:

The St udy t ypes:

Please not e: t he above screen-shot s were t aken around mid-2006. The Easy-Forex plat f orm cont inuously upgrades it s syst em, while adding new f eat ures on a regular basis.

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[6.4] Technical Analysis categories / approaches

Technical Analysis can be divided int o five maj or cat egories:

Price indicators (oscillat ors, e.g.: Relat ive St rengt h Index (RSI)) Number theory (Fibonacci numbers, Gann numbers) Waves (Elliot t 's wave t heory) Gaps (high-low, open-closing) Trends (following moving average).

[a]

Price indicators

Relative Strength Index (RSI): The RSI measures t he rat io of up-moves t o down-moves and normalizes t he calculat ion, so t hat t he index is expressed in a range of 0-100. If t he RSI is 70 or great er, t hen t he inst rument is assumed t o be overbought (a sit uat ion in which prices have risen more t han market expect at ions). An RSI of 30 or less is t aken as a signal t hat t he inst rument may be oversold (a sit uat ion in which prices have fallen more t han t he market expect at ions). Stochastic oscillator: This is used t o indicat e overbought / oversold condit ions on a scale of 0-100% . The indicat or is based on t he observat ion t hat in a st rong up-t rend, period closing prices t end t o concent rat e in t he higher part of t he period's range. Conversely, as prices fall in a st rong down-t rend, closing prices t end t o be near t he ext reme low of t he period range. St ochast ic calculat ions produce t wo lines, % K and % D, t hat are used t o indicat e overbought / oversold areas of a chart . Divergence bet ween t he st ochast ic lines and t he price act ion of t he underlying inst rument gives a powerful t rading signal. Moving Average Convergence/ Divergence (MACD): This indicat or involves plot t ing t wo moment um lines. The MACD line is t he difference bet ween t wo exponent ial moving averages and t he signal or t rigger line, which is an exponent ial moving average of t he difference. If t he MACD and t rigger lines cross, t hen t his is t aken as a signal t hat a change in t he t rend is likely.

[b]

Number theory:

Fibonacci numbers: The Fibonacci number sequence (1, 1, 2, 3, 5, 8, 13, 21, 34 ...) is const ruct ed by adding t he first t wo numbers t o arrive at t he t hird. The rat io of any number t o t he next larger number is 61.8% , which is a popular Fibonacci ret racement number. The inverse of 61.8% , which is 38.2% ,

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is also used as a Fibonacci ret racement number (as well as ext ensions of t hat rat io, 161.8% , 261.8% ). Wave pat t erns and behavior, ident ified in Forex t rading, correlat e (t o some ext ent ) wit h relat ions wit hin t he Fibonacci series. The t ool is used in t echnical analysis t hat combines various numbers of Fibonacci ret racement s, all of which are drawn from different highs and lows. Fibonacci clust ers are indicat ors which are usually found on t he side of a price chart and look like a series of horizont al bars wit h various degrees of shading. Each ret racement level t hat overlaps wit h anot her, makes t he horizont al bar on t he side darker at t hat price level. The most significant levels of support and resist ance are found where t he Fibonacci clust er is t he darkest . This t ool helps gauging t he relat ive st rengt h of t he support or resist ance of various price levels in one quick glance. Traders oft en pay close at t ent ion t o t he volume around t he ident ified levels t o confirm t he st rengt h of t he support / resist ance. Gann numbers: W.D. Gann was a st ock and a commodit y t rader working in t he '50s, who reput edly made over $50 million in t he market s. He made his fort une using met hods t hat he developed for t rading inst rument s based on relat ionships bet ween price movement and t ime, known as t ime/ price equivalent s. There is no easy explanat ion for Gann's met hods, but in essence he used angles in chart s t o det ermine support and resist ance areas, and t o predict t he t imes of fut ure t rend changes. He also used lines in chart s t o predict support and resist ance areas.

[c]

Waves

Elliott's wave theory: The Elliot t Wave Theory is an approach t o market analysis t hat is based on repet it ive wave pat t erns and t he Fibonacci number sequence. An ideal Elliot t wave pat t ern shows a five-wave advance followed by a t hree-wave decline.

[d]

Gaps

Gaps are spaces left on t he bar chart where no t rading has t aken place. Gaps can be creat ed by fact ors such as regular buying or selling pressure, earnings announcement s, a change in an analyst 's out look or any ot her t ype of news release.

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An up gap is formed when t he lowest price on a t rading day is higher t han t he highest high of t he previous day. A down gap is formed when t he highest price of t he day is lower t han t he lowest price of t he prior day. An up gap is usually a sign of market st rengt h, while a down gap is a sign of market weakness. A breakaway gap is a price gap t hat forms on t he complet ion of an import ant price pat t ern. It usually signals t he beginning of an import ant price move. A runaway gap is a price gap t hat usually occurs around t he mid-point of an import ant market t rend. For t hat reason, it is also called a measuring gap. An exhaust ion gap is a price gap t hat occurs at t he end of an import ant t rend and signals t hat t he t rend is ending.

[e]

Trends

A t rend refers t o t he direct ion of prices. Rising peaks and t roughs const it ut e an up t rend; falling peaks and t roughs const it ut e a downt rend t hat det ermines t he st eepness of t he current t rend. The breaking of a t rend line usually signals a t rend reversal. Horizont al peaks and t roughs charact erize a t rading range. In general, Charles Dow cat egorized t rends int o 3 cat egories: (a) Bull t rend (up-t rend: a series of highs and lows, where each high is higher t han t he previous one); (b) Bear t rend (down-t rend: a series of highs and lows, where each low is lower t han t he previous one); (c) Treading t rend (horizont alt rend: a series of highs and lows, where peaks and lows are around t he same as t he previous peaks and lows). Moving averages are used t o smoot h price informat ion in order t o confirm t rends and support -and-resist ance levels. They are also useful in deciding on a t rading st rat egy, part icularly in fut ures t rading or a market wit h a st rong up or down t rend. Recognizing a t rend may be done using st andard deviat ion, which is a measure of volat ilit y. Bollinger Bands, for example, illust rat e t rends wit h t his approach. When t he market s become more volat ile, t he

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bands widen (move furt her away from t he average), while during less volat ile periods, t he bands cont ract (move closer t o t he average). Various Trend lines Pat t ern recognit ion in Trend lines, which det ect and draw t he following pat t erns: ascending; descending; symmet rically & ext ended t riangles; wedges; t rend channels.

[6.5] Some other popular technical tools:

Coppock Curve is an invest ment t ool used in t echnical analysis for predict ing bear market lows. It is calculat ed as a 10-mont h weight ed moving average of t he sum of t he 14-mont h rat e of change and t he 11-mont h rat e of change for t he index. DMI (Direct ional Movement Indicat or) is a popular t echnical indicat or used t o det ermine whet her or not a currency pair is t rending. The Parabolic System (SAR) is a st op-loss syst em based on price and t ime. It is used t o det ermine good exit and ent ry point s.

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[6.6] Another way to categorize Technical Indicators:

The indicat ors and t ools aim t o provide informat ion in various approaches: Cycle indicators A cycle is a t erm t o indicat e repeat ing pat t erns of market movement , specific t o recurrent event s, such as seasons, elect ions, et c. Many market s have a t endency t o move in cyclical pat t erns. Cycle indicat ors det ermine t he t iming of a part icular market pat t erns. (Example: Elliot t Wave).

Momentum indicators Moment um is a general t erm used t o describe t he speed at which prices move over a given t ime period. Moment um indicat ors det ermine t he st rengt h or weakness of a t rend as it progresses over t ime. Moment um is highest at t he beginning of a t rend and lowest at t rend t urning point s. Any divergence of direct ions in price and moment um is a warning of weakness;

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 Strength indicators Market st rengt h describes t he int ensit y of market opinion wit h reference t o a price by examining t he market posit ions t aken by various market part icipant s. Volume or open int erest , are t he basic ingredient s of t his indicat or. Their signals are coincident or leading t he market . (Example: Trading Volume). Support/ Resistance indicators Support and resist ance describe price levels where market s repeat edly rise or fall, and t hen reverse. This met hod shows t he price levels at which t he market is expect ed t o reverse and st ay wit hin t he S/ R levels (e.g. not exceeding t he support or t he resist ance level). This phenomenon is at t ribut ed t o basic supply and demand forces. (Example: Trend Lines)

if price ext remes occur wit h weak moment um, it signals an end of movement in t hat direct ion. If moment um is t rending st rongly and prices are flat , it signals a pot ent ial change in price direct ion. (Example: St ochast ic, MACD, RSI).

Trend indicators Trend is a t erm used t o describe t he persist ence of price movement in one direct ion over t ime. Trends move in t hree direct ions: up, down and sideways. Trend indicat ors smoot h variable price dat a t o creat e a composit e of market direct ion. Generally, t he t rend could be eit her UP, or DOWN, or TREAD (flat ). (Example: Moving Averages, Trend lines).

Volatility indicators Describe t he int ensit y of fluct uat ions in t he market prices. A change in t he volat ilit y level hint s at a coming change in t he price. Volat ilit y is a general t erm used t o describe t he magnit ude, or size, of day-t o-day price fluct uat ions independent of t heir direct ion. Generally, changes in volat ilit y t end t o lead changes in prices. (Example: Bollinger Bands).

Unlike t he fundament al analyst , t he t echnical analyst is not much concerned wit h any of t he bigger pict ure fact ors affect ing t he market , but concent rat es on t he act ivit y of t hat inst rument 's market .

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[7] Fundamental Analysis

and leading market (economic) indicators
Fundament al analysis is a met hod of forecast ing fut ure price movement s of a financial inst rument based on economic, polit ical, environment al and ot her relevant fact ors, as well as dat a t hat will affect t he basic supply and demand of what ever underlies t he financial inst rument . In pract ice, many market players use t echnical analysis in conj unct ion wit h fundament al analysis t o det ermine t heir t rading st rat egy. One maj or advant age of t echnical analysis is t hat experienced analyst s can follow many market s and market inst rument s, whereas t he fundament al analyst needs t o know a part icular market int imat ely. Fundament al analysis focuses on what ought t o happen in a market . Among t he fact ors considered are: supply and demand; seasonal cycles; weat her; government policy. The fundament al analyst st udies t he causes of market movement s, while t he t echnical analyst st udies t he effect . Fundament al analysis is a macro, or st rat egic, assessment of where a currency should be t raded, based on any crit eria but t he movement of t he currency's price it self. These crit eria oft en include t he economic condit ions of t he count ry t hat t he currency represent s, monet ary policy, and ot her fundament al element s. Many profit able t rades are made moment s prior t o, or short ly aft er, maj or economic announcement s.

Leading economic indicators

The following is a list of economic indicat ors used in t he USA. Obviously, t here are many more, as well as t hose of ot her leading economies (such as Germany, t he UK, Japan, et c.). In general, it is not only t he numerical value of an indicat or t hat is import ant , but also t he market s ant icipat ion and predict ion of t he forecast , and t he impact of t he relat ion bet ween ant icipat ed and act ual figures on t he market . Such macro indicat ors are followed by t he vast maj orit y of t raders worldwide. The qualit y of t he published dat a can differ over t ime. The value of t he indicat or dat a is considered great er if it present s new informat ion, or is inst rument al t o drawing conclusions which could not be drawn under ot her report s or dat a. Furt hermore, an indicat or is highly valuable if one may use it t o bet t er forecast fut ure t rends.

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Not e t hat in t he USA most indicat ors are published on cert ain weekdays, rat her t han on a part icular mont hly dat e (e.g. t he second Wednesday in each mont h, as opposed t o t he 14t h of each mont h, et c.). Each indicat or is marked as High (H), Medium (M) or Low (L), according t o t he import ance commonly at t ribut ed t o it .

[H] CCI - Consumer Confidence Index

The Conference Board; last Tuesday of each mont h, 10:00am EST, covers current mont h's dat a
The CCI is a survey based on a sample of 5,000 U.S. households and is considered one of t he most accurat e indicat ors of confidence. The idea behind consumer confidence is t hat when t he economy warrant s more j obs, increased wages, and lower int erest rat es, it increases our confidence and spending power. The respondent s answer quest ions about t heir income, t he market condit ion as t hey see it , and t he chances t o see increase in t heir income. Confidence is looked at closely by t he Federal Reserve when det ermining int erest rat es. It is considered t o be a big market mover as privat e consumpt ion is t wo t hirds of t he American economy.

[H] CPI - Consumer Price Index; Core-CPI

Bureau of Labor and St at ist ics; around t he 20t h of each mont h, 8:30am EST, covers previous mont h's dat a
The CPI is considered t he most widely used measure of inflat ion and is regarded as an indicat or of t he effect iveness of government policy. The CPI is a basket of consumer goods (and services) t racked from mont h t o mont h (excluding t axes). The CPI is one of t he most followed economic indicat ors and considered t o be a very big market mover. A rising CPI indicat es inflat ion. The Core-CPI (CPI, excluding food and energy, expense it ems which are subj ect t o seasonal fluct uat ions) gives a more st ringent measure of general prices.

[H] Employment Report

Depart ment of Labor; t he first Friday of each mont h, 8:30am EST, covers previous mont h dat a
The collect ion of t he dat a is gat hered t hrough a survey among 375,000 business and 60,000 households. The report reviews: t he number of new work places creat ed or cancelled in t he economy, average wages per hour and t he average lengt h of t he work week. The report is considered as one of t he most import ant economic publicat ions, bot h for t he fact t hat it discloses new up-t o-dat e informat ion and due t o t he fact t hat , t oget her wit h NFP, it gives a good pict ure of t he t ot al st at e of t he economy. The report also breaks out dat a by sect or (e.g. manufact uring, services, building, mining, public, et c.)

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[H] Employment Situation Report

Bureau of Labor and St at ist ics; t he first Friday of each mont h, 8:30am EST, covers previous mont h dat a
The Employment Sit uat ion Report is a mont hly indicat or which cont ains t wo maj or part s. One part is t he unemployment and new j obs creat ed: t he report reveals t he unemployment rat e and t he change in t he unemployment rat e. The second part of t he report indicat es t hings like average weekly hours worked and average hourly earnings. This dat a is import ant for det ermining t he t ight ness of t he labor market , which is a maj or det erminant of inflat ion. The Bureau of Labor surveys over 250 regions across t he Unit ed St at es and covers almost every maj or indust ry. This indicat or is cert ainly one of t he most wat ched indicat ors and almost always moves market s. Invest ors value t he fact t hat informat ion in t he Employment report is very t imely as it is less t han a week old. The report provides one of t he best snapshot s of t he healt h of t he economy.

[H] FOMC Meeting (Federal Open Market Committee): Rate announcement

The meet ing of t he US Federal Bank represent at ives, held 8 t imes a year. The decision about t he prime int erest rat e is published during each meet ing (around 14:15 EST).
The FED (t he Federal Reserve of USA) is responsible for managing t he US monet ary policy, cont rolling t he banks, providing services t o government al organizat ions and cit izens, and maint aining t he count ry s financial st abilit y. There are 12 Fed regions in t he USA (each comprising several st at es), represent ed in t he Fed commit t ee by regional commissioners. The rat e of int erest on a currency is in pract ice t he price of t he money. The higher t he rat e of int erest on a currency, t he more people will t end t o hold t hat currency, t o purchase it and in t hat way t o st rengt hen t he value of t he currency. This is very import ant indicat or affect ing t he rat e of inflat ion and is a very big market mover. There is great import ance t o t he FOMC announcement , however t he cont ent of t he deliberat ion held in t he meet ing, which is published 2 weeks aft er t he rat e announcement , is almost as import ant t o t he market s.

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[H] GDP - Gross Domestic Product

BEA (Bureau of Economic Analysis); last day of t he quart er, 8:30am EST, covers previous quart er dat a.

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The US Commerce depart ment publishes t he GDP in 3 modes: advance; preliminary and final.
GDP is a gross measure of market act ivit y. It represent s t he monet ary value of all t he goods and services produced by an economy over a specified period. This includes consumpt ion, government purchases, invest ment s, and t he t rade balance. The GDP is perhaps t he great est indicat or of t he economic healt h of a count ry. It is usually measured on a yearly basis, but quart erly st at s are also released. The Commerce Depart ment releases an "advance report " on t he last day of each quart er. Wit hin a mont h it follows up wit h t he "preliminary report " and t hen t he "final report " is released yet a mont h lat er. The most recent GDP figures have a relat ively high import ance t o t he market s. GDP indicat es t he pace at which a count ry's economy is growing (or shrinking).

[H] ISM (Institute for Supply Management) Manufacturing Index

Inst it ut e for Supply Management ; t he first business day of t he mont h, 10:00am EST, covers previous mont h dat a
The Manufact uring ISM Report on Business is based on dat a compiled from mont hly replies t o quest ions asked of purchasing execut ives in more t han 400 indust rial companies. It reflect s a compound average of 5 main economic areas (new cust omers orders 30% ; manufact uring 25% ; employment 20% ; supply orders 15% ; invent ories 10% ). Any dat a over 50 point s shows t he expansion of economic act ivit ies, and dat a under 50 point s shows a cont ract ion.

[H] MCSI - Michigan Consumer Sentiment Index

Universit y of Michigan; first of each mont h, covers previous mont h dat a

A survey of consumer sent iment , conduct ed by t he Universit y of Michigan. The index is becoming more and more useful for invest ors. It gives a snapshot of whet her or not consumers feel like spending money.

[H] NFP - Changes in non-farm payrolls

Depart ment of Labor; t he first Friday of each mont h, 8:30am EST, covers previous mont h dat a
The dat a int ended t o represent changes in t he t ot al number of paid U.S. workers of any business, excluding t he following: general government employees; privat e household employees; employees of nonprofit organizat ions t hat provide assist ance t o individuals; farm employees.

The t ot al non-farm payroll account s for approximat ely 80% of t he workers responsible for t he ent ire gross domest ic product of t he Unit ed St at es. The report is used t o assist government policy-makers and economist s in det ermining t he current st at e of t he economy and predict ing fut ure levels of economic act ivit y. It is a very big market mover, due largely t o high fluct uat ions in t he forecast ing.

