Labels: forex storm articles

Labels: forex storm articles

First, a warning about indicators in general. Most analysts do not rely on only one indicator but often use several indicators together to help make a trading decision because of the misleading information one indicator might provide. An oscillator indicator is not a trading system but only provides helpful insights in certain market conditions.

Oscillators tend not to work well in markets that are in a strong trend. They can show a market at either an overbought or oversold reading for an extended period while the market continues to trend strongly. Another example of oscillators not working well is when a market trades into the upper boundary of a congestion area on the chart and then breaks out on the upside of the congestion area. At that point, it's likely that an oscillator would show the market as being overbought and possibly generate a sell signal when, in fact, the market is just beginning to show its real upside power.

From a list of literally hundreds of technical indicators, we have selected the more popular ones to illustrate what is available. These technical indicators can be put into several categories:

Strength and Sentiment Indicators

Although most technical indicators are based on price data and various manipulations of that data, a few are based on other market activity. For example, when prices make a move, how many traders are participating and who are they? Volume and open interest are indicators that reflect some basic numbers about how traders are driving the market, and Commitments of Traders reports reveal the caliber of participants involved.

Volume and open interest - In and of themselves, volume and open interest data may not be that valuable other than to indicate the liquidity of a market. But used in conjunction with price action, these numbers serve as a strength indicator that can provide some meaningful verification about the significance of a price move.

Volume is the number of transactions in a futures or options on futures contract made during a specified period of time, usually one trading session. One buy and one sell equals a volume of one.

Open interest is the total number of futures or options on futures contracts that have not yet been offset or fulfilled by delivery. It is an indicator of the depth or liquidity of a futures market, which influences the ability to buy or sell at or near a given price.

Open interest can be a little confusing. If a new buyer (a long) and new seller (a short) enter a trade, their orders are matched and open interest increases by one. However, if a trader who has a long position sells to a new trader who wants to initiate a long position, open interest does not change as the number of open contracts remains the same. If a trader holding a long position sells to a trader wanting to get rid of his existing short position, open interest decreases by one as there is one less open contract.

Volume and open interest are "secondary" technical indicators that help confirm other technical signals on the charts. If an upside price breakout is accompanied by heavy volume, that is a strong signal that the market may want to continue to move higher because it indicates more traders jumped on the rising prices. On the other hand, a big upside move or a move to a new high that is accompanied by light volume makes the move suspect and indicates a top or bottom may be near or in place. Also, if volume increases on price moves against the existing trend, then that trend may be nearing an end.

To validate an uptrend, volume should be heavier on up days and lighter on down days within the trend. In a downtrend, volume should be heavier on down days and lighter on up days. A general trading rule is that if both volume and open interest are increasing, then the trend will probably continue in its present direction. If volume and open interest are declining, this can be interpreted as a signal that the current trend may be about to end.

Changes in open interest can help a trader gauge how much new money is flowing into a market or if money is flowing out of a market, a valuable insight in evaluating a trending market. Open interest does have seasonal tendencies – that is, it is higher at some times of the year and lower at others in many markets. Look at the seasonal average (five-year average) of open interest in your analysis.

If prices are rising in an uptrend and total open interest is increasing more than its seasonal average, it suggests new money is flowing into the market, indicating aggressive new buying, and that is bullish. However, if prices are rising and open interest is falling by more than its seasonal average, the rally is the result of holders of losing short positions liquidating their contracts (short covering) and money is leaving the market. This is usually bearish, as the rally will likely fizzle.

Here are two more rules for open interest:

• Very high open interest at market tops can cause a steep and quick price downturn.
• Open interest that is building up during a consolidation, or "basing" period, can strengthen the price breakout when it happens.

Commitments of Traders Reports - Open interest can be taken one step further by examining the Commitments of Traders (COT) report issued every Friday afternoon by the Commodity Futures Trading Commission (CFTC).

COT reports provide a breakdown of the preceding Tuesday's open interest for markets in which 20 or more traders or hedgers hold positions equal to, or above, reporting levels established by the CFTC.

