Analytical Forecast | Arbitrage | Ask | Balance | Bar (Candle) | Base Currency | Bretton Woods Agreement of 1944 | Broker | Bulls | Currency | Currency Basket | Currency Intervention | Currency Pair | Currency Risk | Dealer | Demo Account | Deposit | Discount Rate | Diversification | Exchange Rate | Fundamental Analysis | G7 | G8 | Interday Trading | Liquidity | Margin | NET Profit (Loss) | Point (Pips, Pip) | Resistance Level | Reuters | Short (Short Position) | Support Level | Trader | Trading Forecast | Volatility
An analytical forecast is the research and analysis of all the available information about a particular financial market in order to estimate the future trend price will take. An analytical forecast is performed primarily in regard to the direction of the rate movement of one or another financial instrument.
This is an operation when financial instruments are bought and sold at the same time in two or more interconnected markets, or within the same market but at different times. The purpose of the arbitrage is to make a profit from price differences. Arbitrage has become increasingly popular among hedge funds, which use computer robots to trade arbitrage situations within milli-seconds of them occurring.
How much one would pay when buying an asset.
This is the value that indicates the status of the trader’s trading account without considering open positions. That is, without the trades being carried currently. When open positions are closed, the balance is increased or decreased respectively, depending on the profit or loss.
This is a display of the price change of an asset for a certain period of time in a visual chart form. The values shown by the bar are: Open, High, Low and Close. The abbreviation is OHLC.
This is the first currency shown in a currency pair and is the one that is being quoted to buy or sell in a Forex transaction. For example, in the EUR/USD pair the EUR (Euro) is the base currency. When the pair moves higher the Euro is getting stronger and vice versa. And if you say you are buying the EUR/USD it means you are buying the Euro and selling the U.S. dollar.
BRETTON WOODS AGREEMENT OF 1944
It is an organizing principle of global financial relations and calculations, adopted at the Bretton Woods conference in 1944. Under this system, the role of international reserve currency is given to the dollar along with gold. The main provisions of the agreement state:
– The International Monetary Fund is announced as an important institution. It monitors international financial and economic relations;
– The US dollar and de facto pound sterling are beginning to play the role of international reserves;
– Adjustable currency parities, that are tied to the US dollar, are fixed (possible deviation – 1%);
– The dollar is tied to gold (ounce of gold – $35);
– By the end of the transitional period, all currencies should become convertible. To follow this principle, governments of all countries undertake to maintain international reserves and if it is necessary they must make intervention in the currency markets.
Members of the IMF contribute currency and gold.
Bretton Woods agreement existed until 1971 until the US President Nixon canceled it and set a floating rate on the major currencies.
A natural or legal entity with whom individual investors conduct their trading operations. All financial market transactions are usually carried out through an intermediary (broker). Nowadays, the brokerage activity in financial markets is mostly operated via the Internet and online trading platforms.
Market participants that aim to trade based on asset appreciation. It is rumored that this term is used because of the fact that the bulls strike with their horns in an upward motion. Thus, the market is compared with bulls, when most of the participants try to raise the price.
In the most general sense of the word, it is any item that can fulfill the function of money in a transactional goods exchange on the domestic or the international market. In the narrow sense of the word, it is the currency unit, a key component of the monetary system of any country, as well as the regional or world monetary system. This may be a banknote, coin, unit of account and other measures of value, which play the role of money.
Currencies can be and are traded on the world market. Currency prices are determined by their exchange rate. There are more than 70 currency pairs currently in the Forex market. The main market currencies are the US dollar, the Euro, the Swiss franc, the British pound, the Japanese yen, the Australian Dollar, the New Zealand Dollar, and the Canadian Dollar.
This is a method by which the currency parity is established and the average rate of one currency against the regulated set of foreign currencies is determined. The composition of the currency basket (currency components) is appointed depending on the purpose. A currency basket makes it easier to determine the relative strength or weakness of a single currency on a global basis.
This is a single significant impact of the Central Bank of any country on the currency market and the exchange rate. The impact is produced through the purchase or sale of large batches of foreign currency by the Central Bank. The currency intervention is done to adjust the foreign exchange rate in favor of the country performing the intervention.
It is the selected pair of currencies, on which rate of exchange a trader can play. Currency pairs are identified by abbreviations of currencies without any spaces. For example, the phrase “the exchange rate of the US Dollar against the Euro” can be written as EURUSD or EUR/USD. This currency pair purchase means the purchase of Euros and simultaneous sale of U.S. dollars. The first currency of the currency pair is called the base currency. It is sold or bought in exchange for the second currency of the pair.
It is the probability of financial losses because of the volatility of exchange rates that sometimes occurs. The exchange rate, if it is established taking into account the purchasing power of currencies, is very fluid and can change rapidly. The main factors that influence the exchange rate are the balance of payments, the level of inflation, and interest rates in the country which issues the currency. Political factors can also influence the value of a country’s currency, especially if they are political factors that introduce risk.
