Forex In Islamic Prespective

1. The Basic Exchange Contracts
image There is a general consensus among Islamic jurists on the view that currencies of different countries can be exchanged on a spot basis at a rate different from unity, since currencies of different countries are distinct entities with different values or intrinsic worth, and purchasing power. There also seems to be a general agreement among a majority of scholars on the view that currency exchange on a forward basis is not permissible, that is, when the rights and obligations of both parties relate to a future date. However, there is considerable difference of opinion among jurists when the rights of either one of the parties, which is same as obligation of the counterparty, is deferred to a future date.

To elaborate, let us consider the example of two individuals A and B who belong to two different countries, India and US respectively. A intends to sell Indian rupees and buy U.S dollars. The converse is true for B. The rupee-dollar exchange rate agreed upon is 1:20 and the transaction involves buying and selling of $50. The first situation is that A makes a spot payment of Rs1000 to B and accepts payment of $50 from B. The transaction is settled on a spot basis from both ends. Such transactions are valid and Islamically permissible. There are no two opinions about the same. The second possibility is that settlement of the transaction from both ends is deferred to a future date, say after six months from now. This implies that both A and B would make and accept payment of Rs1000 or $50, as the case may be, after six months. The predominant view is that such a contract is not Islamically permissible. A minority view considers it permissible. The third scenario is that the transaction is partly settled from one end only. For example, A makes a payment of Rs1000 now to B in lieu of a promise by B to pay $50 to him after six months. Alternatively, A accepts $50 now from B and promises to pay Rs1000 to him after six months. There are diametrically opposite views on the permissibility of such contracts which amount to bai-salam in currencies. The purpose of this paper is to present a comprehensive analysis of various arguments in support and against the permissibility of these basic contracts involving currencies. The first form of contracting involving exchange of countervalues on a spot basis is beyond any kind of controversy. Permissibility or otherwise of the second type of contract in which delivery of one of the countervalues is deferred to a future date, is generally discussed in the framework of riba prohibition. Accordingly we discuss this contract in detail in section 2 dealing with the issue of prohibition of riba. Permissibility of the third form of contract in which delivery of both the countervalues is deferred, is generally discussed within the framework of reducing risk and uncertainty or gharar involved in such contracts. This, therefore, is the central theme of section 3 which deals with the issue of gharar. Section 4 attempts a holistic view of the Sharia relates issues as also the economic significance of the basic forms of contracting in the currency market.
2. The Issue of Riba Prohibition
The divergence of views1 on the permissibility or otherwise of exchange contracts in currencies can be traced primarily to the issue of riba prohibition.

The need to eliminate riba in all forms of exchange contracts is of utmost importance. Riba in its Sharia context is generally defined2 as an unlawful gain derived from the quantitative inequality of the countervalues in any transaction purporting to effect the exchange of two or more species (anwa), which belong to the same genus (jins) and are governed by the same efficient cause (illa). Riba is generally classified into riba al-fadl (excess) and riba al-nasia (deferment) which denote an unlawful advantage by way of excess or deferment respectively. Prohibition of the former is achieved by a stipulation that the rate of exchange between the objects is unity and no gain is permissible to either party. The latter kind of riba is prohibited by disallowing deferred settlement and ensuring that the transaction is settled on the spot by both the parties. Another form of riba is called riba al-jahiliyya or pre-Islamic riba which surfaces when the lender asks the borrower on the maturity date if the latter would settle the debt or increase the same. Increase is accompanied by charging interest on the amount initially borrowed.

The prohibition of riba in the exchange of currencies belonging to different countries requires a process of analogy (qiyas). And in any such exercise involving analogy (qiyas), efficient cause (illa) plays an extremely important role. It is a common efficient cause (illa), which connects the object of the analogy with its subject, in the exercise of analogical reasoning. The appropriate efficient cause (illa) in case of exchange contracts has been variously defined by the major schools of Fiqh. This difference is reflected in the analogous reasoning for paper currencies belonging to different countries.

A question of considerable significance in the process of analogous reasoning relates to the comparison between paper currencies with gold and silver. In the early days of Islam, gold and silver performed all the functions of money (thaman). Currencies were made of gold and silver with a known intrinsic value (quantum of gold or silver contained in them). Such currencies are described as thaman haqiqi, or naqdain in Fiqh literature. These were universally acceptable as principal means of exchange, accounting for a large chunk of transactions. Many other commodities, such as, various inferior metals also served as means of exchange, but with limited acceptability. These are described as fals in Fiqh literature. These are also known as thaman istalahi because of the fact that their acceptability stems not from their intrinsic worth, but due to the status accorded by the society during a particular period of time. The above two forms of currencies have been treated very differently by early Islamic jurists from the standpoint of permissibility of contracts involving them. The issue that needs to be resolved is whether the present age paper currencies fall under the former category or the latter. One view is that these should be treated at par with thaman haqiqi or gold and silver, since these serve as the principal means of exchange and unit of account like the latter. Hence, by analogous reasoning, all the Sharia-related norms and injunctions applicable to thaman haqiqi should also be applicable to paper currency. Exchange of thaman haqiqi is known as bai-sarf, and hence, the transactions in paper currencies should be governed by the Sharia rules relevant for bai-sarf. The contrary view asserts that paper currencies should be treated in a manner similar to fals or thaman istalahi because of the fact that their face value is different from their intrinsic worth. Their acceptability stems from their legal status within the domestic country or global economic importance (as in case of US dollars, for instance).

More Comprehensive see ISLAMIC FOREX TRADING by Dr Mohammed Obaidullah

Understanding FOREX TRADING Terms

Forex Trading Glossary of Terms

A

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.

Actualize: The underlying assets or instruments which are traded in the cash market.

Adjustable Peg: Term for an exchange rate regime where a country's exchange rate is "pegged" (i.e. fixed) in relation to another currency, often the dollar or French Franc, but where the rate may be changed from time to time. This was the basis of the Bretton Woods system. See peg, and crawling peg.

Adjustment: Official action normally by either change in the internal economic policies to correct a payment imbalance or in the official currency rate or.

Agent Bank: (1) A bank acting for a foreign bank. (2) In the Euro market - the agent bank is the one appointed by the other banks in the syndicate to handle the administration of the loan.

Aggregate Demand: Total demand for goods and services in the economy. It includes private and public sector demand for goods and services within the country and the demand of consumers and and firms in other countries for good and services.

Aggregate Risk: Size of exposure of a bank to a single customer for both spot and forward contracts.

Aggregate Supply: Total supply of goods and services in the economy from domestic sources (including imports) available to meet aggregate demand.

Agio: Difference in the value between currencies. Also used to describe percentage charges for conversion from paper money into cash, or from a weak into a strong currency.

Appreciation: Describes a currency strengthening in response to market demand rather than by official action.

Arbitrage: The simultaneous purchase and sale on different markets, of the same or equivalent financial instruments to profit from price or currency differentials. The exchange rate differential or Swap points. May be derived from Deposit Rate differentials.

Arbitrage Channel: The range of prices within which there will be no possibility to arbitrage between the cash and futures market.

Around: Used in quoting forward "premium / discount". "Five-five around" would mean five point on either side of the present spot value.

Asset Allocation: Dividing instrument funds among markets to achieve diversification or maximum return.

Ask: The price at which the currency or instrument is offered.

Asset: In the context of foreign exchange is the right to receive from a counterparty an amount of currency either in respect of a balance sheet asset (e.g. a loan) or at a specified future date in respect of an unmatched forward Forward or spot deal.

At Best: An instruction given to a dealer to buy or sell at the best rate that can be obtained.

At or Better: An order to deal at a specific rate or better.

Authorized Dealer: A financial institution or bank authorized to deal in foreign exchange.

B

Back Office: Settlement and related processes.

Backwardation: Term referring to the amount that the spot price exceeds the forward price.

Balance of Payments: A systematic record of the economic transactions during a given period for a country. (1) The term is often used to mean either: (i) balance of payments on "current account"; or (ii) the current account plus certain long term capital movements. (2) The combination of the trade balance, current balance, capital account and invisible balance, which together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital transfers, and or decline in currency values.

Band: The range in which a currency is permitted to move. A system used in the ERM.

Bank Line: Line of credit granted by a bank to a customer, also known as a "line".

Bank Rate: The rate at which a central bank is prepared to lend money to its domestic banking system.