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[H] PMI - Purchasing Managers Index

Inst it ut e for Supply Management ; t he first business day of each mont h, 10:00am EST, covers previous mont h's dat a
The PMI is a composit e index t hat is based on five maj or indicat ors including: new orders; invent ory levels; product ion; supplier deliveries and t he employment environment . Each indicat or has a different weight and t he dat a is adj ust ed for seasonal fact ors. The Associat ion of Purchasing Managers surveys over 300 purchasing managers nat ionwide who represent 20 different indust ries. A PMI index over 50 indicat es t hat manufact uring is expanding, while anyt hing below 50 means t hat t he indust ry is cont ract ing. The PMI report is an ext remely import ant indicat or for t he financial market s as it is t he best indicat or of fact ory product ion. The index is popularly used for det ect ing inflat ionary pressure as well as indicat ing manufact uring act ivit y. The PMI is not as st rong as t he CPI in det ect ing inflat ion, but because t he dat a is released one day aft er t he mont h, it is very t imely. Should t he PMI report an unexpect ed change, it is usually followed by a quick react ion in market . One especially key area of t he report is growt h in new orders, which predict s manufact uring act ivit y in fut ure mont hs.

[H] Retail Sales Data; Retail Sales less Automotives

Bureau of Census; around t he 12t h of each mont h, 8:30am EST, covers previous mont h s dat a
Ret ail sales are a key driving force in US economy. This indicat or t racks t he merchandise sold by companies wit hin t he ret ail t rade and measures t he t ot al consumer spending on ret ails sales (not including service cost s). The ret ail revenues are a maj or part (t wo t hirds) of t he US economy. The Census Bureau surveys hundreds of various sized firms and business offering some t ype of ret ail t rade. Every mont h t he dat a is released showing t he percent change from t he previous mont h s dat a. A negat ive number indicat es t hat sales decreased from t he previous mont hs sales. This indicat or is a very big market mover because it is used as a gauge of consumer act ivit y and confidence, as higher sales figures indicat e increased economic act ivit y. The dat a is very t imely because ret ail sales dat a is released wit hin 2 weeks of t he previous mont h.

[H] Tankan Survey

BoJ (Bank of Japan); four t imes a year in April, July, Oct ober and mid-December; 10:50pm GMT
An economic survey of Japanese business issued by t he cent ral Bank of Japan, which it t hen uses t o formulat e monet ary policy. The survey covers t housands of Japanese companies wit h a specified minimum amount of capit al, alt hough firms deemed sufficient ly influent ial may also be included. The companies are asked about current t rends and condit ions in t he business place and t heir respect ive indust ries, as well as t heir expect ed business act ivit ies for t he next quart er and year. It is considered a big market mover for JPY currency pairs.

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[H]

TIC (Treasury International Capital) Data on transactions in long term securities

Depart ment of t he Treasury; around t he 12t h working day of each mont h, 9:00am EST, covers mont h before previous dat a
The TIC dat a provides informat ion about t he most import ant way t he US is financing it s ongoing current account deficit : selling long-t erm securit ies t o foreigners, or export ing debt . It is import ant t o remember t hat t here are ot her ways of financing a deficit : borrowing from foreign banks or at t ract ing net FDI inflows. But since FDI flows have been negat ive and bank flows t end t o be small, most of t he financing t he US needs has come from t he sale of longt erm securit ies t o foreigners. TIC dat a are a good measurement of how much a count ry is t rust ed in t he int ernat ional invest ment communit y. It is considered a big market mover.

[H] Trade Balance

Depart ment of Commerce; t he second week of each mont h, 8:30am EST, covers mont h before previous dat a
A count ry s t rade balance is t he largest component of a count ry's balance of payment s. The balance of t rade measures t he difference bet ween t he value of goods and services t hat a nat ion export s, and t hose it import s. A count ry has a t rade deficit if it import s more t han it export s. The opposit e scenario is a t rade surplus. It is considered a very big market mover.

[M] Budget Statement Monthly

A mont hly report by US government (t he Treasury Depart ment ), showing t he mont hly budget deficit or surplus
The level of deficit / surplus affect s t he level of US bonds issues by t he government , hence t heir price. In addit ion, t his report reflect s t he level of t ax collect ed by t he government , which is indicat ive of t he level of economic act ivit y. Consequent ly, t he April report (t he mont h in which Americans submit t heir t ax ret urns) is even more import ant t han t hose released in ot her mont hs.

[M] Composite Index of Leading Indicators

The Conference Board; around t he 20t h of each mont h, 10:00am EST

An index used t o predict t he direct ion of t he economy's movement s in t he mont hs t o come. The index is made up of 10 economic component s, whose changes t end t o precede changes in t he overall economy. These 10 component s include: 1. 2. 3. 4. 5. 6. 7. t he average weekly hours worked by manufact uring workers; t he average number of init ial applicat ions for unemployment insurance; t he amount of manufact urers' new orders for consumer goods and mat erials; t he speed of delivery of new merchandise t o vendors from suppliers; t he amount of new orders for capit al goods unrelat ed t o defense; t he amount of new building permit s for resident ial buildings; t he S&P 500 st ock index;

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8. t he inflat ion-adj ust ed monet ary supply (M2); 9. t he spread bet ween long and short int erest s rat es; 10. consumer sent iment . By looking at t he Composit e Index of Leading Indicat ors in t he light of business cycles and general economic condit ions, invest ors and businesses can form expect at ions about what 's ahead, and make bet t er-informed decisions. It has medium import ance, as it s many component s are already known at t he t ime of it s publicat ion.

[M] Current Account

BEA (Bureau of Economic Analysis); quart erly, around six weeks aft er quart er end
The difference bet ween a nat ion's t ot al export s of goods, services and t ransfers, and it s t ot al import s of t he same. Current account balance calculat ions exclude t ransact ions in financial asset s and liabilit ies. The level of t he current account is followed as an indicat or of t rends in foreign t rade, so it is regarded as a big market mover.

[M] Durable Goods

Bureau of Census; t he fourt h week of each mont h, 8:30am EST, covers previous mont h dat a
Durable Goods Orders measures new orders placed wit h domest ic manufact urers for immediat e and fut ure delivery of fact ory hard goods. A durable good is defined as a good t hat last s an ext ended period of t ime (over t hree years) during which it s services are ext ended. Rising Durable Goods Orders are normally associat ed wit h st ronger economic act ivit y, and can t herefore lead t o higher short -t erm int erest rat es. Higher rat es oft en support a currency, at least in t he short t erm.

[M] GDP Price Deflator

BEA (Bureau of Economic Analysis); last day of t he quart er, 8:30am EST, covers previous quart er dat a
The GDP deflat or shows how much a change in t he base year's GDP relies upon changes in t he price level. Also known as t he "GDP implicit price deflat or." As it is not based on a fixed basket of goods and services, t he GDP deflat or has an advant age over t he consumer price index (CPI). Changes in consumpt ion pat t erns, or t he int roduct ion of new goods and services, are aut omat ically reflect ed in t he deflat or. This indicat or is of medium import ance t o t he market s.

[M] Housing Starts

Bureau of Census; around t he middle of each mont h, 8:30am EST, covers previous mont h dat a
This economic indicat or t racks how many new single-family homes or ot her resident ial buildings were const ruct ed t hrough t he mont h. For t he survey, each house and each single

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apart ment is count ed as one housing st art . This indicat or is not a huge market mover, but it has been report ed by U.S. Census t hat t he housing indust ry represent s over 25% of all invest ment dollars, and a 5% value of t he overall economy. Housing st art s are considered t o be a leading indicat or, meaning it det ect s t rends in t he economy looking forward. Declining housing st art s show a slowing economy, while increases in housing act ivit y can pull an economy out of a downt urn.

[M] Industrial Production Capacity; Production Utilization

Federal Reserve; middle of t he mont h, 9:15am EST, covers previous mont h dat a
It is a chain-weight ed measure of t he change in t he product ion of t he nat ion's fact ories, mines and ut ilit ies as well as a measure of t heir indust rial capacit y and of how many available resources are being used (commonly known as capacit y ut ilizat ion). In addit ion, t he Capacit y Ut ilizat ion Index provides an est imat e of how much fact ory capacit y is in use. They are import ant indicat ors, as t he manufact uring sect or account s for one-quart er of t he economy.

[M] Initial Jobless Claims

Depart ment of Labor; once a week on Thursday at 8:30am EST, covers previous week dat a
The dat a st at es t he number of people who applied t o receive unemployment pay for t he first t ime. It has low t o medium import ance as t his relat es t o weekly dat a wit h high fluct uat ions; t he average of four weeks is more st able.

[M] Philadelphia Fed Index (Business Outlook Survey)

Federal Reserve Bank of Philadelphia; around t he 17t h of each mont h, 10:00am EST, covers previous mont h dat a
The Business Out look Survey is a mont hly survey of manufact urers locat ed around t he st at es of Pennsylvania, New Jersey and Delaware. Companies surveyed indicat e t he direct ion of change in t heir overall business act ivit y and in t he various measures of act ivit y at t heir plant s. The index signals expansion when it is above zero and cont ract ion when below. This index is considered t o be a good indicat or of changes in everyt hing from employment , general prices, and condit ions wit hin t he manufact uring indust ry. It isn't a big market mover, but t he result s found in t he survey can indicat e what t o expect from t he Purchasing Managers' Index (which comes out a few days lat er and covers t he ent ire U.S.).

[M] PPI - Producer Price Index; Core-PPI

Bureau of Labor and St at ist ics; t he second full week of each mont h, 8:30am EST, covers previous mont h dat a
The PPI is not as widely used as t he CPI, but it is st ill considered t o be a good indicat or of inflat ion. This indicat or reflect s t he change of manufact urers cost of input (raw mat erials, semi-finished goods, et c.). Formerly known as t he "Wholesale Price Index", t he PPI is a basket of various indexes covering a wide range of areas affect ing domest ic producers. Each mont h

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approximat ely 100,000 prices are collect ed from 30,000 product ion and manufact uring firms. It is not as st rong as t he CPI in det ect ing inflat ion, but because it includes goods being produced, it is oft en a forecast of fut ure CPI releases.

[L] Beige Book

Federal Reserve Board; t wo Wednesdays before every FOMC meet ing, 8 t imes per year, 2:15pm EST
Beige book is t he commonly used t erm for t he Fed report ent it led: "Summary of Comment ary on Current Economic Condit ions by Federal Reserve Dist rict ". It is published j ust before t he FOMC meet ing on int erest rat es and is used t o inform t he members on changes in t he economy since t he last meet ing. This report is published eight t imes per year. The Beige Book is not considered t o be a big market mover. It is a gauge of t he st rengt h of t he economy and not a comment ary on t he views of Fed members. Occasionally it can move market s if t he findings are subst ant ially different from analyst expect at ions.

[L] ECI - Employment Cost Index

Bureau of Labor and St at ist ics; t he last Thursday of Apr, Jul, Nov and Jan, 8:30am EST; covers previous quart er s dat a
The ECI t racks movement in t he cost of labor which includes wages, fringe benefit s, and bonuses for employees at all levels of involvement The Bureau of Labor surveys over 3,000 privat e sect or firms and over 500 local government s, schools and ot her public sect or organizat ions. This indicat or is not widely wat ched, but it is among a select group of indicat ors t hat have enough power t o move t he market s. This is part icularly t rue in inflat ionary t imes. The idea behind t he ECI is t hat as wage pressures increase, so does inflat ion. This is mainly because compensat ion t ends t o increase before companies increase prices for consumers (inflat ion).

[L] PCE - Personal Consumption Expenditure

BEA (Bureau of Economic Analysis); last day of each mont h, 8:30am EST, covers previous mont h dat a
PCE measures price changes in consumer goods and services. The PCE is a fairly predict able report t hat usually has lit t le impact on t he market s. The Core PCE, which is t he index less prices of food and energy, est imat es inflat ionary t rend more precisely.

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[8] Day Trading on a Forex platform

(example, using t he Easy-Forexplat form)
Step (1): Deciding to perform a Forex deal You have an int ent ion t o t rade Forex, and you have your own reasoning for doing so e.g. you feel t hat t he USD will increase compared wit h t he EUR. The EUR/ USD exchange rat e is, at t he t ime, around 1.5000 (t he common present at ion of t he Euro-US$ pair is EUR/ USD, meaning 1.5000 US dollars for 1 Euro). Your feeling can be based on your experience, or on t echnical analysis, or fundament al analysis, et c. For what ever reason, you believe t hat t he USD will rise t o around 1.4850 (EUR will be down, which means USD will go up. Or you will need less USD for 1 euro). You want t o profit if your forecast is correct , and so choose t o make a t rade. Step (2): Determining the deal Below is a screen-shot of a Day-Trading deal in t he making and an explanat ion of each st ep required t o put t he t rade int o effect :

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Select currencies: Select t he currency t o buy and t he currency t o sell. This is your currency pair . There is no connect ion bet ween your base working currency (or account base currency , t he currency in which you handle your Forex account and make deposit s and wit hdrawals) and t he currencies in t he pair you select . In t his example you select ed BUY USD because you feel it is low in t erms of Euro, and it will increase in t he near fut ure. Once it increases t o t he level you ant icipat e, you will close t he deal, and get more EUR for t he USD you previously bought - hence, you make profit . Select t he Amount t o t rade: Since Forex t rading is non-delivery t rading (i.e. no physical currencies are t ransact ed), t he Forex deal (cont ract ) has a volume , or size , meaning t he amount of t he currencies in t his cont ract . You det ermine t he volume of t he cont ract , but you do not have t o purchase t he whole amount . In general, you work in t he most common leverage (see below), 1:100: t herefore a deal of 10,000 Euro will require much less money t o facilit at e it . Select t he Amount (Margin) t o risk: This is your invest ment . This is t he amount you risk, meaning t he MAXIMUM amount you can lose. On a 1:100 leverage, EUR 10,000 against USD t hus requires only USD 100 (in fact , t he act ual leverage you are offered in t his case is 1:150, since you buy EUR10,000 wit h USD 15,000, according t o t he example rat e of 1.5000, guarant eed using only USD 100 of your own money). St op-Loss rat e: This is t he currency exchange rat e at which your deal would aut omat ically close in t he event t he market ran count er t o your forecast . In t his event , you would lose your USD 100 invest ment . You can define anot her St op-Loss rat e, however, t he Margin t o risk will change accordingly. There is a direct relat ionship bet ween t he St op-Loss rat e and t he Margin (i.e t he amount risked) required for t he deal. Freeze Rat e: This feat ure is unique t o t he Easy-ForexTrading Plat form. You see t he rat e for t he deal and are almost ready t o accept it , but before you do, you need anot her couple of seconds t o t hink. Wit h t he freeze rat e feat ure you are allowed a small window of t ime t o eit her decline or accept t he deal. Accept : When you re ready, click Accept and your deal is act ivat ed. You have enough money in your Forex account t o make t he deal, so it s in play. You are holding now an Open Posit ion in Forex. Set SMS Alert : If you have signed up t o t he SMS Alert service you can set an alert for t his deal. You will be not ified via t ext t o your mobile phone when t his deal closes (eit her because it reached it s St op-Loss or Take-Profit rat e).

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Please not e, Renewal unt il : The Day-Trading deal resembles a SPOT t ransact ion (but is not ident ical). The rat es in t he deal are t he updat ed current rat es ( spot ), and t he deal may be closed anyt ime during t he t rading day. However, t he t rader can ext end t he deal t o t he following day (paying a small renewal fee). Most plat forms offer an aut omat ic renewal of t he deal, for a few days period. The t rader may close t he posit ion at any t ime. If t he t rader closes t he deal before t he indicat ed closing t ime (usually it is 22:00 GMT), no renewal fee will be charged for t hat day.

Step (3): Checking account status Below is a screen-shot of a t ypical My Posit ion report :

Wit h online plat forms, t raders have 24x7 access in order t o monit or open posit ions, t o close posit ions, or change paramet ers (definit ions) in t he deal. You can check your posit ions for Day Trades, Limit Orders and Forwards (if t his is offered in your region). You can also check t he st at us of t he SMS Alert s you have set .

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To view the details of a specific deal, click on the + (plus) sign. Visual Trading is unique t o Easy-Forex and it allows you t o easily view t he significant det ails of your deal, in real t ime, as shown in t he sliding graph on t he right . ID: The reference number of t he deal, as recorded in t he plat form. Buy: The volume of t he currency bought . Sell: The volume of t he currency sold . Open Rat e: The exchange rat e of t he currency pair at t he t ime t he deal was opened by t he t rader. Current rat e: The exchange rat e of t his currency pair at t he t ime t he t rader is viewing t he screen). St op-Loss rat e: The rat e defined for aut omat ic st op-loss of t he deal. The deal will close if t his rat e occurs in t he market during t he t ime t he deal is act ive. Take-Profit rat e: (Not defined in t his example). This is t he rat e at which t he deal will close aut omat ically assuming t he market moves in t he direct ion forecast by t he t rader. When defined, t his rat e allows a t rader t o t ake profit aut omat ically when a set rat e is achieved, t hus allowing t he t rader t o focus on ot her t asks rat her t han wat ching t he market closely. Profit / Loss: The current st at us of t he t rader s posit ion. This will be t he profit (or t he loss) from t his deal, if it was closed at t his very second. Open dat e: The day t he deal was opened by t he t rader. Rolling unt il: The last day t o which t he deal will be aut omat ically renewed. Amount (Margin) t o risk: The amount invest ed by t he t rader for t he deal. This is t he maximum amount t he t rader can lose.

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Step (4): Modifying your deal This is where you can change St op-Loss and Take Profit rat es. You can also t est out profit and loss scenarios wit h t he Trade Cont roller.

Change St op-Loss: The t rader is allowed t o change t heir St op-Loss, at any t ime while t he deal is st ill act ive. As previously ment ioned, doing so would affect t he amount of margin needed for t he deal. If t he t rader changes t he St op-Loss downward (in a case where t he posit ion is losing, and is now near t he aut omat ic closing), t hen addit ional funds will be required for margin. If t he t rader changes t he St op-Loss upward (in a case where t he deal will already see a profit , and t he t rader wishes t o define a higher St op-Loss t o decrease t he original risk), t hen t he difference will be credit ed. Change Take-Profit : Similarly, t he t rader is allowed t o define, or change, a Take-Profit rat e. Not e t hat unlike a St op-Loss rat e, t he t rader does not have t o define any Take-Profit rat e; it simply allows t he t rader t o focus on t asks ot her t han rat e-wat ching. Trade Cont roller : The t rader can key in various hypot het ical exchange rat es t o see t heir impact on t heir overall posit ion (amount of profit or loss), if and when such rat es occur in t he market . You can do t his manually on t he t rading t icket or t o make it even easier use t he Trade Cont roller.

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Inside Viewer : This is a snapshot of all open Day Trades by t raders on t he Easy-Forexplat form. You can view t he Popularit y of a specific currency pair. The Direct ion or percent age of buy or sell of a pair. And t he St ruct ure of open deals, t he average St op-Loss and Take-Profit rat es set by ot her t raders.

