Question: What is a trendline?

Definition: A trendline is is line that follows the current trend in a currency pair. While the science of using trendlines is often not exact, it gives you an idea of the approximate future actions of a trending currency pair. Trendlines are a basic part of technical analysis.

Question: What is an interest rate differential?
Answer:

An interest rate differential is the difference in interest rate between two currencies in a pair. If one currency has an interest rate of 3 percent an the other has an interest rate of 1 percent, it has a 2 percent interest rate differential.

If you were to buy the currency that pays 3 percent against the currency the pays 1 percent, you wouldbe paid on the difference with daily interest payments.

Question: What is an Expert Advisor?
Answer:

An Expert Advisor is a piece of software written specifically for the MetaTrader Platform. An Expert Advisor can just advise traders which trades to make or can be programmed to automatically execute the trades on a live account.

Expert Advisors are very flexible pieces of software that can take any information into account that is available on the metatrader platform. They are written in their own proprietary programming language called MetaQuotes Language Version 4.

Question: What is MetaTrader
Answer:
MetaTrader is an independent trading platform that was developed for trading forex, options, and futures.

MetaTrader is made by the MetaQuotes company and it was created in 2002. MetaTrader was one of the first truly programmable trading platforms that came complete with its own programming language.

MetaTrader is a software platform that is independent of the forex broker. The brokers that support using the metatrader platform do package their own versions, but the back end software is maintained by the MetaQuotes Software Corporation.

Question: What is a take profit order?
Answer:

A take profit order is an order that closes your trade once it reaches a certain level of profit.

When your take profit order is hit on a trade, the trade is closed at the current market value.

Take profit orders are also sometimes referred to as limit orders.

Question: What is a stop loss?
Answer:

A stop loss is an order that closes out your existing trade in order to limit losses.

Stop losses are literally used to stop the loss of your trading capital. When your stop loss order is hit on a trade, the trade is closed at the current market value.

Question: What is a mini lot?
Answer:

A mini lot is a lot of 10,000 units of the base currency. It is called a mini lot because it is only 1/10th of the size of a 100,000 unit standard lot.

If you are trading on an account based in US Dollars, a mini lot would be a trade worth $10,000 of USD.

Question: What does it mean to "go long"?
Answer:

When you “go long” you are simply placing a buy order on a currency pair.

In forex trading all currency pairs have a base currency and a quote currency. The quote will usually look something like this: USD/JPY = 100.00. The USD is the base currency and the JPY is the quote currency. This quote shows a rate of $1 US Dollar being equal to 100 Japanese Yen. When you place a long trade on this currency pair, you are going long on the USD Dollar and simultaneously going short on the Japanese Yen.

It sounds complicated, but you would make this trade if you believed that $1 was going to become more valuable than 100.00 Japanese Yen(i.e. $1 = 101.00JPY)

Question: What does it mean to "go short"?
Answer:

When you “go short” you are simply placing a sell order on a currency pair.

In forex trading all currency pairs have a base currency and a quote currency. The quote will usually look something like this: USD/JPY = 100.00. The USD is the base currency and the JPY is the quote currency. This quote shows a rate of $1 US Dollar being equal to 100 Japanese Yen. When you place a short trade on this currency pair, you are going short on the USD Dollar and simultaneously going long on the Japanese Yen.

It sounds complicated, but you would make this trade if you believed that $1 was going to worth less than 100.00 Japanese Yen(i.e. $1 = 99.00JPY)

Unlike the stock market, in forex trading going short is as simple as placing your order. There are no special rules or requirements for going short on a currency pair.

Question: What is a Margin Call?
Answer:
A margin call happens when a trading account no longer has enough money to support the open trades. This happens when there are too many floating losses.

For example, if you are using 200:1 leverage and you have a $20 account and use $10 to open a trade, your trade size on the market would be $2000. Each pip would be worth around 20 cents. If the market moved against you by 50 pips that would be floating loss of $10. Since it takes $10 to keep your trade open, at a floating loss of $10.01, you will no longer have enough margin to keep your trade open. At that point your broker will automatically close your trade because you no longer have enough margin to keep that $2000 trade on the market. This is how a margin call works.
 
Question: Do I need good credit to trade on margin?
Answer:
You do not have to have good credit to be able to trade on margin. Brokers are more than happy to give you margin to trade on because it is part of how they make their money. Brokers make their money by collecting the spread and the larger your trade is on the market, the more the spread is worth.

By giving you margin to trade on, the broker is able to collect more money from your account per trade.
 
Question: Is forex trading risky?
Answer:
Forex trading can be risky if you don't use proper risk management. New forex traders can minimize the risks by learning proper risk management and developing a solid trading plan.
 
Question: What is the Interbank?
Answer:
The Interbank is not really a center exchange where everything is traded. Interbank actually means "between one or more banks". As it applies to forex trading, the Interbank is like a backroom where there are groups of people making deals. The prices are all close to the same, but not exactly the same.
 
 

Question: What is a forex spread?
Answer:
The spread is the amount of pips between the bidding price and the asking price is called the spread. The spread is what forex brokers use to make money on every forex trade placed through their network. For example, the forex broker may be paying a price of 1.3600 for buying or selling. The broker will then allow you to buy the currency for 1.3601 or sell it for 1.3599. The spread always stays around the actual price that the forex broker is paying. So when you buy, you get one end of the spread and when you sell you get the other end of it, and vice versa. By the time you close your trade, you will have always paid the spread.
 
Question: What is scalping?
Answer:
In forex trading, scalping is taking advantage of currency pair changes over a very short period of time. Traders that scalp usually use high leverage and aim for less than 10 pips within a few minutes.
 