The report breaks down open interest for large trader positions into "commercial" and "non-commercial" categories. Commercial traders are required to register with the CFTC by showing a related cash business for which futures are used as a hedge. The non-commercial category is comprised of large speculators, mainly commodity funds. The balance of open interest is qualified under the "non-reportable" classification that includes both small commercial hedgers and small speculators.

To derive the net trader position for each category, subtract the short contracts from the long contracts. A positive result indicates a net long position (more longs than shorts). A negative result indicates a net short position (more shorts than longs). The results may mean different things in different markets, so it usually takes some experience with COT numbers before you can see their value in trading.

The most important aspect of the COT report for most traders is the change in net positions of the commercial hedgers. The premise of COT analysis is that commercials are the “smart money” because they have a strong record in forecasting significant market moves, have the best fundamental supply and demand information and have the ability to move markets because of the large size they trade. That's the side of the market where you want to be.

Some traders like to take positions opposite of what the COT report suggests that small traders (non-reportable positions) are doing, assuming most small speculative traders are usually under-capitalized and/or wrong about the market.

Trend Indicators

Trend lines are the basic indicator of trend, but they are quite subjective, depending on the eye of the beholder. So analysts have refined technical indicators such as moving averages or the directional movement index to quantify the data and smooth out day-to-day fluctuations to present an overall view of price direction and the trendiness of the market.

Moving Averages - Perhaps the simplest to understand and most widely used technical indicator is a moving average, which smoothes past data to illustrate existing trends or situations where a trend may be ready to begin or is about to reverse. A moving average helps you spot market direction over time rather than being caught up in short-term erratic market fluctuations. There are three main types of moving averages:

• Simple. Each price point over the specified period of the moving average is given an equal weight. You just add the prices and divide by the number of prices to get an average. As each new price becomes available, the oldest price is dropped from the calculation.
• Weighted. More weight is given to the latest price, which is regarded as more important than older prices. If you used a three-day weighted moving average, for example, the latest price might be multiplied by 3, yesterday's price by 2 and the oldest price three days ago by 1. The sum of these figures is divided by the sum of the weighting factors – 6 in this example. This makes the moving average more responsive to current price changes.
• Exponential. An exponential moving average (EMA) is another form of a weighted moving average that gives more importance to the most recent prices. Instead of dropping off the oldest prices in the calculation, however, all past prices are factored into the current average. The current EMA is calculated by subtracting yesterday's EMA from today's price and then adding this result to yesterday's EMA to get today's EMA. An EMA generally produces a smoother line than other forms of moving averages, which can be an important factor in choppy market conditions.

Closing prices for a period are usually used to calculate a moving average, but you can also use the open, high or low or some combination of all of them. Moving averages are often used in crossover trading systems. A buy signal occurs when the short- or intermediate-term averages cross from below to above the longer-term average. Conversely, a sell signal is issued when the short- and intermediate-term averages cross from above to below the longer-term average.

Another trading approach is to use the "current price" method. If the current price is above the moving average, you buy. Liquidate that position when the current price crosses below your selected moving average. For a short position, sell when the current price falls below the moving average. Liquidate that position when the current price rises above the average.

Because the moving average changes constantly as the latest market data arrive, many traders test different "specified" time frames before they come up with a series of moving averages that are optimal for a particular market.

Some use combinations such as 5-day, 10-day and 20-day moving averages, taking crossovers of the shorter moving average over the longer moving average as a trading signal. Still others use longer-term moving average lines as another point of support or resistance.

In short, moving averages have a number of applications and are easy to understand, making them a clear indicator choice for many traders.

Moving Average Convergence Divergence (MACD) - MACD is a more detailed method of using moving averages to find trading signals from price charts. MACD plots the difference between a longer-term exponential moving average and a shorter exponential moving average (the chart below uses 21 days and 9 days). Then a 9-day moving average of this difference is generally used as a trigger line.

The MACD indicator is used in three ways:

• Crossover signals. When the MACD line crosses below the trigger line, it is a bearish signal; when it crosses above it, it's a bullish signal. Another crossover signal occurs when MACD crosses above or below the zero line.
  
