Relative Strength Indicator (RSI)

The RSI is going to let you see the relative strength of the currency now, in relation to other time periods.

Bollinger Bands

Bollinger bands are going to let you see the volatility of the markets based on the standard deviation from the normal price. Bollinger Bands are a great tool for seeing whether a currency pair is trading high or low, and help you to pick currency pairs with high volatility.

Stochastic

This is a momentum oscillator that can help you to predict upcoming strengths and weaknesses in the market for the currencies you’re working with.

Moving Averages

Moving averages are a great option for long term trend predictions as, more or less, they allow you to look at trends without the impact of market volatility.

Average Direction Movement (ADX)

The Average Direction Movement can help you to identify the strongest trends so that you can pull in the maximum profits.

A, B, C, D-F, G-I, L-P, R-S, T-Z

Forex Terms - A

Aggregate Demand

Total demand for good and services - including the public and private sectors - in the economy.

Aggregate Risk

The bank’s total exposure with a customer with regards to spot and forward contracts.

Aggregate Supply

Total supply of good and services available to meet aggregate demand.

Agio

Difference between the value of two currencies.

Appreciation

The strengthening of a currency in response to market demand.

Arbitrage

Risk free trading that includes a currency being bought and sold simultaneously to take advantage of the difference between markets.

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Forex Terms - B

Bank Rate

The rate at which a country’s central bank lends money to its domestic banking system.

Basis

The difference between the cash price and the futures price of a currency.

Basis Trading

Taking one approach in the cash market and the opposite in the futures market to profit from movements in the basis.

Broker

An agent who, for a commission, places buy and sell orders for someone else.

Buying Rate

Rate at which the market buys currency.

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Forex Terms - C

Chartist

Someone who studies charts and graphs to predict trend reversals and to identify developing trends.

Consumer Price Index

The measure of the cost of goods and services to the consumers in a given country.

Contract

An agreement to buy or sell currency at a specific rate in a specific time frame.

Country Risk

Political, economic, regulatory, legal and other factors that affect the currency in a particular country.

Credit Risk

The risk that the other party in the trade will not be able to deliver.

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Forex Terms - D-F

Day Trading

A currency exchange deal that continues until the stop-loss is reached, the take-profit rate is met or the deal end date; a deal that is renewed daily.

Delivery

The settlement of a trade.

Exposure

The potential for profit or loss based on changes in the market price.

Fast market

With many buyers/sellers, deals happening too quickly in the market to be fully reported.

Fixing

Determining rates based on the balance or buyers to sellers; typically occurs twice daily.

Forex Deal

The purchase or sale of a currency against that of another currency.

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Forex Terms - G-I

Going Long

To make an investment because of long term speculation.

Going Short

To sell a currency that you don’t yet have (that you’ll be receiving through a Forex deal).

Gross Domestic Product

The total value of exports from a country in relation to the value of imports.

Hard Currency

Currency that’s value will remain steady or that will increase in value in relation to other currencies.

Hedging

Protecting an asset or liability against changes in the exchange rate (rather than trading to make a profit).

Initial Margin

Deposit required so that a trader can begin making deals.

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Forex Terms - L-P

Leading Indicators

Statistics that impact economic growth and business activity.

Limit Order

An order to sell an investment before it falls below a set value.

Margin

Difference between buying and selling rates for a particular currency.

Open Position

Any deal that has not been balanced by a counter deal or a physical payment.

Option

Documentation of the intent to make a deal without an obligation to the deal.

Pip (or Point)

Smallest increment of price change that is recognized; one percent of one percent.

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Forex Terms - R-S

Rate

The cost of one currency in relation to another currency.

Resistance Point/Resistance Level

The price at which rates will rebound or experience a major price movement.

Risk Management

Actions taken to reduce the impact of the market or unexpected rate changes.

Settlement

Physical exchange of one currency for another.

Soft Market

Market condition in which prices are likely to fall because there are more sellers than buyers.

Spot Price/Spot Rate

The current trading value of a currency.

Spread

Difference between the bidding price and asking price for a currency.

Stop Loss Order

A tool for limiting the amount that can be lost on a Forex deal.

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Forex Terms - T-Z

Technical Analysis

A study of trends, prices and factors that will have an effect on the value of a currency.

Trade Balance

A measure of the gap between the goods a country imports and those that are exported.

Value Date

The day in which buyer and seller will exchange the currencies bought and sold.

Volatility

A measure of the likelihood that a currency will lose or gain value during a set amount of time.

When you’re ready to make your first trade, there are a few things you need to keep in mind. These considerations will help you to maximize your earnings and eliminate as much risk as possible.

Cap Your Losses to Control Risk

Make sure that you are able to place stop-loss orders. When you have an exit strategy, there will be less stress involved if the market takes a turn that you did not expect. Your position on a currency pair will help you to set your stop-loss point. If you are short a currency pair, set your stop-loss a bit above the current price; if you are long a currency pair, your stop-loss point will be lower than the current market price. While a stop-loss is a point that you don’t want to reach, knowing that it is in place will give you peace of mind.