Step (5): Closing the deal manually Using t he deal defined in t he screen shot above, t he deal definit ions are: Buy USD; sell EUR; EUR10,000; Deal rat e 1.5000; St op-Loss 1.2052; no Take-Profit defined; margin USD 100.

Scenarios to a Day-Trading deal Example, please not e: This t able is for illust rat ion purposes only. It does not t ake SPREADS int o account . Please not e, past performance is not indicat ive of fut ure performance.
Opening the EUR-USD deal (example)

1.5000

$100.00

10,000.00

$15,000.00

"Nominal" Leverage: Effect ive leverage:

EUR P-L USD P-L

1 / 100 1 / 150
Investme nt Yield Exchan ge rate Actual Change

Rate

Margin

SELL EUR value

BUY USD value

Scenarios, when the EUR-USD rate goes up (EUR increases against the USD) 1.5010 1.5020 1.5030 1.5040 1.5050 1.5060 1.5070 1.5080 1.5090 1.5100 1.5110 1.5120 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 9,993.34 9,986.68 9,980.04 9,973.40 9,966.78 9,960.16 9,953.55 9,946.95 9,940.36 9,933.77 9,927.20 9,920.63 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 6.66 13.32 19.96 26.60 33.22 39.84 46.45 53.05 59.64 66.23 72.80 79.37 $10.00 $20.01 $30.00 $40.01 $50.00 $60.00 $70.00 $80.00 $90.00 $100.01 $110.00 $120.01 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 110.0% 120.0% 0.1% 0.1% 0.2% 0.3% 0.3% 0.4% 0.5% 0.5% 0.6% 0.7% 0.7% 0.8%

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1.5130 1.5140 1.5150 1.5160 1.5170 1.5180 1.5190 1.5200

$100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00

9,914.08 9,907.53 9,900.99 9,894.46 9,887.94 9,881.42 9,874.92 9,868.42

$15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00

85.92 92.47 99.01 105.54 112.06 118.58 125.08 131.58

$130.00 $140.00 $150.00 $160.00 $170.00 $180.00 $190.00 $200.00

130.0% 140.0% 150.0% 160.0% 170.0% 180.0% 190.0% 200.0%

0.9% 0.9% 1.0% 1.1% 1.1% 1.2% 1.3% 1.3%

Scenarios, when the EUR-USD rate goes down (USD increases against the EUR) 1.4990 1.4980 1.4970 1.4960 1.4950 1.4940 1.4930 1.4920 1.4910 1.4900 1.4890 1.4880 1.4870 1.4860 1.4850 1.4840 1.4830 1.4820 1.4810 1.4800 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 10,006.67 10,013.35 10,020.04 10,026.74 10,033.44 10,040.16 10,046.89 10,053.62 10,060.36 10,067.11 10,073.88 10,080.65 10,087.42 10,094.21 10,101.01 10,107.82 10,114.63 10,121.46 10,128.29 10,135.14 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 - 6.67 - 13.35 - 20.04 - 26.74 - 33.44 - 40.16 - 46.89 - 53.62 - 60.36 - 67.11 - 73.88 - 80.65 - 87.42 - 94.21 - 101.01 - 107.82 - 114.63 - 121.46 - 128.29 - 135.14 -$10.00 -$20.00 -$30.00 -$40.00 -$49.99 -$60.00 -$70.01 -$80.00 -$90.00 -$99.99 -$100.00 -$100.00 -$100.00 -$100.00 -$100.00 -$100.00 -$100.00 -$100.00 -$100.00 -$100.00 -10.0% -20.0% -30.0% -40.0% -50.0% -60.0% -70.0% -80.0% -90.0% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -100.0% -0.1% -0.1% -0.2% -0.3% -0.3% -0.4% -0.5% -0.5% -0.6% -0.7% -0.7% -0.8% -0.9% -0.9% -1.0% -1.1% -1.1% -1.2% -1.3% -1.3%

The t able shows t he effect of leveraged t rading: t he t rader invest s USD 100, for a EUR 10,000 cont ract . Therefore, a small change in t he currency exchange rat e reflect s a much higher change in value. The Trader may lose up t o 100% of t he invest ment (USD 100), but can gain an unlimit ed profit .

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The t able also illust rat es t he value of PIPs. In t his deal, every PIP (t he fourt h decimal digit ) result s in a profit or loss of USD 1.00 t o t he t rader. So long as t he t rader gains on t his deal, each PIP is wort h $1 on a $100 margin leveraged at 1:100 . Limit Orders (reserving a Day-Trading deal) Some dealing rooms and plat forms offer t he t rader t he abilit y t o set a "reserved" rat e for a deal, t hat would "capt ure", if and when such a rat e occurs in t he market , result ing in a Day-Trading deal. The t rader can define t he rat e t hey wish, and let t he plat form do t he wat ching, unt il (if and when), it appears in t he market . Easy-Forexdoes not charge addit ional fees for Limit Orders. Set t ing up a Limit Order is very similar t o t he process described above for Day-Trading. Should t he reserved deal not be realized, t he funds which were allocat ed for it will be ret urned t o t he t rader's account .

You don t have t o miss a t rading opport unit y when you go on vacat ion! Make a Limit -Order wit h your preferred currency rat e, and Easy-Forex will aut omat ically open t he deal for you (if indeed it occurs in t he market ), at no cost s!

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[9] Twenty issues you must consider

When choosing a Forex broker or plat form, t here are many different considerat ions t o t hink about , and a lot of quest ions t o ask each of t hem. Those raised in t his chapt er are present ed as a guide you should use in your search for t he right broker or plat form for you. Please not e t hat some of t he answers below refer t o t he t erms offered by t he Easy-Forex Trading Plat form.

We believe t hat a skilled and well informed t rader is a bet t er t rader, for bot h t he t rading plat forms and t he individual t raders.

Personal account management Is anybody t here? Are t here real peopl e behind t he phone (or t he e-mail box)? Do I have a one-on-one relat ionship wit h an individual who knows my account and is able t o provide cont inuit y of service online? Expert Easy-Forext eam members are available t o you at all t imes, anyt ime. Moreover, you have your own Account Service Manager working closely wit h you, while dealing room services are offered t o you by expert Forex dealers. You may speak wit h us by phone, by e-mail, or over t he advanced online CHAT syst em t hat we operat e. Depending on your locat ion, you can also visit an Easy-Forexregional office t o meet in person. Yes, its the internet, but we are real, and we take it personally.

Live training and one-on-one help Do t hey of f er prof essional assist ance and t ools? Easy-Forex offers background informat ion for t he Forex market , a GuidedTour, seminars, one-on-one t raining, CHAT, t elephone support , as well as ot her assist ance t ools, including t echnical support . You are never left alone t o t rade wit hout help, whenever you want it . Moreover, your personal Account Service Manager will guide you live on your first t rading st eps, t o help you get acquaint ed wit h t he Easy-Forexsyst em, and will answer all of your t echnical quest ions. Guaranteed Rates and Stop-Loss Is it around or near t he rat e I set , or exact ly on it ?

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Easy-Forex guarant ees your exact St op-Loss rat e by using t he lat est t echnologies. We are commit t ed t o t he principle t hat you will never lose more t han t he margin risked by t he St op-Loss rat e you choose. The same principle holds t rue for any Take-Profit rat e you set : your deal will close aut omat ically on t he exact Take-Profit rat e you define. Needless t o say, you can change bot h St op-Loss and Take-Profit rat es at any t ime while a deal remains open. It is highly import ant t hat you know t hat , due t o t he nat ure of t he forex global market , 100% guarant ee t o pre-set rat es is impossible. Such may occur under highly volat ile market condit ions, where ot her part ies t o t he Forex t rade (e.g. t he t rader, t he plat form, t he liquidit y provider, et c.) are unable t o execut e specific rat es, or specific rat e range, due t o condit ions t hat are beyond t heir cont rol. Simply put : Easy-Forex makes any and all effort s t o guarant ee t he rat es, when it is able t o doing so, unless market condit ions prevent delivering t he rat e select ed.

No software download Is t he int ernet plat f orm f riendl y and easy t o use? Do I need t o download any sof t ware? Am I rest rict ed t o a specif ic comput er t erminal? Easy-Forex Trading Plat form was t he first , and may be t he only, Forex plat form t hat enables users t o st art t rading so simply and quickly. Wit h no soft ware t o download, you can log int o your account and t rade anyt ime, from anywhere.

Instant deposit with a credit card Am I bound t o wait f or banking hours, or can I deposit t rading margins wit h my credit card? Will I miss an opport unit y if I decide t o change t he margins in t he middle of t he night ? When I prof it , can I wit hdraw t he prof it s t o my credit card account ? Easy-Forex was t he first , and may be t he only, Forex plat form t hat allows you t o fund your account wit h your credit card (or PayPal, or West ern Union, and ot hers), so you can st art t rading immediat ely, regardless of banking work days or hours. Easy-Forex cares about prot ect ing your credit card securit y and your privacy t o t he highest st andard. To achieve t hat , we use t he lat est t echnologies and comply wit h all relevant regulat ions.

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Profit s wit hdrawn can, of course, be t ransferred back t o t he source of your original deposit (i.e., your credit card account ). Start trading without delay How t ime-consuming is t he account set -up process? Can I immediat ely regist er, deposit t he margins f or t he deal, and st art running? Wit h Easy-Forex , t he answer is Yes . There is no soft ware t o download, and you have t he opt ion of using your credit card t o deposit t he margin required t o t rade. Please not e t hat due t o securit y measures aimed at prot ect ing you, t he scope of deals during t he first week of t rading wit h EasyForex , is limit ed. This rest rict ion will be removed aft er making phone cont act wit h our t eam.

Banks are closed at night s, weekends and holidays. Trade, deposit and wit hdraw at Easy-Forex, 24x7 Margin trading with as little as US$100 What is t he lowest amount I can risk? The Easy-Forexsyst em enables you t o t rade wit h very small amount s if you wish: you can st art using Easy-Forexwit h as lit t le as $100. No bank (t hat we know of) offers such an opport unit y. St art ing t o t rade wit h such small amount s is t he best way t o get acquaint ed wit h t he Forex market place. , allow Demo account s, which are offered by many but not by Easy-Forex you t o t rade only imaginary money. Consequent ly, you are unlikely t o t rade in t he same way you would wit h your own real money, t hus minimizing t he value of such account s as a learning t ool. By t rading, inst ead, wit h very small amount s of your money, you familiarize yourself wit h t he syst em, and are free t o increase your level and scope of act ivit y at your own pace as your confidence and experience grow. Freeze the rate you see When I sel ect a rat e f or a deal , can I "FREEZE" it f or a f ew seconds bef ore I make my f inal decision? Unlike any ot her t rading plat form t oday, Easy-Forexoffers you t he abilit y t o freeze an exchange rat e for a few seconds, regardless of rat e movement s. This means t hat t he rat e you see and freeze is t he rat e you get if you proceed wit h t he deal. During a freeze , t he Forex market could change, but you are guarant eed t he rat e you have frozen.

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Commissions? Fees? Spreads? (read about t he features offered at Easy-Forex)

No hidden costs Are all cost s readily apparent ? Am I charged commissions on t rading? Am I charged commissions on wit hdrawals of prof it ? , you pay no commissions for t he deals you make (see our Wit h Easy-Forex Spreads and Commissions page onboard our websit e). Easy-Forex act s as a market maker, and makes it s earnings from t he spreads t hat are embedded in t he currency rat es. In t he "Day-Trading" zone you may roll over your posit ions t o t he next day for a renewal fee. There are no charges for profit wit hdrawals or deposit s. Moreover, Easy-Forex does not levy it s side of bank cost s ont o t he t rader. Easy-Forex performs wit hdrawal t ransact ions at mid-rat e value: when you want t o t ake profit s from a deal involving a currency ot her t han your operat ing currency, Easy-Forex convert s at an average of t he current high and low rat es. Some plat forms charge t he high rat e t o generat e an addit ional revenue st ream.

Security and Safety What kind of saf et y and securit y measures are t aken t o prot ect my t ransact ions? Easy-Forex t reat s t he issues of dat a securit y, privacy, int egrit y and backup wit h t he ut most at t ent ion and care. These crit eria are achieved by:

Ensuring aut horized access only. Easy-Forex uses t wo layers of t op class firewall: one at t he server level and one at t he applicat ion level; Using an advanced SSL by VeriSign for user aut hent icat ion and dat a t ransfer; Separat ing t he applicat ion servers (t he servers t hat handle our client s' online act ivit y) from t ransact ional informat ion which is st ored on a different dat a server; Locat ing t wo different farm servers separat ely for dat a recovery, int egrit y and replicat ion. Dat a has t o be synchronized in bot h locat ions, t hus cannot be t ampered wit h. All t he informat ion on t he servers is encrypt ed when st ored;

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The physical securit y of each server farm is very high. Armed guards are on locat ion 24 hours a day, and access t o t he premises is st rict ly forbidden except for aut horized personnel.

Easy-Forex ensures t hat what ever happens: failure, disast er, et c., your t ransact ions are int act , secure, and backed up.

To get personal assist ance and free t raining, Join Easy-Forex (regist rat ion is quick and free, no obligat ion) Special terms for frequent traders Can t he t rading t erms I am of f ered be t ailor-made t o my personal pref erences? The spreads and ot her t erms in our sit e assume deals of small and up t o medium volumes. If you are a frequent t rader dealing in larger volumes, we offer you a t ailor-made account t o suit your exact needs (spreads, leverage rat io, mobile-phone alert s, et c.). Cont act us by e-mail or phone t o obt ain your special t rading t erms. Competitive spreads How many "pips" are of f ered in t he spread? The spreads on our sit e assume deals of small and up t o medium volumes. If you are a frequent t rader dealing in larger volumes, we offer t ailor-made account s t o suit your exact needs (spreads and leverage). Live, real-time streaming quotes Are t he rat es present ed t he most current ? Is t he inf ormat ion present ed in my account st at us window updat ed at t he same t ime so my posit ion is always current ? The Easy-Forex high-edge syst em uses t he lat est highly sophist icat ed and advanced t echnologies in order t o offer you up-t o-t he-second quot es. You may check your account s and posit ions in real t ime, you may do so 24 hours a day, and make a deal based on real-t ime informat ion. Easy-Forex believes it is highly import ant for you t o be able t o cont rol your funds whenever you wish, and base your deals on real-t ime informat ion. That is t he level of service we are commit t ed t o providing t o our client s.

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Refer-a-friend incentive program Will I be credit ed and enj oy benef it s f or ref erring f riends t o t he t rading plat f orm? Of course. HOWEVER: t his depends on t he user s count ry of residence and j urisdict ion. Such program may be implement ed in several world regions, where in ot her regions it may not be offered. Please check wit h your account sales manager!. Being an Easy-Forex user, you are ent it led t o cash and ot her bonuses for referrals. Your regional Easy-Forexoffice can provide det ails. You can also benefit by j oining forces wit h t he t rading plat form via IB (Int roducing Broker) programs, and Internet-Affiliate programs. Easy-Forex rewards performance in t hese programs, providing online access t o it s business part ners. When it comes t o Forex affiliat e programs, Easy-Forexis number one in t he world (by number of Forex-Affiliat es enrolled, as well as by commissions paid t o t hem). Business partners and reputation Who are t heir business part ners? Who is t heir l iquidit y supplier? Is it a known int ernat ional bank? Who do t hey work wit h regarding dat a securit y? Easy-Forexworks only wit h organizat ions wit h t he highest reput at ion in t heir fields. This applies t o all areas, including t he provision of liquidit y, dat a securit y, ext ernal audit ing and ot hers: click on t heir logos on our homepage t o learn about our part ners or read t he ABOUT sect ion. We are proud t o j oin forces wit h t he best ! To name j ust a few, Easy-Forexworks closely wit h UBS, t he world-leading Swiss bank t o provide liquidit y; wit h RBS (t he Royal Bank of Scot land); wit h St reamLine (world leading credit card clearing house); wit h PWC as our ext ernal audit ors; wit h Reut ers, our maj or online dat a provider; wit h VeriSign, for our dat a and t ransact ion securit y; and ot hers of similar reput at ion. Full control with online access Can I cont rol my Forex account f rom anywhere on t he gl obe, f rom any comput er, at any desired t ime, 24x7x365? Using any comput er connect ed t o t he int ernet , anywhere on t he globe, regist ered t raders can access t he Easy-Forex syst em. In case you have t echnical difficult ies - relat ing t o old versions of PC hardware or soft ware please read our TECHNICAL SUPPORT sect ion (linked at t he bot t om of our

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homepage), or cont act us by e-mail, phone or chat t o get online t echnical support . Full Transparency May I generat e det ail ed report s wit h t he cl ick of a but t on, as well as t rack al l t ransact ions perf ormed in my Forex account , whenever I wish? Yes. You may check t he value of your posit ion at any t ime, as well as see hist orical dat a (t ransact ions and deals) wit h t he click of a but t on. Moreover, you may generat e "scenarios" ("what -if?") wit h possible rat es at your posit ion, in order t o see if you are in a gain or loss.

When logic dictates, you can control greed.

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[10]

Tips for every Forex trader

, we believe t hat proper t raining is essent ial t o achieving At Easy-Forex t rading success. Wit hout t he appropriat e preparat ion and expert ise, a t rader's chances of succeeding are subst ant ially reduced. Our free Forex t raining was creat ed t o t each our client s a st rat egy t o day-t rade currencies. Traders t hat use a st rat egy, or syst em t o t rade, t remendously increase t heir probabilit y of success as Forex t raders. Easy-Forex offers t he following Forex Training resources:

This book as well as ot her Easy-Forexbooks; A Guided Tour on t he Easy-Forexwebsit e; Informat ion ( Info-Cent er ) on t he Easy-Forexwebsit e; Technical analysis; Fundament al analysis; Access t o chart s, news, out looks and research, once a t rader has regist ered wit h t he syst em; Free, live 1-on-1 t raining online; And finally, you can st art t rading and learning for as lit t le as USD 25. This is your best act ual t raining, and we recommend you view it as such, playing small while you learn t he market st ep-by-st ep.

Easy-Forexnot only advises you t o st art wit h a small amount of money, but makes t he first st ep easy for you. However, before you st art : Carefully read t he Terms and Condit ions We st rongly advise t hat you read t he Disclaimers and t he Risk Warning Remember: Forex is a risky business!