Question: What is backtesting?
Answer:
Backtesting is the process of testing your trading system using past market data. For example, let's say you have a system that buys a currency after every two bullish candlesticks. You can look at past market data to see how that strategy would have worked in the past.
 
Question: What is the US Dollar Index
Answer:

The US Dollar index was created to measure the value of the United States Dollar against a basket of foreign currencies.

The basket of currencies contains the Euro, Japanese Yen, Canadian Dollar, British Pound, Swedish Krona, and the Swiss Franc.

Question: What Does 'Buy the Rumor Sell the News' Mean?
Answer:
Buy the rumor, sell the news is something that happens in most markets, particularly financial. Sometimes traders trade based on what they believe will happen in a given economic report or event (the rumor). Once the event passes or the report is released (the news), they dump their positions and the market moves.
 
Question: What is market noise?
Answer:
Market noise is the seemingly mindless back and forth movement on the smaller time frames. A trader’s definition of market noise is usually relative to the time frames that they are trading. A trader that trades a 1 hour time frame might think that the 15 min chart contains market noise while a trader that trades 15 minute charts might think that a 5 minute chart contains market noise.
 
5 Things to Look for in a Forex Broker
 

 

Looking for a forex broker can be time consuming and confusing. Here is a list of 5 things to look for when trying to choose a forex broker.

1. Low Spreads

The spread is the cost of doing business in forex trading. Forex brokers should provide a reasonably low spread. It is important to note that some brokers have a variable spread that changes with market conditions.

2. Low Minimum Lot Size

Being able to trade smaller lots will allow for tighter risk management. Look for a broker that can offer you the ability to trade small lots. For beginning traders, mini lots or micro lots are recommended.

3. Fast Order Execution

Any trading style can benefit from an order being filled quickly. Delays in filling an order can cause losses in volatile markets. The broker should be able to fill your order in less than a second in any market.

4. Extensive Technical Tools

The broker should offer you a wide array of technical tools to use for chart trading. As you develop a trading style, you may find that you feel comfortable using new tools. The availability of a wide range of technical tools can help you to find your trading strategy.

5. Adjustable Leverage

A good broker will offer you the ability to change your leverage as needed. A broker that forces you to use high leverage is probably trying to help you lose your money. There will be times when more leverage is appropriate and times when less is appropriate. You should be able to call your broker and have your leverage changed any time that you need it to be.
 
Question: What are the best forex trading hours?
Answer:
The best time to trade the forex markets is between 8:00 GMT and 16:00 GMT. These are basically the hours of the London market with the last 5 hours being in overlap with the US market. This is the time when the most traders and biggest banks are in the markets making their trades. It is widely considered the most profitable time to trade.
 
Question: What is a Pip?
Answer:
PIP stands for Percentage In Point. It is equal to 1/100 of 1 percent, or .0001.

In forex, currency prices are typically quoted to the fourth decimal. For example, if the EUR/USD pair moves from 1.3410 to 1.3420 it has moved by 10 pips. If the EUR/USD increases by 1 full cent in value (from 1.3410 to 1.3510), it has increased by 100 pips.
 
Question: How much money do I need to get started?
Answer:
The amount of money that you will need to open an account depends on the broker. Brokers such as Millenium will allow you to open an account with as little as $1,000 for mini-accounts, for regular accounts require at least $10,000. If you aren’t ready to commit real money yet, you can always start with a mini-account.
 
Mistakes That Forex Traders Make

 

When getting started in forex trading, there are common mistakes to be avoided. This is a list of common forex trading mistakes.

1. Using Too Much Leverage

One of the biggest advantages of forex trading is the ability to use leverage or trading on margin. One of the most common mistakes that forex traders make is using too much leverage. Using too much leverage is when you have a small account balance, but make a big trade. If the market moves against your position by just a small amount, it can result in large losses. Commonly, the beginning forex trader will get emotional and nervous and close the trade for a sizable loss.

2. Over Trading

Over Trading occurs when traders try to look for trading opportunities that are not really there. It happens to new traders very often, because they just want to trade. The result is usually a poorly executed trade that results in an eventual loss. Over trading can also result in traders making too many trades at once and using too much margin.

3. Picking Tops and Bottoms

Many new traders attempt to try to pinpoint where a currency pair will turn around and start moving the opposite direction. This is something that is difficult even for professional traders.
 
Question: Why do Brokers Give You so Much Leverage?
Answer:
Brokers make their money on the spread. They are happy to provide leverage to forex traders because the bigger the trade, the more the pips in the spread are worth.

For example, let’s say you used no leverage and were just trading a $1,000 account. You make a trade for the full amount of $1,000 and the spread is 3 pips. Each pip would be worth about 10 cents. The broker would make 30 cents as a payment for handling your trade. Let’s add some leverage now. You use the same $1,000 at 50:1 leverage. Now your trade on the market is worth $50,000. Each pip is now worth around $5! The broker makes $15 for handling your trade. The broker gets to keep that money whether you win or lose your trade. This is why you see some brokers out there offering 200:1 leverage. They can make the most money from your trading and at the same time make it very easy for you to trade by letting you open an account with a small amount of capital.
 
Question: What is Carry Trading?
Answer:
Carry trading is when you take advantage of the interest rate differential between two currencies.

For example, if the interest rate on the British Pound(GBP) is 5.75% and the interest rate on the US Dollar(USD) is 4.25% and you place a buy trade on GBP/USD, you will collect the difference between the two interest rates or 1.50%. As long as you hold that trade open, you will be paid that interest differential every day.
 
 
 

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Risk Disclaimer
“Trading in the Forex market is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions.  Nothing in this presentation is a recommendation to buy or sell currencies and FXcharles is not liable for any loss or damage.” 
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