Question 1

What is Arbitrage?

Accepted Answer

Arbitrage is a financial transaction in which financial instruments are simultaneously bought and sold in two or more related markets or within the same market with a time difference, in order to capitalize on price discrepancies. Learn more.

Question 2

What is a Basis Point?

Accepted Answer

A basis point is one hundredth of a percent (0.01%). It is commonly used in relation to central bank interest rates to measure changes. For example, an interest rate increase from 4.00% to 4.25% is a rise of 25 basis points. Learn more.

Question 3

What is Currency in Forex?

Accepted Answer

Currency refers to any form of money issued by a government or central bank and used as legal tender. It includes credit and payment instruments denominated in foreign currencies for international settlements. Learn more.

Question 4

What does Risk mean in Forex Trading?

Accepted Answer

Risk refers to the exposure to potential changes with uncertain probabilities. In trading, it describes the likelihood of unfavorable market changes that could negatively impact the trader. Effective risk management is fundamental to every Forex strategy. Learn more.

Question 5

What is Leverage in Forex?

Accepted Answer

Leverage is the ratio of the volume of a transaction to the required amount of security (collateral). It represents the ratio between the trader's own funds and the broker's capital provided as a loan, allowing profits to change multiple times relative to revenue changes. Learn more.

Question 6

What is Margin in Forex Trading?

Accepted Answer

Margin is the required amount of funds or collateral that a trader must deposit to maintain an open position or open a new one. It is typically expressed as a percentage or a leverage ratio, such as 25% or 1:4. Learn more.

Question 7

What is a Lot in Forex?

Accepted Answer

A lot is the standard unit of measurement for the volume of a trade. A standard lot equals 100,000 units of the base currency, and some brokers offer fractional lots. Learn more.

Question 8

What is Margin Trading?

Accepted Answer

Margin trading involves conducting trading operations using a margin account opened with a broker. Traders use their own funds as collateral while the broker provides additional funds on credit through leverage. Learn more.

Question 9

What is the Fibonacci Sequence in Forex?

Accepted Answer

The Fibonacci sequence is a series of numbers where each number is the sum of the two preceding ones, starting with 0 and 1. In technical analysis, Fibonacci numbers and ratios are used to identify potential support and resistance levels, predicting market retracements and reversal points. Learn more.

Question 10

What is a Bull Market?

Accepted Answer

A bull market is characterized by a gradual increase in prices over a specific period, with major trends being upward. Bulls are traders who aim to drive prices higher by buying and holding positions until they can sell at a profit. Learn more.

Question 11

What is a Bear Market?

Accepted Answer

A bear market is characterized by a sustained decrease in prices over a specific period, with primary trends being downward. Bears are traders who seek to push prices down, viewing bear markets as opportunities to profit from anticipated uptrends. Learn more.

Question 12

What is the OTC Market?

Accepted Answer

The over-the-counter (OTC) market refers to financial transactions that occur outside of formal exchanges, conducted directly between parties or through a network of dealers using electronic communication methods. Learn more.

Question 13

What is the Spot Market?

Accepted Answer

The spot market is where goods are sold for cash and delivered immediately. It is also recognized as the international currency market for current conversion transactions. Learn more.

Question 14

What is a Trading Session?

Accepted Answer

A trading session is a designated period during which transactions are conducted with securities and financial assets. The highest volumes in Forex typically occur during the European trading session when major banks and financial institutions are active. Learn more.

Question 15

What is a Trading Corridor?

Accepted Answer

A trading corridor, also known as a trading range or channel trading range, is a price channel within which exchange rates fluctuate between established support and resistance levels, defining the corridor in which prices move sideways without breaking out. Learn more.

Question 16

What is Market Volatility?

Accepted Answer

Market volatility is a statistical measure of the price fluctuations of a financial instrument over a specified period. It captures the magnitude of price movements, both upward and downward, based on historical data, and cannot be precisely predicted as it is influenced by market participants' emotions and behaviors. Learn more.

Question 17

What is a Range in Forex?

Accepted Answer

A range is the distance between the highest and lowest prices during a specific trading session. Throughout the session, rates fluctuate within this defined price range. Learn more.

Question 18

What is a Downtrend?

Accepted Answer

A downtrend is a sustained, directed decline in the price of a financial asset over a specific period, also known as a bearish trend. In a downtrend, the trend line serves as a resistance level and is drawn along the asset's price highs. Learn more.

Question 19

What is an Uptrend?

Accepted Answer

An uptrend is a sustained increase in prices, marked by a series of higher highs and higher lows. The trend line supporting an uptrend is drawn through the lows and serves as the main support line. Learn more.

Question 20

What is a Base Currency?

Accepted Answer

The base currency is the first currency in a currency pair. A trade is executed by buying or selling the base currency in exchange for the quote currency, with the deal volume calculated in the base currency. Learn more.

Question 21

What is a Counter Currency?

Accepted Answer

The counter currency, also known as the quote currency, is the second currency in a currency pair. It is used to measure the value of the base currency, and the value of a pip is calculated in the counter currency. Learn more.

Question 22

What is a Currency Pair?

Accepted Answer

A currency pair consists of two currencies that make up a quote on the Forex market, representing the value of one currency relative to another. For example, EUR/USD is a currency pair. Learn more.

Question 23

What is a Cross Rate?

Accepted Answer

A cross rate is the exchange rate between two currencies, neither of which is the US dollar. Examples include EUR/GBP and AUD/NZD. Cross rates are calculated by comparing each currency to a third currency, typically USD. Learn more.