It should not t ake more t hat a few t rades t o familiarize yourself wit h t he Easy-ForexTrading Plat form. Ideally, you will st art by making a few smaller t rades in order t o become familiar wit h t he market and t he plat form. Only t hen should you consider making larger t rades.

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Learn at your own pace Learn at your own pace, and learn from t he experiences of ot hers, who can provide insight , analyses and informat ion, and can help you st eer clear of t he hazards novices somet imes encount er. Read (and part icipat e in) Forex forums and reviews which are available in many places on t he net . Now is t he t ime t o expand your t rading knowledge. Currency market s differ from ot her t rading market s due t o t ime zone liquidit y, specific currencyrelat ed issues, cent ral bank act ivit y, real and nominal int erest rat e different ials and more. This is t he t ime t o learn t o underst and t hese fact ors.

Learning Forex trading: Topics you should be familiar wit h:

Evaluat ion of currency t rades; Developing a market view; Using t rend analysis indicat ors; Reading and underst anding Forex chart s; Pinpoint ing advanced support and resist ance levels; Assessing t rading signals; Ident ifying market t ops and bot t oms; Set t ing price obj ect ives for winning t rades; Handling St op-Loss and Take-Profit limit s.

Hands-on Forex training Easy-Forex hands-on t rading means immediat e access t o proven t rading t echniques you can use t o increase profit s. Whet her you are a short -t erm, breakout , range or posit ion t rader, Easy-Forex expert s can help you learn t rading t echniques t hat can maximize your abilit y t o ident ify low-risk/ highprobabilit y t rades. Our t raining is appropriat e for a wide range of Forex t raders, from individuals j ust st art ing in t he spot currency market , t o experienced professionals. Like anyt hing in life, you don't really underst and it unt il you j ump int o it . Get st art ed on Easy-Forex , risking as lit t le as USD 25 per t rade. Take t he Guided Tour t hrough t he t raining mat erial while you are ent ering and wat ching your first t rades - because t here's not hing quit e like t rading while you learn. This is

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pract ical, visual, hands-on t raining. Plus, it allows t he new t raders t o develop an underst anding of basic t rading t echniques, risk cont rol, and t he opening and management of a live t rading account . Whet her you are an invest or who want s t o learn Day-Trading for t he first t ime, or a day t rader wit h st ock market or fut ures t rading experience, who want s t o give Forex t rading a t ry, t ake t he first st eps wit h Easy-Forex . Go t hrough t he basics of t he Forex market , experience real t ime t raining wit h real t ime t rading, t ake t he Guided Tour and t hen t rade. Our t raining gives new and experienced t raders alike all t he necessary t ools t o st art buying and selling currencies in t he foreign exchange market .

Make use of what the Easy-ForexTrading Platform offers:

24-hr commission-free t rading in 14+ currency pairs; Web-based t rading plat form requires no download or inst allat ion; Guarant eed fills on st ops and limit s up t o USD 2,000,000; Free access t o chart ing, news, and research; 24-hour cust omer support via phone and web sit e; Deposit s accept ed in mult iple currencies; Credit card, PayPal and West ern-Union deposit facilit ies; St raight forward wit hdrawal procedures.

Don't at t empt t o t rade unt il you receive t he t raining needed t o become a successful t rader. There are subst ant ial earnings t o be made in t he foreign currency market , but t rading in Forex is for t he well-informed. Easy-Forexoffers you a first -rat e Forex t rading plat form and an unmat ched degree of service. Obviously, our expert s are real people in real offices and dealing rooms, ready t o assist .

Real-time dealers available 24x7 Trading foreign exchange is excit ing and pot ent ially very profit able, but t here are also significant risk fact ors. It is crucial t hat you fully underst and t he implicat ions of margin t rading and t he part icular hazards and opport unit ies t hat foreign exchange t rading offers. However, if you are ever in doubt about any aspect s of a t rade, you can always discuss t he mat t er in-dept h wit h one of our dealers. They are available 24 hours a day.

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Forex risk management strategies The Forex market behaves different ly from ot her market s. The speed, volat ilit y, and enormous size of t he Forex market are unlike anyt hing else in t he financial world. Beware: t he Forex market cannot be cont rolled - no single event , individual, or fact or rules it . As such, it is t he closest market t o what economist s call a perfect market ! However, j ust like any ot her speculat ive business, increased risk ent ails chances for a higher profit s as well as higher losses.

Currency markets are highly speculative and volatile in nature. Any currency can become very expensive or very cheap in relat ion t o any or all ot her currencies in a mat t er of days, hours, or somet imes, in minut es. The unpredict able nat ure of currencies is what at t ract s an invest or t o t rade and invest in t his market .

Truly ask yourself: "How much am I ready to lose?" When you t erminat ed, closed or exit ed your posit ion, had you underst ood t he risks and t aken st eps t o avoid t hem?

Some foreign exchange risk management issues The following may come up in your day-t o-day foreign exchange t ransact ions.

Unexpect ed correct ions in currency exchange rat es Wild variat ions in foreign exchange rat es Volat ile market s offering profit opport unit ies Lost payment s Delayed confirmat ion of payment s and receivables Divergence bet ween bank draft s received and t he cont ract price

These are issues every t rader should cover, bot h before and during a t rade.

Exit the Forex market at profit targets Limit orders, also known as Take-Profit orders, allow Forex t raders t o exit t he Forex market at pre-det ermined profit t arget s. If you are short (sold) a

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currency pair, t he syst em will only allow you t o place a limit order below t he current market price, because t his is t he profit zone. Similarly, if you are long (bought ) t he currency pair, t he syst em will only allow you t o place a limit order above t he current market price. Take-Profit orders help creat e a disciplined t rading met hodology and make it possible for t raders t o walk away from t he comput er wit hout cont inuously monit oring t he market .

Control risk by capping losses St op-Loss orders allow t raders t o set an exit point for a losing t rade. If you are short a currency pair, t he St op-Loss order should be placed above t he current market price. If you are long t he currency pair, t he St op-Loss order should be placed below t he current market price. St op-Loss orders help t raders cont rol risk by capping losses. St op-Loss orders are count er-int uit ive because you do not want t hem t o be hit ; however, you will be happy t hat you placed t hem.

Be disciplined, don t be greedy. Close your Forex posit ion as you originally planned!

Where should I place my Stop-Loss and Take-Profit orders? As a general rule of t humb, t raders should set St op-Loss orders closer t o t he opening price t han Take-Profit orders. If t his rule is followed, a t rader needs t o be right less t han 50% of t he t ime t o be profit able. For example, a t rader who uses 30 pip St op-Loss and 100-pip Take-Profit orders, needs t o be right only one-t hird of t he t ime t o make a profit . Where t raders place St op-Loss and Take-Profit orders will depend on how risk-averse t hey are. St op-Loss orders should not be so t ight t hat normal market volat ilit y t riggers t he order. Similarly, Take-Profit orders should reflect a realist ic expect at ion of gains based on t he market 's t rading act ivit y and t he lengt h of t ime one want s t o hold t he posit ion. When init ially set t ing up a t rade, it is prudent t o look t o change t he St op-Loss and set it at a rat e in t he middle ground where you are not overexposed t o t he t rade, and at t he same t ime, are not t oo close t o t he market . Trading foreign currencies is a demanding and pot ent ially profit able opport unit y for t rained and experienced invest ors. However, before deciding t o part icipat e in t he Forex market , you should soberly reflect on t he desired result of your invest ment and your level of experience.

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Warning! Do not invest money you cannot afford t o lose!

There is significant risk in any foreign exchange deal. Any t ransact ion involving currencies involves risks, including, but not limit ed t o, t he pot ent ial for changing polit ical and/ or economic condit ions, t hat may subst ant ially affect t he price or liquidit y of a currency. Moreover, t he leveraged nat ure of Forex t rading means t hat any market movement will have an equally proport ional effect on your deposit ed funds. This may work against you as well as for you. The possibilit y exist s t hat you could sust ain a t ot al loss of your init ial margin funds and be required t o deposit addit ional funds t o maint ain your posit ion. If you fail t o meet any margin call wit hin t he t ime prescribed, your posit ion will be liquidat ed and you will be responsible for any result ing losses. St op-Loss or Take-Profit order st rat egies may lower an invest or's exposure t o risk. Easy-Forexforeign exchange t echnology links around-t he-clock t o t he world's foreign currency exchange t rading floors t o get t he lowest foreign currency rat es and t o t ake every opport unit y t o make or set t le a t ransact ion.

Reducing risk when trading Forex: Trade like a t echnical analyst does. For t he best possible result s, underst anding t he fundament als behind an invest ment also requires underst anding t he t echnical analysis met hod. When your fundament al and t echnical signals point in t he same direct ion, you have a good chance of having a successful t rade, especially wit h good money management skills. Use simple support and resist ance t echnical analysis, Fibonacci Ret racing and reversal days.

Be disciplined; Create a position and understand your reasons for having that position; Establish Stop-Loss and Take-Profit levels.

Discipline includes hit t ing your st ops and not following t he t empt at ion t o st ay wit h a losing posit ion t hat has gone t hrough your St op-Loss level.

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A good rule of t humb is: In a bull market , be long or neut ral - in a bear market , be short or neut ral. If you forget t his rule and t rade against t he t rend, you will usually cause yourself worries, and frequent ly, losses. Never add t o a losing posit ion. On t he Easy-Forex plat form, t raders can change t heir t rade orders as many t imes as t hey wish free of charge, eit her as a St op-Loss or as a Take-Profit . The t rader can also close t he t rade manually wit hout a St op-Loss or Take-Profit order being hit . Many successful t raders updat e t heir St op-Loss price in t heir live posit ions beyond t he rat e at which t hey made t he t rade, so t hat t he worst t hat can happen is t hat t hey get st opped out and st ill make a profit .

Never invest in Forex what you are not prepared t o lose.

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[11]

Forex Glossary

The following offers brief explanat ion of t he most popular t erms used in t he market t oday.

Value

Definition

Aggregate (Risk)

Tot al exposure a bank has wit h a cust omer for bot h spot and forward cont ract s. Tot al demand for goods and services in t he economy. Aggregat e demand includes privat e and public sect or demand for goods and services wit hin t he count ry, and t he demand of consumers and firms in ot her count ries for goods and services. Tot al supply of goods and services in t he economy (including import s) available t o meet aggregat e demand. Difference in t he value bet ween currencies. Also used t o describe percent age charges for conversion from paper money int o cash, or from a weak int o a st rong currency. An opt ion which may be exercised on any valid business dat e t hroughout t he life of t he opt ion. A European opt ion can only be exercised on a specific dat e. Describes a currency st rengt hening in response t o market demand as opposed t o increasing in value as a result of official act ion. A risk-free t ype of t rading where t he same inst rument is bought and sold simult aneously in t wo different market s in order t o cash in on t he difference bet ween t he market s. Used in quot ing forward premium/ discount . The price at which t he currency or inst rument is offered. Ask is t he lowest price accept able t o t he buyer. The right t o receive from a count erpart y an amount of currency eit her in regards t o a balance sheet asset (e.g. a loan), or at a specified fut ure dat e in regards t o an unmat ched Forward or spot deal. The int ernat ional societ y of foreign exchange dealers consist ing of nat ional "Forex clubs" affiliat ed on a worldwide basis. An inst ruct ion given t o a dealer t o buy or sell at t he best rat e t hat is current ly available in t he market . An order t o deal at a specific rat e or bet t er. When t he forward price is equivalent t o t he spot price. A st op-loss order t hat must be execut ed at t he request ed level regardless of market condit ions.

Aggregate Demand

Aggregate Supply

Agio

American Option

Appreciation

Arbitrage Around Ask Price

Asset

Association Cambiste International At Best At or Better At Par Forward Spread At the Price Stop-Loss Order

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Value

Definition

At-the-Money

An opt ion whose st rike/ exercise price is equal t o or near t he current market price of t he underlying inst rument . Sale of an it em t o t he highest bidder. (1) A met hod commonly used in exchange cont rol regimes for t he allocat ion of foreign exchange. (2) A met hod for allocat ing government paper, such as US Treasury Bills. Small invest ors are given preferent ial access t o t he bills. The average issuing price is t hen comput ed on t he basis of t he compet it ive bids accept ed. In some circumst ances, such as government auct ions, it is t he yield rat her t han t he price which is bid. A cont ract where t he exercise price is based on t he difference bet ween t he st rike price and t he average spot rat e over t he cont ract period. Somet imes called an Asian opt ion . Set t lement and relat ed processes. (1) Transact ion where all t he obligat ions and liabilit ies in one t ransact ion are mirrored in a second t ransact ion. (2) Transact ion where a loan is made in one currency in one count ry against a loan in anot her count ry in anot her currency. A syst emat ic record of t he economic t ransact ions during a given period for a count ry. (1) The t erm is oft en used t o mean eit her: (i) balance of payment s on current account ; or (ii) t he current account plus cert ain long t erm capit al movement s. (2) The combinat ion of t he t rade balance, current balance, capit al account and invisible balance, which t oget her make up t he balance of payment s t ot al. Prolonged balance of payment deficit s t end t o lead t o rest rict ions in capit al t ransfers, and or decline in currency values. The value of export s less import s. Invisibles are normally excluded, which is why balance of t rade is also referred t o as mercant ile or physical t rade. Figures can be quot ed as FoB/ FaS , cust oms cleared, or FoB export . The range in which a currency is permit t ed t o move. A syst em used in t he ERM. Line of credit grant ed by a bank t o a cust omer, also known as a "line". Bank not es are paper issued by t he cent ral or issuing bank. They are legal t ender, but are not usually considered t o be part of t he FX market . However bank not es can be convert ed, in some count ies, int o FX. Bank not es are normally priced at a premium t o t he current spot rat e for a currency. The rat e at which a cent ral bank is prepared t o lend money t o it s domest ic banking syst em. See t rading day and value dat e.

Auction

Average Rate Option

Back Office

Back to Back

Balance of Payments

Balance of Trade

Band Bank Line

Bank Notes

Bank Rate Banking Day

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Value

Definition

Barrier Option

A family of pat h dependent opt ions whose pay-off pat t ern and survival t o t he expirat ion dat e depend not only on t he final price of t he underlying currency, but also on whet her or not t he underlying currency breaks a predet ermined price level at any t ime during t he life of t he opt ion. See Down and Out call/ put , Down and in call/ put , Up and out call/ put , Up and in call/ put . The currency in which t he operat ing result s of t he bank or inst it ut ion are report ed. A t erm used in t he UK for t he rat e used by banks t o calculat e t he int erest rat e t o borrowers. Top qualit y borrowers will pay a small amount over base. The difference bet ween t he cash price and fut ures price. The process whereby t he basis t ends t owards zero as t he cont ract expiry approaches. One per cent of one per cent . The price expressed in t erns of yield mat urit y or annual rat e of ret urn. Taking opposit e posit ions in t he cash and fut ures market wit h t he int ent ion of profit ing from favorable movement s in t he basis. A group of currencies normally used t o manage t he exchange rat e of anot her currency, somet imes referred t o as a unit of account . A person (invest or) who believes t hat prices will decline. A market in which prices decline sharply against a background of widespread pessimism (opposit e of Bull Market ). A spread designed t o exploit falling exchange rat es by purchasing a put opt ion wit h a high exercise price and selling one wit h a low exercise price. The price at which a buyer has offered t o purchase t he currency or inst rument . Bid is t he highest price t hat t he buyer is offering for t he part icular currency at t he moment ; t he difference bet ween t he ask price and t he bid price is t he spread. Toget her, t he t wo prices const it ut e a quot at ion. The bid-ask spread is st at ed as a percent age cost of t ransact ing in t he foreign exchange. Refers normally t o t he first t hree digit s of an exchange rat e t hat dealers t reat as underst ood in quot ing. For example, a quot e of "30/ 40" on dollar mark could indicat e a price of 1.5530/ 40BIS: Bank of Int ernat ional Set t lement . A syst em used where foreign currency is limit ed. In such a syst em, payment s are usually rout ed t hrough t he cent ral banks, and somet imes require t hat t he t rade balance is equaled every year.

Base Currency

Base Rate Basis Basis Convergence Basis Point Basis Price

Basis Trading

Basket Bear Bear Market

Bear Put Spread

Bid Price

Big Figure

Bilateral Clearing

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Value

Definition

Binary Options

A binary call (or st ep up ) is like a st andard European call opt ion except t hat t he pay off at expiry is fixed at one unit of t he count er currency when t he call expires in t he money. An opt ion pricing formula init ially derived by Fisher Black and Myron Scholes for securit ies opt ions and lat er refined by Black for opt ions on fut ures. It is widely used in t he currency market s. The recording of a t ransact ion out side t he count ry where t he t ransact ion is it self negot iat ed. Slang for Russian t rading. The price of a financial inst rument at which t he opt ion buyer recovers t he premium, meaning t hat eit her a loss or gain is made. In t he case of a call opt ion, t he break even point is t he exercise price plus t he premium. In t he opt ions market , undoing a conversion or a reversal t o rest ore t he opt ion buyer's original posit ion. The sit e of t he 1944 conference which led t o t he est ablishment of t he post war foreign exchange syst em t hat remained int act unt il t he early 1970s. The conference also result ed in t he format ion of t he IMF. The fixed exchange rat e syst em est ablished at Bret t on-Woods allowed 1% fluct uat ions of a given currency t o gold or t he dollar. Deals t hat are undert aken for value dat es t hat are not st andard periods e.g. 1 mont h. The st andard periods are 1 week, 2 weeks, 1, 2, 3, 6 and 12 mont hs. Terms also used are odd dat es, or cock dat es, broken dat es or broken period. An agent , who execut es orders t o buy and sell currencies and relat ed inst rument s eit her for a commission or on a spread. Brokers are agent s working on commission and not principals or agent s act ing on t heir own account . In t he foreign exchange market , brokers t end t o act as int ermediaries bet ween banks bringing buyers and sellers t oget her for a commission paid by t he init iat or or by bot h part ies. There are four or five maj or global brokers operat ing t hrough subsidiaries, affiliat es and part ners in many count ries. Commission charged by a broker. See Dealer. Bundesbank, t he cent ral bank of Germany. A person (invest or) who believes t hat prices will rise. An opt ion posit ion composed of bot h long and short opt ions of t he same t ype, eit her calls or put s, designed t o be profit able in a declining market . An opt ion wit h a lower st rike price is bought and one wit h a higher st rike price is sold. A market charact erized by rising prices.

