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Feb. 07, 2012 11:18:29 GMT +1

EURUSD 1.31286/1.31312

USDJPY 76.538/76.560

GBPUSD 1.58206/1.58246

USDCHF 0.91833/0.91883

EURJPY 100.487/100.537

GBPJPY 121.093/121.163

EURGBP 0.82960/0.83010

GBPCHF 1.45315/1.45385

Intermediate Course

Risk & Money Management

Just as it is important to understand the forex mechanics, proper risk management is a vital tool to maximize your trades.

Economic Indicators

Financial statistics and economic data published regularly by governmental agencies and the private sector, which has an influence in the forex market.

Technical Analysis

Takes into account the price of devices and the volume of trading, and creates charts from that data to use as the principal tool.

Chart Analysis

One major advantage of chart analysis is that an experienced analyst can follow and detect the movement of the market through some form of visualization.

Advanced Course

Trading System Development

In creating a trading system, one should take into consideration one's personality in order not to have much difficulty following it and as for it to generate consistent results.

Trading Styles

Various trading styles help traders to efficiently place their positions, which reflects the personality and character of a traders.

Market Behavior on Commodity

Commodity Currencies are currencies of countries which depend heavily on the export of certain raw materials for income

Combining Economic Releases

An experienced trader would know the strong relationship of economic indicators and technical indicators in their influence in the forex market.

Basic Course

Back to Education Main Page

About Forex
Major Currencies Traded
Market Participants
Forex Mechanics

About Forex

The Foreign Exchange market, also known as Forex or FX is where financial institutions facilitate the buying and selling of foreign currencies. It is referred to as the closest market to the ideal perfect competition, notwithstanding the market manipulation by central banks. The Forex market is highly characterized by the volatility and liquidity of currencies moving in strong trends with leverages of up to 400 times. In 2007, the global Forex market turnover was estimated at $3.98 Trillion per day.

Forex vs. Stocks

A Comparative Look of the Forex and Stock Markets

Forex vs. Stocks
Foreign Exchange Market	Stock Market
24 Hour Trading Market	Limited Trading Time Of Less Than 7 Hours
No Commissions	Commission And Transaction Fees
Unlimited Short Selling	Uptick Rule Is Applied
Easy Access To Market Information	Unbalanced Market Information
Decentralized Exchanges	Centralized Market

Trade Around the Clock
The foreign exchange market is a near-seamless 24-hour market, which is open from 4:00 PM EST, Sunday until 4:00 PM EST, Friday. With the ability to trade around the clock, currency traders have the advantage of customizing their own trading schedule; they can usually get in or out of the market at any time without waiting for an opening bell or encountering a market gap. Though trading stocks after usual market hours is possible, very often that possibility is negated by a lack of order flow or a drastic widening of the bid-ask spread.

Pay No Commissions*
In the foreign exchange market, costs are confined to the bid-ask spread. PSS FOREX charges no commission or additional transaction fees, and its customers' trade on spreads provided to PSS FOREX by some of the world's largest banks via the FX Trading Station. In the stock market, "no-fee" programs are frequently offered only with provisions mandating minimum account balances or minimum trades per month. *PSS FOREX is compensated through the bid/ask spread except where otherwise noted. Please note commission charges apply for certain classes of non-standard accounts such as Active Trader.

No Uptick Rule
Unlike the equity market, there is no restriction on short selling in the foreign exchange market – no matter which way the market is moving. Since currency trading involves buying one currency and selling another, a trader has the same ability to trade in a rising market as in a falling one.

Foreign Exchange Market Information Easily Accessible
Information about stocks is abundant, but so are the stocks. Finding a trade opportunity in the equities markets may mean sifting through data on thousands of stocks, while the foreign exchange trader has only six major currencies to research. Additionally, the vital information that moves equity markets, such as revenues and profits, is proprietary and private, and sometimes subject to fraud, deception and insider trading. In contrast, virtually all of the news that bears on the foreign exchange market is in publicly disseminated reports from governments or research institutions, and released to everybody at the same time.

The knowledge that can be gained from analyzing stocks is easily transferable to the foreign exchange market. Many of the economic indicators familiar to equity traders, such as payroll data and interest rates, affect the currency markets. Likewise, many technical traders have found the foreign exchange market to be particularly attractive, since currencies respond well to many of the common technical indicators, such as MACD, RSI, and Candlestick charting.

No Intermediaries
Centralized exchanges prove to be advantageous to traders all over the world. However, as with any centralized exchange, there are middlemen to contend with, which add extra cost to investors whether it be in time or in fees.

In contrast, foreign exchange trading is decentralized, which means quotes can vary from different currency dealers. The competition between foreign exchange dealers is so poignant that traders are offered quicker access and cheaper costs. More so that foreign exchange can now be traded electronically via the internet, even the smallest individual is able to trade in the currency market, and individuals can reap quick and pronounced profits – unrestricted by leverage and other requirements.