Question 24

What is Spot Price?

Accepted Answer

The spot price is the current market price at which a real commodity or financial asset is sold for immediate delivery at a specific time and place. Spot trades typically settle two business days after initiation. Learn more.

Question 25

What is an Exchange Rate?

Accepted Answer

An exchange rate is the price of one currency expressed in units of another currency. For example, if the British pound is 1.57 USD, it means 1 GBP equals 1.57 USD in the Forex market. Rates can be floating or fixed. Learn more.

Question 26

What is a Freely Convertible Currency?

Accepted Answer

A freely convertible currency, also known as a hard currency, is universally accepted in international payments at prevailing market rates without restrictions. Examples include the US dollar, euro, and Japanese yen. Learn more.

Question 27

What is a Spot Transaction?

Accepted Answer

A spot transaction is executed immediately, with funds typically transferred within two business days from the transaction date. The spot date refers to the value date, which is two business days after the transaction. Learn more.

Question 28

What is a Long Position?

Accepted Answer

A long position is a trading position where profits increase as the market price rises. It involves purchasing financial assets with the expectation that their value will increase. Learn more.

Question 29

What is a Short Position?

Accepted Answer

A short position is where profits increase as the market price decreases. It involves selling the base currency of a pair, indicating a belief that the currency will decline in value. Learn more.

Question 30

What is an Open Position?

Accepted Answer

An open position refers to a trade to buy or sell a financial asset that has not yet been closed by a reverse transaction. It remains active until the trader decides to close it to realize profits or losses. Learn more.

Question 31

What is a Closed Position?

Accepted Answer

A closed position is a market position that has been reversed by executing an opposite trade, resulting in the calculation of profit or loss. It no longer responds to currency fluctuations. Learn more.

Question 32

What is a Market Order?

Accepted Answer

A market order is a client's order to open or close a position on a selected financial instrument at the current market price. It is executed immediately, unlike pending orders which are executed under specific conditions. Learn more.

Question 33

What is a Swap in Forex?

Accepted Answer

A swap is the simultaneous sale and purchase of the same amount of a currency with different value dates. It typically occurs when an open position is rolled over to the next day, maintaining the position for an additional period. Learn more.

Question 34

What is Clearing in Forex?

Accepted Answer

Clearing, also known as settlement, refers to the completion of mutual obligations in a transaction. It involves non-cash payments for goods, securities, and services based on the offsetting of mutual claims and obligations. Learn more.

Question 35

What is a Commission in Forex Trading?

Accepted Answer

A commission is a fee charged by a broker or intermediary for executing transactions on behalf of the client. It is typically based on the number of shares, bonds, options, and their total dollar value. Learn more.

Question 36

What is a Rollback in Forex?

Accepted Answer

A rollback, also known as a rebound, is a change in the direction of market price movements following a long-term trend of growth or decline. It leads market participants to perceive current price levels as too high or too low. Learn more.

Question 37

What are Derivatives in Forex?

Accepted Answer

Derivatives are financial instruments whose value is derived from underlying tradable assets such as options, futures, warrants, or swaps. They allow owners to lock in favorable prices for buying or selling and can be used to hedge existing positions or create synthetic ones. Learn more.

Question 38

What is Currency Intervention?

Accepted Answer

Currency intervention is the active action taken by a central bank to influence the exchange rate of its currency. It typically involves large-scale buying or selling of the currency or securities to control the exchange rate and stabilize the financial system. Learn more.

Question 39

What is Technical Analysis?

Accepted Answer

Technical analysis is a method used to predict future price movements in financial markets by analyzing historical price charts and technical indicators. It involves forecasting price changes based on past patterns using tools like chart patterns, indicators, signals, and oscillators. Learn more.

Question 40

What is a Technical Indicator?

Accepted Answer

A technical indicator is a mathematical calculation based on the price and volume of a financial instrument, used to predict future price movements. Traders use signals from technical indicators, such as RSI, MACD, and moving averages, to decide when to open or close positions. Learn more.

Question 41

What is an Oscillator in Forex?

Accepted Answer

An oscillator is a technical indicator that fluctuates within a specified range, such as between 0 and 100%, to indicate whether a market is overbought or oversold. It helps traders identify potential reversal points but often requires confirmation from other indicators. Learn more.

Question 42

What is a Double Top in Technical Analysis?

Accepted Answer

A double top is a reversal pattern where the price reaches a certain level twice before reversing downward. It signals a potential reversal of an uptrend and resembles the letter 'M' on a chart. Learn more.

Question 43

What is a Double Bottom in Technical Analysis?

Accepted Answer

A double bottom is a reversal pattern that indicates a potential reversal of a downtrend. The price reaches a certain level twice before reversing upward, resembling the letter 'W' on a chart. Learn more.

Question 44

What is a Breakdown in Forex?

Accepted Answer

A breakdown occurs when the price of a financial instrument moves below a support level, indicating a potential continuation of a downward trend. The broken support level may become a new resistance level. Learn more.

Question 45

What is a False Breakout?

Accepted Answer

A false breakout is a short-term price movement that breaches a certain level, such as support or resistance, but then reverses and moves in the opposite direction. Unlike true breakouts, false breakouts do not continue in the initial direction. Learn more.

Question 46

What is Consolidation in Forex?

Accepted Answer

Consolidation is a pattern where the price of a financial asset moves sideways without a clear upward or downward trend. This lateral movement occurs within a defined price corridor or represents stabilization following a directional movement. Learn more.

Forex Trading Definitions

Forex Glossary – Basic Concepts and Definitions