• Overbought-oversold. If the shorter moving average pulls away from the longer moving average dramatically, it indicates the market may be coming over-extended and is due for a correction to bring the averages back together.
• Divergence. As with other studies, traders look at MACD to provide early signals or divergences between market prices and a technical indicator. If the MACD turns positive and makes higher lows while prices are still tanking, this could be a strong buy signal. Conversely, if the MACD makes lower highs while prices are making new highs, this could be a strong bearish divergence and a sell signal.

With its moving average base, MACD is a lagging indicator and requires rather strong price movement to generate a signal. Therefore, it works best in markets that make broad moves but does perform well in choppy, congested trading conditions.

Directional Movement Index - The Directional Movement Indicator (DMI), also called the Directional Movement System, is used to determine the strength of a market trend. The Average Directional Movement index, or ADX, is part of the DMI and gauges the trendiness of the market. When used with the up and down Directional Indicator (DI) values – Plus DI and Minus DI – you could have a trading system.

The basic rules for a DMI system include establishing a long position whenever the Plus DI crosses above the Minus DI. Reverse that position – liquidate the long position and establish a short position – when the Minus DI crosses below the Plus DI.

The ADX line (green on the chart below) is perhaps the focal point of the DMI for most traders. If the ADX line is trading above 30, then the market is in a strong trend, either up or down. ADX does not indicate the direction of the trend. If the ADX line is below 30, it means the trend is not a strong one. If the market is in a solid trend and scoring new highs and the ADX line shows divergence and turns down, that is a warning signal that the market trend is losing power and a market top or bottom may be close at hand.

Volatility Indicators

Volatility shows how active a market is as reflected by the size of price ranges without specifying a price direction. An indicator such as Bollinger Bands reveals changes in volatility levels, which often lead changes in prices.

Bollinger Bands - Bollinger Bands are volatility curves used to identify extreme highs or lows in relation to price. They establish trading parameters, or bands, above and below a moving average at a set number of standard deviations from this moving average. Both the length of the moving average and the number of standard deviations can be modified to fit the market.

Traders generally use Bollinger Bands to determine overbought and oversold zones, to confirm divergences between prices and other technical indicators and to project price targets. The wider the bands on a chart, the greater the market volatility; the narrower the bands, the less market volatility.

Some traders use Bollinger Bands in conjunction with another indicator such as the Relative Strength Index (RSI). If the price touches the upper band and the RSI does not confirm the upward move (i.e. there is divergence between the indicators), a sell signal is generated. If the indicator confirms the upward move, no sell signal is generated – in fact, a buy signal may be indicated. If the price touches the lower band and the RSI does not confirm the downward move, a buy signal is generated. If the indicator confirms the downward move, no buy signal is generated – in fact, a sell signal may be indicated.

Another strategy uses Bollinger Bands without another indicator. In this approach, a chart top occurring above the upper band followed by a top below the upper band generates a sell signal. Likewise, a chart bottom occurring below the lower band followed by a bottom above the lower band generates a buy signal.

Bollinger Bands also help determine overbought and oversold markets. When prices move closer to the upper band, the market is becoming overbought; as the prices move closer to the lower band, the market is becoming oversold. Price momentum should also be taken into account. You should always look for evidence of price weakening or strengthening before anticipating a market reversal.

Momentum Indicators

No market can go up or down forever, and momentum indicators reflect when a price trend may be weakening or strengthening. These indicators are usually based on a scale from 0 to 100 and produce “overbought” and “oversold” signals. Although these indicators do not perform well in extended trending markets, one of their most useful applications is the concept of “divergence” – that is, prices go in one direction and the momentum indicator in another. If prices make a new high but the indicator makes a lower high, for example, the divergence suggests internal weakness that could signal the end of the upmove in prices.

Stochastics - The basic premise of the stochastic indicator developed by George Lane revolves around the position of the close relative to the high or low of the day. During periods of price decreases, daily closes tend to accumulate near the extreme lows of the day. During periods of price increases, closes tend to accumulate near the extreme highs of the day. The stochastic study is an oscillator designed to indicate oversold and overbought market conditions.