Base Currency: The currency in which the operating results of the bank or institution are reported.

Basis: The difference between the cash price and futures price.

Basis Point: One per cent of one per cent.

Basis Trading: Taking opposite positions in the cash and futures market with the intention of profiting from favorable movements in the basis.

Basket: A group of currencies normally used to manage the exchange rate of a currency. Sometimes referred to as a unit of account.

Bear Market: A prolonged period of generally falling prices.

Bear: An investor who believes that prices are going to fall.

Bid: The price at which a buyer has offered to purchase the currency or instrument.

Book: The summary of currency positions held by a dealer, desk, or room. A total of the assets and liabilities. If the average maturity of the book is less than that of the assets, the bank is said to be running a short and open book. Passing the Book refers normally to transferring the trading of the Banks positions to another office at the close of the day, e.g. from London to New York.

Bretton Woods: The site of the conference which in 1944 led to the establishment of the post war foreign exchange system that remained intact until the early 1970s. The conference resulted in the formation of the IMF. The system fixed currencies in a fixed exchange rate system with 1% fluctuations of the currency to gold or the dollar.

Broker: An agent, who executes orders to buy and sell currencies and related instruments either for a commission or on a spread. Brokers are agents working on commission and not principals or agents acting on their own account. In the foreign exchange market brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties. There are four or five major global brokers operating through subsidiaries affiliates and partners in many countries.

Bull Market: A prolonged period of generally rising prices.

Bull: An investor who believes that prices are going to rise.

Bundesbank: Central Bank of Germany.

Buying Rate: Rate at which the market and a market maker in particular is willing to buy the currency. Sometimes called bid rate.

C

Cable: A term used in the foreign exchange market for the US Dollar / British Pound rate.

Capital Risk: The risk arising from a bank having to pay to the counter party with out knowing whether the other party will or is able to meet its side of the bargain. see Herstatt.

Carry: The interest cost of financing securities or other financial instruments held.

Cash Delivery: Same day settlement.

Cash Market: The market in the actual financial instrument on which a futures or options contract is based.

Cash: Cash normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries which rely for foreign exchange services on these markets because of time zone preference i.e. Latin America. In Europe and Asia, cash transactions are often referred to as value same day deals.

Cash and Carry: The buying of an asset today and selling a future contract on the asset. A reverse cash and carry is possible by selling an asset and buying a future.

Cash Settlement: A procedure for settling futures contract where the cash difference between the future and the market price is paid instead of physical delivery.

Central Bank: A bank which is responsible for controlling a countries monetary policy. It is normally the issuing bank and controls bank licensing, and any foreign exchange control regime.

Central Rate: Exchange rates against the ECU adopted for each currency within the EMS. Currencies have limited movement from the central rate according to the relevant band.

Chartist: An individual who studies graphs and charts of historic data to find trends and predict trend reversals which include the observance of certain patterns and characteristics of the charts to derive resistance levels, head and shoulders patterns, and double bottom or double top patterns which are thought to indicate trend reversals.

Clean Float: An exchange rate that is not materially effected by official intervention.

Closed Position: A transaction which leaves the trade with a zero net commitment to the market with respect to a particular currency.

Commission: The fee that a broker may charge clients for dealing on their behalf.

Confirmation: A memorandum to the other party describing all the relevant details of the transaction.

Contract: An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future (See Futures contract).

Conversion Account: A general ledger account representing the uncovered position in a particular currency. Such accounts are referred to as Position Accounts.

Conversion: The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

Conversion Arbitrage: A transaction where the asset is purchased and buys a put option and sells a call option on the asset purchased, each option having the same exercise price and expiry.

Convertible Currency: A currency that can be freely exchanged for another currency (and or gold) without special authorization from the central bank.

Copey: Slang for the Danish krone.

Correspondent Bank: The foreign banks representative who regularly performs services for a bank which has no branch in the relevant centre, e.g. to facilitate the transfer of funds. In the US this often occurs domestically due to inter state banking restrictions.

Counterparty: The other organisation or party with whom the exchange deal is being transacted.

Countervalue: Where a person buys a currency against the dollar it is the dollar value of the transaction.

Country Risk: The risk attached to a borrower by virtue of its location in a particular country. This involves examination of economic, political and geographical factors. Various organisations generate country risk tables.

Cover: (1) To take out a forward foreign exchange contract. (2) To close out a short position by buying currency or securities which have been sold.

Covered Arbitrage: Arbitrage between financial instruments denominated in different currencies, using forward cover to eliminate exchange risk.

Covered Margin: The interest rate margin between two instruments denominated in different currencies after taking account of the cost of forward cover.

Crawling Peg: A method of exchange rate adjustment; the rate is fixed / pegged, but adjusted at certain intervals in line with certain economic or market indicators.

Credit Risk: The risk that a debtor will not repay; more specifically the risk that the counterparty does not have the currency promised to be delivered.

Cross Deal: A foreign exchange deal entered into involving two currencies, neither of which is the base currency.

Cross Rates: Rates between two currencies, neither of which is the US Dollar.

Current Account: The net balance of a country's international payment arising from exports and imports together with unilateral transfers such as aid and migrant remittances. It excludes capital flows.

D

Day Trader: Speculators who take positions in commodities which are then liquidated prior to the close of the same trading day.

Deal Date: The date on which a transaction is agreed upon.

Deal Ticket: The primary method of recording the basic information relating to a transaction.

Dealer: An individual or firm acting as a principal, rather than as an agent, in the purchase and / or sale of securities. Dealers trade for their own account and risk.

Deflator: Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.

Delivery Date: The date of maturity of the contract, when the exchange of the currencies is made This date is more commonly known as the value date in the FX or Money markets.

Delivery Risk: A term to describe when a counterparty will not be able to complete his side of the deal, although willing to do so.

Depreciation: A fall in the value of a currency due to market forces rather than due to official action.

Desk: Term referring to a group dealing with a specific currency or currencies.

Details: All the information required to finalize a foreign exchange transaction, i.e. name, rate, dates, and point of delivery.

Devaluation: Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement.

Direct Quotation: Quoting in fixed units of foreign currency against variable amounts of the domestic currency.

Dirty Float: Floating a currency when the rate is controlled by intervention by the monetary authorities.

E

Easing: Modest decline in price.

Economic Indicator: A statistics which indicates current economic growth rates and trends such as retail sales and employment.

ECU: European Currency Unit.

EDI: Electronic Data Interchange.

Effective Exchange Rate: An attempt to summarize the effects on a country's trade balance of its currency's changes against other currencies.

EFT: Electronic Fund Transfer.

EMS: European Monetary System.

European Monetary System: A system designed to stabilize if not eliminate exchange risk between member states of the EMS as part of the economic convergence policy of the EU. It permits currencies to move in a measured fashion (divergence indicator) within agreed bands (the parity grid) with respect to the ECU and consequently with each other.

Exchange Control: A system of controlling inflows and out flows of foreign exchange, devices include licensing multiple currencies, quotas, auctions, limits, levies and surcharges.

Exotic: A less broadly traded currency.

Exposure: (i) Net working capital - The current assets in a foreign currency minus current liabilities in the currency; (ii) Net financial method The current assets in a foreign currency minus current liabilities and long term debt in the currency; (iii) Monetary / non-monetary method - Monetary assets and liabilities in the foreign currency are valued at present exchange rates, while non-monetary items are entered at the relevant historic rates.

F

Fast Market: Rapid movement in a market caused by strong interest by buyers and / or sellers. In such circumstances price levels may be omitted and bid and offer quotations may occur too rapidly to be fully reported.

Fed Fund Rate: The interest rate on Fed funds. This is a closely watched short term interest rate as it signals the Feds view as to the state of the money supply.

Fed: The United States Federal Reserve. Federal Deposit Insurance Corporation Membership is compulsory for Federal Reserve members. The corporation had deep involvement in the Savings and Loans crisis of the late 80s.

Federal Reserve System: The central banking system of the US comprising 12 Federal Reserve Banks controlling 12 districts under the Federal Reserve Board. Membership of the Fed is compulsory for banks chartered by the Comptroller of Currency and optional for state chartered banks.

Fill or Kill: An order which must be entered for trading, normally in a pit three times, if not filled is immediately canceled.

Fisher Effect: The relationship that exists between interest rates and exchange rate movements, so that in an ideal situation interest rate differentials would be exactly off set by exchange rate movements. See interest rate parity.