Black-Scholes Model

Booked Boris

Break Even Point

Break Out

Bretton-Woods

Broken Dates or Period

Broker

Brokerage Broker-Dealer BUBA Bull

Bull (call or put) Spread

Bull Market

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Value

Definition

Bulldogs Bullion Bundesbank

St erling bonds issued in t he UK by foreign inst it ut ions. A t erm for gold bars, not coin. Cent ral bank of Germany. (1) A fut ures but t erfly spread is a spread t rade in which mult iple fut ures mont hs are t raded simult aneously at a different ial. The t rade basically consist s of t wo fut ures spread t ransact ions wit h eit her t hree or four different fut ures mont hs at one different ial. (2) An opt ions but t erfly spread is a combinat ion of a bear and bull spread t rade in which mult iple opt ions mont hs and st rike prices are t raded simult aneously at a different ial. The t rade basically consist s of t wo opt ions spread t ransact ions wit h eit her t hree or four different opt ions mont hs and st rikes at one different ial. The purchaser of an opt ion, whet her a call or put opt ion. The buyer may also be referred t o as t he opt ion holder. Opt ion buyers receive t he right , but not t he obligat ion, t o ent er a fut ures/ securit ies market posit ion. Rat e at which t he market and a market maker in part icular are willing t o buy t he currency. Somet imes called bid rat e. To buy t he nearby cont ract and simult aneously sell t he deferred cont ract . Also referred t o as a bull spread. A t erm used in t he foreign exchange market for t he US Dollar/ Brit ish Pound rat e. Telegraphic t ransfer of funds from one cent re t o anot her. Now synonymous wit h int erbank elect ronic fund t ransfer. An opt ion posit ion comprising t he purchase and sale of t wo opt ion cont ract s of t he same t ype wit h different expirat ion dat es at t he same exercise price. An opt ion t hat gives t he holder t he right t o buy t he underlying inst rument at a specified price during a fixed period. A call opt ion confers t he right but not t he obligat ion t o buy st ock, shares or fut ures at a specified price. French t erm for foreign exchange dealer. Juxt aposit ion of t he long and short t erm capit al import s and export s of a count ry. The int erest cost of financing securit ies or ot her financial inst rument s held. A finance charge associat ed wit h t he st oring of commodit ies (or foreign exchange cont ract s) from one delivery dat e t o anot her.

Butterfly Spread

Buyer/ Taker

Buying Rate Buying The Spread Cable Cable Transfer

Calendar Spread

Call

Call Option Cambiste Capital Account Carry

Carry-Over Charge

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Value

Definition

Cash

Normally refers t o an exchange t ransact ion cont ract ed for set t lement on t he day t he deal is st ruck. This t erm is mainly used in t he Nort h American market s and t hose count ries t hat rely on t hese market s for foreign exchange services because of t ime zone preferences i.e. Lat in America. In Europe and Asia, cash t ransact ions are oft en referred t o as value same day deals. The buying of an asset t oday and selling of a fut ure cont ract on t he asset . A reverse cash and carry is possible by selling an asset and buying a fut ure. Same day set t lement . A procedure for set t ling fut ures cont ract where t he cash difference bet ween t he fut ure and t he market price is paid inst ead of physical delivery. Chicago Board Opt ions Exchange. Chicago Board of Trade. Cert ificat e of Deposit . A cent ral bank provides financial and banking services for a count ry's government and commercial banks. It implement s t he government 's monet ary policy as well by changing int erest rat es. It is normally t he issuing bank and cont rols bank licensing, and any foreign exchange cont rol regime. Exchange rat es against t he ECU adopt ed for each currency wit hin t he EMS. Currencies have limit ed movement from t he cent ral rat e according t o t he relevant band. A negot iable cert ificat e in bearer form issued by a commercial bank as evidence of a deposit wit h t hat bank which st at es t he mat urit y value, mat urit y rat e and int erest rat e payable. CDs vary in size wit h mat urit ies ranging from a few weeks t o several years. CDs may normally be redeemed before mat urit y only by sale on t he secondary market , but may also be redeemed back t o issuing bank t hrough payment of a penalt y. The Commodit y Fut ures Trading Commission, t he US Federal regulat ory agency for fut ures t raded on commodit y market s, including financial fut ures. Clearing House Aut omat ed Payment Syst em. An individual who st udies graphs and chart s of hist oric dat a t o find t rends and predict t rend reversals. These include t he observance of cert ain pat t erns and charact erist ics of t he chart s t o derive resist ance levels, head and shoulders pat t erns, and double bot t om or double t op pat t erns which are t hought t o indicat e t rend reversals. The New York clearing house clearing syst em. (Clearing House Int erbank Payment Syst em). Most euro t ransact ions are cleared and set t led t hrough t his syst em.

Cash and Carry Cash Delivery Cash Settlement CBOE CBOT or CBT CD

Central Bank

Central Rate

Certificate of Deposit (CD)

CFTC CHAPS

Chartist

CHIPS

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Value

Definition

CIBOR

Copenhagen Int erbank Rat e, t he rat e at which t he banks lend t he Danish Krone on an unsecured basis. The rat e is calculat ed daily by t he Denmark s Nat ionalbank (t he Danish Cent ral Bank), based on rules set out by t he Danish Banker's Associat ion. The process of set t ing a number of it ems against one anot her and making fund t ransfers only on t he net balance as part of t he set t lement process. A t ransact ion which leaves t he t rade wit h a zero net commit ment t o t he market wit h respect t o a part icular currency. The purchase of an opt ion ident ical t o one already sold t o liquidat e a posit ion. Chicago Mercant ile Exchange Cock Dat es (see broken dat es). An economic indicat or t hat generally moves in line wit h t he general business cycle such as indust rial product ion. Commodit y Exchange of New York. The fee t hat a broker may charge client s for dealing on t heir behalf. An opt ion on an opt ion, t he dat es and price of such opt ion being fixed. French t erm for spot set t lement in foreign exchange. A memorandum t o t he ot her part y describing all t he relevant det ails of t he t ransact ion. Mont hly measure of t he change in t he prices of a defined basket of consumer goods including food, clot hing, and t ransport . Count ries vary in t heir approach t o rent s and mort gages. Rising CPI is normally associat ed wit h expect at ions of higher short t erm int erest rat es and may t herefore be support ive for a currency in t he short t erm. Nevert heless, a longer t erm inflat ion problem will event ually undermine confidence in t he currency and weakness will follow. An agreement t o buy or sell a specified amount of a part icular currency or opt ion during a specified mont h in t he fut ure (See Fut ures cont ract ). The dat e on which a currency must be delivered t o fulfill t he t erms of t he cont ract . For opt ions, t he last day on which t he opt ion holder can exercise his right t o buy or sell t he underlying inst rument or currency. The mont h in which a fut ures cont ract mat ures or becomes deliverable if not liquidat ed or t raded out before t he dat e specified. The bank t hat regularly performs services on behalf of a foreign bank t hat has no branch in t he relevant cent re, e.g. t o facilit at e t he t ransfer of funds. In t he US, t his oft en occurs domest ically due t o int erst at e banking rest rict ions.

Clearing

Closed Position Closing Purchase Transaction CME Coincident Indicator Comex Commission Compound Option Comptant Confirmation

Consumer Price Index

Contract

Contract Expiration Date

Contract Month

Correspondent Bank

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Definition

Cost of Carry Cost of Living Index Counter Value Counterparty

The int erest rat e parit y, where t he forward price is det ermined by t he cost of borrowing money in order t o hold t he posit ion. Broadly equivalent t o Ret ail Price Index or Consumer price. Where a person buys a currency against t he dollar, it is t he dollar value of t he t ransact ion. The ot her side t o a deal (cust omer, or bank) wit h which a foreign exchange deal is execut ed. Foreign Currency Int er-bank Exchange (FOREX) inst rument s are Posit ions (Buy and/ or Sell) bet ween t he Client and it s Count erpart y and, unlike exchange-t raded foreign exchange inst rument s which are, in effect , guarant eed by a clearing organizat ion affiliat ed wit h t he exchange on which t he inst rument s are t raded, are not guarant eed by a clearing organizat ion. Thus, when t he Cust omer purchases an OTC foreign exchange inst rument , it relies on t he Count erpart y from which it has purchased t he inst rument t o fulfill t he cont ract . Failure of a Count erpart y t o fulfill a Posit ion could result in losses of any prior payment made pursuant t o t he Posit ions, as well as t he loss of t he expect ed benefit of t he t ransact ion. Fact ors t hat affect currency t rading unique t o t he specific count ry including polit ical, regulat ory, legal and holiday risks. (1) On bearer st ocks, t he det achable part of t he hide behind nominee st at us. Cert ificat e exchangeable for dividends. (2) Denot es t he rat e of int erest on a fixed int erest securit y. The annual rat e of int erest of a bond. (French) Exchange rat e. (French) Free exchange rat e. (French) Official exchange rat e. French for "short " as in une posit ion court e . (French) Broker. (1) To t ake out a forward foreign exchange cont ract . (2) To close out a short posit ion by buying currency or securit ies which have been sold. A t erm used in t he foreign exchange market for t he US Dollar/ Brit ish Pound rat e. A st rat egy of writ ing call opt ions against a long posit ion in t he underlying asset . A covered put writ e being based on a short posit ion in t he asset .

Counterparty Risks

Country Risk

Coupon Coupon Value Cours du Change Cours Libre Cours Officiel Court Courtier Cover

Covered Call

Covered Call Write

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Definition

Covered Interest Rate Arbitrage

An arbit rage approach which consist s of borrowing currency A, exchanging it for currency B, invest ing currency B for t he durat ion of t he loan, and, aft er t aking off t he forward cover on mat urit y, showing a profit on t he ent ire set of deals. It is based on t he t heorem of int erest rat e parit y (one of t he key t heoret ical economic relat ionships), which says t hat t he ret urn on a hedged foreign invest ment will j ust equal t he domest ic int erest rat e on invest ment s of ident ical risk. When t he covered int erest rat e different ial bet ween t he t wo money market s is zero, t here is no arbit rage incent ive t o move funds from one market t o anot her. The int erest rat e margin bet ween t wo inst rument s denominat ed in different currencies aft er t aking int o account of t he cost of forward cover. Consumer Price Index. Mont hly measure of t he change in t he prices of a defined basket of consumer goods including food, clot hing, and t ransport . Count ries vary in t heir approach t o rent s and mort gages. Commit t ee on Payment and Set t lement Syst ems. An exchange rat e syst em where a count ry's exchange rat e is "pegged" (i.e. fixed) in relat ion t o anot her currency. The official rat e may be changed from t ime t o t ime. See Lombard rat e. The risk t hat a debt or will not repay; more specifically t he risk t hat t he count erpart y does not have t he currency promised for delivery. A foreign exchange deal ent ered int o involving t wo currencies, neit her of which is t he base currency. A t echnique using financial fut ures t o hedge different but relat ed cash inst rument s based on t he view t hat t he price movement s bet ween t he inst rument s move in concert . An exchange rat e bet ween t wo currencies, usually const ruct ed from t he individual exchange rat es of t he t wo currencies, as most currencies are quot ed against t he dollar. The sit uat ion which exist s when a broker's bid is higher t han t he lowest offer of anot her broker. A cross-t rade t ransact ion is a t ransact ion in which eit her t he buy-broker and t he sell-broker are t he same, or t he buybroker and t he sell-broker belong t o t he same firm. The t ype of money t hat a count ry uses. It can be t raded for ot her currencies on t he foreign exchange market , so each currency has a value relat ive t o anot her. Various weight ings of ot her currencies grouped t oget her in relat ion t o a basket currency (e.g. ECU or SDR). Somet imes used by currencies t o fix t heir rat e, oft en on a t rade weight ed basket . See swaps.

Covered Margin

CPI

CPSS Crawling Peg (Adjustable Peg) Credit Lombard Credit Risk

Cross Deal

Cross Hedge

Cross Rate

Crossed Market

Cross-Trade

Currency

Currency Basket

Currency Swaps

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Definition

Current Account

The net balance of a count ry's int ernat ional payment s arising from export s and import s t oget her wit h unilat eral t ransfers such as aid and migrant remit t ances. It excludes capit al flows. The value of all export s (goods plus services), less all import s of a count ry over a specific period of t ime, equal t o t he sum of t rade and invisible balances plus net receipt s of int erest , profit s and dividends from abroad. The set of expirat ion dat es applicable t o different classes of opt ions. An order t hat if not execut ed on t he specific day, is aut omat ically canceled. Speculat ors who t ake posit ions t hat are liquidat ed prior t o t he close of t he same t rading day. A Day-Trading deal is a currency exchange deal which renews aut omat ically every night at 22:00 (GMT t ime) st art ing t he day t he deal was made and unt il it ends. The deal ends in one of t he following event s: 1. Terminat ion init iat ed by t he t rader. 2. The day t rading rat e has reached t he St op-Loss rat e (or Take-Profit rat e) you predefined. 3. The deal end dat e. As long as t he deal is open, it is charged a renewal fee every night at 22:00 (GMT t ime). See int ra-day posit ion. The dat e on which a t ransact ion is agreed upon. The primary met hod of recording t he basic informat ion relat ing t o a t ransact ion. An individual or firm act ing as a principal, rat her t han as an agent , in t he purchase and/ or sale of securit ies. Dealers t rade for t heir own account and risk, in cont rast t o brokers, who do t rade only on behalf of t heir client s. The panel of communicat ions equipment forming part of a dealer's desk. The lat est day or t ime by which t he buyer of an opt ion must int imat e t o t he seller his willingness or unwillingness t o exercise t he opt ion. Short fall in t he balance of t rade, balance of payment s, or government budget s. Difference bet ween real and nominal Gross Nat ional Product , which is equivalent t o t he overall inflat ion rat e. The set t lement of a t ransact ion by receipt , or t ender of a financial inst rument or currency. The dat e of mat urit y of t he cont ract , when t he final set t lement of t ransact ion is made by exchanging t he currencies. This dat e is more commonly known as t he value dat e. The calendar mont h in which a fut ures cont ract comes t o mat urit y and becomes deliverable.

Current Balance

Cycle Day Order Day Trader

Day Trading

Daylight Exposure Limit Deal Date Deal Ticket

Dealer

Dealing Board

Declaration Date

Deficit Deflator Delivery

Delivery Date

Delivery Month

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Definition

Delivery Points

Those locat ions designat ed by fut ures exchanges at which t he currency represent ed by a fut ures cont ract may be delivered in fulfillment of t he cont ract . A t erm t o describe when count erpart y is not able t o complet e his side of t he deal. This risk is very high in t he case of over t he count er t ransact ions where t here is no exchange which can st and as a guarant ee t o t he t rade bet ween t he t wo part ies t o t he cont ract . The change in t he value of t he opt ion premium made fully paid by t he capit alizat ion of reserves, and given relat ive t o t he inst ant aneous change in t he value of t he underlying inst rument , expressed as a coefficient . A met hod used by opt ion writ ers t o hedge t he risk exposure of writ t en opt ions by purchase or sale of t he underlying inst rument in proport ion t o t he delt a. A rat io spread of opt ions est ablished as a neut ral posit ion by using t he delt as of t he opt ions concerned t o det ermine t he hedge rat io. Deposit . (French) Discount . Money Market operat ions. Describes a currency weakening in response t o market demand as opposed t o increasing in value as a result of official act ion. A broad t erm relat ing t o risk management inst rument s such as fut ures, opt ions, swaps, et c.. The cont ract value moves in relat ion t o t he underlying inst rument or currency. The issue of derivat ives and t heir cont rol following large losses by banks and corporat ions has been t he subj ect of much debat e. Term referring t o a group dealing wit h a specific currency or currencies. All t he informat ion required t o finalize a foreign exchange t ransact ion, i.e. name, rat e, dat es and point of delivery. Deliberat e downward adj ust ment of a currency against it s fixed parit ies or bands, which is normally accompanied by formal announcement . Foreign exchange in German and French respect ively. German for spot exchange market . German for forward exchange market . The purchase of a longer mat urit y opt ion and t he sale of a short er mat urit y, lower exercise price opt ion. The choice of calls or put s will det ermine it s bear or bull charact er. Quot ing in fixed unit s of foreign currency against variable amount s of t he domest ic currency.

Delivery Risk

Delta

Delta Hedging

Delta Spread Depo Deport Deposit Dealings Depreciation

Derivatives

Desk Details

Devaluation Devisen, Devises Devisenkassamarkt Devisenterminmarkt Diagonal (bull or bear) Spread Direct Quotation

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Definition

Discount

(1) See also forward rat e . Less t han t he spot price. Example: forward discount . Forward rat e is lower t han spot rat e. (2) An opt ion t hat is t rading for less t han it s int rinsic value. The rat e at which a bill is discount ed. Specifically it refers t o t he rat e at which a cent ral bank is prepared t o discount cert ain bills for financial inst it ut ions as a means of easing t heir liquidit y, and is more accurat ely referred t o as t he official discount rat e. Earnings aft er t ax. The int erest rat es applicable t o deposit s domiciled in t he count ry of origin. Values may vary from Eurodeposit s due t o t axat ion and varying market pract ices. Durable Goods Orders are a measure of t he new orders placed wit h domest ic manufact urers for immediat e and fut ure delivery of fact ory hard goods. Durable Goods Orders are a maj or indicat or of manufact uring sect or t rends because most indust rial product ion is done t o order. Modest decline in price. Reflect s t he impact of foreign exchange changes on t he fut ure compet it ive posit ion of a company in t he sense of t he impact it can have on t he fut ure cash flows of t he company. A st at ist ic which indicat es current economic growt h rat es and t rends such as ret ail sales and employment . A basket of t he member currencies. As a composit e unit , t he ECU consist s of all t he European Communit y currencies, which are individually weight ed. It was creat ed by t he European Monet ary Syst em wit h t he event ual goal of replacing t he individual European member currencies. An at t empt t o summarize t he effect s on a count ry's t rade balance of it s currency's changes against ot her currencies. Elect ronic Funds Transfer. In t he Euro Int erbank deposit market where bot h bid and offer rat es for a part icular period are t he same. European Monet ary Syst em. European Monet ary Union. Indicat es t hat bot h t he spot and forward mat urit y, or t wo forward mat urit ies in a swap t ransact ion, fall due on t he last business day of appropriat e calendar mont hs. European Opt ions Exchange. The change in t he price of an opt ion associat ed wit h a 1% change in implied volat ilit y (t echnically t he first derivat ive of t he opt ion price wit h respect t o volat ilit y). Also referred t o as et a, vega, omega and kappa. Exchange Rat e Mechanism.