Exit When You Reach Your Profit Target

It is easy for Forex investors to get caught up in a particular trade. With a limit order (a take-profit order), you will reach your target and walk away. This serves two purposes. First, it allows you to be more disciplined in your investment strategy; second, it allows you to do other things rather than watching and monitoring the market non-stop.

Control and discipline are the keys to your success as a Forex investor.

For those trading Forex, charts and diagrams are key tools. Forex charts and diagrams give traders the chance to look at market conditions, create forecasts and to see trading patterns that will influence trading decisions.

Line Charts

Line charts are the most basic of Forex charts. They simply indicate the closing points (or actual rates, depending on the depth or time frame of the chart) and connect the dots between them to show increases, decreases and the direction of the market.

Point and Figure Charts

Point and figure charts simply show the trends in price within the market without considering time. Support and resistance levels are indicated and, as the price rises above the resistance level - indicated by a rising stack of Xs - or drops below a set support level (as indicated by a declining stock of Os), forex traders will make their move.

Bar Charts

Forex bar charts give traders and investors the chance to look at one unit at a time and to see associated rates. HLC bar charts show the high, the low and the closing rate; OHLC bar charts show the opening rate as well.

Candlestick Charts

Candlestick charts show the opening price for a currency pair and indicate the amount of increase or decrease over the course of a given time. Additionally, candlestick charts show the full range of highs and lows in trading while focusing on the bulk of the trading action.

Different investors have their preferences about which charts they use and rely on and the type of pattern that they look for. The more that you trade Forex, the more that you will want to consult charts and become familiar with using them.

Once you have done your research into Forex trading and you feel ready to get involved, you’re going to make your first trade. Here are the steps involved:

Select your currency pair. Select the currency to buy and the currency you will sell.

Set the amount to trade. While Forex trading is a non-delivery deal, you still need to set a volume for the contract.

Set your risk margin. In other words, set your investment - the amount that you will risk - so that you set the maximum amount you will lose.

Set your stop-loss rate. In the event that trends and indicators don’t accurately forecast the market, a stop-loss rate will allow you to close the deal automatically.

Accept the deal. Once you have all of the steps in place, you’ll finalize your deal and then follow the changes as they take place.

When you monitor a Forex trade, you will be able to see the reference ID of the sale, the volume of currency bought and sold, the exchange rate when you made the deal and when you are monitoring it and the current status of your position. In some cases, you’ll be able to change the stop-loss rate or the take-profit rate, and you will also be able to close the deal manually when the time is right.

There are a number of US economic indicators that affect trading on the foreign exchange market - impacting both anticipated changes and the actual figures that show up on the market. Below you will find those economic factors that have the greatest impact for Forex trading.

Consumer Confidence Index

On the last Tuesday of every month, a report is issued by the Conference Board. This report provides the results of surveys taken in 5,000 households about the market as they see it and how strong their income is in relation to it.

Consumer Price Index

Once a month, the Bureau of Labor and Statistics evaluates government policy and the way it impacts inflation and the overall cost of goods and services.

Employment Report

Each month, the Department of Labor releases a report of how many jobs were created, how many jobs were lost, average wages and the average number of hours worked as well as changes to the unemployment rate.

Gross Domestic Product

The overall measure of a country’s economy; quarterly statistics are shared, but the report is annual.

Retail Sales Data

A decline in sales tends to indicate a loss of consumer confidence; when retail sales are increasing, it is indicative that the average consumer feels more comfortable.

Trade Balance Reports

Surpluses and deficits are reported based on the value of goods and services exported from the country in relation to value of goods and services that are imported.

After learning about Forex and trading, you need to choose a trading platform or a Forex broker to get started. When you do, there are key factors that you should consider.

Training and Help When You Need It

The first things to look into when choosing a platform or broker is simple: You’re just getting started. Are you going to get the help you need? If you’re choosing a Forex broker, find out whether you’ll be walked through the first couple of trades. If you’re choosing a Forex platform, look into training materials and even the tech support services offered.

Personal Account Management

Whether you’re trading online, by phone or you’re heading into a broker’s office, it’s important to know that there is a real person working with you - someone who will manage your account and be there when you’ve got questions.

A Stop-Loss and Take-Profit Rate Are in Place

The Forex market can be volatile; with a stop-loss rate set, you can have some certainty that you won’t lose more than you can afford to if a currency pair loses value. Similarly, a take-profit rate will let you know that if your profits start to peak, you’ll be able to identify how far to go before taking the profit - which allows you to avoid getting caught up in the emotion and speculation that you could make even more.

When You Can Make Deposits

In some cases, you will be limited to making deposits during banking hours; in others, you will be able to make deposits around the clock with a credit card. Depending on the currency pairs that you are trading, this is extremely important.

