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GlossaryAUDUSDCurrency pair for Australian Dollars and US Dollars. Discretionary Trading SystemA discretionary trading system is one where you need to use your experience and training to exercise judgement in deciding whether or not to place a trade and what trade to place. This contrasts with a mechanical trading system where there is no need to exercise judgement in these decisions. DrawdownDue to the spread, every trade will start at a loss and there is a roughly 50% chance that the trade will continue further into losses before it (hopefully) comes back into profit. This loss is known as drawdown. The term drawdown can be applied to an account balance rather than to an individual trade and in this case it is the drop in value from the peak to the bottom of the trough. EURCHFCurrency pair for Euros and Swiss Francs. EURGBPCurrency pair for Euros and UK Pounds (Sterling). EURJPYCurrency pair for Euros and Japenese Yen. EURUSDCurrency pair for Euros and US Dollars. Expert AdvisorAn Expert Advisor (EA) is a program written to run on Meta Trader. Typically this will place Forex trades automatically. The EA will only work if the computer it is installed on is turned on. If you are not able or do not want to leave your computer running all the time, you can hire space on a virtual server. Forex BrokerTo trade forex, you will need to open an account with a forex broker. Most will allow you to open a free demo account which will allow you experiment and test your strategies with pretend money. Forex PairA forex pair is simply a pair of currencies and specifically, the exchange rate between those 2 currencies. The name consists of the 2 currency codes and the value is the number of units of the second currency that can be bought with 1 unit of the first currency. When you issue a buy order, you are effectively buying the first currency (going long) and selling the second (going short), so you will make money if the first currency gets stronger relative to the second one. When you issue a sell order, you are effectively buying the second currency (going long) and selling the first (going short), so you will make money if the second currency gets stronger relative to the first one. GBPCHFCurrency pair for UK Pounds (also known as Sterling) and Swiss Francs. GBPJPYCurrency pair UK Pounds (also known as Sterling) and Japanese Yen. GBPUSDCurrency pair for UK Pounds (also known as Sterling) and US Dollars. This pair is also referred to as cable. IndicatorAn indicator is a program written to run on Meta Trader. This will typically additional information to a chart. LongYou have a long position when you will make money when the price goes up. In forex, you will always have a matching long and short position. Meta TraderMeta Trader is a trading platform provided free of charge by most Forex brokers. It is a well established platform which allows you to draw charts, add pre-defined indicators and to place trades manually. It also allows you to create your own indicators using MQL4, a programming language based on C. Further, you can create your own automated trading strategies by writing expert advisors in MQL4. Many expert advisors are available (some free, some are commercial and require payment), but the majority of them don't work reliably. The current version of Meta Trader is version 4 and this is sometimes referred to as MT4. Mechanical Trading SystemA mechanical trading system is one where you follow a set of rules to decide whether or not to trade and what trade to place. Unlike a discretionary trading system, there is no need to exercise judgement and experience in these decisions. ScalperA scalper is a strategy which makes short term trades for small levels of profits per trade, taking advantage of undulations in the price. ShortYou have a short position when you will make money when the price goes down. In forex, you will always have a matching long and short position. Stop LossA stop loss is the price at which you want to exit a position if it moves the wrong way. This can be set with the broker for automatic execution, can be monitored by an expert advisor or monitored manually. Most brokers will not guarantee a stop loss, and the price can overshoot if the market is moving fast, but in my experience this is quite rare. Setting a stop loss limits your risk on the trade and not setting one can potentially leave you liable for unlimited losses. USDCADCurrency pair US Dollars and Canadian Dollars. USDCHFCurrency pair US Dollars and Swiss Francs. USDJPYCurrency pair US Dollars and Japanese Yen. |