Discount Rate

Disposable Income Domestic Rates

Durable Goods Orders

Easing

Economic Exposure

Economic Indicator

ECU - European Currency Unit

Effective Exchange Rate EFT Either Way Market EMS EMU End/ End EOE

Epsilon

ERM

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Definition

Euro Clear

A comput erized set t lement and deposit ory syst em for safe cust ody, delivery of, and payment for Eurobonds. A long-t erm loan issued in a currency ot her t han t hat of t he count ry or market in which it is issued. Int erest is paid wit hout t he deduct ion of t ax. A currency domiciled out side it s count ry of origin normally held by non-resident s. US dollars deposit ed in a bank (US or non US) locat ed out side t he USA. Swiss Franc (formerly also Belgian Francs) t raded on t he Eurocurrency market . Normally Swiss Francs are t he more common currency. Deut schmarks t raded on t he Eurocurrency market . An opt ion t hat can be exercised only on it s expirat ion dat e rat her t han before t hat dat e. The group formerly known as t he European Communit y. A syst em of cont rolling inflows and out flows of foreign exchange. Exchange Cont rol devices include licensing mult iple currencies, quot as, auct ions, limit s, levies and surcharges. The pot ent ial loss t hat could be incurred from an adverse movement in exchange rat es. A limit on t he number of opt ions cont ract s a holder may exercise wit hin a specific period. The formal not ificat ion t hat t he holder of a call (or put ) opt ion wishes t o buy (or sell) t he underlying securit y at t he exercise price. See St rike price. For a call opt ion, t his is t he amount by which t he st rike price is below t he underlying invest ment ; for a put opt ion, it is t he amount by which t he st rike price is above t he underlying invest ment . A less broadly t raded currency. (1) Opt ions - t he last dat e aft er which t he opt ion can no longer be exercised. (2) Bonds - t he dat e on which a bond mat ures. The mont h in which an opt ion expires. The last day on which t he holder of an opt ion can exercise his right t o buy or sell t he underlying securit y. The last dat e on which an opt ion can be bought or sold. The t ot al amount of money loaned t o a borrower or count ry. Banks set rules t o prevent overexposure t o any single borrower. In t rading operat ions, it is t he pot ent ial for running a profit or loss from fluct uat ions in market prices.

Eurobonds

Eurocurrency Eurodollars

Eurofranc Euromark European Option European Union

Exchange Control

Exchange Rate Risk Exercise Limit

Exercise Notice Exercise Price

Exercise Value

Exotic Expiration Date Expiration Month Expiry Date Expiry Date

Exposure

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Definition

Fast Market

Rapid movement in a market caused by st rong int erest by buyers and/ or sellers. In such circumst ances price levels may be omit t ed and bid and offer quot at ions may occur t oo rapidly t o be fully report ed. The Unit ed St at es Federal Reserve. Federal Deposit Insurance Corporat ion Membership is compulsory for Federal Reserve members. The corporat ion had deep involvement in t he Savings and Loans crisis of t he lat e 80s. The int erest rat e on Fed funds. This is a closely wat ched short t erm int erest rat e as it signals t he Feds view as t o t he st at e of t he money supply. Cash balances held by banks wit h t heir local Federal Reserve Bank. The normal t ransact ion wit h t hese funds is an int erbank sale of a Fed fund deposit for one business day. St raight deals are where t he funds are t raded overnight on an unsecured basis. Foreign Exchange Dealers Associat ion of India is an associat ion of all dealers in foreign exchange which set s t he ground rules for fixat ion of commissions and ot her charges and also det ermines t he rules and regulat ions relat ing t o day-t o-day t ransact ions in foreign exchange in India. The FEDAI has recognized 38 currencies for dealing. A privat ely owned, but US government sponsored, corporat ion t hat t rades in resident ial mort gages. It s act ivit ies are funded by t he sale of inst rument s commonly known as Fannie Maes. See FOMC. The board of t he Federal Reserve Syst em, appoint ed by t he US President for 14 year t erms. One member of t he board is appoint ed chairman every four years. The cent ral banking syst em of t he US comprising 12 Federal Reserve Banks cont rolling 12 dist rict s under t he Federal Reserve Board. Membership in t he Fed is compulsory for banks chart ered by t he Compt roller of Currency, and opt ional for st at e chart ered banks. A fut ures cont ract based on a financial inst rument . (1) A quot e wit h a narrow spread. (2) The most favorable rat e charged t o a high qualit y borrower. The price given in response t o a request for a rat e at which t he quot ing part y is willing t o execut e a deal for a reasonable amount , for spot set t lement . Screen quot es are indicat ive. Quot es on mat ching syst ems are normally firm depending on t he syst em s requirement t o reconfirm rat e prior t o complet ing mat ching. Use of t axat ion as a t ool in implement ing monet ary policy. The mont hly calendar dat es similar t o t he spot . There are t wo except ions. For det ailed descript ion see value dat es.

Fed

Fed Fund Rate

Fed Funds

FEDAI

Federal National Mortgage Association Federal Open Market Committee Federal Reserve Board

Federal Reserve System

Financial Future Fine Rate

Firm Quotation

Fiscal Policy Fixed Dates

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Definition

Fixed Exchange Rate

Official rat e set by monet ary aut horit ies for one or more currencies. In pract ice, even fixed exchange rat es are allowed t o fluct uat e bet ween definit e upper and lower bands, leading t o int ervent ion by t he cent ral bank. A met hod of det ermining rat es by normally finding a rat e t hat balances buyers t o sellers. Such a process occurs eit her once or t wice daily at defined t imes. Used by some currencies, part icularly for est ablishing t ourist rat es . The syst em is also used in t he London Bullion market . Where a client has not t raded in t hat currency, or where an earlier deal is reversed t hereby creat ing a neut ral (flat ) posit ion. For example, you bought $500,000 t hen sold $500,000 = FLAT . Exchange rat es wit h a fixed parit y against one or more currencies wit h frequent revaluat ion. A form of managed float . (1) See Float ing exchange rat e. (2) Cash in hand or in t he course of being t ransferred bet ween banks. (3) The Federal Reserve Float exist s because checks sent t o t he Federal Reserve Banks are somet imes credit ed in advance of t he deposit ing bank loosing t he reserve. When t he value of a currency is decided by t he market forces dict at ing t he supply and demand of t hat part icular currency. (1) An agreement wit h a count erpart y t hat set s a lower limit t o int erest rat es for t he floor buyer for a st at ed t ime. (2) A t erm for an exchanges t rading area (cf. screen based t rading), normally t he t rading area is referred t o as a pit in t he commodit ies and fut ures market s. Federal Open Market Commit t ee, t he commit t ee t hat set s money supply t arget s in t he US, which t end t o be implement ed t hrough Fed Fund int erest rat es et c. The purchase or sale of a currency against t he sale or purchase of anot her. A posit ion in which one part y agrees t o purchase from or sell t o t he ot her part y an agreed amount of foreign currency. An abbreviat ion of foreign exchange. The purchase or sale of a currency against t he sale or purchase of anot her currency. The maximum t ime for a deal is defined when t he deal opens. The deal can be closed at any moment unt il t he expiry dat e and t ime. For t echnical reasons, a deal cannot be closed in it s first 3 minut es. Somet imes used as synonym for forward deal or fut ure . More specifically, it referes t o arrangement s wit h t he same effect as a forward deal bet ween a bank and a cust omer. Forward cont ract s int ended t o prot ect against movement s in t he exchange rat e.

Fixing

Flat/ Square

Flexible Exchange Rate

Float

Floating Exchange Rate

Floor

FOMC

Foreign Exchange

Foreign Position Forex

Forex Deal

Forward Contract

Forward Cover Taking

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Definition

Forward Deal Forward / Forward Forward Margins Forward Maturities

A deal wit h a value dat e great er t han t he spot value dat e. A forward / forward deal is one where bot h legs of t he deal have value dat es great er t han t he current spot value dat e. Discount s or premiums bet ween spot rat e and t he forward rat e for a currency. Normally quot ed in point s. Trading days on which day cont ract s can be t ransact ed lat er t han t he spot dat e. Foreign exchange t ransact ions for which t he fulfillment of t he mut ual delivery obligat ions is made on a dat e lat er t han t he second business day aft er t he t ransact ion was concluded. A commit ment t o buy or sell a currency for delivery on a specified fut ure dat e or period. The price is quot ed as t he spot rat e minus or plus t he forward point s for t he chosen period. The int erest rat e different ial bet ween t wo currencies expressed in exchange rat e point s. The forward point s are added t o or subt ract ed from t he spot rat e t o give t he forward or out right rat e, depending on whet her t he currency is at a forward premium or discount . The rat e at which a foreign exchange cont ract is st ruck t oday for set t lement at a specified fut ure dat e, which is decided at t he t ime of ent ering int o t he cont ract . The decision t o subt ract or add point s is det ermined by t he different ial bet ween t he deposit rat es for bot h currencies concerned in t he t ransact ion. The base currency wit h t he higher int erest rat e is said t o be at a discount t o t he lower int erest rat e quot ed currency in t he forward market . Therefore t he forward point s are subt ract ed from t he spot rat e. Similarly, t he base currency wit h t he lower int erest rat e is said t o be at a premium, and t he forward point s are added t o t he spot rat e t o obt ain t he forward rat e. The FRA is an agreement bet ween t wo part ies t hat det ermines t he int erest rat e t hat will apply t o a not ional fut ure loan or deposit of an agreement . Tot al reserves held by a bank less t he reserves required by t he aut horit y. The act ivit ies carried out by t he dealer, normal t rading act ivit ies. Analysis based on economic and polit ical fact ors. The macro economic fact ors t hat are accept ed as forming t he foundat ion for t he relat ive value of a currency. These include inflat ion, growt h, t rade balance, government deficit , and int erest rat es. A t erm for USD/ CAD/ Fungibles Inst rument s t hat are equivalent , subst it ut able and int erchangeable in law. May apply t o cert ain exchange t raded currency cont ract s offered on a number of exchanges.

Forward Operations

Forward Outright

Forward Points

Forward Rate

Forward Rate Agreements

Free Reserves Front Office Fundamental Analysis

Fundamentals

Funds

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Definition

Futures Contract

A cont ract t raded on a fut ures exchange t hat requires t he delivery of a specified qualit y and quant it y of a commodit y, currency or financial inst rument s wit hin a specified fut ure mont h, if not liquidat ed before t he cont ract mat ures. They are firm agreement s t o deliver (or t ake delivery of) a st andardized amount of somet hing on a cert ain dat e at a predet ermined price. Fut ures exist in currencies, money market deposit s, bonds, shares and commodit ies. They are t raded on an exchange wit h t he clearing corporat ion guarant eeing t he cont ract and moreover t he t rade is done on a mark t o market basis. Foreign Exchange. G7 plus Belgium, Net herlands and Sweden, a group associat ed wit h IMF discussions. Swit zerland is somet imes peripherally involved. The Group of Five. The five leading indust rial count ries: US, Germany, Japan, France, UK. The seven leading indust rial count ries, being US , Germany, Japan, France, UK, Canada, It aly. The rat e at which a delt a changes over t ime, or for one unit change in t he price of t he underlying asset . A mismat ch bet ween mat urit ies and cash flows in a bank, or individual dealer s posit ion book. Gap exposure is effect ively int erest rat e exposure. A syst em for global aft er hours elect ronic t rading in fut ures and opt ions developed by Reut ers for CME and CBOT, for use in conj unct ion wit h various exchanges around t he world. Removes inflat ion from t he GNP figure. Usually expressed as a percent age and based on an index figure. The difference bet ween t he act ual real GNP and t he pot ent ial real GNP. If t he gap is negat ive an economy is overheat ed. The purchase of a st ock or commodit y for invest ment or speculat ion. The selling of a currency or inst rument not owned by t he seller. The original syst em for support ing t he value of currency issued. Accordingly, t he monet ary syst em backs it s currency wit h a reserve of gold, and allows currency holders t o convert t heir currency int o gold. This syst em was in vogue before 1973 when t he fixed exchange rat es were prevalent . Before deduct ion of t ax.

Futures Exchange-Traded Contracts

FX G10

G5 G7 Gamma

Gap

GLOBEX

GNP Deflator

GNP Gap

Going Long Going Short

Gold Standard

Gross

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Definition

Gross Domestic Product

Tot al value of a count ry's out put , income or expendit ure produced wit hin t he count ry's physical borders. GDP is t he broadest measure of aggregat e economic act ivit y available. Report ed quart erly, GDP growt h is widely followed as t he primary indicat or of t he st rengt h of economic act ivit y. GDP represent s t he t ot al value of a count ry s product ion during t he period and consist s of t he purchases of domest ically produced goods and services by individuals, businesses, foreigners and government s. Gross domest ic product plus fact or income from abroad income earned from invest ment or work abroad. See Good unt il canceled . An order left wit h a dealer t o buy or sell at a fixed price. The order remains in place unt il it is cancelled by t he client . Different t han normal pract ice, t he order does not expire at t he end of t he t rading day, alt hough normally t erminat es at t he end of t he t rading mont h. A currency whose value is expect ed t o remain st able or increase in t erms of ot her currencies. A pat t ern in price t rends which chart ist s consider indicat ive of a price t rend reversal. In t his pat t ern, t he price has risen for some t ime, and at t he peak of t he left shoulder, profit t aking has caused t he price t o drop or level. The price t hen rises st eeply again t o t he head before more profit t aking causes t he price t o drop t o around t he same level as t he shoulder. A furt her modest rise or level will indicat e t hat a furt her maj or fall is imminent . The breach of t he neckline is t he indicat ion t o sell. The purchase or sale of opt ions or fut ures cont ract s as a t emporary subst it ut e for a t ransact ion t o be made at a lat er dat e. Usually it involves opposit e posit ions in t he cash, fut ures or opt ions market s. A hedging t ransact ion is one whose main aim is t o prot ect an asset or liabilit y against a fluct uat ion in t he foreign exchange rat e, rat her t han profit from t he exchange rat e fluct uat ions. Hong Kong Int er-bank Offered Rat e. The annualized st andard deviat ion of percent age changes in fut ures prices over a specific period. It is an indicat ion of past volat ilit y in t he market place. Accept ance of purchasing at t he offer, or selling at t he bid. Same as buyer. Housing st art s are a measure of t he number of resident ial unit s on which const ruct ion has begun each mont h. Very high and self-sust aining inflat ion levels. One definit ion is t he period from which inflat ion exceeds 50% , unt il it drops below t hat level for 12 mont hs.

Gross National Product (GNP) GTC

GTC "Good Till Cancelled"

Hard Currency

Head and Shoulders

Hedge

Hedging

HIBOR Historical Volatility

Hit the Bid Holder Housing Starts

Hyperinflation

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Definition

ICCH IFEMA

Int ernat ional Commodit ies Clearing House Limit ed, a clearing house based in London operat ing worldwide for many fut ures market s. Int ernat ional Foreign Exchange Mast er Agreement . Int ernat ional Monet ary Fund, est ablished in 1946 t o provide int ernat ional liquidit y on a short and medium t erm, and t o encourage liberalizat ion of exchange rat es. The IMF helps it s members t o t ide over t he balance of payment s problems by supplying t he necessary loans. Int ernat ional Monet ary Market , part of t he Chicago Mercant ile Exchange t hat list s a number of currency and financial fut ures. The int erest rat e det ermined by calculat ing t he difference bet ween spot and forward rat es. A measurement of t he market 's expect ed price range of t he underlying currency fut ures based on t he t raded opt ion premiums. The implied volat ilit y variances for different st rikes of an opt ion. A call opt ion is in t he money when t he st rike price is less t han t he current price of t he underlying inst rument . A put is when t he st rike price is great er. Currency which cannot be exchanged for ot her currencies eit her because it is forbidden by t he foreign exchange regulat ions or t he currency experiences ext reme volat ilit y t hat it is not perceived t o be a safe haven for parking t he funds. A market -maker's price which is not firm. See reciprocal currency. A coincident indicat or measuring physical out put of manufact uring, mining and ut ilit ies. Cont inued rise in t he general price level in conj unct ion wit h a relat ed drop in purchasing power. Somet imes referred t o as an excessive movement in such price levels. Rat e given for informat ion purposes only. The deposit required by t he Broker before a client can t rade/ t ransact a part icular deal in order t o have some cushion in t he event of default by t he part y. The Forex rat es large int ernat ional banks quot e t o ot her large int ernat ional banks. Normally t he public and ot her businesses do not have access t o t hese rat es. An agreement which provides t he buyer of t he floor wit h a minimum int erest rat e for fut ure lending requirement s. An agreement permit t ing a part y t o obt ain a part icular int erest rat e, issued bot h OTC and by exchanges.

IMF

IMM

Implied Rates

Implied Volatility

Implied Volatility Skews

In the Money

Inconvertible Currency

Indicative Quote Indirect quote Industrial Production Index Inflation Info Quote Initial Margin

Interbank Rates

Interest Rate Floor Interest Rate Options

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Definition

Interest Rate Risk

The pot ent ial for losses arising from changes in int erest rat es. An agreement t o exchange int erest rat e exposures from float ing t o fixed or vice versa. There is no swap of t he principal. The principal amount is not ional as at t he end of t he t enure only cash flows relat ed wit h t he int erest payment s (whet her payment or receipt ) are exchanged. Act ion by a cent ral bank t o affect t he value of it s currency by ent ering t he market . In India t he int ervent ion by Reserve Bank of India is conf ined t o t he event s of ext reme volat ilit y. A call opt ion is in-t he-money if t he price of t he underlying inst rument is higher t han t he exercise/ st rike price. A put opt ion is in-t he-money if t he price of t he underlying inst rument is below t he exercise/ st rike price. Limit set by bank management on t he size of each dealer's Int ra Day Posit ion. Open posit ions run by a dealer wit hin t he day. Usually squared by t he close. The amount by which an opt ion is in-t he-money . The int rinsic value is t he difference bet ween t he exercise/ st rike price and t he price of t he underlying securit y. Index and Opt ions Market part of t he Chicago Mercant ile Exchange. Indust rial Product ion Index. A coincident indicat or measuring physical out put of manufact uring, mining and ut ilit ies. Organizat ion t hat foreign currency exchange banks have formed t o regulat e int er-bank market s and exchanges. A t erm describing t he expect ed effect of devaluat ion on a count ry's t rade balance. It is expect ed t hat import bills will rise before export orders and receipt s increase. Small count ries, which are highly dependent on export s, orient t heir currencies t o t heir maj or t rading part ners, t he const it uent s of a currency basket . Slang for t he New Zealand dollar. A process where a barrier opt ion (European) becomes act ive as t he underlying spot price is in-t he-money. Has a corresponding meaning t o Knock In (see above), alt hough t he opt ion may permanent ly cease t o exist . The day on which t rading ceases for an expiring cont ract . To carry out a t ransact ion in t he market t o offset a previous t ransact ion and ret urn t o a square posit ion. Less developed count ries, oft en used wit h respect t o a secondary debt market .