Stochastics are measured and represented by two different lines, %K and %D, and are plotted on a scale ranging from 0 to 100. Readings above 80 suggest an overbought situation; readings below 20 an oversold zone. The %K line is the faster, more sensitive indicator while the %D line takes more time to turn. When the %K line crosses over the %D line in overbought or oversold territory, this could be an indication that a market is about to reverse course.

Some technical analysts prefer the slow stochastic rather than the normal stochastic. The slow stochastic is simply the normal stochastic smoothed via a moving average technique. The most important signal is divergence between %D and price, which occurs when the stochastic %D line makes a series of lower highs while prices make a series of higher highs (see black lines on chart below). This signals an overbought market. An oversold market exhibits a series of lower lows while the %D makes a series of higher lows.

When one of the above patterns appears, you should anticipate a market signal. You initiate a market position when the %K crosses the %D from the right-hand side. A right-hand crossover is when the %D has bottomed or topped and is moving higher or lower and the %K crosses the %D line. The most reliable trades occur with divergence and when the %D is between 10 and 15 for a buy signal and between 85 and 90 for a sell signal.

Relative Strength Index (RSI) - The main purpose of the Relative Strength Index (RSI ) created by J. Welles Wilder Jr. is to measure the market's strength or weakness. To calculate RSI, you figure out the average of the up closes and the average of the down closes for the study period (typically 14 days), then divide the average of the up closes by the average of the down closes to get a relative strength figure. Then you add 1 to that relative strength figure, divide that sum into100 and subtract that result from 100. If all that sounds complicated, remember that many analytical software programs do all those calculations for you.

A high RSI reading, above 70, suggests an overbought or weakening bull market. Conversely, a low RSI number, below 30, implies an oversold market or dying bear market. However, blindly selling when the RSI is above 70 or buying when the RSI is below 30 can be an expensive trading system. A move to those levels is a signal that market conditions are ripe for a market top or bottom, but it does not, in itself, indicate a top or a bottom.

Although you can use the RSI as an overbought and oversold indicator, like many indicators, it works best when a failure swing occurs between the RSI and market prices. For example, the market makes new highs after a bull market setback but the RSI fails to exceed its previous highs.

Commodity Channel Index (CCI) - The Commodity Channel Index (CCI) was designed to detect the beginning and ending of market trends by measuring the distance between the market price and its moving average, providing a measurement of trend strength and/or intensity. The CCI is calculated as the difference between the mean price of a market and the average of the means over a chosen period. This difference is then compared with the average difference over the time period.

Values of +100 to –100 indicate a market with no trends. About 70%-80% of all price fluctuations fall within +100 and –100, as measured by the index. Buy and sell signals occur only when the +100 line (buy) and the –100 (sell) are crossed. The way this indicator works is almost the opposite of how you would use an oscillator (overbought/oversold) such as the Relative Strength Index (RSI) or Slow Stochastics.

To trade using CCI, establish a long position when the CCI exceeds +100. Liquidate when the index drops below +100. Your reference point for a short position is a value of –100. Any value less than –100 suggests a short position, while a rise to –85 tells you to liquidate your short position.

Percent Range - The Percent Range (%R) technical indicator, often associated with Larry Williams and called Williams %R, attempts to measure overbought and oversold market conditions. Like other indicators, %R always falls between a value of 100 and 0 and measures where the current day's closing price falls within the price range for a specified number of days.

The %R study is similar to the Stochastic indicator except that the Stochastic has internal smoothing and %R is plotted on an upside-down scale, with 0 at the top and 100 at the bottom. A value of 0 indicates the closing price is the same as the period high. Conversely, a value of 100 shows that the closing price is identical to the period low. A reading above 80 indicates an oversold condition; a reading below 20 an overbought situation.

On specifying the length of the interval for the %R study, some technicians prefer to use a value that corresponds to one-half of the normal cycle length. If you specify a small value for the length of the trading range, the study is quite volatile. Conversely, a large value smoothes the %R and generates fewer trading signals.