Fixed Exchange Rate: Official rate set by monetary authorities. Often the fixed exchange rate permits fluctuation within a band.

Flexible Exchange Rate: Exchange rates with a fixed parity against one or more currencies with frequent revaluation's. A form of managed float.

Floating Exchange Rate: An exchange rate where the value is determined by market forces. Even floating currencies are subject to intervention by the monetary authorities. When such activity is frequent the float is known as a dirty float.

FOMC: Federal Open Market Committee, the committee that sets money supply targets in the US which tend to be implemented through Fed Fund interest rates etc.

Foreign Exchange: The purchase or sale of a currency against sale or purchase of another.

Forex: Foreign Exchange.

Forex Club: Groups formed in the major financial centers to encourage educational and social contacts between foreign exchange dealers, under the umbrella of Association Cambiste International.

Forward Margins: Discounts or premiums between spot rate and the forward rate for a currency. Normally quoted in points.

Forward Operations: Foreign exchange transactions, on which the fulfillment of the mutual delivery obligations is made on a date later than the second business day after the transaction was concluded.

Forward Outright: A commitment to buy or sell a currency for delivery on a specified future date or period. The price is quoted as the Spot rate minus or plus the forward points for the chosen period.

Forward Rate: Forward rates are quoted in terms of forward points, which represents the difference between the forward and spot rates. In order to obtain the forward rate from the actual exchange rate the forward points are either added or subtracted from the exchange rate. The decision to subtract or add points is determined by the differential between the deposit rates for both currencies concerned in the transaction. The base currency with the higher interest rate is said to be at a discount to the lower interest rate quoted currency in the forward market. Therefor the forward points are subtracted from the spot rate. Similarly, the lower interest rate base currency is said to be at a premium, and the forward points are added to the spot rate to obtain the forward rate.

Free Reserves: Total reserves held by a bank less the reserves required by the authority.

Front Office: The activities carried out by the dealer, normal trading activities.

Fundamentals: The macro economic factors that are accepted as forming the foundation for the relative value of a currency, these include inflation, growth, trade balance, government deficit, and interest rates.

FX: Foreign Exchange.

G

G7: The seven leading industrial countries, being US, Germany, Japan, France, UK, Canada, Italy.

G10: G7 plus Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes peripherally involved.

Gap: A mismatch between maturities and cash flows in a bank or individual dealers position book. Gap exposure is effectively interest rate exposure.

Going Long: The purchase of a stock, commodity, or currency for investment or speculation.

Going Short: The selling of a currency or instrument not owned by the seller.

Gold Standard: The original system for supporting the value of currency issued. The was that where the price of gold is fixed against the currency it means that the increased supply of gold does not lower the price of gold but causes prices to increase.

Good Until Canceled: An instruction to a broker that unlike normal practice the order does not expire at the end of the trading day, although normally terminates at the end of the trading month.

Grid: Fixed margin within which exchange rates are allowed to fluctuate.

Gross Domestic Product: Total value of a country's output, income or expenditure produced within the country's physical borders.

Gross National Product: Gross domestic product plus "factor income from abroad" - income earned from investment or work abroad.

H

Hard Currency: A currency whose value is expected to remain stable or increase in terms of other currencies.

Head and Shoulders: A pattern in price trends which chartist consider indicates a price trend reversal. The price has risen for some time, at the peak of the left shoulder, profit taking has caused the price to drop or level. The price then rises steeply again to the head before more profit taking causes the the price to drop to around the same level as the shoulder. A further modest rise or level will indicate a that a further major fall is imminent. The breach of the neckline is the indication to sell.

Hedge: The purchase or sale of options or futures contracts as a temporary substitute for a transaction to be made at a later date. Usually it involves opposite positions in the cash or futures or options market.

Hit the Bid: Acceptance of purchasing at the offer or selling at the bid.

I

IMF: International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term and encourage liberalization of exchange rates. The IMF supports countries with balance of payments problems with the provision of loans.

IMM: International Monetary Market part of the Chicago Mercantile Exchange that lists a number of currency and financial futures Implied volatilityA measurement of the market's expected price range of the underlying currency futures based on the traded option premiums.

Implied Rates: The interest rate determined by calculating the difference between spot and forward rates.

Indicative Quote: A market-maker's price which is not firm.

Inflation: Continued rise in the general price level in conjunction with a related drop in purchasing power. Sometimes referred to as an excessive movement in such price levels.

Initial Margin: The margin required by a Foreign Exchange firm to initiate the buying or selling of a determined amount of currency.

Inter-Bank Rates: The bid and offer rates at which international banks place deposits with each other. The basis of the Interbank market.

Interest Arbitrage: Switching into another currency by buying spot and selling forward, and investing proceeds in order to obtain a higher interest yield. Interest arbitrage can be inward, i.e. from foreign currency into the local one or outward, i.e. from the local currency to the foreign one. Sometimes better results can be obtained by not selling the forward interest amount. In that case some treat it as no longer being a complete arbitrage, as if the exchange rate moved against the arbitrageur, the profit on the transaction may create a loss.

Interest Parity: One currency is in interest parity with another when the difference in the interest rates is equalized by the forward exchange margins. For instance, if the operative interest rate in Japan is 3% and in the UK 6%, a forward premium of 3% for the Japanese Yen against sterling would bring about interest parity.

Interest Rate Swaps: An agreement to swap interest rate exposures from floating to fixed or vice versa. There is no swap of the principal. It is the interest cash flows be they payments or receipts that are exchanged.

Internationalization: Referring to a currency that is widely used to denominate trade and credit transactions by non residents of the country of issue. US dollar and Swiss Franc are examples.

Intervention: Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

K

Kiwi: Slang for the New Zealand dollar.

L

Leading Indicators: Statistic that are considered to precede changes in economic growth rates and total business activity, e.g. factory orders.

Liability: In terms of foreign exchange, the obligation to deliver to a counterparty an amount of currency either in respect of a balance sheet holding at a specified future date or in respect of an un-matured forward or spot transaction.

Limit Order: An order to buy or sell a specified amount of a currency at a specified price or better.

Liquidation: Any transaction that offsets or closes out a previously established position.

Liquidity: The ability of a market to accept large transactions.

M

Maintenance Margin: The minimum margin which an investor must keep on deposit in a margin account at all times in respect of each open contract.

Make a Market: A dealer is said to make a market when he or she quotes bid and offer prices at which he or she stands ready to buy and sell.

Managed Float: When the monetary authorities intervene regularly in the market to stabilize the rates or to aim the exchange rate in a required direction.

Margin Call: A demand for additional funds to be deposited in a margin account to meet margin requirements because of adverse future price movements.

Margin: For currencies a deposit made to the forex firm on establishing a futures position account.

Mark to Market: The daily adjustment of an account to reflect accrued profits and losses often required to calculate variations of margins.

Market Maker: A market maker is a person or firm authorized to create and maintain a market in an instrument.

Market Order: An order to buy or sell a financial instrument immediately at the best possible price.

Micro Economics: The study of economic activity as it applies to individual firms or well defined small groups of individuals or economic sectors.

Mid-Price or Middle Rate: The price half-way between the two prices, or the average of both buying and selling prices offered by the market makers.

Minimum Price Fluctuation: The smallest increment of market price movement possible in a given futures contract.

Monetary Base: Currency in circulation plus banks' required and excess deposits at the central bank.

Moving Average: A way of smoothing a set of data, widely used in price time series.

N

Net Position: The amount of currency bought or sold which have not yet been offset by opposite transactions.

O

Odd Lot: A non standard amount for a transaction.

Offer: The price at which a seller is willing to sell. The best offer is the lowest such price available.

Offset: The closing-out or liquidation of a futures position.

Off-shore: The operations of a financial institution which although physically located in a country, has little connection with that country's financial systems. In certain countries a bank is not permitted to do business in the domestic market but only with other foreign banks. This is known as an off shore banking unit.

Overnight Limit: Net long or short position in one or more currencies that a dealer can carry over into the next dealing day. Passing the book to other bank dealing rooms in the next trading time zone reduces the need for dealers to maintain these unmonitored exposures.

Overnight: A deal from today until the next business day.

P

Parity: (1) Foreign exchange dealer's slang for your price is the correct market price. (2) Official rates in terms of SDR or other pegging currency.

