A 24-hour market
A trader may take advantage of all profitable market conditions at any time. There is no waiting for the opening bell.
The Forex market with an average trading volume of over $1.3 trillion per day. It is the most liquid market in the world. It means that a trader can enter or exit the market at will in almost any market condition minimal execution marries or risk and no daily limit.
Low transaction cost
The retail transaction cost (the bid/ask spread) is typically less than 0.1% (10 pips or points) under normal market conditions. At larger dealers, the spread could be smaller.
Uncorrelated to the stock market
A trader in the Forex market involves selling or buying one currency against another. Thus, there is no correlation between the foreign currency market and the stock market. Bull market or a bear market for a currency is defined in terms of the outlook for its relative value against other currencies. If the outlook is positive, we have a bull market in which a trader profits by buying the currency against other currencies. Conversely, if the outlook is pessimistic, we have a bull market for other currencies and traders take profits by selling the currency against other currencies. In either case, there is always a good market trading opportunity for a trader.
The backbone of the Forex market consists of a global network of dealers. They are mainly major commercial banks that communicate and trade with one another and with their clients through electronic networks and telephones. There are no organized exchanges to serves a central location to facilitate transactions the way the New York Stock Exchange serves the equity markets. The Forex market operates in a manner similar to the way the NASDAQ market in the United States operates, thus it is also referred to as an over the counter ( OTC ) market.
No one can corner the market
The Forex market is so vast and has so many participants that no single entity, not even a central bank, can control the market price for an extended period of time. Even interventions by mighty central banks are becoming increasingly ineffectual and short lived. Thus central banks are becoming less and less inclined to intervene to manipulate market prices.
The simultaneous buying of one currency and selling of another.
Foreign Exchange Market
An informal network of trading relationships between the world's major banks and other market participants sometimes referred to as the 'interbank' market. The foreign exchange market has no central clearinghouse or exchange, and is considered an over-the-counter (OTC) market.
Market for buying and selling currencies usually for settlement within two business days (the value date). USD/CAD = 1 day.
The process whereby the settlement of a transaction is rolled forward to the next value date, typically at 5PM EST/10PM GMT. If you open a position on Monday, the settlement date is Wednesday, however, if you hold this position past rollover on Monday, the new value date is Thursday. Most brokers will automatically roll over your open positions, allowing you to hold a position for an indefinite period of time. The cost of this process is based on the interest rate differential between two currencies. Depending on your broker's rollover policy, if you are holding a currency with a higher rate of interest in the pair, you will earn interest, however if you are holding a currency with a lower rate of interest in the pair, you will pay it.
The value of one currency expressed in terms of another. For example, if the EUR/USD exchange rate is 1.3200, 1 Euro is worth US$1.3200.
A market maker provides liquidity in a particular financial instrument and stands ready to buy or sell that instrument by displaying a two-way price quote. A market maker takes the opposite side of your trade.
A firm that matches buyer and seller together for a fee or a commission.
The smallest price increment a currency can make. Also known as points. For example, 1 pip = 0.0001 for EUR/USD, or 0.01 for USD/JPY lot The standard unit size of a transaction. Typically, one standard lot is equal to 100,000 units of the base currency, and 10,000 units for a mini.
The value of a pip. To calculate pip value, divide 1 pip by the exchange rate and then multiply it by the number of units traded. So for example, to calculate the pip value for USD/CHF, divide 0.0001 by the current exchange rate of 1.2765 and multiply it by 100,000 to get a pip value of $7.83. For EUR/USD, divide 0.0001 by the current exchange rate of 1.2075 and multiply it by 100,000 to get a pip value of €8.28. To convert this back to US dollars, multiply it by the current exchange rate of 1.2075 to get a pip value of $10.
The difference between the sell quote and the buy quote. For example, if the quote for
EUR/USD reads 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to break even on your trade, your position must move in your direction by an amount equal to the spread.
Trading with standard lot sizes
Trading with mini lot sizes
The deposit required to open a position. A 1% margin requirement allows you to trade a $100,000 lot with a $1,000 deposit. A mini account is 1/10th of a standard account. A 1% margin requirement allows you to trade a $10,000 lot with a $100 deposit.
Leverage The effective buying power of your funds expressed as a ratio. Calculated by the amount of times the notional value of your transaction exceeds the margin required to trade. e.g. 100:1 leverage allows you to control a $100,000 position with a $1,000 deposit. You can get leverages as high as 400:1 with some brokers.
A position whereby the trader profits from an increase in price. (Buy low, sell high)
A position whereby the trader profits from a decrease in price. (Sell high, buy lower)
An order at the current market price
An order that is executed when the price touches a pre-specified level
Limit Entry Order
An order to buy below or sell above the market at a pre-specified level, believing that the price will reverse direction from that point.
An order to buy above or sell below the market at a pre-specified level, believing that the price will continue in the same direction from that point.
An order to take profits at a pre-specified level
An order to limit losses at a pre-specified level
One Cancels the Other. Two orders whereby if one is executed, the other is cancelled.
The difference in pips between the order price and the price the order is executed at.
Artical Source By GTL
A 24-hour market