In a PoS system, validators are given the right to forge a block based on the coin age of their stake. Coin age is determined by how many idle days old the sake is, multiplied by the amount of coin at stake. If the validators stake is idle for 30 days or more, they may be selected to forge the next block. They bigger and more idle the validators stake is, the better the chance of being selected (versus in a PoW system, where your hash power is the determining factor). Once a stake forges a block, the coin age gets reset back to 0 (and must wait 30 days for the chance to forge another block. Coin age has age-cap of 90 days to help level the playing field for other validators.
Are you a newbie trader or finding it difficult to comprehend all the trading jargons? Worry no more. NFX Glossary is here!
NFX Financial Glossary is one of the best online forex and crypto glossary started hosted on www.niclaxfx.com and made specifically for forex and crypto traders. It is very important for traders to understand the trading vocabularies to ensure smoother learning process and easier understanding of the forex and crypto market.
NFX Financial Glossary covers a wide range of all the important terms you need to know also we are constantly updating our catalogue as new words/slangs are added.
This Stands for data for the past 1 hour.
In chart it refers to candle formation per hour and helps reveals all activity that happened within the last hour
51% Attack:If more than half the computer power or mining hash rate on a network is run by a single person or a single group of people, then a 51% attack is in operation. This means that this entity has full control of the network and can negatively affect a cryptocurrency by taking over mining operations, stopping or changing transactions, and double-spending (reusing) coins.
A Japanese candlestick pattern signaling a reversal. It consists of three candles. In a downtrend, a long black candle is followed by a Doji that gaps lower. A third candle, with a long white body gaps above the Doji’s high.
A place where cryptocurrency can be sent to and from, in the form of a string of letters and numbers. A cryptocurrency address can be shared publicly in the form of text or QR code to those who want to send you cryptocurrency.
It usually requires a private key to exclusively access the funds.
For example, Bitcoin addresses are alphanumeric strings that begin with a 1 or 3, while Ethereum addresses begin with ‘0x’.
Bitcoin addresses are usually 26-35 characters, Ethereum addresses are 40 characters.
Estimated change of US employed people, excluding the farming and the government sector. Released by Automatic Data Processing, Inc. about two days before the official NFP report.
The ADP National Employment Report provides a monthly snapshot of U.S. nonfarm private sector employment based on actual transactional payroll data.
It is also popularly known as the ADP Jobs Report or ADP Employment Report.
The report is sponsored by Automatic Data Processing Inc., the firm that has prepared the report since 2006, handles payroll for about a fifth of U.S. private employment.
The ADP National Employment Report is viewed as a useful preview to the more detailed Bureau of Labor Statistics’ Employment Situation Report.
A Japanese candlestick bullish reversal pattern. Also known as Three White Soldiers. It consists of three long white candles with short or non-existent shadows. Each open is below the previous close. Each close is above the previous close.
A tool used confirm that a trend is continuing. If there are more declining issues, the trend might see a reversal in the near future. The Advance/Decline Index is calculated by subtracting the number of declining prices from the number of advancing security prices.
Advance Directional Movement Index. It’s a technical indicator designed by Welles Wilder to determine the presence of price trend. A reading above 25 indicates the presence of a trend. Buy/Sell signals are provided by the crossing of +DI and -DI.
An agency model is a method for executing client orders without taking inventory risks.
Dealers running an agency model charge a commission for:
- Placing a customer’s order with the market and for…
- Finding a counterparty willing to take the opposite side of the transaction.
A marketing campaign that distributes a specific cryptocurrency or token to an audience. It is usually initiated by the creator of a cryptocurrency in order to encourage use and build popularity of the coin or token. Most airdrop campaigns run with mechanics such as receiving coins or tokens in exchange for simple tasks like sharing news, referring friends or downloading an app.
A process or set of rules to be followed in problem-solving or calculation operations, usually by a computer, although humans tend to follow steps algorithmically as well (let’s say doing math or following a recipe).
A technical Indicator designed by Dr. Bill Williams. It consists of 3 moving average lines: The Alligator’s Jaw (blue line) is a 13-period Smoothed Moving Average shifted into the future, by 8 bars. The Alligator’s Teeth (red line) is an 8-period Smoothed Moving Average shifted into the future by 5 bars. The Alligator’s Lips (green line) is a 5-period Smoothed Moving Average shifted into the future by 3 bars.
Step by step programming instructions on how to carry out trading orders in electronic financial markets. Discipline and emotion- free trades are the advantages of this type of trading.
Altcoins are cryptocurrencies other than bitcoin. Many altcoins are forks (variations) of bitcoin.
“Altcoin” is a combination of two words: “alt” and “coin”. The word “alt” is short for alternative and “coin” means currency.
This nomenclature comes from the idea that bitcoin is the original cryptocurrency and that all others are then considered “alternate” or “alternative” coins.
Together, they imply cryptocurrencies that are an alternative to the original cryptocurrency named bitcoin.
Many altcoins have emerged but bitcoin still remains the largest and most popular of all cryptocurrencies.
A political philosophy and school of thought that believes in removing centralized states in favor of self-ownership, private property and free markets. Many of the early adopters of Bitcoin were proponents of anarcho-capitalism, believing it would give power and control back to the masses.
When analyzing the market, analysts can generally be divided into two camps – fundamentals and technicals.
Fundamental analysts are those who mainly look at the fundamental aspects of an economy in forming their opinions. They stay on top of the markets by reading and analyzing what the current economic data say about current market conditions, what is fundamentally driving the market, and where it’s headed.
Technical analysts are those who primarily rely on chart indicators and patterns to help predict where price will move next. Some tools that technical analysts use are Fibonacci retracement, candlesticks and momentum indicators.
A technical analysis tool developed by Dr. Alan Andrews. It is drawn by selecting 3 major consecutive tops and bottoms. The result is a line study of 3 parallel lines acting just like support and resistance.
Anti-Money Laundering (AML) is is a term used in the financial industry to describe a set of procedures, laws and regulations that require financial institutions and other regulated entities to prevent, detect, and report money laundering activities.
AML regulations require institutions allowing customers to open trading accounts to complete due-diligence procedures to ensure they are not aiding in money-laundering activities. The legal responsibility to perform these procedures is on the institutions, not on the criminals or the government.
