Questions and Answers

Brokers are individuals, either legally or privately, who act as intermediaries or negotiators on behalf of buyers and sellers of stocks or money in trading meetings. A broker may offer additional services while working under his client’s name, on their behalf, and at their expense. When brokers complete orders for customers, they are paid a commission bonus.

The general level of prices for products and services has been steadily rising. The rise is expressed as a percentage per year. A smaller portion of an item or service can be purchased with each dollar you own as inflation increases.

The purchasing power of money and wages are higher during deflation than they would have been otherwise. While the phrases are sometimes confused and used interchangeably, this is different from price deflation, which is a general decline in the level of prices.

The ability of a security or asset to be swiftly purchased or sold on the market without depressing the asset’s price is known as liquidity.

It’s the movement of cash in and out of a business from day-to-day direct trading and other non-trading or indirect effects, such as capital expenditure, tax and dividend payments.

the Net Present Value (NPV) holds great importance when making investment decisions in business. NPV serves as a comprehensive assessment of the future cashflow (revenues minus costs, also known as net benefits) that will be obtained from a specific investment, subtracting the initial investment cost. Logically, if a proposal exhibits a positive NPV, it signifies profitability and deserves careful consideration. Conversely, if the NPV is negative, the proposal is deemed unprofitable and should not be pursued.

EUR/USD (Euro to the US Dollar), USD/JPY (US Dollar to the Japanese Yen), GBP/USD (British Pound to the US Dollar), AUD/USD (US Dollar to the Australian Dollar), USD/CHF (US Dollar to the Swiss Franc), USD/CAD (US Dollar to the Canadian Dollar), EUR/JPY (Euro to the Japanese Yen), EUR/GBP (Euro to the British Pound)

An investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. The investor purchases more shares when prices are low and fewer shares when prices are high. The premise is that DCA lowers the average share cost over time, increasing the opportunity to profit. The DCA technique does not guarantee that an investor won’t lose money on investments. Rather, it is meant to allow investment over time instead of investment as a lump sum.

The capital asset pricing model (CAPM) describes the relationship between risk and expected return, and it serves as a model for the pricing of risky securities. … Required (or expected) Return = RF Rate + (Market Return – RF Rate)*Beta.

Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and an investment time frame.

Historically, currencies were traded in specific amounts called lots. The standard size for a lot is 100,000 units. There are also mini-lots of 10,000 and micro-lots of 1,000.

To take advantage of relatively small moves in the exchange rates of currency, we need to trade large amounts in order to see any significant profit (or loss).

A currency pair is the quotation and pricing structure of the currencies traded in the forex market; the value of a currency is a rate and is determined by its comparison to another currency. The first listed currency of a currency pair is called the base currency, and the second currency is called the quote currency.

For example, the currency pair EUR/USD means the base currency is the Euro while the quote currency is the US Dollar.

Pip = “price interest point“

A pip measures the amount of change in the exchange rate for a currency pair.

For currency pairs displayed to four decimal places, one pip is equal to 0.0001. Yen-based currency pairs are an exception and are displayed to only two decimal places (0.01).

Some brokers now offer fractional pips to provide an extra digit of precision when quoting exchange rates for certain currency pairs. A fractional pip is equivalent to 1/10 of a pip.

In Forex, arbitrage allows retail forex traders to make a profit with no open currency exposure. The strategy involves acting fast on opportunities presented by pricing inefficiencies, while they exist.

This type of arbitrage trading involves the buying and selling of different currency pairs to exploit any inefficiency of pricing.

The RSI measures the ratio of up-moves to down-moves and normalizes the calculation so that the index is expressed in a range of 0-100. If the RSI is 70 or greater, then the instrument is assumed to be overbought (a situation in which prices have risen more than market expectations). An RSI of 30 or less is taken as a signal that the instrument may be oversold (a situation in which prices have fallen more than the market expectations).

This is used to indicate overbought/oversold conditions on a scale of 0-100%. The indicator is based on the observation that in a strong up trend, period closing prices tend to concentrate in the higher part of the period’s range. Conversely, as prices fall in a strong down trend, closing prices tend to be near to the extreme low of the period range. Stochastic calculations produce two lines, %K and %D that are used to indicate overbought/oversold areas of a chart.

Divergence between the stochastic lines and the price action of the underlying instrument gives a powerful trading signal.

The (WACC) is a calculation of a firm’s cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation.

A firm’s WACC increases as the beta and rate of return on equity increase, as an increase in WACC denotes a decrease in valuation and an increase in risk.

A trend refers to the direction of prices. Rising peaks and troughs constitute an up trend; falling peaks and troughs constitute a downtrend that determines the steepness of the current trend. The breaking of a trend line usually signals a trend reversal. Horizontal peaks and troughs characterize a trading range.

Moving averages are used to smooth price information in order to confirm trends and support and resistance levels. They are also useful in deciding on a trading strategy, particularly in futures trading or a market with a strong up or down trend.

The IMF is an international organization headquartered in Washington DC, of 189 countries that work together to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

The FTC is an independent agency of the United States Government and it’s principal mission is the promotion of consumer protection and the elimination and prevention of anticompetitive business practices, such as coercive monopoly.

Fibonacci retracement lines are based on the Fibonacci Sequence and are considered a “predictive” technical indicator providing feedback on possible future exchange rate levels. There are some traders who swear by the accuracy by which Fibonacci Retracements can predict future rates, while others argue that Fibonacci numbers are more art, than science.