USD

•	Known as the United States dollar
•	Also known as Greenback or Buck
•	Accounts to 86.3% of all global Forex transactions
•	The most common investment currency in the International Capital Market
•	The most preserved currency held by central banks
•	High transactional capability in the Commodity Market
•	High intervention power employed by money authorities in market operations to influence exchange rates

EUR

•	Known as the European Union Euro
•	Also known as Fiber
•	Accounts to 37.0% of all global Forex transactions
•	Used by 17 of the 27 EU member states
•	The second largest reserve currency as well as the second most traded currency in the world after the United States dollar
•	Over 175 million people worldwide use currencies which are pegged to the Euro, including more than 150 million people in Africa

GBP

•	Known as the Great Britain Pound
•	Also known as Cable or Sterling
•	Accounts to 15.0% of all global Forex transactions
•	Used by 16 of the 27 EU member states
•	The fourth most traded currency in the foreign exchange market, after the US dollar, the Euro and the Japanese yen

CHF

•	Known as the Switzerland Franc
•	Also known as Swissie
•	Accounts to 16.8% of all global Forex transactions
•	The only version of the Franc still issued in Europe.

JPY

•	Known as the Japanese Yen
•	Accounts to 16.5% of all global Forex transactions
•	The third most traded currency in the foreign exchange market, after the US dollar and the Euro

Banks

Banks in the foreign exchange market are basically the biggest participants accounting to almost 2/3 of all foreign exchange transactions. These commercial banks earn profits by buying and selling currencies through and from each other, catering both the majority of commercial turnover and large amounts of speculative trading every day.

Commercial and Multi-National Companies

Commercial Companies with global coverage and offices, under the foreign exchange market, require foreign currencies in their course of doing business or making investments elsewhere.

Central Banks

Central Banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates, and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime.

Hedge Funds

Hedge Funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge fund's favor.

Investment Management Firms

Investment Management Firms who typically manage large accounts on behalf of customers such as pension funds and endowments use the foreign exchange market to facilitate transactions in foreign securities.

Retail Forex Brokers

In the foreign exchange market, brokers act as intermediaries between banks by providing information to where dealers can get the best prices for the currencies.

Currency Pair

A currency pair is always traded in pairs written just like EURUSD. The first currency is known as the base currency, and it shows how much it is worth as measured against the second currency. The second currency is known as the quote or pip currency, and any unrealized profit or loss is expressed in this currency.

Bid/Ask Price

The highest price that a buyer is willing to buy a currency pair is called the Bid Price.
Example: 1.0120/1.0126
Also known as the Offer Price or Asking Price; the ask price is the highest price that a seller is willing to accept for a currency pair.
Example: 1.0120/1.0126

Types of Orders

Market Order
Market Order refers to entering and exiting the market as soon as the trader's order can be filled, regardless of the price. The most advantageous aspect of the market order is the ability for the trader to capture better fills.
Limit Order
A Limit Order indicates that the trader wants to buy or sell a given currency at a specific price or better taking into account the length of time an order can be outstanding before being cancelled.
Stop Order
A Stop Order specifies a price at which the trader wants to buy above the market or sell below the market at a pre-specified level, believing that the price will continue in the same direction.

Common Forex Terms

Lot Size
The standard unit size of a transaction. Typically, one standard lot is equal to 100,000 units of the base currency, 10,000 units if it is a mini, or 1,000 units if it is a micro. Some dealers offer the ability to trade in any unit size, down to as little as 1 unit.
Leverage and Margin
Leverage is referred to as the ratio of the amount of capital used in a transaction to the required security deposit with the ability to control large dollar amounts of a security with a relatively small amount of capital. Margin is referred to as the amount of capital needed as a deposit to open and maintain a position. A margin is not a fee or a transaction fee taken against the client, but instead it is a percentage of the full amount of the position allocated as a margin deposit.
Example: Let us say that the client has a $10,000 account with a brokerage. The client trade ticket sizes of 1,000,000 EURUSD. This equates to a margin ratio of 1% ($10,000 is 1% of $1,000,000) 100:1 leverage. How can the client trade 100 times the amount of money in his disposal? The answer is that the brokerage temporarily gives every client necessary credit to make margin trading transactions possible. Without the margin, the client would only be buying and selling currency pairs of $10,000 at a time.
Pip
The most common increment of currencies is known as the Pip. It is the smallest value change in a currency pair's exchange rate.
Example: 1 pip = 0.0001 for Non-JPY Pairs (EURUSD, GBPUSD, etc.) 1 pip = 0.01 for JPY Pairs (USDJPY, GBPJPY, etc.)
Swap
The Swap, also known as a rollover, pertains to the process of extending the settlement data of open trading positions. The swap is a fee calculated by the difference in the interest rates that apply to the two currencies in the traded pair. If the interest on the base currency is higher than that of the quote currency, the client will earn a positive swap. On the contrary, when the interest rate of the quote currency is higher than that of the base currency, the client incurs a negative swap by which it can add significant extra cost to the profit or loss of the trade.
Example: When a client buys a currency pair, let us say for example the EURUSD, the client is buying the EUR, and selling the USD. If the EUR's interest rate is bid at 1.0%, and the USD's interest rate is at 0.1%, the client is buying the currency with the higher interest rate which results to a positive swap of about 0.9% on an annual basis.

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