API stands for Application Programming Interface. It is a set of routines, protocols, and tools for building software applications. APIs specify how software components should interact, such as what data to use and what actions should be taken.
Currency appreciation refers to the increase in the value of one currency against another.
For instance, when the EUR/USD exchange rate moves from 1.05 to 1.10, it means that the euro has appreciated by $0.05 against the US dollar.
One euro now costs $1.10 instead of $1.05.
There are many reasons why a currency appreciates.
Monetary and fiscal policy, interest rates, inflation, the trade balance, other countries’ economic strength, tourism figures, political stability, and many other macroeconomic conditions all contribute to exchange rate fluctuations and the appreciation of a currency relative to other currencies.
1. Taking an equal and opposite position at the same time to benefit from small price differences between related markets.
2. The simultaneous buying and selling of a financial instrument in different markets to take advantage of different pricing.
A technical analysis price pattern, where price action is contained within two upward sloping parallel lines. The basic line is drawn through the bottoms, whereas the return line is drawn through the tops.
An ascending trend line is a chart pattern containing two or more higher lows that can be connected with a straight line.
It is a bullish pattern created by connecting two or more lows, with each successive low higher than the previous low.
This creates an upward sloping trend line
An ascending triangle is a bullish chart pattern and is formed by a series of higher lows and an upper resistance level.
It is defined by two lines:
- A horizontal resistance line running through peaks.
- An uptrend line drawn through the bottoms.
While two bottoms belonging to the same trendline would suffice for pattern recognition, it is more favorable when there are more.
ASIC stands for Application-Specific Integrated Circuits. An ASIC mining rig is essentially a computer specifically designed to quickly perform one specific task over and over. ASIC technology has made it faster to mine bitcoin, while operating more efficiently than GPU mining rigs. ASIC miners can only mine the cryptocurrency that it was designed for.
A situation where you lose all your money, more specifically when you lose all your money shorting Bitcoin. This was based on a story of a Romanian trader who continued to short BTC when it went from $300 to $500, since he had made a lot of profit doing so historically. Adapt your trading strategy!
In any financial market, buyers and sellers place their orders to determine the highest price they are willing to buy and the lowest price they are willing to sell. The buyers place “bids" and sellers place "asks," or offers to sell. If a "bid" is higher than an "ask," a trade occurs, as the buyer is willing to pay more than what the seller wants. At any given point in time, the lowest ask order that is unmatched becomes the "Ask Price" of the market.
An asset is an economic resource that can be owned or controlled to return a profit or a future benefit.
An asset is anything you own that you expect to make or save you money in the future.
It can be owned by an individual or an organization. In other words, an asset represents the value of ownership that can be converted into cash.
In trading, the term asset relates to what is being exchanged on markets, such as stocks, bonds, currencies, or commodities.
These assets are referred to as “financial assets“.
In recent events, asset purchases usually pertains to the purchasing of government bonds to lower interest rates, inject capital into the economy or both. It is an unconventional monetary policy used by a central bank to stimulate the economy, otherwise know as quantitative easing.
A type of encryption involving two keys:
- A private key
- A public key.
A message that is encrypted with the private key must be decrypted with the public key and vice versa.
The public key is easily derived from the private key but the reverse is nearly impossible.
The Average True Range is an indicator developed by Welles Wilder to measure volatility.
Wilder believed that high ATR readings occur at bottoms after a strong downtrend characterized by “panic” sell-off. Low ATR readings are usually found at tops and during periods of consolidation.
Trend reversals are usually accompanied by high ATR values, whereas sideways movements or weak trends are accompanied by low values.
The True Range is the greatest of the following:
1. The difference between the current period’s high and low
2. The absolute value of the difference between the previous period’s close and current period’s high
3. The absolute value of the difference between the previous period’s close and current period’s low
The Average True Range is the moving average of the true range values.
Austerity refers to the government’s reduction of spending in order to lower their deficit. Austerity measures, which usually involve wage cuts and tax hikes, are implemented by the government to ensure their creditors that they will be able to pay back their loans.
A technical indicator (AO) designed by Dr. Bill Williams. It’s the difference between a 5-period simple moving average and a 34-period simple moving average, applied to bar’s mid-point prices (H-L)/ 2.
Buying opportunities arise when the AO crosses above the zero line. Similarly, sell opportunities arise when AO crosses below the zero line.
This is a investor or trader who has been holding (or hodling) a particular cryptocurrency for too long and now has to face the consequences of that decision.
In extreme cases, a bag holder has bought at a high and missed the opportunity to sell, leaving this person with worthless coins.
Bailout as a term became well known during the 2008 Great Financial Crisis (GFC) as governments around the world spent almost $1 trillion to rescue their banks from collapse.
The term bail-in was coined after the crisis by bankers who wanted to assure the public that the biggest lenders could survive without any more taxpayer handouts. So bail-in is supposed to be the antidote to bailout.
A bailout is a financial term referring to an extraordinary act of lending, or outright giving, capital to an entity (a company, bank, individual, etc.) that is in danger of failure due to bankruptcy or insolvency. A bailout can also be given to a failing entity to allow it to exit gracefully without leading to a contagion.
The Baltic Dry Index covers dry bulk shipping rates, or the costs of moving raw materials by sea.
Shipping costs vary according to the type of commodity being shipped, the amount (supply and demand).
This index is managed by the Baltic Exchange in London and the data can be directly subscribed to by major financial news services as well as the Baltic Exchange.
A bank levy is what happens when your bank account gets frozen while the money in your account gets taken away from you. This normally happens when you do not pay your taxes or debt.
Normally, it is government agencies (like the IRS) that make use of a bank levy, using it to collect unpaid taxes. They will freeze your account and they take money equal to the amount that is owed. When you account is under a bank levy , you will not have access to your funds until the entire debt is paid back.
The Bank of Canada (BoC) is Canada’s central bank and is located in Ottawa, the capital of Canada.
Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act.
Canada’s central bank was founded in 1934 and opened its doors in March 1935. In 1938, it became a Crown corporation belonging to the federal government.
The Bank of Japan (BoJ) is the central bank of Japan.