Interest Rate Swaps

Intervention

In-the-Money

Intra Day Limit Intra Day Position

Intrinsic Value

IOM

IPI ISDA (International Securities Dealers Association) J Curve

Key Currency Kiwi Knock In Knock Out Last Trading Day Lay Off LDC

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Definition

Leading Indicators

St at ist ics t hat are considered t o precede changes in economic growt h rat es and t ot al business act ivit y, e.g. fact ory orders. The effect on foreign t rade payment s of an ant icipat ed move in t he exchange rat e, normally devaluat ion. The import ers speed up t he payment for t he import s, and export ers delay receiving payment for t he export s. In opt ions t erminology, t his expresses t he disproport ionat ely large change in t he premium in t erms of t he relat ive price movement of t he underlying inst rument . In t erms of foreign exchange: t he obligat ion t o deliver t o count erpart y an amount of currency, eit her in regards t o a balance sheet holding at a specified fut ure dat e, or in regards t o an un-mat ured forward or spot t ransact ion. The London Int erbank Bid Rat e. The rat e charged by one bank t o anot her for a deposit . The London Int erbank Offered Rat e, t he rat e charged by one bank t o anot her for lending money. Brit ish Bankers' Associat ion average of int erbank offered rat es for dollar deposit s in t he London market based on quot at ions at 16 maj or banks. Effect ive rat e for cont ract s ent ered int o t wo days from dat e appearing. London Int ernat ional Financial Fut ures Exchange. (1)The maximum price fluct uat ion permit t ed by an exchange from t he previous session's set t lement price for a given cont ract . (2) In int ernat ional banking t he limit a bank is willing t o lend in a count ry. (3) The amount t hat one bank is prepared t o t rade wit h anot her. (4) The amount t hat a dealer is permit t ed t o t rade in a given currency. The maximum price decline from t he previous t rading day's set t lement price permit t ed in one t rading session. An order t o buy or sell a specified amount of a securit y at a specified price or bet t er. An order t o perform a Day-Trading deal at a rat e predefined by t he cust omer, when and if such rat e comes up in real market t ime. The Limit rat e is superior t o t he exist ing rat e at t he t ime of reservat ion. The reservat ion order last s for a period defined by t he cust omer, and is associat ed by t he necessary collat erals t o facilit at e t he pot ent ial Day Trading deal when, and if, act ivat ed under t he predefined t erms. The maximum price advance from t he previous t rading day's set t lement price permit t ed in one t rading session. When resident s of a count ry are prohibit ed from buying ot her currencies even t hough non-resident s may be complet ely free t o buy or sell t he nat ional currency, and foreign inst it ut ional invest ors have t he libert y t o buy and sell shares on t he st ock exchange of t hat count ry.

Leads and Lags

Leverage

Liability

LIBID LIBOR

LIBOR (London Interbank Offer Rate) LIFFE

Limit

Limit Down Limit Order

Limit Order Reserved Day Trading Deal

Limit Up

Limited Convertibility

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Definition

Lines

An arrangement by which a bank agrees t o lend t o t he line holder during some specified period any amount up t o t he full amount of t he line. Any t ransact ion t hat offset s or closes out a previously est ablished posit ion. The abilit y of a market t o accept large t ransact ions wit hout having any maj or impact on int erest rat es. One of t he key commercial int erest rat es, normally referring t o Germany alt hough such rat es exist in France, Belgium, and Swit zerland. An int erest rat e for a loan against t he securit y of pledged paper. A market posit ion where t he Client has bought a currency not previously owned. For example: long Dollars. The purchase of fut ures cont ract s for price prot ect ion purposes, as a defensive posit ion against an increase in cash prices or falling int erest rat es. Cash in circulat ion. Only used by t he UK. Cash in circulat ion plus demand deposit s at commercial banks. There are variat ions bet ween t he precise definit ions used by nat ional financial aut horit ies. Includes demand deposit s, t ime deposit s and money market mut ual funds excluding large CDs. In t he UK, it is M1 plus public and privat e sect or t ime deposit s and sight deposit s held by t he public sect or. In t he US, it is M2 plus negot iable CDs. The minimum margin which an invest or must keep on deposit in a margin account at all t imes in regards t o each open cont ract . A dealer is said t o make a market when he quot es bot h t he bid and offer prices at which he st ands ready t o buy and sell. When t he monet ary aut horit ies int ervene regularly in t he market t o st abilize t he rat es or t o push t he exchange rat e in a required direct ion. It is also called t he dirt y float , as in India. Collat eral t hat t he holder of a posit ion in securit ies, opt ions, Forex or fut ures cont ract s, has t o deposit t o cover t he credit risk of his count erpart y. Ot her definit ions t o MARGIN, used in ot her areas are: (1) Difference bet ween t he buying and selling rat es, also used t o indicat e t he discount or premium bet ween spot or forward. (2) For opt ions, t he sum required as collat eral from t he writ er of an opt ion. (3) For fut ures, a deposit made t o t he clearing house on est ablishing a fut ures posit ion account . (4) The percent age reserve required by t he US Federal Reserve t o make an init ial credit t ransact ion.

Liquidation Liquidity

Lombard Rate

Long

Long Hedge M0 M1

M2 M3 M4 Maintenance Margin

Make a Market

Managed Float

Margin

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Definition

Margin Call

A demand for addit ional funds t o cover posit ions. A demand for addit ional funds t o be deposit ed in a margin account t o meet margin requirement s because of adverse fut ure price movement s. The possibilit y t hat a cust omer goes bankrupt aft er ent ering int o a forward cont ract . In such an event , t he issuer must close t he commit ment , running t he risk of having t o pay t he marginal movement on t he cont ract . The profit s and/ or losses are t allied at t he end of t he session according t o t he closing prices of t he securit y, and t he account is "marked t o t he market " daily. The part y will be called upon t o make good t he losses if t here has been an adverse movement in t he prices, and it can book t he profit s in t he event t here has been a favorable movement in t he prices. Premium. The minimum amount convent ionally dealt for bet ween banks. A market maker is a person or firm aut horized t o creat e and maint ain a market in an inst rument . An order t o buy or sell a financial inst rument immediat ely at t he best possible price. Market value of a Forex posit ion at any t ime is t he amount of t he domest ic currency t hat could be purchased at t he t hen market rat e in exchange for t he amount of foreign currency t o be delivered under t he Forex Cont ract . Marche a Terme Int ernat ional de France. Dat e for set t lement of t he t ransact ion which is decided at t he t ime of ent ering int o t he cont ract . (1) The last t rading day of a fut ures cont ract . (2) Dat e on which a bond mat ures, at which t ime t he face value will be ret urned t o t he purchaser. Somet imes t he mat urit y dat e is not one specified dat e, but a range of dat es during which t he bond may be repaid. The st udy of economic act ivit y as it applies t o individual firms or well defined small groups of individuals or economic sect ors. The cont rol of t he t rading act ivit y including posit ion keeping. The price half-way bet ween t he t wo prices, or t he average of bot h buying and selling prices offered by t he market makers. European t erm for 1,000 million. Expression used t o indicat e t hat t he cont act ing part y is willing t o buy at t he rat e offered by t he quot ing bank. The smallest increment of market price movement possible in a given fut ures cont ract .

Marginal Risk

Mark-to-Market

Mark Up Market Amount Market Maker Market Order

Market Value

MATIF Maturity

Maturity Date

Micro Economics

Mid Office

Mid-Price or Middle Rate Milliard Mine Minimum Price Fluctuation

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Definition

Minimum Reserve Mio MITI MM Money Market Money Market Operations

Reserves required t o be deposit ed at cent ral banks by commercial banks and ot her financial inst it ut ions, somet imes referred t o as Regist ered Reserves. Million. Japanese minist ry of Int ernat ional Trade & Indust ry. Money Market s. A market consist ing of financial inst it ut ions and dealers in money or in credit , who wish t o eit her borrow or lend. Comprises t he accept ance and re-lending of deposit s on t he money market . The amount of money in t he economy, which can be measured in a number of ways. In India t here are four measures of money supply i.e. M1, M2, M3, M4. A way of smoot hing a set of dat a, widely used in price t ime series. Different exchange rat es for different t ypes of t ransact ion. The Sout h African Rand is an example. An open-end invest ment company. Equivalent t o unit t rust . The nearest act ively t raded delivery mont h, a.k.a. current delivery mont h, lead mont h. The number of fut ures cont ract s bought or sold which have not yet been offset by opposit e t ransact ions. US t erm for five basis point s. A foreign currency current account maint ained wit h anot her bank. The account is used t o receive and pay currency asset s and liabilit ies denominat ed in t he currency of t he count ry in which t he bank is resident . An order whereby t he price may t rade t hrough or bet t er t han t he client 's desired level, but t he principal is not held responsible if t he order is not execut ed. A financial inst rument consist ing of a promise t o pay rat her t han an order t o pay, or a cert ificat e of indebt edness. Organizat ion for Economic Cooperat ion and Development , an int ernat ional organizat ion helping government s t ackle t he economic, social and governance challenges of a globalized economy. The rat e at which a dealer is willing t o sell t he base currency. Temporary sit uat ion where offers exceed bid. A US balance of payment s measure based on movement of dollars in foreign official holdings and US reserves. Also referred t o as reserve t ransact ion account . The closing-out or liquidat ion of a fut ures posit ion.

Money Supply

Moving Average Multiple Exchange Rates Mutual Fund Nearby Month Net Position Nickel

Nostro Account

Not Held Basis Order

Note

OECD

Offer Offered Market Official Settlements Account Offset

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Definition

Off-Shore

The operat ions of a financial inst it ut ion which alt hough physically locat ed in a count ry, has lit t le connect ion wit h t hat count ry's financial syst ems. In cert ain count ries a bank is not permit t ed t o do business in t he domest ic market , but can do business wit h ot her foreign banks. This is known as an off-shore banking unit . Old lady of Threadneedle St reet , a t erm for t he Bank of England. Where t he execut ion of one order aut omat ically cancels a previous order - also referred t o as OCO or One cancels t he ot her . The t ot al number of out st anding opt ion or fut ures cont ract s t hat have not been closed out by offset or fulfilled by delivery. See Federal Open Market Commit t ee. Cent ral bank operat ions in t he market s t o influence exchange and int erest rat es. Any deal which has not been set t led by physical payment or reversed by an equal and opposit e deal for t he same value dat e. It can be t ermed as a high risk, high ret urn proposit ion. A cont ract conferring t he right but not t he obligat ion t o buy (call) or t o sell (put ) a specified amount of an inst rument at a specified price wit hin a predet ermined t ime period. All opt ions of t he same t ype - calls or put s -list ed on t he same underlying inst rument . All opt ions of t he same class having t he same exercise/ st rike price and expirat ion dat e. See Init ial Margin. See Over t he Count er . A put opt ion is out -of-t he-money if t he exercise/ st rike price is below t he price of t he underlying inst rument . A call opt ion is out -of-t he money if t he exercise/ st rike price is higher t han t he price of t he underlying inst rument . A forward deal t hat is not part of a swap operat ion. A foreign exchange t ransact ion involving eit her t he purchase or t he sale of a currency for set t lement at a fut ure dat e. The forward rat e of a foreign exchange deal based on spot price plus forward discount / premium. See long and short .

Old Lady

One Cancels Other Order

Open Interest Open Market Committee Open Market Operations

Open Position

Option

Option Class Option Series Original Margin OTC

Out-of-the-Money

Outright Deal Outright Forward

Outright Rate Over Bought or Over Sold

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Definition

Over The Counter (OTC)

A market conduct ed direct ly bet ween dealers and principals via a t elephone and comput er net work rat her t han a regulat ed exchange t rading floor. These market s have not been very popular because of t he risks bot h t he part ies face in case t he ot her part y fails t o honor t he cont ract . They have never been part of t he St ock Exchange since t hey were seen as "unofficial". Is an economy on a high growt h rat e t raj ect ory placing pressure on t he product ion capacit y, result ing in increased inflat ionary pressures and higher int erest rat es. A deal from t oday unt il t he next business day. Net long or short posit ion in one or more currencies t hat a dealer can carry over int o t he next dealing day. Passing t he book t o ot her bank dealing rooms in t he next t rading t ime zone reduces t he need for dealers t o maint ain t hese unmonit ored exposures. When a number of exchange and / or deposit orders have t o be fulfilled simult aneously. (1) The nominal value of a securit y or inst rument . (2) The official value of a currency. The value of one currency in t erms of anot her. (1) Foreign exchange dealer's slang for your price is t he correct market price . (2) Official rat es in t erms of SDR or ot her pegging currency. The dat e on which a dividend or bond int erest payment is scheduled t o be delivered. Payroll employment is a measure of t he number of people being paid as employees by non-farm business est ablishment s and unit s of government . Mont hly changes in payroll employment reflect t he number of net new j obs creat ed or lost during t he mont h. Changes are widely followed as an import ant indicat or of economic act ivit y. Large increases in payroll employment are seen as signs of st rong economic act ivit y t hat could event ually lead t o higher int erest rat es t hat are support ive of t he currency at least in t he short t erm. It means a foreign currency which is freely convert ible, i.e. a currency which is permit t ed by t he rules and regulat ions of t he count ry concerned t o be convert ed int o maj or reserve currencies, and for which a fairly act ive and liquid market exist s for dealing against t he maj or currencies. Foreign exchange reserves of oil producing nat ions arising from oil sales. Paris Int er-bank Offered Rat e. See point . (0.0001 of a unit ). The 1985 Plaza Hot el agreement by t he G5 t o lower t he dollar.

Overheated (Economy) Overnight

Overnight Limit

Package Deal Par Parities Parity

Payment Date

Payroll Employment

Permitted Currency

Petrodollars PIBOR Pip Plaza Accord

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Definition

Point

(1) 100t h part of a per cent , normally 10,000 of any spot rat e. Movement s of exchange rat es are usually in t erms of point s. (2) One percent of an int erest rat e, e.g. from 8-9% . (3) Minimum fluct uat ion or smallest increment of price movement . The pot ent ial for losses arising from a change in government policy or due t o t he risk of expropriat ion (nat ionalizat ion by t he government ). The net t ed t ot al exposure in a given currency. A posit ion can be eit her flat or square (no exposure), long, (more currency bought t han sold), or short (more currency sold t han bought ). The maximum posit ion, eit her net long or net short , in one fut ure or in all fut ures of one currency or inst rument one person is permit t ed t o hold or cont rol. Producer Price Indices. See Wholesale Price Indices. (1) The amount by which a forward rat e exceeds a spot rat e. (2) The amount by which t he market price of a bond exceeds it s par value. (3) In regard t o opt ions, t he price a put or call buyer must pay t o a put or call seller for an opt ion cont ract . (4) The margin paid above t he normal price level. (1) The rat e from which lending rat es by banks are calculat ed in t he US. (2) The rat e of discount of prime bank bills in t he UK. A dealer who buys or sells st ock for his/ her own account . PPI is a measure of t he average level of prices of a fixed basket of goods received in primary market s by producers. A rising PPI is normally expect ed t o lead t o higher CPI, and t hereby t o pot ent ially higher short t erm int erest rat es. The unwinding of a posit ion t o realize profit s. Model of exchange rat e det erminat ion st at ing t hat t he price of a good in one count ry should equal t he price of t he same good in anot her count ry aft er adj ust ing for t he changes in t he price due t o t he change in exchange rat e. Also known as t he law of one price. The equilibrium relat ionship bet ween premiums of call and put opt ions of t he same st rike and expiry. A put opt ion confers t he right but not t he obligat ion t o sell currencies, inst rument s or fut ures at t he opt ion exercise price wit hin a predet ermined t ime period. (1) A limit on import s or export s. (2) A count ry's subscript ion t o t he IMF. An indicat ive price. The price quot ed for informat ion purposes but not t o deal. A recovery in price aft er a period of decline.

Political Risk

Position

Position Limit PPI

Premium

Prime Rate Principal

Producer Price Index (PPI)

Profit Taking

Purchasing Power Parity

Put Call Parity

Put Option

Quota Quote Rally

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Definition

Range Rate Ratio Calendar Spread Ratio Spread Reaction Real Recession

The difference bet ween t he highest and lowest price of a fut ure recorded during a given t rading session. The price of one currency in t erms of anot her. It has t he same meaning as t he t erm parit ies. Selling more near-t erm opt ions t han longer mat urit y opt ions at t he same st rike price. Buying a specific quant it y of opt ions and selling a larger quant it y of out -of-t he-money opt ions. A decline in prices following an advance. A price, int erest rat e or st at ist ic t hat has been adj ust ed t o eliminat e t he effect of inflat ion. A decline in business act ivit y. Oft en defined as t wo consecut ive quart ers wit h a real fall in GNP. The rat e at which int erest earned on a loan can be reinvest ed. The rat e may not at t ract t he same level of int erest as t he principal amount . See Repurchase Agreement . French t erm for premium. Agreement s by a borrower where t hey sell securit ies wit h a commit ment t o repurchase t hem at t he same rat e wit h a specified int erest rat e. A currency held by a cent ral bank on a permanent basis as a st ore of int ernat ional liquidit y. Reserve currencies are t ypically Dollar, Deut schemark, and st erling. The rat io of reserves t o deposit s, expressed as a fract ion prescribed by nat ional banking aut horit ies, including US. (French) The 25%of it s quot a t o which a member of t he IMF has uncondit ional access, and for which t here is no obligat ion t o repay. Funds held against fut ure cont ingencies, normally a combinat ion of convert ible foreign currency, gold, and SDRs. Official reserves are t o ensure t hat a government can meet near t erm obligat ions. They are an asset in t he balance of payment s. A price level at which t he selling is expect ed t o t ake place. A price recognized by t echnical analyst s as a price which is likely t o result in a rebound but if broken t hrough is likely t o result in a significant price movement . Measurement of t he mont hly change in t he average level of prices at ret ail, normally of a defined group of goods.