As with other indicators, selling just because a %R shows a market to be overbought (or buying just because it is oversold) may take a trader out of the particular market long before the price falls (or rises) because %R can remain in an overbought/oversold condition for a long time.

Momentum or Rate of Change - The whole group of momentum oscillators involves the analysis of the rate of price change rather than the price level. The speed of price movement and the rate at which prices are moving up or down provide clues to the amount of strength the bulls or bears have at a given point in time, a key indicator regarding the viability of a trend and whether it is about to end or begin.

Momentum can be calculated by dividing the day's closing price by the closing price X number of days ago and then multiplying the quotient by 100. The momentum study is an oscillator-type indicator to interpret overbought/oversold situations. By determining the pace at which price is rising or falling, the indicator shows whether a current trend is gaining or losing momentum, whether or not a market is overbought or oversold, and whether the trend is slowing down.

Momentum is calculated by computing the continuous difference between prices at fixed intervals. That difference is either a positive or negative value plotted around a zero line. When momentum is above the zero line and rising, prices are increasing at an increasing rate. If momentum is above the zero line but declining, prices are still increasing but at a decreasing rate.

The opposite is true when momentum falls below the zero line. If momentum is falling and is below the zero line, prices are decreasing at an increasing rate. With momentum below the zero line and rising, prices are still declining but at a decreasing rate.

The normal trading rule is: Buy when the momentum line crosses from below the zero line to above. Sell when the momentum line crosses from above the zero line to below. Another possibility is to establish bands at each extreme of the momentum line. Initiate or change positions when the indicator enters either of those zones. You could modify that rule to enter a position only when the indicator reaches the overbought or oversold zone and then exits that zone.

You can specify the length of the momentum indicator based on your trading needs and methods. Some technicians argue the length of the momentum indicator should equal the normal price cycle, but you can make it more or less aggressive, depending on the market or your trading style.

SOURCE: Action Forex

SOURCE: Trading Education

Labels: forex storm articles, forex storm indicators

Labels: forex storm articles

Toby gives an account of a powerful factor behind currency trading that if used wisely is worthwhile, but if misused, can cause people to lose their trading accounts: leverage. Here's the article:

The biggest enemy to most forex traders is not the market or their trading system but the use of leverage. When using too much of it, most of times it will take your account serious down, even with one single trade.

Last week, a new forex trader showed us his account statement and asked what he was doing wrong.

After taking a look into his account statement, we did notice the following:

Start balance: $25000
End balance: $2300
Numbers of trades: 7

How did he manage his account down so fast?

Again, leverage! First couple of days, this trader could manage his account up to 27K using 1 standard lot.
After that, things went wrong. What has happened, too much confidence? Probably, yes.
This trader went trading at a serious leverage taking 15 standard lots at the time. Wow, but very wrong! Why?

First do the math.
15 standard lots for the EUR/USD pair equals $150/pip you win or lose.

His first trade went completely wrong and was closed for a 130 pip loss which equals -$19500. In fact this trader was getting a margin call from the broker to prevent him from further losses. A margin call will occur in this case when trader’s balance is falling below $7500 in equity.

As a result of this trade, only $7500 was left in his account.

Next couple of trades where traded also on max. leverage which could be used, only to win couple of pips and losing a lot of pips.

The result was an account balance worth $2.3K after 2 weeks trading FX.

Conclusion :

When trading at big leverage, only couple of pips (winning or losing) can affect your account dramatically. Regarding our trader, only 10 winning or losing pips traded at 15 standard lots equals $1500 which is 6% of his start balance.

Trading at high leverages, a trader will close the trade if he win couple of pips because of the big positive %gain on his account balance.

Going into the negative, trader will hold on the trade and hoping it will come back, most of times, this will result in a very big loss.

How to avoid this:

As a general rule, only take 1 mini lot for every $1000 in account. For a standard account, only take 1 standard lot for every $10K in account.