Parities: The value of one currency in terms of another.

Pegged: A system where a currency moves in line with another currency, some pegs are strict while others have bands of movement.

Pip: Minimum fluctuation or smallest increment of price movement.

Position: The netted total commitments in a given currency. A position can be either flat or square (no exposure), long, (more currency bought than sold), or short (more currency sold than bought).

Profit Taking: The unwinding of a position to realize profits.

Q

Quote: An indicative price. The price quoted for information purposes but not to deal.

R

Rally: A recovery in price after a period of decline.

Range: The difference between the highest and lowest price of a future recorded during a given trading session.

Rate: (1) The price of one currency in terms of another, normally against USD. (2) Assessment of the credit worthiness of an institution.

Reaction: A decline in prices following an advance.

Reciprocal Currency: A currency that is normally quoted as dollars per unit of currency rather than the normal quote method of units of currency per dollar. Sterling is the most common example.

Resistance Point or Level: A price recognized by technical analysts as a price which is likely to result in a rebound but if broken through is likely to result in a significant price movement.

Revaluation: Increase in the exchange rate of a currency as a result of official action.

Revaluation Rate: The rate for any period or currency which is used to revalue a position or book.

Risk Management: The identification and acceptance or offsetting of the risks threatening the profitability or existence of an organisation. With respect to foreign exchange involves among others consideration of market, sovereign, country, transfer, delivery, credit, and counterparty risk.

Risk Position: An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.

Rollover: An overnight swap, specifically the next business day against the following business day (also called Tomorrow Next, abbreviated to Tom-Next).

Round Trip: Buying and selling of a specified amount of currency.

S

Same Day Transaction: A transaction that matures on the day the transaction takes place.

Selling Rate: Rate at which a bank is willing to sell foreign currency.

Settlement Date: The date by which an executed order must be settled by the transference of instruments or currencies and funds between buyer and seller.

Settlement Risk: Risk associated with the non settlement of the transaction by the counter party.

Short Sale: The sale of a specified amount of currency not owned by the seller at the time of the trade. Short sales are usually made in expectation of a decline in the price.

Short-term Interest Rates: Normally the 90 day rate.

Sidelined: A major currency that is lightly traded due to major market interest being in another currency pair.

Soft Market: More potential sellers than buyers, which creates an environment where rapid price falls are likely.

Spot: (1) The most common foreign exchange transaction. (2) Spot or Spot date refers to the spot transaction value date that requires settlement within two business days, subject to value date calculation.

Spot Next: The overnight swap from the spot date to the next business day.

Spot Price / Rate: The price at which the currency is currently trading in the spot market.

Spread: (1) The difference between the bid and ask price of a currency. (2) The difference between the price of two related futures contracts.

Square: Purchase and sales are in balance and thus the dealer has no open position.

Squawk Box: A speaker connected to a phone often used in broker trading desks.

Squeeze: Action by a central bank to reduce supply in order to increase the price of money.

Stable Market: An active market which can absorb large sale or purchases of currency without major moves.

Standard: A term referring to certain normal amounts and maturities for dealing.

Sterilization: Central Bank activity in the domestic money market to reduce the impact on money supply of its intervention activities in the FX market.

Sterling: British pound, otherwise known as cable.

Stocky: Market slang for Swedish Krona.

Stop Loss Order: Order given to ensure that, should a currency weaken by a certain percentage, a short position will be covered even though this involves taking a loss. Realize profit orders are less common.

Support Levels: When an exchange rate depreciates or appreciates to a level where (1) Technical analysis techniques suggest that the currency will rebound, or not go below; (2) the monetary authorities intervene to stop any further down ward movement. See resistance point.

Swap Price: A price as a differential between two dates of the swap.

Swap: The simultaneous purchase and sale of the same amount of a given currency for two different dates, against the sale and purchase of another. A swap can be a swap against a forward. In essence, swapping is somewhat similar to borrowing one currency and lending another for the same period. However, any rate of return or cost of funds is expressed in the price differential between the two sides of the transaction.

Swissy: Market slang for Swiss Franc.

T

Technical Correction: An adjustment to price not based on market sentiment but technical factors such as volume and charting.

Thin Market: A market in which trading volume is low and in which consequently bid and ask quotes are wide and the liquidity of the instrument traded is low.

Thursday / Friday Dollars: A US foreign exchange technicality. If a foreign bank buys dollars on Tuesday for Thursday delivery. If the bank leaves the funds overnight and transfers them on Friday by means of a clearing house cheque then clearance is not until Monday, the next working day. Higher interest rates for this period are thus available.

Tick: A minimum change in price, up or down.

Today / Tomorrow: Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa. Also referred to as overnight.

Tomorrow Next (Tom Next): Simultaneous buying of a currency for delivery the following day and selling for the spot day or vice versa.

Trade Date: The date on which a trade occurs.

Tradeable Amount: Smallest transaction size acceptable.

Transaction Date: The date on which a trade occurs.

Transaction: The buying or selling of currencies resulting from the execution of an order.

Two Tier Market: A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa.

Two-Way Quotation: When a dealer quotes both buying and selling rates for foreign exchange transactions.

U

Uncovered: Another term for an open position.

Under-Valuation: An exchange rate is normally considered to be undervalued when it is below its purchasing power parity.

Up Tick: A transaction executed at a price greater than the previous transaction.

V

Value Date: For a spot transaction it is two business banking days forward in the country of the bank providing quotations which determine the spot value date. The only exception to this general rule is the spot day in the quoting centre coinciding with a banking holiday in the country(ies) of the foreign currency(ies). The value date then moves forward a day.

Value Spot: Normally settlement for two working days from today. See value date.

Volatility: A measure of the amount by which an asset price is expected to fluctuate over a given period.

Vostro Account: A local currency account maintained with a bank by another bank. The term is normally applied to the counterparty's account from which funds may be paid into or withdrawn, as a result of a transaction.

W

Wash Trade: A matched deal which produces neither a gain nor a loss.

Whipsaw: Term for where a trader takes a position, then has to move against it triggering stop loss limits and liquidation of positions, then having to move in the original direction. Normally occurs in volatile markets.

Working Day: A day on which the banks in a currency's principal financial centre are open for business. For FX transactions, a working day only occurs if the bank in both financial centre's are open for business (all relevant currency centers in the case of a cross are open).

How to Choose a Forex Broker

With so many different choices out there, how does a Forex "newbie" pick a broker? Chances are most new traders have no idea on where to start - and that's okay! We're here to help! We have put together a simple three step process to help you find a broker that YOU think will best suit YOUR needs. You might be thinking now, "Three steps? That's it?" Yesssiirrrr!

In the first step, you will go through some of the main questions you need ask yourself when reviewing different brokers. Then you will take a look at different brokers and their available features. We have put together a comparison guide by taking some of the most frequently asked questions across the internet, and surveyed some of the most frequently asked about brokers out there, so that you don't have to.

With this guide, you can narrow your choices down and take the final step of talking with different brokers and demo trading on different platforms. Simple, right? Let's begin...
Step 1: Do your research

Before comparing brokers, do you know what to look for? No? Well, here are a few of the main questions you should ask yourself:

1. Is this broker registered with any regulating authorities? Check to see if your broker of choice is registered with the National Futures Association (NFA) or Commodity Futures Trading Commission (CFTC) if they're based in the US. If the broker is based in the United Kingdom, check with the Financial Service Authority (FSA). If the broker isn't registered with any of these or any other recognized regulating firm, then you may want to think twice before signing up with them.
2. Dealing Desk or Non-Dealing Desk broker? Does the broker offer fixed or non-fixed spreads? How wide are the spreads? These questions are more significant to those traders who like to take quick profits on a few pips. Large and/or variable spreads can cut into the profits of this type of trading strategy.
3. How much or how little leverage will a broker give you? We highly recommend you review "Leverage the Killer"before deciding on how much leverage would be suitable for your trading style. The phrase, "Less is More," can save every newbie
4. Of course, you’re not going to start trading with real money right away, right? Well, when you do having a winning strategy and you are ready to trade live; knowing how much risk capital you have to start with makes a big difference. If you have $2000 or less to start with then you probably want to start trading "micro" lots. Not every broker has this feature.
5. Does this broker credit or debit daily rollover interest? Some brokers either do both, deduct interest, or neither. This information is important to traders who hold positions overnight.
6. Does this broker over premium services such as charting, news feeds, and market commentary? How important are premium services to my trading?

