Forex Platforms

Common Currency Trading Terms

When FX trading, it is a good idea to have some familiarity with basic terms that you will come across. Whether reading about the foreign currency exchange, or just understanding the jargon used by forex brokers, it is a good idea to have a basic knowledge of what common currency trading terms mean. Here are some terms forex brokers and others sometimes use in association with foreign exchange:

Leverage: This is the amount of money you are borrowing from forex brokers to make your FX trade. If you have 200:1 leverage, you pay 0.5% of what you are using to control your position, and the rest of the money comes from the forex broker.

Spread: This is the difference between the bid price and the ask price. You make a profit in currency trading when you overcome the spread.

Support: The level at which a forex trend changes from bearish to bullish.

Resistance: The opposite of support: The FX trend switches from bullish to bearish.

Pip: A term that stands for “percentage in point.” This is the smallest change that can be made to a currency rate.

Scalping: A technique that helps you get between three and five points per trade by using foreign currency pairs with low spreads. Most scalping trades last only a few seconds to a few minutes.

Margin call: Forex brokers often monitor your margin requirements. When the equity of your forex trading account drops below your usable margin, your open positions on the foreign exchange market are closed to keep your losses from mounting.

Cable: This is the nickname for the Great Britain pound and U.S. dollar foreign currency pair on the FX market.

Greenback, buck: Nicknames indicating the U.S. dollar in online currency trading.

Sterling: A nickname used for the Great Britain pound.

Fiber: A nickname used to indicate the euro currency.

Loonie: The currency exchange nickname for the Canadian dollar.

Kiwi: The FX trading nickname for the New Zealand Dollar.

Tags: currency, Forex Trading

Forex Trading: Fundamental Analysis

When deciding on forex strategies, it is often helpful to have some method of analysis that you can use to help you determine what is most likely to happen in currency trading. You can either use fundamental analysis or technical analysis. Fundamental analysis is more of the “big picture” view of the forex market.

While you can use forex trading charts to help you get a more complete picture of foreign currency rates, fundamental analysis focuses more on the underlying factors affecting price movement. The idea is to look at the fundamentals that support a certain foreign currency, most often considering factors that have to do with the economy attached to that currency.

Fundamental analysis makes use of such items as economic policy, political currents, events and the state of the economy (with the help of economic data). In forex trading, these macro-events often influence the way traders view a currency. In foreign exchange trading, perception is important. If political unrest makes forex traders nervous about a certain country’s assets, then that currency is likely to be bid lower when it comes time to make an FX trade.

Economic data is also very important to fundamental analysis. A currency is most often supported well when its economy is growing. In the euro exchange, economic news coming out of Germany plays a big role. When expansion is seen, and when business confidence is high in Germany, the whole euro zone benefits. When the euro zone is perceived as having a stronger economic outlook than the U.S., then the euro currency does better in forex trading.

Another consideration in fundamental analysis is often commodities. With commodity currencies, the way that the commodities market moves is important. These currencies rely on exports – such as oil, timber and precious metals – to support their currency. When global trade is up, commodity currencies normally do well, and forex trading charts are not needed to see that things are going well for certain currencies.

Paying attention to price action is still somewhat important to fundamental analysis, but it is not the only thing. Fundamental analysis requires that some attention is paid to underlying factors when online forex trading decisions are made.

Tags: analysis, Fundamental Analysis

Consider a Forex Mini Account

One of the issues that have plagued forex trading for years is the image that one must be very wealthy in order to trade on the currency market. This, however, is untrue. With the advent of online forex trading, and new products and services designed to make FX trading possible for nearly anyone, the foreign exchange market is now easily accessible. If you do not have the money to open a regular online trading account through a forex platform, it is possible to do so with a forex mini account.

What is a forex mini account?

With a regular forex trading account, you are usually required to make an opening deposit of $2,500. This kind of capital may be hard to scrape together in some cases. However, many forex brokers – including dbFX – now offer what is known as a forex mini account. Instead of requiring $2,500, you are only required to start with $250 to open an account. This makes trading on the forex market a little easier and less expensive.

Of course, with this lower capital requirement comes a limit on the size of the position you can control. With a regular account, you can control 100,000 units. With the forex mini account, however, you can usually only control 10,000 units at a time. This means that your profits will be lower. This is common with currency trading (or any investing): The smaller your position, the smaller your profits. Deutsche Bank, through its dbFX online forex trading platform, offers the opportunity to control varying positions, in increments of 10,000 units, depending on how much capital you have. Many forex brokers only offer the option of controlling 10,000 units or 100,000 units, but with dbFX, there is the opportunity to control between 30,000 units (or less) and 120,000 units (or more).

A forex mini account can be very helpful for those starting out with foreign exchange trading. The smaller capital requirements and lot sizes can limit losses so that things don’t get too out of hand. In fact, a forex mini account is often used as the second step in learning currency trading – after learning the basics with a free FX trading account.

Tags: mini account

What is Financial Spread Betting?

One of the areas of making money off the financial markets is spread betting. Financial spread betting is a method of earning returns that requires speculation on the movements of financial markets and individual financial instruments. Financial spread betting is not permitted in the U.S., but it is available in the United Kingdom, where it is popular due to its exemption from capital gains taxes.

When you place a spread bet, you are essentially placing a wager. There is an active market on both sides of the spread bet, allowing for you to short the market or financial instrument. (Shorting is betting that it will lose in value.) A point spread is used to put both sides of the wager on a somewhat even footing. The difference between the bid and offer prices represents the spread. This is usually set by the spread betting company. You do not own or trade the underlying financial instrument; rather, you simple speculate on price movements.

Here is an example of how spread betting might work with a stock:

Company A has a price of $92. The spread betting company offers a quote of $90. You can place a spread bet of $3 for every dollar that the price moves below $90. After five days, you see that the price of Company A has dropped to $85. You have gained $15 ($3 multiplied by the five points the stock price fell below $90). The flip side, though, is that you lose if the Company A’s stock price increases. If it rises to $98, you lose $24 dollars — $3 for each dollar above $90.

Financial spread betting is possible with more than individual stocks. It is possible to place spread bets on stock indexes and even place performance bets on the likelihood of an event (such as the cost for the NYSE and EuroNext merger). Spread betting is possible on the commodities market, forex market and bond market. Indeed, any financial instrument or index can be used for spread betting.

It is important to remember that placing a spread bet can be risky. Financial markets are volatile, and if you are wrong, you stand to lose a great deal of money.

Tags: financial spread betting