Please note: Most fund managers are not even allowed to trade at these leverages, for example, some of them only take 1 standard lot for every 50K in account.

Toby Smitz - Daily Operations Forex Resources.

Article Source: Ezine Articles

Labels: forex storm articles

In the United States, forex industry is regulated by CFTC (Commodity Futuers Trading Commission) and NFA (National Futures Association). Forex brokers must register with CFTC as a FCM ( Futures Commercial Merchant ) before they can accept deposits from investors. If companies or individuals are involved in soliciting clients and not able to accept deposits, then they are not FCMs. They are introducing brokers. Introducing brokers recruit cilents for FX clearing house and usually compensated by FCMs. Each Futures Commercial Merchant has an unique NFA ID number so perspective clients can check standings of FCMs with the regulatory authorities.

Before selecting your forex broker, you must know who they are, what kind of products or services they offer and what their ratings are with the government authorities. We provide you with a check list to help you determine which forex broker is the right one for you.

Labels: forex storm articles, forex storm stuff

Accrual - The apportionment of premiums and discounts on forward exchange transactions that relate directly to deposit swap (Interest Arbitrage) deals , over the period of each deal.

Appreciation - A currency is said to 'appreciate' when it strengthens in price in response to market demand.

Arbitrage - The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market, in order to take advantage of small price differentials between markets.

Ask (Offer) Price - The price at which the market is prepared to sell a specific Currency in a Foreign Exchange Contract or Cross Currency Contract. At this price, the trader can buy the base currency. In the quotation, it is shown on the right side of the quotation. For example, in the quote USD/CHF 1.4527/32, the ask price is 1.4532; meaning you can buy one US dollar for 1.4532 Swiss francs.

Bear Market - Someone who believes the prices/market will decline.

Bid - The price that a buyer is prepared to purchase at; the price offered for a currency.

Bretton Woods Accord of 1944 - An agreement that established fixed foreign exchange rates for major currencies, provided for central bank intervention in the currency markets, and set the price of gold at US $35 per ounce. The agreement lasted until 1971. See More on Bretton Woods.

Bull Market - A market characterised by rising prices.

Broker - An agent who handles investors' orders to buy and sell currency. For this service, a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated.

Cable - Dealers slang for the Sterling/US Dollar exchange rate.

Call Rate - The overnight interbank interest rate.

Cash Market - The market for the purchase and sale of physical currencies.

Convertible Currency - Currency which can be freely exchanged for other currencies or gold without special authorisation from the appropriate central bank.

Counter Party - The customer or bank with whom a foreign deal is made. The term is also used in interest and currency swaps markets to refer to a participant in a swap exchange.

Cross Rate - An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies, measured against the United States dollar.

Currency Risk - The risk of incurring losses resulting from an adverse change in exchange rates.

Currency Swap - Contract which commits two counter-parties to exchange streams of interest payments in different currencies for an agreed period of time and to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.

Currency Option - Option contract which gives the right to buy or sell a currency with another currency at a specified exchange rate during a specified period.

Currency Swaption - OTC Option to enter into a currency swap contract.

Currency Warrant - OTC Option; long-dated (more than one year) currency option.

Day Trading - Refers to opening and closing the same position or positions within one day's trading.

Dollar Rate - When a variable amount of a foreign currency is quoted against one US Dollar, regardless of where the dealer is located or in what currency he is requesting a quote. The exception is the Sterling/US Dollar rate (cable) which is quoted as variable amount of US Dollars to one Sterling.

EMS - Abbreviation for European Monetary System, an agreement between member nations of the European Union to maintain an alignment between the exchange rates of their respective currencies.

European Monetary Unit - The principal goal of the EMU is to establish a single European currency called the Euro, which will officially replace the national currencies of the member EU countries in 2002. Currently, the Euro exists only as a banking currency and for paper financial transactions and foreign exchange. The current members of the EMU are Germany, France, Belgium, Luxembourg, Austria, Finland, Ireland, the Netherlands, Italy, Spain and Portugal.

Federal Reserve (Fed) - The Central Bank of the United States.