How Long You Will Have to Wait to Make Trades

When you set up an account with a Forex trading platform or a broker, when will you be able to start making trades? Will you be able to get started right away, or will there be a delay while the account is set up?

How Much You Have to Invest

When you start trading, which margin would you prefer to risk: $100, $500, or $1000? Different Forex trading platforms have different minimums. The less that you have to invest to trade, the more you will be able to build confidence while learning the system.

No Hidden Costs

When you look into a Forex trading platform or a broker, be sure that the costs are clear and that you understand them before moving forward.

Customization

When you’re just getting started, your needs are going to be different than those of someone making dozens of trades each day; choose a platform or broker that can meet your needs even as they change.

Current Rates

When you trade a currency pair, you want to trade based on the current rate, not the rate 10 minutes before. Choosing a platform (or a broker) should be based on how current the rates that are used are.

The more that you are able to research Forex trading platforms and brokers before getting started, the more that you can make an informed choice. Take the time to look into the above points, but also look into the reputation of the platform or broker before making your final decision.

Because Forex is an all day every day market, many new investors make the mistake of believing that timing their trades isn’t quite as important as it is. Just because you can trade at any time day or night, in other words, doesn’t mean that you should.

For each currency pair that you look into trading, there are going to be times of day that are better for trading than others. For example, let’s say that you’re planning to trade the US dollar against the Euro. One of the things that you are going to want to consider is the average trade volume during a time period By making your trades during the slowest periods, you are going to have less potential for profit than if you’re trading at the times when everyone else is involved (in part because indicators are more accurate when the market is more active).

With some currency pairs, the market is most active in the morning; for others, late evening trades will be ideal. Of course, when you start to look at when to make Forex trades, you will want to look at more than just the active time periods. You need to look at the days of the week as well. Looking at the most active trading days for a currency pair enables you to time your trades well.

Just as it’s important to choose the right currency pairs and the right trading strategy, it’s important to step back and look at the market. Knowing when to trade allows you to evaluate profit potential and to limit losses.

For everyone who is getting started in Forex trading, there are some key tips that will help to ensure your success.

Learn the Basics

Before you get started, make sure that you have an understanding of how to evaluate currency trends. Make sure that you know how to analyze trends, read and understand Forex charts and to assess trade signals.

Learn at Your Own Pace and in the Right Way

While there’s no one right way to learn about trading on the foreign exchange, it’s important to know your learning style. Classroom learners, those who learn by reading and those who learn by doing can all find the resources they need.

Likewise, it’s important to recognize that different people learn at different speeds. Make sure that you are taking the time to learn and understand Forex before jumping in.

Know How Much You Can Lose

Though it’s possible to generate wealth with Forex trading, it’s also possible to lose money. Set limits for how much money you’ll work with before you get started.

Develop a Risk Management Strategy

Forex trading is largely speculative. Make sure that you have a plan in mind to reduce your likelihood of making the wrong choices. Keep in mind while developing your plan that the markets are volatile.

You should try to prepare for:

• Unexpected corrections
• Variations in currency exchange rates that are unpredictable
• Volatile markets
• Delayed or lost payments

When you are thinking about risk management, you will also want to consider Limit Orders and Stop-Loss Orders that force you to back out when you hit your target profits or to exit when the market takes a major downturn, rather than trying to ride it out.

When you want to predict whether or not a trade is valuable, technical analysis of Forex trades can help to figure it out. When you understand how a technical analysis is made, you will be able to follow more markets and to make more effective trades.

Everything That Happens on the Market Affects the Trading Price

This first principle of technical analysis is fairly straightforward. While not entirely technical in that it considers something other than the price moves themselves, looking at what influences the numbers is important. Political unrest, supply and demand speculation, interest rates and inflation along with similar factors should be looked at to identify the way in which markets will act.

Patterns Repeat Themselves

When performing a technical analysis, you’ll find that there are recognized and recognizable patters and that - when they show up - the results can indicate market behavior.

History Can Dictate Trends

Everyone has heard that history repeats itself; this is mostly because people don’t change much. When patterns start to show up, most people will respond in the same way. During the 100 years of analyzing the foreign exchange market, it seems as though the way in which investors have acted in the past will indicate what investors in the same situation will do.

Advantages of Using Technical Analysis When You Trade on the Foreign Exchange

One of the biggest advantages of technical analysis is that it’s based on the numbers. Investors who use technical analysis to develop and stick with a plan rather than letting intuition, emotions or other factors change their approach derail an investment. When you are only looking at trends that are developing, factors that affect trends and projections, you can make a decision with confidence.

Disadvantages of Using Only Technical Analysis

Not everyone thinks that taking an approach that only looks at technical analysis is a good idea. When everyone is familiar with the same technical analysis patterns, they all react in the same way - which leads to the development of trends. Patterns aren’t recognized until after they are underway. In other words, critics of technical analysis argue that it creates trends rather than predicting them.