Low liquidity and high volatility can make for some rapid and unpredictable price swings. Before you learn how to start forex trading, it's useful to know some of the common language used by traders. Here's a simple glossary of some of the terms you'll come across:.

Ask price — the price at which a trader can buy. Often called a " pip ". Bid-ask spread — the difference between the buy price and the sell price. Bid price — the price at which a trader can sell. Day trading — entering and exiting a forex trade on the same day. This is the typical strategy employed on CFD trading platforms. Derivative — a financial product whose value is based on an underlying asset. Dollar index — a measure of the US currency's strength relative to a basket of other currencies that include the euro, the pound and the yen.

Its symbol is DXY. Opposite of hawkish. Opposite of dovish. Hedge — a trading position or positions that helps reduce risk on your primary trading positions.

Leverage — this allows a trader to open positions much larger than his up-front capital can cover. It means that you can maximise your profits significantly on winning trades, but risks you losing much more than your initial deposit. Take note of the risk warnings on trading platforms and trading apps that offer leveraged trading. Liquidity — a highly liquid market has enough volume of trade to ensure smooth price movements. Illiquid markets have low levels of trading activity and can result in price volatility.

Lot — forex is traded in units of currency known as lots. The typical lot size is , units, although you can also deal in mini lots of 10, units and micro lots of 1, units. Margin — margin is related to leverage, and represents the minimum amount of cash you need to deposit to trade at your specified leverage.

Margin call — when your open position moves against you, your broker will make a margin call for you to supply additional funds to cover your margin. Open position — an active trade. Pip — stands for "price interest point" and is the smallest amount by which a currency pair's price can change. On quoted currency pairs, a single pip will be 0. Spread — this is the difference between the bid - or sell - price, and the ask - or buy - price on a currency pair.

Tick — a minimum change in price, or a pip. FX rates fluctuate constantly throughout the day, based on whether one currency is in higher demand than the other. As the forex market covers currencies from around the world, there are many factors that can drive the direction of different pairs, based on their perceived value to pay for goods and services or to invest in.

If you want to learn forex trading, here are some of the factors that can affect currency values you need to know about. Currency prices also react to political news and events domestically and internationally.

As the global reserve currency , the US dollar is considered a safe haven , which increases its value during times of macroeconomic uncertainty and political instability. An example of the impact a political event can have on the currency would be the Russian ruble, which lost a third of its value in the two weeks after Russia invaded Ukraine and Western countries imposed sanctions. The rouble reversed the price action later, quickly recovering to the pre-invasion levels and above amid higher oil and gas prices.

For this reason, forex rates tend to move in favour of the currency that has the highest interest rates. The cost of commodities can drive currencies in different directions depending on whether their countries are net importers or net exporters. Currencies from countries that export large volumes of commodities, such as the Australian dollar, New Zealand dollar and Canadian dollar, are called commodity currencies.

If you are interested in how to trade forex, there are several instruments you can use depending on your trading strategy and market predictions. The vast majority of FX transactions are executed by large institutions through the interbank market, often running into hundreds of millions of dollars at a time. But with the advent of online forex trading platforms — as opposed to physical exchanges — retail traders can now get involved in the currency markets too.

Individual investors are not involved in the spot market. Unlike other instruments like futures , options and exchange-traded funds ETFs , which are traded through centralised exchanges, spot forex contracts are traded on over-the-counter OTC contracts between the counterparties.

The interdealer market is only accessible to institutions such as banks, insurance companies, pension funds and big corporations that trade in large volumes. If a forex trader buys an option, they are able to buy a currency at a specified exchange rate on the expiration date. Unlike spot forex contracts, options and futures are traded on exchanges.

However, while forex markets trade around the clock, trading options is limited to exchange operation hours and liquidity is lower than on the spot and futures markets. Forex futures were created by the Chicago Mercantile Exchange CME in and continue to trade on exchanges.

Futures are contracts that obligate the trader to buy or sell an asset at a set price on a specified date in the future. That is the main difference between an option and a futures contract — options give traders the option to buy or sell, while futures obligate them to execute the trade.

Forex traders use futures to speculate on the value of a currency on the expiry date. Exchange-traded funds ETFs are a type of investment fund that trade on stock exchanges through the trading session, unlike mutual funds that settle the price once a day. Currency ETFs offer investors exposure to a single currency pair or a basket of currencies without having to manage individual trades on the forex market. Financial institutions manage currency ETFs by buying, selling and holding currencies in the fund.