It is a juridical person established based on the Bank of Japan Act of 1882 and is not a government agency or a private corporation
The bank is often called Nichigin (日銀) for short.
A Bank of Central Banks, based in Basel Switzerland. It facilitates collaboration among its members and serves Central Banks in their pursuit for global monetary and financial stability.
A bank run takes place when a bank’s depositors try to withdraw all their money as they worry about the bank’s stability. This usually happens when depositors realize that their money is parked in a bank that is heavily exposed to bad debt, when credit rating agencies downgrade the bank’s standing, or when the bank is rumored to be close to bankruptcy.
As more people demand to withdraw their money, their fear becomes a self-fulfilling prophecy as banks reserves are usually not filled with enough cash to cover sudden and massive withdrawals. Eventually, this could push the bank closer to insolvency and increase the likelihood of default.
The major US Banks are examined under a number of conditions such as global recession and high unemployment, to assess whether they will be able to lend to households and businesses under three scenarios: severely adverse, adverse, and baseline. Released by the Federal Reserve.
Banking institutions cater to both the majority of commercial turnover and large amounts of speculative trading every day. The set of forex products offered by various banking institutions vary depending on their size. Some banks offer only spot exchange and currency forwards while the larger institutions offer currency options, currency swaps, currency futures, and option-dated currency forwards.
A large bank could trade billions of dollars daily, much of which is undertaken on behalf of customers, but some is conducted by proprietary desks, in other words: trading for the bank’s own account.
A study by Greenwich Associates reveals that the top foreign exchange dealers are dominated by banking institutions such as Deutsche Bank, UBS, Citigroup, Barclays, and the Royal Bank of Scotland. The exact percentage of the daily global forex turnover accountable to banking institutions is not known but Deutsche Bank and UBS each comprise more than 10% of the market share.
The western technique for price charting, comprising of a vertical line representing the price range of a certain period. The highest point represents the high price and the lowest point on the vertical line represents the low price. A tick to the left represents the opening price whereas a tick to the right represents the closing price.
1. The interest rate that a Central Bank will charge for lending to commercial banks.
2. The base rate, or base interest rate, is the interest rate that a central bank, like the Bank of England or Federal Reserve, will charge to lend money to commercial banks.
A bear is a trader who believes that prices will decline.
Bears are traders who believe that a market, asset or financial instrument is going to head in a downward trajectory.
They hold an opposite view to bulls, who believe that a market is going to head upwards.
This person is also known to be "bearish" about the market or price.
A bear flag is a bearish chart pattern that’s formed by two declines separated by a brief consolidating retracement period.
The flagpole forms on an almost vertical panic price drop as bulls get blindsided from the sellers, then a bounce that has parallel upper and lower trendlines, which form the flag.
The initial sell-off comes to an end through some profit-taking and forms a tight range making slightly higher lows and higher highs.
A bear market is a market in which prices are noticeably declining.
When the market is on a sustained downward trajectory, with little optimism or lots of pessimism from traders to bring about a rally, it is referred to as a bear market.
A bear trap is a situation when traders put on a short position when the price of a currency pair is falling, only for the price to reverse and move higher.
Bearish traders think the recent price action signals that an uptrend has ended when it actually has NOT.
Instead of declining further, the price stays flat or the uptrend resumes.
A bear trap results in a false trend reversal when the price is in an uptrend.
The term “bearish” means a trader is pessimistic and that the price will go lower from where it currently is.
If you are bearish on a market, you believe that the market is going to fall.
A “bearish market” is when the price is in a downtrend, marked by lower highs and lower lows.
The term is based on a bear swiping downwards with its paw.
The origin of the term is unclear, but legend says it’s from a painting by William Holbrook Beard called “The Bulls and Bears in the Market,” which is believed to depict the U.S. stock market crash of 1873.
Being bearish means you have a negative sentiment and are pessimistic about the future direction of price.
If you are “a bear” or “bearish“, it means that you have a negative sentiment and are pessimistic about future price direction.
The Bearish Engulfing pattern is a two-candlestick pattern that consists of an up (white or green) candlestick followed by a large down (black or red) candlestick that surrounds or “engulfs” the smaller up candle.
Basically, the pattern gets its name because the second candle engulfs the first candle.
The Bearish Engulfing candlestick pattern is considered to be a bearish reversal pattern, usually occurring at the top of an uptrend.
A technical analysis oscillator developed by Alexander Elder. It is the difference between the lowest price of a period and 13-period exponential moving average. A buy signal is triggered when the Bears Power index is below zero and rising while a trend indicator (i.e. moving average) is pointing upwards.
A subfield of finance that attempts to explain traders’/investors’ decision making in the financial markets. It combines theories of Psychology and Finance. It is in contrast to Efficient Market Hypothesis.
A summary of economic conditions around the United States compiled for the Federal Reserve Board. Each Federal Reserve Bank gathers anecdotal information on current economic condition in its District through reports from Bank and Branch directors and interviews with key businessmen, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. This report allows outsiders to know what the Fed governors are looking at as they prepare for their upcoming FOMC meeting.
A Japanese candlestick pattern signaling a bullish reversal. It forms at the end of a decline or near a support area. The candle has a long white body and very small or non-existent lower shadow, that is, Shaven Bottom. It reveals the determination of the bulls to push prices higher.
A Japanese candlestick pattern signaling a bearish reversal. It forms at the top of an uptrend or near a resistance area. The candle has a long white body and very small or non-existent upper shadow, that is, Shaven Top. It reveals the determination of the bears to push prices lower.
The bid is the amount that your broker is willing to pay in order to buy a financial instrument.
It is the opposite of an ask, which is the price that a seller will take in order to part with a financial instrument.
In forex, this is the price that you, the trader, may sell the base currency.
Bids usually comprise two elements:
- The price which the buyer is willing to pay
- The quantity of the financial instrument they are looking to purchase.
A trade is executed when a matching bid and ask are combined.
For example, a trader bidding 110.25 for 1,000 units of USD/JPY will see their trade executed when a seller agrees to that price and level.
The bid (the price at which you can sell an asset) is quoted as lower than the ask, and the difference between the two is known as the spread.
The bid/ask spread is the difference between the bid and ask price.
The “ask” price is also known as the “offer” price.
