Forex glossary

The derivatives market has been around for decades, and trading on it is somewhat different from that of other financial markets. Professionals have long mastered these special features and used them in their work. For a stable income on the currency markets, all novices need is some specific expertise.

Our online tutorial explains the history of the global derivatives market, information on those who trade on it, and financial calculations used to trade currency, along with many practical trading examples.

This tutorial will help you master the basic skills you need to trade on the derivatives markets.


Foreign Exchange (Forex, or FX) is the international currency market, the global market for exchanging national currencies around the world.

Total market trading volumes
Where market participants carry out trades
Exchange rates
Operating hours
Forex terminology
History of the Forex market

The main historical periods of development of the foreign currency market and the global community's search for the most effective model are: the gold standard, the Bretton-Woods system, and the Jamaica free market system.

The gold standard
The Bretton-Woods system
The floating currency system
Forex market participants

Participants in the currency market include central and commercial banks, international trade companies, funds, currency exchanges, brokerage companies, and individuals.

Central banks
Commercial banks
International trading companies
Currency exchange
Market attractiveness

The currency market has many advantages which make it attractive for trading: liquidity, its global nature, margins trading, round-the-clock access from anywhere in the world, low costs and barriers to entry, online trading.

The global nature of the Forex market
Margin trading
High returns
Round-the-clock access
Low costs
Online trading
Information transparency
A wide range of financial instruments
Conventional trends
Exchange rate

An exchange rate — is the monetary unit of one country expressed in the monetary unit of another country. For currency pairs, it is the number of units of the quoted currency per single unit of the base currency.

Floating and fixed rates
Bid/Ask prices
World currencies - Currency codes

Currency — is a country's monetary unit.

A coding system provided by the International Organization for Standardization (ISO), the world's largest developer of international standards, is used to denote currencies. The standard ISO 4217 designates a three-letter code for each currency: the first two letters indicate the country, and the last letter stands for that country's currency. For example, USD is comprised of US (United States), and D (dollar). In addition to letters, the standard can also assign number currency codes.

Currency codes
Currency pairs

A currency pair — is two currencies that make up an exchange rate and are the subject of a trading operation. Traditionally, a currency pair is recorded using currency codes and is made up of: base currency/quoted currency.

Major currency pairs
Base currency
Quote currency
Margin trading

The volume of currency transactions on the interbank market starts at several million dollars. The vast majority of investors do not have this much capital. They turn to the credit system provided by brokers, in order to allow small investors to trade on the global currency market.

Margin trading (margin trading) — carrying out trading operations on credit capital provided by brokers to investors under a collateral payment, or margin, which acts as loan security.

Margin trading on the Forex market
Trading on the currency market

Margin calculation
The cost of the point
Making money on the Forex: market profitability

The profitability of margin trading operations on the Forex market is determined by the size of the initial capital and level of trading risk that the trader is willing to take on. The risk increases with the use of leverage and implementation of an aggressive trading system. High credit leverage increases an operation's potential profit and the speed of capital growth, along with potential losses.

For the most approximate calculations, we can focus on the values of market volatility. For example, average daily price fluctuations are 100 - 200 points. That means that the size of the potential profit is determined by multiplying the volatility indicator by the cost of one point. For the currency pair EURUSD, for a standard lot of ( 100,000 base currency units) the point value is $10, and the daily profit is $1,000 - 2,000. In reality, though, according to John Murphy, the author of the well-known book "Technical Analysis of Futures Markets", successful traders will manage to catch about a third of price movement.

Forex risks

When trading on the Forex market, the main risks are related to margin trading, using telecom channels and facilities, the peculiarities of the currency market, and brokers.

Margin trading
Market volatility
Hardware, software
CFD - Contracts for difference

CFD — stands for Contract For Difference. This is an agreement on the difference in a closing position's opening and closing price according to a contract for various financial instruments.

For example, #IBM is a contract for difference for IBM shares: IBM shares are the base currency; #Gold is a contract for difference for gold, and the contract is based on the price of gold. CFDs have only been available to private traders since 2000. Previously, only professional investors had access to them.

Under a CFD contract, it is possible to carry out financial activities on the securities market of countries with the largest economic systems, such as the United States, countries of the European Union, and Japan. Futures are available on major global indexes - the Dow Jones, NASDAQ, NIKKEI, S&P 500, CAC 40. Trading in metals, raw materials ( oil, gas, wheat, soybeans, cocoa, etc. ) futures are also available on the indexes and commodities market.

What CFDs are used for?
Example of a transaction: buying Microsoft shares
Technical market analysis

Those who support technical analysis predict market movements based on changes to price dynamics over a specific period of time. Technical analysis is carried out using graphic and mathematical methods.

The underlying principles of technical analysis: the price takes everything into account, directional price movements, and history repeats itself.

Price considers everything
Directional price movement
History repeats itself
Fundamental market analysis

Fundamental analysis is the forecasting of market movements, based on analysis of economic data, political events, news, rumors, and expectations.

Economic factors: economic development in the country of the currency in question, state fiscal and monetary policy, foreign economic activity, Central Bank activity, statements by Central Bank heads and other important financiers on the state of the foreign currency market and economic situation.

A country's economic situation is a reflection of macroeconomic indicators, most importantly, the gross national product, interest rates, inflation, unemployment, the trade balance, and the payment balance. Data on the economic situation are published by national statistics bodies. Official announcements on indicators are made on an established schedule. (date, time). The absolute value of the indicators themselves is not as of much interest as changes or dynamics compared with previous reporting periods. (growth, decline).

Political events include choices made by the government and head of state, military, political conflicts and scandals, terrorist attacks, changes in state policy. Political stability, relations between the people and government, interactions between the authorities and business, and the level of economic influence are assessed.

News have a short-term influence on the currency market. Often, the market does not actually react to the news, as investors carry out trading operations in advance, based on their own predictions. Unexpected political developments, (war, terrorist attacks, ) and natural (disasters ) have a strong influence.

The influence of fundamental factors on national currency exchange rates
Online trading

Online trading means when people carry out financial market trading operations on the Internet.

In order to take part in online trading, you must select a broker and open a trading account. Buying and selling financial instruments takes place in real-time using special software known as a trading terminal ( that has been provided by the broker). The trader can install the trading terminal on a desktop computer, laptop, tablet, or smartphone. The broker's trading server is linked to the banking system and exchange terminals. Transactions take place when ( the trader) places an order, which is accepted ( by the broker ) the orders indicate what kind of operation (buy/sell#41;, financial instrument, price, and size of the contract in margin trading conditions.

The advantage of online trading is clear- it is comfortable and convenient with a flexible schedule, and traders can carry out their transactions from anywhere at any time, enjoy high levels of profit, and the opportunity to independently master the subject. At the same time, online trading is not a game, but a business that requires a significant amount of time to truly master special knowledge, software skills, market analysis, and monitoring open positions, as well as a high degree of psychological stability.

Along with the main channel for trading operations- the trading terminal- the broker will also always offer an additional telephone channel. This removes online trading's inherent risk of technical difficulties- computer crashes and hardware or software failures.