Reinvestment Rate Repo Rate Report Repurchase Agreement

Reserve Currency

Reserve Requirement

Reserve Tranche

Reserves

Resistance Resistance Point or Level

Retail Price Index

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Definition

Retail Sales

Ret ail Sales are a measure of t he t ot al receipt s of ret ail st ores. Mont hly percent age changes reflect t he rat e of change of such sales and are widely followed as an indicat or of consumer spending. Rises in Ret ail Sales are oft en associat ed wit h a st rong economy, and t herefore an expect at ion of higher short t erm int erest rat es t hat are oft en support ive t o a currency in at least t he short t erm. A syst em for screen based t rading t hat has been in operat ion since t he early 1980s. Reut er Dealing now has a mat ching opt ional enhancement known as Dealing 2000-2. Increase in t he exchange rat e of a currency as a result of official act ion. The rat e for any period or currency which is used t o revalue a posit ion or book. Process of changing a call int o a put . The ident ificat ion and accept ance, or offset t ing of t he risks t hreat ening t he profit abilit y or exist ence of an organizat ion. Wit h respect t o foreign exchange, involves among ot hers considerat ion of market , sovereign, count ry, t ransfer, delivery, credit , and count erpart y risk. An asset or liabilit y, which is exposed t o fluct uat ions in value t hrough changes in exchange rat es or int erest rat es. Addit ional sum payable, or ret urn, t o compensat e a part y for adopt ing a part icular risk. A combinat ion of purchasing put opt ions wit h t he sale of call opt ions. The put limit s downside, while t he call limit s t he upside. There are risks associat ed wit h any market . It means variance of t he ret urns and t he possibilit y t hat t he act ual ret urn might not be in line wit h t he expect ed ret urns. The risks associat ed wit h t rading foreign currencies are: market , exchange, int erest rat e, yield curve, volat ilit y, liquidit y, forced sale, count er part y, credit , and count ry risk. The subst it ut ing of a far opt ion for a near opt ion of t he same underlying st ock at t he same st rike/ exercise price. (1) Where t he set t lement of a deal is carried forward t o anot her value dat e, based on t he int erest rat e different ial of t he t wo currencies example: next day. (2) An overnight swap, specifically t he next business day against t he following business day (also called Tomorrow Next , abbreviat ed t o Tom-Next ). Keeping open posit ions in t he hope of a speculat ive gain. A t ransact ion t hat mat ures on t he day t he t ransact ion t akes place. Same as a but t erfly spread. A st rat egy of buying at t he bid and selling at t he offer as soon as possible.

Reuter Dealing

Revaluation Revaluation Rate Reversal

Risk management

Risk Position Risk Premium

Risk Reversal

Risks

Rolling over

Rollover

Running a Position Same Day Transaction Sandwich Spread Scalping

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Definition

SDR Selling Rate Series Settlement Settlement Date Settlement Price Settlement Risk

Special Drawing Right . A st andard basket of five maj or currencies in fixed amount s as defined by t he IMF. Rat e at which a bank is willing t o sell foreign currency. All opt ions of t he same class which share a common st rike price and expirat ion dat e. Act ual physical exchange of one currency for anot her. It means t he business day specified for delivery of t he currencies bought and sold under a Forex cont ract . The official closing price for a fut ure set by t he clearing house at t he end of each t rading day. Risk associat ed wit h t he non-set t lement of t he t ransact ion by t he count erpart y. A market posit ion where t he client has sold a currency he does not already own, usually expressed in base currency t erms. A short age of asset s in a part icular currency. See Short Sale. Cont ract s wit h up t o six mont hs t o deliver. Buying t o unwind a short age of a part icular currency or asset . The t erm short forward refers t o a period of up t o t wo mont hs, alt hough it is more commonly used wit h respect t o mat urit ies of less t han one mont h. The sale of a currency fut ures not owned by t he seller at t he t ime of t he t rade. Short sales are usually made in expect at ion of a decline in t he price. See Short Forward Dat e/ Rat e . Normally t he 90 day rat e. St andard Int ernat ional Trade Classificat ion. A syst em for report ing t rade st at ist ics in a common manner. Swiss Opt ions and Financial Fut ures Exchange, a fully aut omat ed and int egrat ed t rading and clearing syst em. More pot ent ial sellers t han buyers, which creat es an environment where rapid price falls are likely. See Broken Dat e. (1) The most common foreign exchange t ransact ion. (2) Spot refers t o t he buying and selling of t he currency where t he set t lement dat e is t wo business days forward. The cont ract mont h closest t o delivery. The overnight swap from t he spot dat e t o t he next business day. The price at which t he currency is current ly t rading in t he spot market .

Short

Short / Short Position Short Contracts Short Covering

Short Forward Date/ Rate

Short Sale Shorts Short-Term Interest Rates SITC SOFFEX Soft Market Split Date Spot Spot Month Spot Next Spot Price/ Rate

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Definition

Spot Week

A st andard period of one week swap measured from t he current value dat e of t he currency spot rat e. (1) The difference bet ween t he bid and ask price of a currency. (2) The difference bet ween t he prices of t wo relat ed fut ures cont ract s. (3) For opt ions, t ransact ions involving t wo or more opt ion series on t he same underlying currency. Purchases and sales are in balance and t hus t he dealer has no open posit ion. A speaker connect ed t o a phone, oft en used in broker t rading desks. Act ion by a cent ral bank t o reduce supply in order t o increase t he price of money. An act ive market which can absorb large sales or purchases of currency wit hout having any maj or impact on t he int erest rat es. Recession or low growt h (st agnat ion) in conj unct ion wit h high inflat ion rat es. A t erm referring t o cert ain normal amount s and mat urit ies for dealing. A US firm engaged in assessing t he financial healt h of borrowers. The firm also lends it s name t o t he S&P 500 St ock Index. Cent ral Bank act ivit y in t he domest ic money market t o reduce t he impact on money supply of it s int ervent ion act ivit ies in t he Forex market . Brit ish pound, ot herwise known as cable. Market slang for Swedish Krona. Order given t o ensure t hat , should a currency weaken by a cert ain percent age, a short posit ion will be covered even t hough t his involves t aking a loss. Realize profit orders are less common. US t erm for t he lowest accept ed price for Treasury Bills at auct ion. The simult aneous purchase/ sale of bot h call and put opt ions for t he same share, exercise/ st rike price and expiry dat e. A bond wit h unquest ioned right t o repayment of principal and int erest at t he specified dat es wit h no addit ional furt her right s or bonuses. See fixed dat es . A combinat ion of t wo calls and one put . Also called exercise price. The price at which an opt ion holder can buy or sell t he underlying inst rument . A combinat ion of t wo put s and one call. Unemployment levels inherent in an economic st ruct ure.

Spread

Square Squawk Box Squeeze

Stable Market

Stagflation Standard

Standard and Poors (S&P)

Sterilization Sterling Stocky

Stop Loss Order

Stop Out Price Straddle

Straight Straight Date Strap Strike Price Strip Structural Unemployment

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Definition

Support Levels

A price level at which t he buying is expect ed t o t ake place. When an exchange rat e depreciat es or appreciat es t o a level where (1) Technical analysis t echniques suggest t hat t he currency will rebound, or not go below; (2) The monet ary aut horit ies int ervene t o st op any furt her downward movement . See Resist ance Point . The simult aneous purchase and sale of t he same amount of a given currency for t wo different dat es, against t he sale and purchase of anot her. A swap can be a swap against a forward. In essence, swapping is somewhat similar t o borrowing one currency and lending anot her for t he same period. However, any rat e of ret urn or cost of funds is expressed in t he price different ial bet ween t he t wo sides of t he t ransact ion. A price as a different ial bet ween t wo dat es of t he swap. See Forward Margin . An opt ion t o ent er int o a swap cont ract . Societ y for Worldwide Int erbank Financial Telecommunicat ions is a Belgian based company t hat provides t he global elect ronic net work for set t lement of most foreign exchange t ransact ions. Market slang for Swiss Franc. See Deposit Swap. Opt ions or fut ures t hat creat e a posit ion t hat is able t o be achieved direct ly, but is generat ed by a combinat ion of opt ions and fut ures in t he relevant market . In foreign exchange a SAFE combines t wo forward cont ract s int o a single t ransact ion where set t lement only involves t he difference in values. Expresses t he price change of an opt ion for a percent age change in t he implied volat ilit y. Treasury Bill. The st udy of t he price t hat reflect s t he supply and demand fact ors of a currency. Common met hods are flags, t rendlines spikes, bot t oms, t ops, pennant s, pat t erns and gaps. An adj ust ment t o price not based on market sent iment but t echnical fact ors such as volume and chart ing. (1) A formal offer t o supply or purchase goods or services. (2) In t he UK, t he t erm for t he weekly Treasury Bill issue. (French) Period. The rat io bet ween export and import price indices. A measure of t he sensit ivit y of t he price of an opt ion t o a change in it s t ime t o expiry. A market in which t rading volume is low and in which consequent ly bid and ask quot es are wide and t he liquidit y of t he inst rument t raded is low.

Swap

Swap Price Swap Rate Swaption

Swift

Swissy Switch

Synthetics

Tau T-Bill Technical Analysis

Technical Correction Tender Terme Terms of Trade Theta

Thin Market

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Definition

TIBOR Tick Ticket TIFFE

Tokyo Int er-bank Offered Rat e. A minimum change in price, up or down. See Deal Slip Tokyo Int ernat ional Financial Fut ures Exchange. That part of an opt ion premium which reflect s t he lengt h of t ime remaining in t he opt ion prior t o expirat ion. The longer t he t ime remaining unt il expirat ion, t he higher t he t ime value. Simult aneous buying of a currency for delivery t he following day and selling for t he spot day, or vice versa. Also referred t o as overnight . Simult aneous buying and selling of a currency for delivery t he following day and selling for t he next day or vice versa. Smallest t ransact ion size accept able. The Trade Balance is a measure of t he difference bet ween import s and export s of t angible good and services. The level of t he t rade balance, and changes in export s and import s, are widely followed by foreign exchange market s. The dat e on which a t rade occurs. The difference bet ween t he value of import s and export s, oft en only report ed in visible t rade t erms. See Deal Ticket . (French) A port ion of. Specifically used for borrowings from t he IMF. The buying or selling of securit ies result ing from t he execut ion of an order. The dat e on which a t rade occurs. Pot ent ial profit or loss generat ed by current foreign exchange t ransact ions. When consolidat ing int o t he base currency, t he calculat ion of loss or profit result ing from t he valuat ion of foreign asset s and liabilit ies for balance sheet purposes. Short -t erm obligat ions of a Government issued for periods of one year or less. Treasury bills do not carry a rat e of int erest , but are issued at a discount on t he par value. Treasury bills are repaid at par on t he due dat e. In t he UK t hey are normally for 91 days, and are offered at weekly t enders. In t he US t hey are auct ioned. Government obligat ions wit h mat urit ies of t en years or more. Government obligat ions wit h mat urit ies more t han one year, but less t han t en years.

Time Value

Today/ Tomorrow Tomorrow Next (Tom next) Tradable Amount

Trade Balance

Trade Date Trade Deficit/ Surplus Trade Ticket Tranche Transaction Transaction Date Transaction Exposure

Translation Loss/ Profit

Treasury Bills

Treasury Bonds Treasury Notes

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Definition

Treasury Stock

Previously issued st ock t hat has been repurchased by, donat ed t o or ot herwise acquired by t he issuing firm. Treasury st ocks pay no dividends and have no vot ing privileges. (French) FX t erm for swap. The t ot al money value of currency cont ract s t raded which is calculat ed by mult iplying size by t he number of cont ract s t raded. When a dealer quot es bot h buying and selling rat es for foreign exchange t ransact ions. Cont inent al t erm for mont h or year end. Anot her t erm for an open posit ion. Before finalizing a t ransact ion all t he det ails should be submit t ed for approval t o t he order giver, who has t he right t o t urn down t he proposal. An exchange rat e is normally considered t o be undervalued when it is below it s purchasing power parit y. A colloquial t erm for reversing a t ransact ion. e.g. a spot sale by means of a forward purchase or, if done in error, a spot purchase. A device designed t o provide a consist ent value wit h varying currencies. e.g. ECU and SDR. A t ransact ion execut ed at a price great er t han t he previous t ransact ion. (French) Payment s are said t o be "valeur compensee" when payment by one part y in one cent re, and set t lement by t he ot her part y in anot her cent re, t akes place on t he same day. For exchange cont ract s, it is t he day on which t he t wo cont ract ing part ies exchange t he currencies which are being bought or sold. For complet e descript ion see t he chapt er on t rading. For a spot t ransact ion, it is t wo business banking days forward in t he count ry of t he bank providing quot at ions which det ermines t he spot value dat e. The only except ion t o t his general rule is t he spot day in t he quot ing cent re coinciding wit h a banking holiday in t he count ry(ies) of t he foreign currency(ies). The value dat e t hen moves forward a day. The enquirer is t he part y who must make sure t hat t he spot day coincides wit h t he one applied by t he respondent . The forward mont hs mat urit y must fall on t he corresponding dat e in t he relevant calendar mont h. If t he one mont h dat e falls on a non-banking day in one of t he cent ers, t hen t he operat ive dat e would be t he next business day t hat is common. The adj ust ment of t he mat urit y for a part icular mont h does not affect t he ot her mat urit ies t hat will cont inue t o fall on t he original corresponding dat e if t hey meet t he open day requirement . If t he last spot dat e falls on t he last business day of a mont h, t he forward dat es will mat ch t his dat e by also falling due on t he last business day. Also referred t o as mat urit y dat e.

Troc, Troquer Turnover

Two-Way Quotation Ultimo Uncovered Under Reference (Order)

Under-Valuation

Undo

Unit of Account Up Tick

Valeur Compensee

Value Date

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Definition

Value Spot Value Today

Normally set t lement for t wo working days from t he dat e t he cont ract is ent ered int o. Transact ion execut ed for same day set t lement ; somet imes also referred t o as "cash t ransact ion" A simple opt ion whose t erms and condit ions do not include any provisions ot her t han exercise st yle, expiry and st rike. To compare wit h exot ic opt ions which have addit ional t erms. Funds required t o be deposit ed by a client when a price movement has caused funds t o fall below t he st ipulat ed percent age of t he value of t he cont ract . Expresses t he price change of an opt ion for a one per cent change in t he implied volat ilit y. The speed wit h which money circulat es, or t urnover in t he economy. It is calculat ed as t he annual nat ional income; average money st ock in t he period. The sale of an opt ion wit h a high exercise price and t he purchase (in t he case of a bull), or t he sale (in t he case of a bear), of an opt ion wit h a lower exercise price. Bot h opt ions will have t he same expirat ion dat e. A measure of t he amount by which an asset price is expect ed t o fluct uat e over a given period. Normally measured by t he annual st andard deviat ion of daily price changes (hist oric). Can be implied from fut ures pricing, implied volat ilit y. A local currency account maint ained wit h a bank by anot her bank. The t erm is normally applied t o t he count erpart y's account from which funds may be paid int o or wit hdrawn as a result of a t ransact ion. Money borrowed in large amount s from banks and inst it ut ions rat her t han from small invest ors. Measures changes in prices in t he manufact uring and dist ribut ion sect or of t he economy, and t ends t o lead t he consumer price index by 60 t o 90 days. The index is oft en quot ed separat ely for food and indust rial product s. Discret ionary element in t he monet ary reserves of a cent ral bank. A day on which t he banks in a currency's principal financial cent er are open for business. For FX t ransact ions, a working day only occurs if t he banks in bot h currencies financial cent ers are open (all relevant currency cent ers in t he case of a cross). A bank made up of members of t he IMF whose aim is t o assist in t he development of member st at es by making loans where privat e capit al is not available. The seller of a posit ion. Also known as t he grant or of t he t rade. "Writ ing a Currency" is t o sell it .

Vanilla

Variation Margin

Vega

Velocity of Money

Vertical (Bear or Bull) Spread

Volatility

Vostro Account

Wholesale Money

Wholesale Price Index

Working Balance

Working day

World Bank

Writer

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Value

Definition

Yard

Slang for milliard, one t housand million (1 European milliard = 1 US billion = 1,000 million). The graph showing changes in yield on inst rument s depending on t ime t o mat urit y. A syst em originally developed in t he bond market s is now broadly applied t o various financial fut ures. A posit ive sloping curve has lower int erest rat es at t he short er mat urit ies, and higher at t he longer mat urit ies. A negat ive sloping curve has higher int erest rat es at t he short er mat urit ies. Cert ificat e issued by t he Bank of England t o "discount houses" in lieu of st ock cert ificat es t o facilit at e t heir dealing in t he short dat ed gilt edge securit ies. A bond t hat pays no int erest . The bond is init ially offered at a discount t o it s redempt ion value.

Yield Curve

Z-Certificate

Zero Coupon Bond

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Disclaimer
(Risk warning)

We would like t o kindly inform t he reader of t he pot ent ial financial risks of engaging in foreign exchange t rading. The t ransact ion of such financial inst rument s known as forex, fx, or currency, and dealt on a valued basis known as 'spot ' (or 'forward', 'day t rading', 'opt ion', and similar inst rument s) can cont ain a subst ant ial degree of risk. Before deciding t o undert ake such t ransact ions wit h a Forex t rading plat form or wit h any ot her market maker), and indeed, any ot her firm offering similar services, a user should carefully evaluat e whet her his/ her financial sit uat ion is appropriat e for such t ransact ions. Trading foreign exchange may result in a subst ant ial or complet e loss of funds and t herefore should only be undert aken wit h risk capit al. The definit ion of risk capit al is funds t hat are not necessary t o t he survival or well being of t he user. We st rongly recommends t hat a user, who is considering t rading foreign exchange product s, reads t hrough all t he main t opics cont ained in t he t rading plat form s websit e so t hat he/ she may obt ain a clear and accurat e underst anding of t he risks inherent t o fx t rading. Opinions and analysis on pot ent ial expect ed market movement s cont ained wit hin such websit es are not t o be considered necessarily precise or t imely, and due t o t he public nat ure of t he Int ernet , t rading plat forms cannot at any t ime guarant ee t he accuracy of such informat ion. Trading online, no mat t er how convenient or efficient it may be, does not necessarily reduce t he risks associat ed wit h foreign exchange t rading. Such plat forms do not accept any responsibilit y t owards any cust omer, member or t hird part y, act ing on such informat ion cont ained on t heir websit e as t o t he accuracy or delay of informat ion such as quot at ions, news, and chart s derived from quot at ions.

You are st rongly advised t o engage in Forex t rading only if you fully underst and t he risks involved, and are willing and prepared t o allocat e t he appropriat e funds, which are not essent ial or vit al for your well being.

Warning! Do not invest money you cannot afford t o lose!

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