It’s the difference between the buyer’s and seller’s prices.
The “bid “represents demand and the “ask” represents supply for an asset.
In other words, it’s what the buyer is willing to pay for something versus what the seller is willing to get in order to sell it
In finance, binary option (also called fixed return option, all or nothing or digital option)is a type of option where the payoff is either some fixed amount of some asset or nothing at all. Binary options have been available since the middle of 2008.
Binary options are trading options that pay out a pre-set and fixed amount if the underlying asset on which the option is based reaches the trader
A decentralized digital currency used for peer-to-peer transactions. It was introduced in 2009 by a programmer using the name Satoshi Nakamoto. The number of bitcoins in circulation will not exceed 21 million.
People who predicted (or gambled on) bitcoin’s rise when it was still small. Their love for the cryptocurrency is so strong most or all of their portfolio comprised of bitcoins. Maximalists are typically so heavily invested into bitcoin, they refuse to see its many downsides even when laid out clearly.
A technical design document providing information to the Bitcoin community, describing new proposed features, processes or environments affecting the Bitcoin protocol. Suggested changes to the protocol are submitted as a BIP. The BIP author is responsible for soliciting feedback and consensus for his or her suggested improvements within the community, and documenting dissenting opinions.
A block refers to a collection of data related to transactions that are bundled together with a predetermined size and are processed for transaction verification which eventually becomes part of a blockchain.
The block height is the quantity of blocks following the very first one on the blockchain. The very first block is referred to as the genesis block. A genesis block always has a height of zero when nothing follows it. The longer the blockchain is, the higher is the quantity of the block height.
The reward for each block created. This is an incentive reserved for solving the mathematical problem linked to the block. Different kinds of cryptocurrencies give out block rewards with different values. For example, the reward for mining a Bitcoin block is 12.5 bitcoins per block mined, which halves every 210,000 blocks.
A blockchain is decentralized, digital ledger where transactions made in bitcoin or other cryptocurrencies are recorded chronologically and publicly.
The block contains information that, once added to the blockchain, becomes part of the permanent and immutable database, connecting to other blocks in the blockchain like the links in a chain.
A blue chip stock is that of a well-established company which is considered stable and which pays regular dividends. Typically, the term ‘blue chips’ is used to refer to the constituents of the major stock indices. The term derives from the high value of blue casino chips.
A technical indicator developed by John Bollinger. The upper band is drawn 2 standard deviations above a simple moving average and the lower band 2 standard deviations below the simple moving average. Bollinger Bands measure volatility and display price extremes.
A government bond auction is the process of selling short and long-term government bonds to investors in an attempt to minimize the cost of financing national debt.
The process starts with the central bank announcing how much money it intends to borrow. Details like the term length of the bonds and the date of the auction are included in the announcement.
Interested market players like broker-dealers, institutions, and individual investors then submit the amount of bonds that they
A five-candle bearish reversal formation. The first candle is a long white body trading in the direction of the uptrend, showing the bulls’ strength. The second candle is white, and of a regular size gapping above-reaffirming the upward move. The third and fourth candles are white bodies of regular size, higher than the previous close. Finally, a long black body is formed that closes in the gap created by the first two candlesticks.
A five-candle bullish reversal formation. The first candle is a long black body trading in the direction of the decline, showing off the bears’ strength. The second candle is black, and of a regular size gapping below-reaffirming the downward move. The third and fourth candles are black bodies of regular size, closing lower than the previous close. Finally, a long white body is formed that closes in the gap created by the first two candlesticks.
A breakdown is a breakout to the downside.
Price trades sideways for a while but it is unable to garner the strength to move higher. When this happens, it signals buyer weakness.
A breakdown happens when there is a breakout downward through support.
The buyers who used to be at this level are gone, but there is still selling pressure.
Price that breaks downwards through a support level is expected to continue to fall.
This is considered a sell signal. Especially if volume is also increasing.
If the price has fallen significantly since the break, a better price can be achieved by waiting for a reaction back.
Please note that price in an uptrend often triggers false sell signals on breakdowns through support.
The point at which gains equal to losses.
In terms of price action, it is the level at which the risk on the trade is recovered. This means that if the trader chooses to close at that particular price, he neither wins nor loses.
A breakout is when the price moves above a resistance level or moves below a support level.
The price movement of a breakout can be described as a sudden, directional move in price that is typically followed by increased volatility and heavy volume.
Traders who trade breakouts live by the motto, “No price is too high to buy and no price is too low to sell.”
The Bretton Woods Agreement is a pact that was made all the way back in the 1940’s by the economic powers at that time to stabilize currencies. What it did was establish a fixed exchange rate for currencies in terms of gold to make trade among nations easier. This kind of exchange rate system lasted until 1971, before the US finally decided to end the convertibility of the dollar to gold.
A broadening formation is an example of a consolidation pattern and a highly useful tool in the prediction of the likelihood of a reversal in the direction of a current trend. When found in an uptrend it indicates not a continuation of that trend, but a near-term reversal of the price action.
The broadening formation occurs when the fluctuation within the price produces a series of higher highs and of lower lows that steadily widen over time and are generally thought to be found only in found in topping formations where they are considered to be the result of unrealistic expectations of bullish investors.
Unlike the majority of other consolidation patterns, broadening formations feature increasingly wide ranges and are subject to much greater levels of volatility as time passes. Volume levels increase as the share price rises, which although normally indicates a bullish position rallies in this instance usually prove to be very short lived and the following declines are prone to decimating former support levels leading to an eventual collapse.
A broker is a financial intermediary that matches counterparties to a transaction without being a party to it.
In forex, a broker is an agent or company that executes orders to buy and sell currencies for their clients.
They act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties.
Brokers are agents working on commission and not principals acting on their own account.
BTFD means “Buy The Fucking Dip”.
BTFD is just an ultra-sophisticated way to say, “When price retraces in an uptrend, go long.”
In a strong bull market, dips are gifts.
So your mindset should be focused on one thing and one thing only.
Dips are lyfe. BTFD.
When people are panicking and selling due to FUD, this is the time to BTFD.
A reward offered for finding vulnerabilities and issues in computer code. It is often offered by cryptocurrency companies like protocols, exchanges and wallets to identify potential security breaches or bugs before they are exploited by unfriendly parties.