Given their popularity and widespread usage by technical analysts, you should at least know how to interpret Fibonacci numbers.

A CRA, also called a ratings service, is a company that assigns credit ratings, which rate a debtor’s ability to pay back debt by making timely interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt, but not of individual consumers.

Credit rating is a highly concentrated industry, with the “Big Three” credit rating agencies controlling approximately 95% of the ratings business. Moody’s Investors Service and Standard & Poor’s (S&P) together control 80% of the global market, and Fitch Ratings controls a further 15%.

Fibonacci retracement lines are based on the Fibonacci Sequence and are considered a “predictive” technical indicator providing feedback on possible future exchange rate levels. There are some traders who swear by the accuracy by which Fibonacci Retracements can predict future rates, while others argue that Fibonacci numbers are more art, than science.

Given their popularity and widespread usage by technical analysts, you should at least know how to interpret Fibonacci numbers.

The SEC is an agency of the United States Government, and it holds primary responsibility for enforcing the federal securities laws, proposing securities rules, and regulating the securities industry, the nation’s stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.

The Federal Reserve System directly sets the “discount rate”, which is the interest rate for “discount window lending”, overnight loans that member banks borrow directly from the Fed. This rate is generally set at a rate close to 100 basis points above the target federal funds rate. The idea is to encourage banks to seek alternative funding before using the “discount rate” option.

The equivalent operation by the European Central Bank is referred to as the “Marginal Lending Facility.”

An instrument of monetary policy adjustment employed by the Federal Reserve System is the fractional reserve requirement, also known as the required reserve ratio.

The required reserve ratio sets the balance that the Federal Reserve System requires a depository institution to hold in the Federal Reserve Banks, which depository institutions trade in the federal funds market.

Also known as the Federal Reserve or simply the Fed, is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act in response to a series of financial panics that showed the need for central control of the monetary system if crises are to be avoided.

This is the process by which the monetary authority of a country, like the central bank or currency board, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

This refers to a condition in which securities prices fall and widespread pessimism causes the stock market’s downward spiral to be self-sustaining. Investors anticipate losses as pessimism and selling increases. Although figures vary, a downturn of 20% or more from a peak in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over a two-month period is considered an entry into a bear market.

This refers to a financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, currencies (forex market) and commodities.

These are financial intermediaries that accept deposits from legal and private persons, take advantage of investing this money, return it to depositors, close and operate bank accounts. Every country has some big commercial banks that are able to influence currency rates.

This particular type of swap is designed to transfer the credit exposure of fixed income products between two or more parties. In a credit default swap, the buyer of the swap makes payments to the swap’s seller up until the maturity date of a contract. In return, the seller agrees that, in the event that the debt issuer defaults or experiences another credit event, the seller will pay the buyer the security’s premium as well as all interests payments that would have been paid between that time and the security’s maturity.

A CDO is a type of structured asset-backed security (ABS). Originally developed for the corporate debt markets, over time CDOs evolved to encompass the mortgage and mortgage-backed security (“MBS”) markets.

The purpose of candlestick charting is strictly to serve as a visual aid, since the exact same information appears on other charts.

• Candlesticks are easy to interpret and are a good place for a beginner to start figuring out chart analysis.

• Candlesticks are easy to use. Your eyes adapt almost immediately to the information in the bar notation.

• Candlesticks and candlestick patterns have cool names such as the shooting star, which helps you to remember what the pattern means.

•Candlesticks are good at identifying marketing turning points – reversals from an uptrend to a downtrend or a downtrend to an uptrend.

• Bank Holidays

• Friday Afternoons and Weekends

• End of December

• When Angry or Frustrated

• Asian Sessions

• Release of News Events

• Market Closing Time

• Overnight

• Single Currency – EUR (Euro)

• Loonie – CAD (Canadian dollar)

• Swissie – CHF (Swiss franc)

• Aussie – AUD (Australian dollar)

• Kiwi – NZD (New Zealand dollar)

• Greenback, Buck – USD (U.S. dollar)

• Sterling, Pound sterling – GBP (British pound)

Research has found that the biggest movements in four of the major currency pairs – namely EUR/USD, GBP/USD, USD\JPY and USD/CHF – are observed on Tuesdays and Wednesdays. These days generally show the biggest movements in currencies as major data releases related to the economy are usually released on these days.

Fridays are busy as well, but only until 12am. During the second half of Friday, movements can often be unpredictable since major banks, hedge funds and financial institutions will close some of their positions for safety reasons over the weekend.

The value of a pip changes based on the currency, the amount traded and the exchange rate. For U.S. Dollar accounts, the pip value of currency pairs not based in U.S. Dollars is consistent with the amount that is being traded. On one standard lot, the pip value is $10. The value of a mini lot ($1) and micro lot ($0.10) is consistent with how much is being traded.

When the U.S. Dollar is the base currency, the pip value varies based on the exchange rate.

To calculate the pip value of those currency pairs, follow this formula:

Pip Value = (Pip in decimal places * Trade Size) / Exchange Rate

For example, for 1 standard lot of USD/CAD at the price of 1.30, the pip value is:

Pip Value = (0.0001 * 100,000) / 1.30 = $7.69

If you were in the same 1 standard lot of USD/CAD trade at 1.20, the pip value would be higher:

Pip Value = (0.0001 * 100,000) / 1.20 = $8.33

The pip value does not change based on whether you are long or short the currency.