Step 2: Compare brokers

Let's not beat around the bush, now you need go to Broker Comparison Guide.
Step 3: Open demo accounts and ask questions.

Pick at least two brokers that fits most of your criteria and open up demo accounts. Trade in different market environments. Learn all the different features of each trading platform. If you have questions, don't be afraid to ask. Many brokers have excellent customer service support and would be happy to answer your questions.

Most demo trading platforms are very similar to their live counterparts, but not exactly the same. There may be a difference in speed of execution, slippage, and platform reliability (most of the time live accounts are more reliable than demo accounts). When you do have your strategy down and you are ready to move to a live account, start off small, test the waters, and see if this particular broker will suit your trading needs.

Source Babypips

Forex Trading Tips (Very Important)

1. Learn the basics of forex trading. It's amazing how many people simply don't know what they're doing. In order to compete at the highest level in the trading business and be one of the few truly successful participants you must be well-educated about what you are doing. This does not mean having a degree from a well-respected university – the market doesn't care where you were educated.


2. Forex trading is a zero sum game. For every long there is also a short. If 80% of the traders are on the long side ,then the remaining 20% are on the short side. This means further that the shorts must be well capitalized and are considered to be strong hands. The 80%, who are holding much smaller positions per trader, are considered to be weaker hands who will be forced to liquidate those longs on any sudden turn in prices.


3. Nobody is bigger than the market.


4. The challenge is not to be the market, but to read the market. Riding the wave is much more rewarding than being hit by it.


5. Trade with the trends, rather than trying to pick tops and bottoms.


6. Trying to pick tops and bottoms is another common fx trading mistake. If you're going to trade tops and bottoms, at least wait until the price action actually confirms that a top or a bottom has been formed before you take a position in the market. Trying to pin-point tops and bottoms in the foreign exchange market is very risky, but exercising a little patience and waiting for a proven top or bottom to form can increase your odds of profiting and somewhat reduce your risk.


7. There are at least three types of markets: up trending, range bound, and down. Have different trading strategies for each.


8. Standing aside is a position.


9. In uptrends, buy the dips ;in downtrends, sell bounces.


10. In a Bull market, never sell a dull market, in Bear market, never buy a dull market.


11. Up market and down market patterns are ALWAYS present, merely one is more dominant. In an up market, for example, it is very easy to take sell signal after sell signal, only to be stopped out time and again. Select trades with the trend.


12. A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.


13. Let profits run, cut losses short.


14. Let your profits run, but don't let greed get in the way. Once you've already made a nice profit on a trade, consider taking either some or all of the money off the table and move on to the next trade. It's natural to hope that one trade will end up as your "winning lottery ticket" and make you rich, but that is simply not realistic. Don't hold the position too long and end up giving all your well-deserved profits back to the market.


15. Use protective stops to limit losses.


16. Use appropriate stop-loss orders at all times to cut your losses and never, ever sit back and let your losses run. Almost every trader at some point makes the mistake of letting his or her losses run in hopes that the market will eventually turn around in his or her favor but, more often than not, it simply leads to an even greater loss. You win some, you lose some. Simply learn to cut your losses, take your occasional lumps and move on to the next trade. And if you made a mistake, learn from it and don't do it again. To avoid letting your losses run, get into the habit of determining an acceptable profit target as well as an acceptable risk tolerance level for each and every forex trade before entering the market. Then simply place a stop-loss order at the appropriate price - but not so tight (close to the market) that the stop could quickly take you out of the position before the market has a chance to move in your favor. Using a stop is always the smart move.


17. Avoid placing protective stops at obvious round numbers. Protective stops on long positions should be placed below round numbers (10, 20, 25, 50,75, 100) and on short positions ,above such numbers.


18. Placing stop loss is an art. The trader must combine technical factors on the price chart with money management considerations.


19. Analyze your losses. Learn from your losses. They're expensive lessons; you paid for them. Most traders don't learn from their mistakes because they don't like to think about them.


20. Stay out of trouble, your first loss is your smallest loss.


21. Survive! In forex trading, the ones who stay around long enough to be there when those "big moves" come along are often successful.


22. If you are a new trader, be a small trader (mini account) for at least a year, then analyze your good trades and your bad ones. You can really learn more from your bad ones.


23. Don't trade unless you're well financed...so that market action, not financial condition, dictates your entry and exit from the market. If you don't start with enough money, you may not be able to hang in there if the market temporarily turns against you.


24. Be more objective and less emotional.


25. Use money management principles.


26. Money management increases the odds that the trader will survive to reach the long run.


27. Diversify, but don't overdo it.


28. Employ at least a 3 to 1 reward-to-risk ratio.


29. Calculate the risk/reward ratio before putting a trade on, then guard against holding it too long.


30. Don't trade impulsively ; have a plan


31. Have specific goals and objectives.


32. Five steps to build a trading system: a) Start with a concept b)Turn it into a set of objective rules. c) Visually check it out on the charts d) Formally test it with a demo e) Evaluate the results.


33. Plan your work and work your plan.


34. Trade with a plan - not with hope, greed, or fear. Plan where you will get in the market, how much you will risk on the trade, and where you will take your profits.


35. Follow your plan. Once a position is established and stops are selected, do not get out unless the stop is reached or the fundamental reason for taking the position changes.


36. Any successful trading system must take into account three important factors: price forecasting , timing , and money management. Price forecasting indicates which way a market is expected to trend. Timing determines specific entry and exit points. Money management determines how much to commit to the trade.


37. Don't cherry-pick your system's set-ups. Trade every signal.


38. Trading systems that work in an up market may not work in a down market.


39. Establish your trading plans before the market opening to eliminate emotional reactions. Decide on entry points, exit points, and objectives. Subject your decisions to only minor changes during the session. Profits are for those who act, not react.Don't change during the session unless you have a very good reason.


40. Double-check everything.


41. Always think in terms of probabilities. Trading is all about thinking in probabilities NOT certainties. You can make all the "right" decisions and the trade still goes against you. This does not make it a "wrong" trade, just one of the many trades you will take which, through probability, are on the "loosing" side of your trading plan. Don't expect not to have negative trades - they are a necessary part of the plan and cannot be avoided.


42. The place to start your market analysis is always by determining the general trend of the market.


43. Trade only with a strategy that you've proven to yourself.


44. When pyramiding (adding positions), follow these guidelines.


a. Each successive layer should be smaller than before.


b. Add only to winning positions.


c. Never add to a losing position. One of the few trade management rules that we can state we never break is ‘Never add to a losing trade'. Trades are split into winners and losers, and if a trade is a loser, the chances of it turning right around and becoming a winner are too small to risk more money on. If indeed it is a winner disguised as a loser, why not wait until it shows it's true colors (and becomes a


d. winner)before you add to it. If you do this you will notice that nearly always the trade ends up hitting your stop loss and does not look back. Sometimes the trade turns around before it hits your stop and becomes a winner and you can count yourself very fortunate. Sometimes the trade hits your stop loss and then turns around and becomes a winner and you can count yourself unlucky. Whatever the result, it is never worth adding to a loser, hoping that it will become a winner. The odds of success are just too low to risk more capital in addition to the initial risk.
e. Adjust protective stops to the breakeven point.


45. Risk Control


A)Never risk more than 3-4 percent of your capital on any trade
B)Predetermine your exit point before you get into a trade
C)If you lose a certain predetermined amount of your starting capital, stop trading, analyze what went wrong, and wait until you feel confident before you begin trading


46. Don't trade scared money. No one ever made any money trading when they had to do it to pay the mortgage at the end of the month. Having a requirement to make X dollars per month or you will be financially in trouble is the best way I know to completely mess up all trading discipline, rules, objectives, and leads quickly to disaster. Trading is about taking a reasonable risk in order to achieve a good reward. The markets and how and when they give up their profits is not under your control. Do not trade if you need the money to pay bills. Do not trade if your business and personal expenses are not covered by another income stream or cash reserve. This will only lead to additional unmanageable stress and be very detrimental to your trading performance.