A bull is a trader who believes that prices will rise.
Bulls are speculators who are optimistic that a market, instrument, or sector is going on an upward trajectory.
This belief puts them at odds with bears, who take a pessimistic view on a market’s direction.
A bull flag is a bullish chart pattern formed by two rallies separated by a brief consolidating retracement period.
The flagpole forms on an almost vertical price spike as sellers get blindsided from the buyers, then a pullback that has parallel upper and lower trendlines, which form the flag.
The initial rally comes to an end through some profit-taking and price forms a tight range making slightly lower lows and lower highs.
A bull market is a market characterized by rising prices.
When a market, instrument, or sector is on an upward trend, it is generally referred to as a bull market.
Although the term bull market can be used loosely to refer to any strong market activity, it is often used in the financial markets when the price of an asset rises 20% or more from its previous low point.
Typically, a bull market arises when investors are optimistic about the future performance of an asset or the overall market indexes.
While a 20% increase in market prices is often regarded as the start of a bullish trend, most signs of an impending bull market are not that clear.
The opposite of a bull market is a bear market, which takes place when investors are feeling pessimistic.
Falling prices (bearish trend) create a negative market sentiment and as traders feel less confident, they tend to sell more and more, causing a further decrease in prices and often what is known as capitulation.
A bull trap is a situation when traders put on a long position when the price of a currency pair is rising, only for the price to reverse and move lower.
A bull trap is also known as a “sucker’s rally“.
A bull trap fools some traders into thinking a market is done falling and that it’s a great time to buy.
But lo and behold, it turns out it is NOT a great time, because the price soon reverses direction, catching buyers in a money-losing trap.
Bullish traders think the recent price action signals that a downtrend has ended when it actually has NOT.
Instead of rising further, the price stays flat or the downtrend resumes.
A bull trap results in a false trend reversal when the price is in a downtrend.
A bull trap is the opposite of a “bear trap” which can fool traders into selling out too soon in the middle of a bull market.
The term “bullish” means a trader is optimistic that the price will go higher from where it currently is.
If you are bullish on a market, you believe that the market is going to rise.
A “bullish market” is when the price is in an uptrend, marked by higher highs and higher lows.
The term is based on a bull attacking upwards with its horns.
The origin of the term is unclear, but legend says it’s from a painting by William Holbrook Beard called “The Bulls and Bears in the Market,” which is believed to depict the U.S. stock market crash of 1873.
If you are “a bull” or “bullish“, it means that you have a positive sentiment and are optimistic about making money in a market.
For example, Joe is “bullish” on bitcoin, which means he thinks BTC will go up in price.
A Bullish Engulfing Pattern is a two-candlestick reversal pattern that forms when a small black candlestick is followed the next day by a large white candlestick, the body of which completely overlaps or engulfs the body of the previous day’s candlestick.
To “engulf” means to sweep over something, to surround it, or to cover it completely.
The Bullish Engulfing pattern features one candlestick covering (or engulfing) another.
This two candlestick pattern occurs after a downtrend and is formed by one bearish candlestick (which is covered) and one bullish candlestick (which does the covering).
To identify the Bullish Engulfing Pattern, look for the following crucial criteria:
- An obvious downtrend must be in progress.
- There should be a small black candle at the bottom of the downtrend.
- A white candle must follow the black candle and its body must completely cover the black candle (engulf it).
- The white candle’s top must be above the black candle’s top, and its bottom must be below the black candle’s bottom.
A technical analysis oscillator developed by Alexander Elder. It is the difference between the highest price of a period under study and a 13-period exponential moving average. A sell signal is triggered when the Bulls Power index is above zero and falling while a trend indicator (i.e. moving average) is pointing downwards.
A situation where a large limit order has been placed to buy when a cryptocurrency reaches a certain value. This can sometimes be used by traders to create a certain impression in the market, preventing a cryptocurrency from falling below that value, as demand will likely outstrip supply when the order is executed.
A survey providing an early indicator of levels of activity in the New Zealand manufacturing sector. Also known as Performance of Manufacturing Index. Released monthly by Business NZ.
A technical analysis indicator developed by Bill Williams. If the Momentum (Awesome Oscillator) and Acceleration (Accelerator Oscillator) are in sync then there is a very strong trend.
Green Zone : Both AO and AC are green; strong bullish trend.
Red Zone : Both AO and AC are red; strong bearish trend.
Gray Zone : Both Oscillators have different colors; in transition.
Price bars are painted to reflect the current zone.
A situation where communication that requires consensus on a single strategy from all members within a group or party cannot be trusted or verified. An example of this agreement problem is where a group of generals, encircled around a city, must decide whether to attack or retreat. Every general must agree to attack or retreat, or everyone will be worse off. Some generals may be treacherous, voting falsely, and messengers may deliver false votes. Under these circumstances, a consensus must be reached. In cryptocurrency, when network participants post false or inaccurate information to others about transactions taking place, it could lead to network failure.
A property of fault-tolerant distributed computing systems, reaching consensus through a mechanism, where components may fail and there may be imperfect information. For example, Bitcoin is Byzantine Fault Tolerant, utilizing the proof-of-work system to reach consensus on the blockchain. Its applications are beyond blockchain, including messaging and networking systems, among others.
It is the nickname used for the currency pair of GBPUSD. It is also used to refer to the British pound itself. Communication between Europe and North America was conducted through a transatlantic cable in the Atlantic Ocean.
Monthly economic report, based on a survey of about 400 purchasing managers in China. A reading above 50 indicates expansion of the manufacturing sector and the economy in general, whereas a reading below 50 indicates contraction.
Released by Markit.
R4 = Close + (High – Low) * 1.1 / 2
R3 = Close + (High – Low) * 1.1 / 4
R2 = Close + (High – Low) * 1.1 / 6
R1 = Close + (High – Low) * 1.1 / 12
PP = (High + Low + Close) /3
S1 = Close - (High – Low) * 1.1 / 12
S2= Close - (High – Low) * 1.1 / 6
S3 = Close - (High – Low) * 1.1 / 4
S4 = Close - (High – Low) * 1.1 / 2
The Carry Trade is a trading strategy where investors/traders sell or borrow assets with lower-yielding interest rates to fund or buy higher-yielding assets.
