Fundamental Analysis

  • Fundamental Analysis
  • Currency pair

    The most widely traded currencies in the world are called the major currencies. They are USD, EUR,JPY,GBP,CHF,CAD,AUD and NZD. Other currencies are called the minor curency. A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other, like EUR/USD.

  • Major currency pair

    Major currency pairs are the pairs quoting USD against a major currency, like EUR/USD, USD/CAD.

  • Cross-currency pairs

    Currency pairs that don’t contain the USD are known as cross-currency pairs, like EUR/GBP, GBP/JPY.

  • EXCHANGE RATE

    Foreign Exchange rate is the value of one currency being quoted aginst the other. For example, USD/CHF is quoted 1.0022, meaning that 1 USD can be exchanged to 1.0022 CHF.

  • Big Figure Quote

    Big figure is the first few digits of the quote, which rarely changes in the market.Thus, it's usually omitted when the dealers quote the price. For example, dealer quotes 30/35 orally for USD/JPY priced at 107.30/107.35.

  • Fixed Exchange Rate

    A fixed exchange rate is a regime applied by a country whereby the government or central bank ties the official exchange rate to another country's currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band.

  • Floating Exchange Rate

    A floating exchange rate is a regime where thecurrency price is set by the forex market based on supply and demand compared with other currencies. This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate.

  • Cross rate

    A cross rate is the exchange rate between two currencies computed by reference to a third currency, usually the USD. It usually refers to currency quotes that do not involve the USD in Forex trading.

  • Inter-bank rate

    It's the exchange rates that the banks transact at, which is usually within the bid and ask price range offered in the market. Therefore, the inter-bank rates are the wholesale rates and the rates offered by the FX broker are the retail rates.

  • Base Currency/ Quote Currency

    The currency pair usually expresses as Base currency/Quote Currency, indicating how much of the quote currency is needed to purchase one unit of the base currency.For example, the quotes for EUR/USD mean that how much of USD is needed to purchase one unit of EUR.

  • Direct Quote

    A direct quote is the currency pair quote in which the domestic currency is the quote currency and the foreign currency is the base currency, indicating how much of the domestic currency is needed to purchase one unit of the foreign currency.

  • Indirect Quote

    A indirect quote is the currency pair quote in which the domestic currency is the base currency and the foreign currency is the quote currency, indicating how much of the foreign currency is needed to purchase one unit of the domestic currency.

  • Interest rate swap

    An interest rate swap is an agreement between two counterparties in which one stream of future interest payments is exchanged for another based on a specified principal amount.Interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to hedge the interest rates risk or to reduce the cost of capital.

  • Currency swap

    A currency swap is an agreement in which two parties exchange the principal and the interest of a loan in one currency for another currency. The currency swap swaps the currency term but not the obligations of the loan.

  • Currency warrant

    There are six currency warrants in the market currently, including the calls and puts for AUD/USD and USD/JPY. For example, [email protected] means USDJPY call.

  • Transaction costs

    Transaction cost includes the spreads.The example on table 4.1, the transaction cost is 3 pips. The formula to calculate transaction cost is ask minus bid.

  • Rollover

    Rollover is to extend the Forex contract from the original delivery date to the next delivery date. The cost incurred is the interest rate difference between these two currencies.

  • Counterparty

    In FX market, if you want to buy a product, you have to buy from your counterparty, who want to sell this product.The demand-supply relationship creates the liquidity.Hence, it's a zero-sum game. When you win, your counterparty loses, and vice versa. It's called B book when the broker is clients' counterparty. And It's A book when the broker's liquidity provider is clients' counterparty.Liquidity provider includes banks, fianncial institutions.

  • A-book/B-book

    It's called B book when the broker is clients' counterparty. And It's A book when the broker's liquidity provider is clients' counterparty.Liquidity provider includes banks, fianncial institutions.

  • Pending order

    A pending order is an order that was not yet executed.Clients specify the currency pairs to be traded, the amount and the execution price. Once the execution price is hit, the pending order turns to market order and transact in the market. Before execution, clients have the right to cancel the order. Once pending order is placed, the margin is frozen unless the trade is cancelled.There are four types of pending order: buy limit, sell limit, buy stop and sell stop

    Buy Stop - Set the price you would like your position to open at. This type of order can be used when the current price is lower than the value you set. This is used when the client thinks the price will reach a certain level and continue increasing.
    Sell Stop - Much like buy stops, this allows you to open a position at a predetermined price level. The difference is the price is currently higher than the value you set. This is used when the client assumes the price will reach a level and continue falling.
    Buy Limit - When your instrument’s price reaches the level you set, a buy order will be performed. This is used when the price is falling, and it is assumed it will reach a price and increase.
    Sell Limit - This opens a sell order when the instrument’s price reaches the level you set. This is used when it is assumed the price after increasing will reach a level and then reverse and drop.

  • Slippage

    Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. The prices have to be confirmed between investors, servers and liquidity providers when transaction occurs. During this process, the price might change from what the investors see in the first place. Another factor might cause slippage is the lack of liquidity in the market when there is high volatility or when the big data or news is published. There may not be enough demand or supply to execute the order at the desired level when liquidity is low. Therefore, the orders have to be executed at the next best price.

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