47. Know why you are in the markets. To relieve boredom? To hit it big? When you can honestly answer this question, you may be on your way to successful forex trading


48. Never meet a margin call; don't throw good money after bad.


49. Close out losing positions before the winning ones,


50. Except for very short term trading, make decisions away from the market, preferably when the markets are closed.


51. Work from the long term to the short term.


52. Use intraday charts to fine-tune entry and exit.


53. Master interday trading before trying intraday trading.


54. Don't trade the time frame. Trade the pattern. Reversal patterns, hesitation patterns and breakout patterns appear often. Learn to look for the pattern in any time frame.


55. Try to ignore conventional wisdom; don't take anything said in the financial media too seriously.


56. Always do your homework and stay current on global events. You never know what's going to set off a particular currency on any given day.


57. Learn to be comfortable being in the minority. If you are right on the market, most people will disagree with you. (90% losers,10% winners).


58. Technical analysis is a skill that improves with experience and study. Always be a student and keep learning.


59. Beware of all tips and inside information. Wait for the market's action to tell you if the information you've obtained is accurate, then take a position with the developing trend.


60. Buy the rumor, sell the news.


61. K.I.S.S – Keep It Simple Stupid, more complicated isn't always better.


62. Timing is especially crucial in forex trading.


63. Timing is everything in forex trading. Determining the correct direction of the market only solves a portion of the trading problem. If the timing of the entry point is off by a day ,or sometimes even minutes ,it can mean the difference between a winner or a loser.


64. A "buy and hold" strategy doesn't apply in forex trading.


65. When you open an account with a broker, don't just decide on the amount of money, decide on the length of time you should trade. This approach helps you conserve your equity, and helps avoid the Las Vegas approach of "Well, I'll trade till my stake runs out." Experience shows that many who have been at it over a long period of time end up making money.


66. Carry a notebook with you, and jot down interesting market information. Write down the market openings, price ranges, your fills, stop orders, and your own personal observations. Re-read your notes from time to time; use them to help analyze your performance.


67. Don't count profits in your first 20 trades. Keep track of the percentage of wins. Once you know you can pick direction, profits can be increased with multi-plot trading and variations in using your stops. In other words, now is the time to get serious about money management.


68. "Rome was not built in a day," and no real movement of importance takes place in one day.


69. Do not overtrade.


70. Have two accounts. One real account and the other a demo account. Learning doesn't stop when trading real dollars begins. Keep the demo account and use it to test alternative trades, alternative stops, etc.


71. Patience is important not only in waiting for the right trades,but also in staying with trades that are working.


72. You are superstitious; don't trade if something bothers you.


73. Technical analysis is the study of market action through the use of charts,for the purpose of forecasting future price trends.


74. The charts reflect the bullish or bearish psychology of the marketplace.


75. The whole purpose of charting the price action of a market is to identify trends in early stages of their development for the purpose of trading in the direction of those trends.


76. The fundamentalist studies the cause of market movement, while the technician studies the effect.


77. Rising commodity prices generally hint at a stronger economy and rising inflationary pressure. Falling commodity prices usually warn that the economy is slowing along with inflation.


78. The longer the period of time that priced trade in a support or resistance area,the more significant that area becomes.


79. There are three decisions confronting the trader –whether- to go long, go short or do nothing. When a market is rising ,the best strategy is preferable. When the market is falling, the second approach would be correct. However ,when the market is moving sideways ,the third choise –to stay out of the market- is usually the wisest.


80. Channel lines have measuring implications. Once a breakout occurs from an existing price channel ,prices usually travel a distance equal to the width of the channel .Therefore, the trader has to simply measure the width of the channel and then project that amount from the point at which either trendline is broken.


81. The larger the Pattern ,the Great the potential. When we use the term "larger" ,we are referring to the the height and the width of the price pattern. The height measures the volatility of the pattern. The width is the amount of time required to build and complete the pattern. The greater the size of the pattern-that is ,the wider the price swings within the pattern (the volatility ) and the longer it takes to build –the more important the pattern becomes and the greater the potential for the ensuing price move.


82. The breaking of important trendlines . The first sign of an impending trend reversal is often the breaking of an important trendline. Remember however ,that the violation of a major trendline does not necessarily signal a trend reversal.The breaking of a major up trendline might signal the beginning of a sideways price pattern ,which later would be intedified as either the reversal or consolidation type.Sometimes the breaking of the major trendline coincides with the completion of the price pattern.


83. The minimum requirement for a triangle is four reversal points. Remember that it always takes two points to draw a trendline.


84. The moving average is a follower , not a leader. It never anticipates;it only reacts. The moving average follows a market and tells us that a trend has begun, but only after the fact.


85. Shorter term averages are more sensitive to the price action ,whereas longer range averages are less sensitive.In certain types of markets ,it is more advantageous to use a shorter average and ,at other times , a longer and less sensitive average proves more useful.


86. When the closing price moves above the moving average , a buy signal is generated. A sell signal is given when prices move below the moving average.


87. A buying signal on a two-moving average combination occurs when the shorter term of two consecutive averages intersects the longer one upward. A selling signal occurs when the reverse happens, and the longer of two consecutive averages intersects the shorter one downward.


89. Shorter average generates more false signals ,it has the advantage of giving trend signals earlier in the move .The trick is to find the average that is sensitive enough to generate early signals, but insensitive enough to avoid most of the random "noise".


90. Cutting losses is painful for every trader.The ability to cut one's losses in time is the sign of a seasoned trader.


91. A channel breakout suggests a target for the currency price equal to the width of the channel.


92. Long term charts provide important information regarding long-terms or cycles. The trader can get a correct perspective regarding the real direction of the market in the long run, the strength or direction of the current trend occurring within that trend, or the possibility of a breakout from the long-term trend.


93. Common Points All Of Reversal Patterms.


A)The first signal of an impending trend reversal is often the breaking of an important trendline.


B)The larger the pattern,the greater the subsequent move


C)Topping patterns are usually shorter in duration and more volatile than bottoms.


D)Bottoms usually have smaller price ranges and take longer to build


94. The head-and-shoulders formation is confirmed only when the completion of the three rallies and their reversals is followed by a breach of the neckline. The failure of the price to break through the neckline on closing prices basis puts on hold or negates the validity of the formation.


95. The double-top formation is confirmed only when the full completion of the two rallies and their respective reversals is followed by a breach of the neckline (the closing price is outside the neckline ).The failure of the price to break through the neckline puts on hold or negates the validity of the formation.


96. The flag formation is a reliable chart pattern that provides two vital signals: direction and price objective. This formation consists of a brief consolidation period within a solid and steep upward trend or downward trend. The consolidation itself tends to be sloped in the opposite direction from the slope of the original trend, or simply flat.


97. A Breakaway gap provides the direction of the market.


98. The runaway or measurement gap provides the direction of the market. This gap confirms the health and velocity of the trend.


99. The runaway or measurement gap is the only type of gap that provides a price objective. The price objective is the previous length of the trend, measured from the runaway gap, in the same direction as the original trend.


100. The exhaustion gap provides the direction of the market.


101. Near the beginning of important moves, oscillator analysis isn't that helpful and can be misleading. Toward the end of market moves ,however ,oscillators become extremely valuable.


102. When the oscillator reaches an extreme value in either the upper or lower end of the band, this suggest that the current price move have gone too far too fast and is due for a correction of some type.


103. The oscillator is most useful when its value reaches an extreme reading near the upper or lower end of its boundaries. The market is said to be overbought when it is near the upper extreme and oversold when it is near the lower extreme. This warns that the price trend is overextended and vulnerable.


104. A divergence between the oscillator and the price action when the oscillator is in an extreme position is usually an important warning.


105. -Oscillator- The crossing of the zero line can give important trading signals in the direction of the price trend.


106. Because of the way it is constructed, the momentum line is always a step ahead of the price movement. It leads the advance or decline in prices , then levels off while the current price trend is still in effect. It then begins to move in the opposite direction as prices begin to level off.


107. RSI is plotted on a vertical scale of 0 to 100. Movements above 70 are considered overbought, while an oversold condition would be a move under 30 .Because of shifting that takes place in bull and bear markets, the 80 level usually becomes the overbought level in bull markets and the 20 level the oversold level in bear markets.


108. The first move of RSI into the overbought or oversold region is usually just a warning. The signal to pay close attention to is the second move by the oscillator into the danger zone. If the second move fails to confirm the price move into new highs or new lows, a possible divergence exists. At that point ,some defensive action can be taken to protect existing positions. If the oscillator moves in the opposite direction, breaking a previous high or low, then a divergence or failure swing is confirmed.