In forex, carry trade involves borrowing in currencies with low-interest rates (called funding currencies) and investing in those with high-interest rates (the target currencies)
Examples of recently attractive target currencies are the Brazilian
real, the South African rand and the Australian dollar.
Popular funding currencies included most recently the U.S. dollar and historically also the Japanese yen or the Swiss franc.
If the target currency does not depreciate vis-à-vis the funding currency during the life of the investment, then the investor earns at least the interest differential.
This strategy does not work if uncovered interest parity (UIP) holds.
This generally prompts a change in value of that asset, and often times, at a higher pace than the asset’s normal volatility range.
A catalyst can really be anything, but for forex traders, catalysts tend to come from monetary policy news/changes (e.g., interest rate changes, quantitative easing), economic updates (e.g., changes in employment, inflation, GDP, etc.), and geopolitical updates (e.g., Brexit).
Identifying and understanding catalysts are a key component to a trader’s skill set as trading opportunities only come from when markets are moving, and from understanding when a directional bias may change.
The Cboe EuroCurrency Volatility Index tracks near-term projected volatility of the euro/U.S. dollar exchange rate.
It measures the market’s expectation of 30-day volatility of the EUR/USD exchange rate by applying the VIX methodology to options on the CurrencyShares Euro Trust (FXE).
The Cboe EuroCurrency Volatility Index is also known as the “Euro VIX” and has a ticker symbol of EVZ.
Like VIX, EUVIX is calculated by interpolating between two weighted sums of option midquote values, in this case, options on EVZ.
The two sums essentially represent the expected variance of the Euro to Dollar exchange rate up to two option expiration dates that bracket a 30-day period of time.
EVZ is obtained by annualizing the interpolated value, taking its square root, and expressing the result in percentage points.
Like other VIX benchmarks, EVZ uses options spanning a wide range of strike prices.
FXE is an exchange-traded fund (ETF) that holds Euro on-demand deposits in Euro-denominated bank accounts.
As such, the performance of FXE is intended to reflect the USD/EUR exchange rate, minus fund expenses.
A technical analysis oscillator developed by Donald Lambert. It compares the current typical price ([High + Low + Close] / 3) with a simple moving average over a selected period of time usually 14 or 20. The oscillator values are normalized by using a divisor based on mean deviation. The majority of the values (about 70%) fluctuate between -100 and +100. Buying opportunities are suggested above +100 and selling opportunities below -100 while the same levels may be considered as overbought and oversold by others.
Central counterparty clearing houses (CCPs) are financial organizations, often operated by major banks, created with the objective of easing trading in derivatives and equities and guaranteeing efficiency and stability in financial markets.
CCPs perform two primary functions as the intermediary in a transaction:
What is clearing?
In the clearing process, the CCP becomes the counterparty to the buyer and the seller.
The CCP defines what is required from each party in a transaction to reduce counterparty credit risk and to guarantee the settlement of the operation, even if one of the parties defaults.
What is settlement?
In the settlement process, the CCP oversees the correct and timely transfer of securities and/or cash between the parties to complete the transaction.
After a transaction has been carried out between two counterparties, it is transferred to a CCP.
The CCP then assumes the counterparty risk for both counterparties to the transaction.
The CCP’s responsibilities include risk checking, clearing, settlement, and general market monitoring.
A central limit order book (“CLOB”) is a trade execution model based on a transparent system that matches customer orders (bids and offers) on a ‘price/time priority’ basis.
Outstanding offers to buy or sell are stored in a queue and filled in a priority sequence, by price and time of entry.
The principle of price/time priority refers to how orders are prioritized for execution.
Orders are first ranked according to their price. Then orders of the same price are then ranked depending on when they were entered.
The highest (“best”) bid order and the lowest (“cheapest”) offer order constitutes the best available market price.
Customers can routinely cross the bid/ask spread and benefit from low-cost execution. (You’re able to enter limit orders “in between” the bid and ask.)
They also can see market depth or the “stack” in which customers can view bid orders for various sizes and prices on one side vs. viewing offer orders at various sizes and prices on the other side.
The CLOB is by definition fully transparent, real-time, anonymous, and low cost in execution.
The use of a CLOB is common for highly standardized securities and small trade sizes.
In the CLOB model, customers can trade directly with dealers, dealers can trade with other dealers.
And most importantly, customers can trade directly with other customers anonymously.
CLOB vs. RFQ
In contrast to the CLOB approach is the Request For Quote (“RFQ”) trading method.
RFQ is an asymmetric trade execution model.
In this method, a customer queries a finite set of participant market makers who quote a bid/offer (“a market”) to the customer.
The customer may only “hit the bid” (sell to the highest bidder) or “lift the offer” (buy from the cheapest seller).
The customer is prohibited from stepping inside the bid/ask spread and trying to reduce their execution fees.
Contrary to the CLOB model, customers can only trade with dealers. They can not trade with other customers.
And most importantly, they can not make markets themselves.
Trade execution costs are lower when more market participants can compete for order flow versus when orders are routed to a limited number of market makers with (potentially) non-competitive quotes.
*The US Commodity Futures Trading Commission was created in 1974 with the aim of fostering open, transparent, competitive, and financially sound markets. By working to avoid systemic risk, the Commission aims to protect market users and their funds, consumers and the public from fraud, manipulation and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act (CEA).
*Source U.S. Commodity Futures Trading Commission
The Chaikin Oscillator was developed by Marc Chaikin to compare volume and price levels for an asset. The Oscillator can be used to indicate when an asset is overbought or oversold and thus to indicate upcoming reversals.
To calculate a Chaikin Oscillator chart, a trader first generates an Accumulation/Distribution Line (A/D Line) for an asset. The A/D Line is derived from an index called the close location value, or CLV, which compares high, low and close prices. If the close price is above the midpoint of the high-low range, the CLV will be positive; if the close price is below the midpoint, the CLV will be negative. A cumulative total of the CLV times the volume of the asset generates the A/D Line, which is high when closing prices and volume are high and low when closing prices and volume are low, indicating pressure in either direction on the asset. The Chaikin Oscillator is then simply a ten-period moving average of asset price less a three-day moving average of the newly-generated A/D Line’s value.