The dealer is a legal entity in the security market. As a professional market participant, he has the right to operate with securities in his own name and expense. To participate in the auction on the stock exchange a legal entity is required to have a license for the dealer activity. The dealer is a trader’s counterparty regarding each transaction on the stock exchange. All transactions are accomplished between a trader and a dealer.
A demo account allows traders to operate with virtual money to test trading strategies without any risk to their own capital.
Funds which a trader has placed into their trading account in a broker’s dealing center.
An interest rate, at which the Central Bank of the country provides loans to commercial banks.
Diversification is the participation in several asset classes at the same time. It is intended to reduce financial risks by spreading it across the various asset classes.
It is the cost of the currency of one country, expressed in terms of currency of another country. In the terms of a free market an exchange rate is set according to supply and demand.
Fundamental analysis is based on the connection of asset prices with the events in the world. There are four groups of factors which directly impact the market:
– Rumors and expectations;
– Force Majeure.
News in terms of its expectation is divided into:
– Accidental and unexpected news. Usually, it is the news of politics, ecology and environmental management. Less often, it can be economic news. (For example, political instability in the country, wars, natural disasters, etc.);
– Planned and expected news. Most often it is the news of the economy; rarely, the news of politics.
There is an axiom that any currency is derived from the country’s economic growth and its price can be adjusted with the help of certain economic measures. Economic factors that can impact exchange rates will include:
– the information about the country’s economic development;
– trade negotiations;
– the meetings of Central Banks;
– changes in monetary policy;
– the meetings of G7, economic or trade unions;
– statements of the Heads of Government, well-known experts on economic policy and situation;
– contiguous markets;
The union of seven countries with the most developed economies: Britain, France, Germany,Italy, Japan, Canada and the United States of America.
Since 1998 G7 has expanded to G8 with the inclusion of Russia.
The union of eight countries: Germany, France, Italy, Japan, the United States, Canada, the UK and the Russian Federation. G8 includes the largest and most economically developed countries. Since 1998 the representatives of these countries have been meeting together to develop a cooperative strategy in order to solve the problems of the global economy.
It is a strategy in which transactions in the financial markets are opened and closed within the same day.
The description for certain goods, assets or securities where they can be bought or sold in a short time and without any significant loss in cost. Currencies have the highest degree of liquidity.
A liquidity index is determined by trading volume. The more transactions operated with an asset, the higher its liquidity is. Currency markets have the highest liquidity.
Margin is an amount of money that is deposited with a broker as security for an account or transaction. It can also be money loaned to a customer by the broker so that the customer can conduct a transaction.
NET PROFIT (LOSS)
It is an indicator of effectiveness of a trading system. It corresponds to the ratio of profit or loss for a certain period of time that the trading system is in operation to the sum of the capital, expressed in percentage.
POINT (PIPS, PIP)
This is the smallest value of change in the currency price. For most currency pairs this is expressed as one ten-thousandth or 0.0001 as most currency pairs are quoted to the fourth decimal place like this. One notable exception is the USD/JPY currency pair which is only quoted to two decimal places and thus one pip in this pair is equal to one one-hundreth or 0.01. The term “PIP” is an acronym for Point in Percentage.
The resistance level is the price level of an asset that resists further gains for the asset price. This is often caused by a large number of sellers being present at such a level as it was previously a high point for the asset. Round number will also often act as resistance levels.
Reuters is considered to be the leader among the world’s news agencies for financial information. The founder is Paul Julius Reuter. Reuters was founded as a news agency in London in 1851. It unites more than 2,000 journalists, photographers and cameramen. The Reuters information of financial and commodity markets is available through the iScreen terminal.
SHORT (SHORT POSITION)
This is the position taken by a seller of an asset in a margin account. In essence, the speculator will borrow the asset from the broker to sell it, hoping for the price to decline further so he can then buy it at a lower price and return it to the broker.
A support level is a price level where a large number of buyers are forecasted to enter the market, which keeps price from falling lower, or supports price. As a rule, the level of support is a predictable value of the price pullback or the low price of any previous period.
An individual or entity that buys and sells financial assets in order to make profit.
This is an estimate of future financial market trends created by studying and analyzing the available data. The trading forecast should always have a scientific basis. It can report about the exact state of the market in the particular future time (i.e. specify the price or prices level), as well as the trend, volatility, and strength of market movements. Once the trading forecast has been created it is used to create a trading strategy or plan. A trading forecast is not static, but rather evolves over time, just as the markets themselves evolve.
Volatility is a statistical indicator that characterizes the trend and range of price changes from the maximum to minimum point during a trading session, trading day, week, month, etc. As a rule, if the range (volatility) is higher, the risk of your transactions will be higher, too. Traders consider volatility as a key indicator when deciding whether to open a position on buying/selling a particular currency or not. Technical indicators include such volatility indicators as Bollinger Bands, CCI (Commodity Channel Index), ATR (Average True Range) and others.