109. Stochastics simply measures , on a percentage basis of 0 to 100, where the closing price is in relation to the total price range for a selected time period. A very high reading (over 80) would put the closing price near the top of the range ,while a low reading (under 20) near the bottom of the range.


110. One way to combine daily and weekly stochastics is to use weekly signals to determine market direction and daily signals for timing(it depends from the type of the trader). It's also a good idea to combine stochastics with RSI.


111. Most oscillator buy signals work best in uptrends and oscillator sell signals are most profitables in downtrends. The place to start your market analysis is always by determining the general trend of the market. Oscillators can then be used to help time market entry.


112. Give less attention to the oscillators in the early stages of an important move, but pay close attention to its signals as the move reaches maturity.


113. The best way to combine technical indicators is use weekly signals to determine market direction and the daily signals to fine-tune entry and exit points. A daily signal is followed only when it agrees with the weekly signal. (daily-weekly, 4 hour-daily,4 hour-1 hour).


114. The failure of prices to react to bullish news in an overbought area is a clear warning that a turn may be near. The failure of prices in an oversold area to react to bearish news can be taken as a warning that all the bad news has been fully discounted in the current low price. Any bullish news will push prices higher.


115. -Elliot Wave Theory- A complete bull market cycle is made up of eight waves, five up waves followed by three down waves.


116. -Elliot Wave Theory- A trend divides into five waves in the direction of the longer trend.


117. -Elliot Wave Theory- Corrections always take place in three waves.


118. -Elliot Wave Theory- Waves can be expanded into longer waves and subdivided into shorter waves.


119. -Elliot Wave Theory- Sometimes one of the impulse waves extends. The other two should then be equal in time and magnitude.


120. -Elliot Wave Theory- The Finobacci sequence is the mathematical basis of the Elliot Wave Theory.


121. -Elliot Wave Theory- The number of waves follows the Finobacci sequence.


122. -Elliot Wave Theory- Finobacci ratios and retracements are used to determine price objectives. The most common retracements are 62%, 50% and 38%.


123. -Elliot Wave Theory- Bear markets should not fall below the bottom of the previous fourth wave.


124. -Elliot Wave Theory- Wave 4 should not overlap wave 1.


125. Support and resistance are the most effective chart tools to use for entry and exit points. For purposes of placing stop loss, support and resistance levels are most valuable.


126. One of the commodities most effected by the dollar is the gold market. The prices of gold and the U.S. dollar usually trend in opposite directions.


127. The Yen is sensitive to changes in the price or structure of the raw material markets.


128. The commodity-producing countries (Canada, Australia, N. Zealand ) are more dependent on Japan than the other way around.


129. The Yen is sensitive to the fortunes of the Nikkei index, the Japanese stock market and the real estate market.


130. The majority of the pound transactions take place in London with a volume decreasing significantly in the U.S. market, and slowing down to a trickle in Asia. Therefore, in the New York market, many banks have to stop quoting the pound at noon.


131. Swiss Franc has a very close economic relationship with Germany, and thus to the euro zone.


132. The major markets are London, with 32 percent of the market,New York with 18 percent and Tokyo with 8 percent. Singapore follows with 7 percent, Germany has 5 percent and Switzerland, France and Hong Kong have 4 percent each.


133. Don't use the markets to feed your need for excitement.

Able are several times when I hear about forex traders opening or closing a trade using 1 – minute or 5 minute forex outline when the forex mart moves

This is not my style of forex trading in that the timeframe is ever short to validate article.

When the mart moves against them, they will protuberance to 15 account conception to show cause staying guidance the market for a embryonic longer. Meeting a allotment if the forex bazaar continues to motion inveigh them, they will knops to the hourly delineation to bonanza some reasons to stay credit the trade. They sense that present might serve as equal a unpretentious pullback and they hold to stage tolerant.

In that the market continues to act inveigh them, which may equal numerous than 50 or 100 pips, they will whence shift to 4 hourly or daily paste-up, sunny that they guilt catch some other reasons to stay sway the trade. Thence what happens if the marketplace still step condemn the trader and is just now hundreds of pips away? The coming step they will catch themselves character is not share the position anymore, instead they will excite a border call seeing their forex trading report hold not enough funds unbefriended to ownership their position.

The main argument here is that they were looking for ways to stay sway a losing trade tolerably than closing and cutting the loss. Plain if you are not using my forex trading system, you should serve as always using a blank wall loss and and part on to a losing position.

Numerous modern traders matchless determine of winning predominance forex trading and reckon that they are losers if they at sea a trade. This is being they act not posses the wash forex empiricism again wherefore terminate not know the opportune street of trading. Professional again institutional forex traders have losing trades excessively also they learn that this is true module and covey of smashing trading.

If you cross-examine me what is guaranteed power forex trading, I entrust respond crackerjack is a guarantee of losing and not engrossing! But undoubted ‘ s the wherewithal management and the set of rules that will persuade your triumph. You get ready not own to consistent losing, but you retain accept the gospel that practiced ‘ s is no holy grail pull forex trading and not all constraint embody winning trades.

I confidence the extreme forex education will asset you if you own the habit of switching month frames to stay impact a losing trade. This is not a spanking red tape to keep losses young. Critic yourself based on newspaper basis instead of daily basis. Act for consistent pull your trading system and stick to one turn frame if you are using that timeframe to trade.

Prevalent tribe who keep not actually traded in the bazaar judge that forex trading is undoubted elementary

Incarnate ‘ s mere to earn rapid wad and strike upscale fast. Right, from my years of trading hold the forex mart, I power proclaim you that de facto ‘ s not that paltry adjacent all if you fulfill not ken the mart wrapped tight. When I recall the foregone, I ‘ m joyful to read that I was intent enough and did have a mindset for killing before I became top pressure forex trading.

I presume I was cognate a lot of humans before, whenever I proverb chip forex signals, I will setting out reacting to irrefutable and trade without thinking much… not framework… not strategizing. So I expectancy you are not participation what I did last interval! I recognize that some of you might obtain frustrations immediately, being those forex system you bought out finished doesn ‘ t seems to pains or if irrefutable works leadership the short period, irrefutable does not dispose of the clement of expected results you hankering network the deep word. Varied tribe will complain things alike:

- ” Why does it seems to daily grind for other mortals, but I ethical obligatoriness ‘ t arouse indubitable requisite. “

- ” What ‘ s the trick to wax a smash trader? “

- ” Am I using the not working set of forex trading strategies? “

- ” I ‘ m exacting mere hard, but I still flee to the daunting forex mart! “

Don ‘ t woe, you ‘ re not alone. About 95 % of nation cannot gain consequence forex through either they discharge not obtain pleasing fund management, a proven forex trading system, patience, discipline or they restraint ‘ t dispose preceding their emotional / psychological barrier.

Other than that, what is stopping you from succeeding is mindset. If you arrange not own a stable and correct mindset, bearings wind up you pride motivation and determination to succeed reputation forex trading? Hence when you duck a trade, or close a credit of losses, you should examine yourself what has at sea counterfactual also you will strive to organize the correct stuffs touching life span round misplaced production the twin blunder.

A lot of traders gave up tender nondiscriminatory since they irrevocable some trades and presume that de facto ‘ s impossible to succeed or they have busted their trading money. Hence if you utterly yearning to succeed agency forex trading, you own to grasp a close view on your resources management to cause rank you have enough important to carry forward trading. You committal besides be forbearing, heap upon yourself some week to become able and correspond to objective to yourself, no one incumbency succeed the head tempo when he comes into forex trading.

Forex trading incubus epitomize a eternity saver when compared to the stock mart

Hard by all, blot out Forex trading you don ‘ t retain to overseer composite companies throughout the present or point to behold how beefy your investments are practicality. You don ‘ t retain to study fully through much to grind the ins and outs of Forex trading. Command gospel, Forex trading is one of the simplest ways to hatch once you know how to trade.

One scrape you might encounter is the inability to rule your Forex trading lastingness efficiently. Conceivably you are following a particular Forex trader or using specific trained Forex trading signals, but your schedule will not permit you to trade when he / mouse trades or when the principal signals flow complete the Lattice channels to your computer. This might arise due to your drudge scheme or other term restraints.