When the Oscillator is at a high value, the A/D Line is at a low value relative to the asset price, indicating that selling pressure is increasing on the asset and that a price reversal is imminent. Conversely, when the Oscillator is at a low value, buying pressure is increasing and an increase in price is equally imminent. Thus investors can use the Oscillator to help determine the appropriate time to sell or buy an asset in order to take advantage of (or to avoid being caught up in) the imminent reversal.
A chart pattern is a graphical presentation of price movement by using a series of trend lines or curves.
Chart patterns can be described as a natural phenomenon of fluctuations in the price of a financial asset that is caused by a number of factors, including human behavior.
Chart patterns are the foundation of technical analysis.
In technical analysis, chart patterns are used to find trends in the movement of an asset’s price.
A trader armed with the knowledge required to recognize patterns, along with the skill to apply them to their decision-making process can increase their odds of anticipating where the price will move next.
The skill required to interpret the chart patterns correctly takes practice and commitment to acquire.
There are many different chart patterns that are used in technical analysis.
The most basic form of chart pattern is a trend line.
Popular chart patterns include head and shoulder formations, double and triple tops and bottoms, pennants, flags, and wedges.
Patterns can be based on seconds, minutes, hours, days, months, or even ticks and can be applied to a line, bar, candlestick charts.
Chart patterns aren’t bound by any scientific principle or physical law, their effectiveness highly depends on the number of market participants paying attention to them.
A chartist is a trader who relies predominantly on charts to help them understand a financial instrument’s historical price movements, in order to better predict and to speculate on its future direction.
They are also commonly known as technical analysts or technical traders.
There are several patterns that chartists will look out for as an indication of the future direction of an instrument.
Chartists differ from fundamental analysts, who look at an asset’s current fundamentals in order to decide on the best time to buy and sell.
Many traders will use both fundamental and technical analysis when planning a trading strategy.
This report is created by The National Association of Purchasing Management. It rates the level of factory health in the upper Midwest. It is also known as the Business Barometer. Announced at the end of the month in The Chicago Report. Because it is released on the last day of the reporting month, it is used to predict the ISM Report.. The Chicago PMI is based on a level of 50. Any level higher is considered expansion. Naturally, any level lower is a sign of contraction.
The process of moving your cryptocurrencies “offline”, to prevent them from being stolen by hackers. There are a variety of ways to do this, but most cold storage methods include using paper wallets, USB storage or hardware wallets.
Comdolls is a nickname for the term “commodity dollar”.
Currencies like the Australian, Canadian, and New Zealand dollars are known as “comdolls” because their respective economies are highly dependent on exporting commodities.
Commodities are used as materials in the production of goods or services.
Australia is the second-largest gold producer in the world, behind only China, while Canada is the fourth largest of the world’s oil producers. New Zealand exports a lot of dairy and meat.
Importers often need to get their hands on comdolls if they want to buy these commodities. This is why the comdolls’ price action is usually correlated with commodity prices.
Commercial corporations, unlike other market participants, are part of the 10% of market players who do not partake in the Forex markets looking for profit. Rather, they do so for the sake of hedging risk. Such corporations make transactions in both the futures and spot markets for their daily operations. They need it to pay suppliers for raw materials, as well as to pay employees from different countries.
For example, Corporation A (a US based firm) needs to buy steel from Australia, but needs Australian dollars to complete the transaction. The company will then buy AUD at the spot market so that they can complete the transaction.
Another example would be a company needing steel six months from now. The problem is the company will have to deal with potential change in currency rates if they decide to buy the in the future. In order to protect itself from potential currency risks, the company can buy a futures contract that will fix the exchange rate. While the company may miss out if the AUD weakens over the next six months, it also protects itself just in case the currency appreciates. Thus, the use of futures contracts helps to eliminate or limit currency risks.
1 Confirmation means a cryptocurrency transaction has been verified (via the mining process) and added to a block that contains many other transaction.
Confirmations are more blocks containing many more transactions that have been added to the blockchain. Confirmation time varies between cryptocurrencies.
Bitcoin has a confirmation time of about 10 minutes. This means that about every 10 minutes, your bitcoin transaction get buried deeper within the blockchain, making it more difficult to alter.
Many exchanges will require multiple confirmations until the transaction is considered secure.
2. In Technical Analysis, price is considered the most reliable indicator. Chart patterns are filtered by indicators and confirmed by price. For example, price makes a new high in a buy setup or a new low in a sell setup.
A consolidation is a period of range-bound activity after an extended price move.
Consolidation illustrates the lack of a trend in a particular trading range. Price has “consolidated”.
It frequently occurs after downtrends or uptrends, and can be seen as a stretch of indecision.
Consolidation draws to a close when price breaks through existing lines of support and resistance.
A continuation pattern is a chart pattern described as a series of price movements that indicate that there is a temporary halt in the current prevailing trend, but that the current trend should continue after the break.
Chart patterns can be divided into two broad categories: continuation and reversal patterns.
Continuation patterns suggest that after the chart pattern completes, the price will continue to move in the same direction that was in prior to the chart pattern.
CLS, or continuous linked settlement, is a cross-border payment system for the settlement of foreign exchange trades that eliminates settlement risk.
Standard foreign exchange transactions involve a settlement risk.
As the exchange of the two currencies involved is not simultaneous, the party that sells a currency before receiving the currency purchased from the counterparty is exposed to a certain risk.
CLS removes settlement risk by using a payment-versus-payment mechanism (“PVP”). This means that you get paid only if you pay.
On settlement day, each counterparty to the trade pays to CLS the currency it is selling.
CLS pays out the bought currency only if the sold currency is received.
In effect, CLS acts as a trusted third party in the settlement process.
It’s important to note that CLS is not a central counterparty, the trade remains between the two counterparties.
The CLS system is run by CLS Bank International, which is solely dedicated to settling foreign exchange trades.
The CLS Bank was established in 2002 and is owned by the world’s largest banks.
CLS Bank (CLS) is a limited purpose bank for settling FX, based in New York with its main operations in London.
While the CLS Bank is based in New York, it maintains accounts in the various countries in whose currencies it settles trades.
All transactions are settled through the bank in a single 5-hour window during each business day.