Fixed Exchange Rate - Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower bands, leading to intervention.

Flat / Square - To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out.

Floating Rate Interest - As opposed to a fixed rate, the interest rate on this type of deal will fluctuate with market rates or benchmark rates. One example of a floating rate interest is a standard mortgage.

Foreign Exchange Swap - Transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (short leg), at a date further in the future at a rate agreed at the time of the contract (the long leg).

Forward - A deal that will commence at an agreed date in the future. Forward trades in FX are usually expressed as a margin above (premium) or below (discount) the spot rate. To obtain the actual forward FX price, one adds the margin to the spot rate. The rate will reflect what the FX rate has to be at the forward date so that if funds were re-exchanged at that rate there would be no profit or loss (i.e. a neutral trade). The rate is calculated from the relevant deposit rates in the 2 underlying currencies and the spot FX rate. Unlike in the futures market, forward trading can be customized according to the needs of the two parties and involves more flexibility. Also, there is no centralized exchange.

Fundamental Analysis - Thorough analysis of economic and political data with the goal of determining future movements in a financial market.

GTC - "Good Till Cancelled". An order left with a Dealer to buy or sell at a fixed price. The order remains in place until it is cancelled by the client.

Hedging - The practice of undertaking one investment activity in order to protect against loss in another, e.g. selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits.

High/Low - Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.

Initial Margin - The required initial deposit of collateral to enter into a position as a guarantee on future performance.

Interbank Rates - The Foreign Exchange rates at which large international banks quote other large international banks.

Limit Order - An order to buy at or below a specified price or to sell at or above a specified price.

Long Position - A market position where the Client has bought a currency he previously did not hold own. Normally expressed in base currency terms.

Margin - Customers must deposit funds as collateral to cover any potential losses from adverse movements in prices.

Margin Call - A demand for additional funds. A requirement by a clearing house that a clearing member (or by a brokerage firm that a client) brings margin deposits up to a required minimu m level to cover an adverse movement in price in the market.

Market Maker - A dealer who supplies prices and is prepared to buy or sell at those stated bid and ask prices. A market maker runs a trading book.

Offer - The price, or rate, that a willing seller is prepared to sell at.

One Cancels Other Order (O.C.O. Order) - A contingent order where the execution of one part of the order automatically cancels the other part.

Open Position - Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.

Over The Counter (OTC) - Used to describe any transaction that is not conducted over an exchange.

Overnight Trading - Refers to a purchase or sale between the hours of 9.00 pm and 8.00 am. on the following day.

Pip (or Points) - The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and .01 in the case of USD/JPY).

Political Risk - The uncertainty in return on an investment due to the possibility that a government might take actions which are detrimental to the investor's interests.

Quote - An indicative market price, normally used for information purposes only.

Resistance - A price level at which you would expect selling to take place.

Risk Capital - The amount of money that an individual can afford to invest, which, if lost would not affect their lifestyle.

Rollover - Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies.

Settlement - Actual physical exchange of one currency for another.

Short - To go 'short' is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.

Spot - A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck.

Spread - The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity.

Stop Loss Order - An order to buy or sell at the market when a particular price is reached, either above or below the price that prevailed when the order was given.

Support Levels - A price level at which you would expect buying to take place.

Technical Analysis - An effort to forecast future market activity by analyzing market data such as charts, price trends, and volume.

Tomorrow to Next - Simultaneous buying and selling of a currency for delivery the following day and selling for the next day or vice versa.

Two-Way Price - Rates for which both a bid and offer are quoted.

US Prime Rate - The interest rate at which US banks will lend to their prime corporate customers.

Value Date - Settlement date of a spot or forward deal.

Variation Margin - An additional margin requirement that a broker will need from a client due to market fluctuation.

Volatility - A statistical measure of a market or a security's price movements over time and is calculated by using standard deviation. Associated with high volatility is a high degree of risk.

Whipsaw - slang for a condition of a highly volatile market where a sharp price movement is quickly followed by a sharp reversal.

Yard - Slang for a billion.

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