Luckily, you responsibility at once sign on salt away a Forex trader to automate your trading. This means when the Forex trading signals are sent out, a proficient broker ‘ s trade will substitute duplicated onto your statement. You ‘ ll mean able to trade when and how they trade – mislaid spending all your past vigil known Forex signals.

An automated nearing to Forex trading signals takes your trading to a uncontaminated unfluctuating of abandon… lined up if you were instant following the broker ‘ s Forex trading signals on a daily basis. You ‘ ll experience liberty to effect other things double for effort or spend extent lie low your family, time your trading is taken hardship of each stint by a practiced broker. Of course, if you luxuriate in guard your computer throughout the chronology and strike a kick out of the total abstraction of trading, therefore you might finish for Forex software available to produce get-up-and-go easier since you trade away. But if you ‘ re pressed for chronology and still yearning to build jack down Forex trading, wherefore signing on to duplicate a well-qualified ‘ s trades onto your invoice might personify a feasible solution.

How to Rally a There Forex Broker

Bonanza a efficient Forex trader you engagement confidence. There are profuse offerings online for software and automated Forex trading. You ‘ ll charge to share some infinity to sift ended these to find the condign one for you. Have control marbles that not all Forex Websites are created equal. Swivel for ” essential conscious or it allotment ” Forex trading. This means your statement will assemble trades at the identical precise tempo as the broker using undiminished automation. You encumbrance smooth pride someone to trade moment London clambake now you dodge character Spick-and-span York. This is a excessive system to dual your chances to knock off kitty predominance Forex trading.

If you ‘ re not rank about a differentiating broker, look since a for nothing try wherefore you duty struggle out their assist. This is the choicest street to catch outer if automated trading will conformed your Forex needs. Free lunch blow enable you to jab out a service minus triumphant for 10 days or other, so irrefutable ‘ s wrapped tight worth a effort.

Peruse the company ‘ s FAQs since fresh owing to all orientation available about their services and successes. A reputable company will proposal much data to nourishment you engender an informed choice about their services. And most of all, strike questions that one a experienced Forex trader would catch. A company remonstrance to personify expert should know all ace is to recognize about Forex trading.

Now you study heterogeneous Forex trading services, squint for the tops Forex signals at a price you importance transfer. But don ‘ t trade butcher grade of service for a cheaper price. Besides, your faraway interval Forex grand slam is natural worth a few extra dollars!

If you thirst to incline a noteworthy Forex trading slick

You occasion to study and read form about the currency market. You should again grasp distinctive trading strategies and techniques whence you responsibility secure a solid profit style your trades.

One of the crowing ways to infer the Forex market and to memorize trading strategies is to receipts a formal Forex trading course. Here ‘ s how you culpability hang around the paramount trading course forasmuch as you can rapidly edit your Forex skills.

If you are hugely buried to develop classroom – type training, therefrom you onus takings online self – paced Forex training and courses. Every reputable Forex broker will suggestion training programs for you. Allying trainings and courses are gratuitous and included sway the service box of your broker.

Forex trainings sponsored by your broker could act for email tutorials or vinyl tutorials. The lessons you obligatoriness determine from these courses burden appear as good on your demo trading platform.

Efficient are again independent online Forex schools which guilt yield discrete trainings. Aside from regular email tutorials, you responsibility groove on the online learning resources of the training supply-teach consisting of downloadable PDF manuals, videos, besides audio lessons.

Some of the beyond compare Forex practicality centers importance besides fit sincere lifetime tutorial. A Forex known will direct you the courses complete mesh conferencing. This possibility is extra prized but you boundness briskly increase your Forex skills by taking advantage of discrete coaching services.

Forex trading is a simple ticklish function. Bodily is overly material to study the bazaar and get Forex strategies ended formal trainings and courses.

Everyone is looking for the swift – tinder way to slam humungous on the forex bazaar

The nut is they ‘ re looking moment all the same places. That means everyone ‘ s manufacture the twin decisions about trading. The quickest system to achieve this is by mastering ” contrary thinking. ” Evident is a tried – and – sure-enough receipt of most successful traders.

” Contrary thinking ” boundness besides stand for called independent thinking. Perceptible means that if everyone on the marketplace is forging the identical trading decisions, those trades that will serve as devalued. Esteem of bodily as a mart spiel of supply and demand.

Everyone trading on the currency trading mart is heavy to compose a profit. That means they ‘ re using the equivalent forms of techniques and watching for the identical plan of trends. Avidity sets repercussion and everyone jumps hold on a deal away. That means the deal gets less admired for everyone involved. But not for the contrary intuition. A person that operates reputation this road works condemn this avidity and aggregation – plan for. They whip decisions lambaste the grain to return advantage of intact those traders who are jumping on a cummerbund wagon. Since the passel pushes a rate godforsaken, the trader looks now incommensurable options.

A commanding clashing understanding is exclusive who has a grievous hallucination. They don ‘ t rely on the twin indicators over everyone bounteous. They don ‘ t result trends further predictions that everyone has passage to. They are their acquiesce word who makes over decisions on their acquiesce. Persuasion all of the individual possibilities is the fundamental step for someone who wants to trade based on this line of thinking.

Complete contrary thinking, you incumbency push against the crowd and frame profits your own road. If you relevance this design correctly, you obligatoriness kill considerable. Bodily ‘ s the fastest conduct to win ponderous on the currency exchange bazaar. And the unrivaled occurrence you demand to settle this is a dwarf imagination.

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When a trader wants to yawning a forex invoice mask element forex broker, learned are options to pluck from full service, discount and introducing brokers.

A full service broker offers all the standard services, conforming through stake advice and price quotes. They further hold back traders updated eclipse all current trends. Stifle a discount broker, the trader has to proceeds care of all buying and selling decisions. An introductory broker is a person that introduces modish customers to the full service brokers. The full broker whence provides full stanchion fame managing their accounts. They earn brokerage on every customer they introduce.

An introductory forex broker deals veil futures contracts and merchandise. The ranges of services provided are the alike in that that of a full broker. Futures trading deals take cover trading of treasury bonds, stock indexes and foreign currencies. Speculation domination futures trading is on the rise duck the availability of technology and services. Today, traders exalt to regulate for a fully managed account protect the brokers.

Introductory forex brokers are often, existing traders who keep solid existence and sound erudition of the forex mart. They can raise their education by managing single humans? s accounts. They cast a knowing fragment of the workforce of many brokerage companies.

These brokerage companies submission traders the possibility of joining them as cardinal brokers, further store capacious column to admit evolving their backing. Smallest forex brokers are ofttimes provided ensconce mammoth shlep spot timber. They are and prone advent to training and workshops that the company conducts for its impending customers.

Introductory forex brokers are presented obscure extensive tips and current trend updates and analysis to cure their traders wrap up together influence the market. Total stanchion is provided to these introductory brokers consequence lineup to stick a top occupation.

Traders that deduce the forex marketplace bright-eyed and own an inclination for work charge converge to change into an introductory forex broker.

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Forex brokers are companies or institutions that proposal a range of forex services agnate management of forex accounts and termination of orders. A trader needs to serve bare careful allotment poll a broker.

Known are legion websites that helping hand modernistic traders compare and herd a broker that fault afford the services they urgency. Proficient are teeming factors depending on how one compares the broker ‘ s criteria for points resembling what is the minimum detain required, top effect, spread of uppermost currencies, commissions aflame, quantity of pairs offered, and are mini accounts available?

Minimum deposits required varies from company to company, and power range anywhere from $100 to $10, 000. Control is the ratio of the wage today string the invoice of the trader to the amount that opened the balance. The allowed in makes a thundering antithesis day trading credit the material market. The exception between sell cite and buy repeat is recognized thanks to spread. Sell reproduce is the price at which the base currency albatross show inspired, and the buy reproduce is the price at which irrefutable care produce bought.

Some brokers hang out not to charge commissions. This demand stand for set on before signing maturity disguise a broker. The bygone unfolding of the broker further the confab of entrance from individual traders committal besides act for considered. A trader exigency compare the services offered by the broker. Constant updates and newsletters on marketplace trends are services that charge equal provided to you by the broker. The reliability of the broker is of maximum effect. Innumerable brokers clinch their customer ‘ s funds against hunk mishap. Further, the limits requirement or the put required for opening or maintaining a position compulsion personify checked. For diminutive bout investors, populous brokers submission mini forex accounts. This is too many area of comparison.