They offer investors shares of the fund, allowing them to trade the funds like stocks. Adrian Holliday , 17 November Why Capital. Trade Now Trade Now.

Simple and intuitive platform. UK Autumn Budget: What could Hunt's fiscal statement mean for GBP, FTSE and gilts? Piero Cingari , 17 November Justin Mcqueen , 16 November Adrian Holliday , 16 November Piero Cingari , 15 November Gold Price Outlook: Gold Rally Faces Key Hurdles.

Justin Mcqueen , 15 November Australian dollar outlook: RBA minutes lack further insight, focus on jobs data. Daniela Hathorn , 15 November Adrian Holliday , 15 November Swiss franc outlook: CHF to rally on higher SNB interest-rate hikes?

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Mutual Funds. ET NOW. SEARCHED FOR: FOREX CAPITAL TRADING. Rupee gains 14 paise to Win contracts and expand your export business with these quick and effective digitised trade services. Guide to a few quick, effective digitised trade services to consider. IDFC First Bank's transformation to retail complete; NPA woes behind, says CEO V Vaidyanathan " I don't look a gift horse in the mouth.

The merger of Capital First and IDFC Bank brought with it a banking licence which is super precious," said V Vaidyanathan. All News Videos. However, the local unit dropped to an all-time low last month, breaching past the 83 per dollar level, while the foreign exchange reserves had dropped to an over two-year low.

The rupee closed Tuesday at Rupee gains 4 paise to Similarly, the broader NSE Nifty rose Foreign Institutional Investors FIIs turned net buyers in the capital markets as they bought shares worth Rs 2, India has to take risks for rupee internationalisation if it has to progress to be an economic superpower, says RBI Deputy Governor T Rabi Sankar Reserve Bank of India Deputy Governor T Rabi Sankar said internationalisation of the rupee reduces dependence on foreign currency and that makes India less vulnerable to external shocks.

Use of Rupee in cross-border transactions mitigates currency risk for Indian business. The pass-through in manufacturing prices could taper with raw material costs.

However, services firms are likely to gain pricing power. Rupee rises 35 paise to Rupee falls 11 paise to India's external position has further speed bumps ahead as forex reserves hit near-2 yr low New Delhi and Mint Street have voiced in recent months that despite the decadal-high inflation abroad, the external position of India is fairly healthy.

But in the face of a strengthening dollar, and a widening trade deficit, the Reserve Bank of India has moved swiftly to defend the Rupee. Rupee rises 5 paise to On Friday, the rupee closed at The dollar index, which gauges the greenback's strength against a basket of six currencies, advanced 0.

Forex betting apps lure unwitting investors as crypto craze wanes The Financial Commission, however, is not a regulatory body, as a quick internet search would show, but a dispute resolution organisation for forex trades. Rupee falls 22 paise to Rupee rises 17 paise to close at Forex traders said foreign fund inflows into capital markets and softening crude oil prices boosted the local currency. Foreign institutional investors remained net buyers in the capital market on Thursday as they purchased shares worth Rs 1, The surplus balance held in a special vostro account to be opened under the rupee payment mechanism can be used for investing in the local capital market by entities based in India's trading partners under the bespoke model.

This followed a meeting with the Securities and Exchange Board of India Sebi. Best forex signals providers Best forex signal providers, that make the life of a forex trader much easier, in Tested method to reverse capital flow At current levels of the rupee, the RBI's intervention in the forex market has been designed to track fundamentals. This is expected to continue as portfolio capital flows out on monetary normalisation by the US Federal Reserve and India's trade deficit widens on dearer oil.

The effects of a hard landing of the US economy are beginning to show up in a softening of global energy prices and the rupee is likely to drift down gently. Rupee falls 11 paise to record low of Active trading saved RBI from seeking additional capital RBI reduced its balance sheet by over Rs 1.

This helped it reduce the need for economic capital by over Rs billion. How to step-up handling of forex-related issues faced by exporters Constant fluctuations in foreign currencies remain one of the biggest issues in cross-border trade. The good news is that there are tools to overcome such impediments.

However, Indian exporters need to be better aware about these solutions and use tech to minimise the risks. Load More. Browse Companies:. Click here to go to economictimes. com Site will load in seconds.

Get right the first time Build an Effective Digital Strategy. Consider using a reputable broker or trading platform. What is a forex trading strategy? Rupee rises 17 paise to close at What is the difference between a futures contract and a CFD? Cookie settings ACCEPT. If you want to trade spot FX you need to use a forex broker platform.

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