Today, CLS settles payment instructions in 18 currencies for 70+ settlement members and over 25,000 third-party customers.
CLS settles $5.3 trillion of payments on an average day.
It is regulated and supervised by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York.
Normally, the contract price of a futures contract is higher than the current price of the underlying asset (normally a commodity). The futures contract price is higher because of the effect of the time value of money. As the expiration date nears, the spread between the spot price and the futures contracts price becomes smaller and smaller. On the delivery date of the contract, the futures and spot prices should be equal.
This process of futures and spot prices approaching one another is called convergence.
A U.S. report which states the average increase in prices for all domestic personal consumption items. The Core PCE Price Index is a less volatile report than the PCE Price Index in that it does not include more volatile food and energy prices.
In trading, correlation is a measurement of the relationship between two assets.
A positive correlation suggests that Security B will move in the same direction as Security A.
For example, the http://www.babypips.com/school/eurjpy-your-very-own-barometer_of_risk.html German stock market (DAX) and EUR/JPY moved in the same direction from 2004 to 2010. That is, EUR/JPY rose when DAX performed well and plummeted when the stock market dropped.
A negative correlation suggests that Security B will move in the opposite direction of Security A.
An example is the correlation between http://www.babypips.com/school/using-the-usdx-for-forex.html EUR/USD and the dollar index (USDX]. A strong dollar would usually lift USDX, but it will also boost the dollar against the euro, resulting in a downward price action for EUR/USD.
The cost of maintaining a trading position is often referred to as the cost of carry or carrying charge.
It can come in many forms, including interest on margins or the loans used to make the trade or the cost of storage and insurance associated with holding a commodity.
In forex, there are several costs that can arise from keeping a position open.
Changes in interest rates can require a charge on your account, or overnight funding charges can be incurred.
Often, the cost of carry will already be included in the price of opening a new position.
The cost of carry of a position varies depending on the type of trade and asset being traded.
A counterparty is the opposite party in a financial transaction. This means that both parties in a transaction can be referred to as a counterparty.
Entering into a contract with a counterparty generates what is known as counterparty credit risk.
Credit risk is the possibility that the counterparty to a transaction may not be able to fulfill their obligations in order to complete the transaction successfully.
One of the most common counterparty risks is payment default, which is the inability to pay outstanding amounts when due.
This risk is often eliminated by using a Central Counterparty Clearing House.
This third-party intermediary assumes the credit risk of both counterparties and identifies what is needed from each counterparty for the successful completion of the transaction.
For example, as counterparties, the purchaser and supplier of a product, are often unknown to each other, a clearing house can be essential to greatly reduce counterparty risk.
The action of closing out a profitable short position as the security reaches a certain level of support. This move is conservative in that a trader cuts profit at a point in which he/she can still gain more profit.
The crack spread refers to the difference between the price of crude oil and the prices of refined products.
The typical spread ratio is to buy 3 crude oil contracts and sell 2 gasoline contracts plus 1 heating oil contract (3:2:1).
This price difference represents the yield of “cracking” 1 unit of crude oil.
Like in any other security, investors look at credit ratings to determine a debt issuer’s ability to repay a loan. In forex trading, credit ratings are mostly referred to sovereign debt, or bonds, issued by governments to finance public projects and services. We usually see credit ratings expressed in letters like AAA, BB+, or D.
Since sovereign debt is usually denominated in foreign currencies, countries with unstable exchange rates or low economic growth usually have low credit ratings as they present additional risk of not being able to pay back their investors. As a result, countries with low credit ratings usually have to pay more than its high-rating counterparts in order to borrow the same amount of money from markets.
Do credit rating decisions directly affect my favorite currency pairs?
Since credit ratings factor greatly in investors’ analyses, any major announcement from major credit rating agencies can directly affect your currency trades.
Take note that the fact that not all credit ratings agencies are in sync with their assessments suggests that no single ratings agency can present the whole picture when it comes to analyzing sovereign debts.
Cross rates are used to calculate the exchange rate for a currency pair whose exchange rate is not commonly quoted.
For example, EUR/GBP, CHF/JPY, or AUD/NZD.
This process is known as a cross rate because the exchange rate is calculated by comparing the value of each currency in the pair against a third (major) currency, usually the U.S. dollar.
For example, if you know the AUD/USD and NZD/USD exchange rates, you can cross these to calculate the AUD/NZD exchange rate.
The term “cross rate” can also be used to refer to any currency pairs that do not include the U.S. dollar.
The base currency always has a value of one, and is the reference currency for the exchange rate of the currency pair.
The crush spread refers to the process of converting soybeans into the by-products of soybean meal and soybean oil.
The spread ratio is to buy 10 soybean and sell 11 soybean meal plus 9 soybean oil contracts (10:11:9).
This price difference represents the gross profit margin of soybean processors.
A cryptocurrency is a digital currency that uses a blockchain and relies on cryptography for security.
Many are based on public blockchain technology, a distributed ledger of all transactions that is decentralized and can’t be changed under most circumstances.
The nature of the blockchain means that individuals can transact directly with each other, even if they don’t trust each other.
Unlike traditional currencies, such as the U.S. dollar, they are not controlled by any central government or authority.
Cryptocurrencies don’t need a centralized party like a bank to carry out transactions between individuals.
Cryptography is used to keep transactions secure and to control the creation of additional units of a currency.
Bitcoin is considered the first cryptocurrency and is currently, the largest and most famous, out of the more than 1,600 cryptocurrencies now available on the interwebz.
A Cup and Handle is a bullish continuation chart pattern that marks a consolidation period followed by a breakout.
Chart patterns form when the price of an asset moves in a way that resembles a common shape, like a rectangle, flag, pennant, head and shoulders, or, like in this example, a cup and handle.
There are two parts to this chart pattern:
- The cup
- The handle
The cup forms after a downtrend is followed by an uptrend and looks like a bowl or rounding bottom.
As the cup is completed, price trades sideways, and a trading range is established on the right-hand side and the handle is formed.
A breakout from the handle’s trading range signals a continuation of the previous uptrend.
Currency codes are three-letter abbreviations that identify a country’s currency.
The International Organization for Standardization publishes currency codes in a list referred to as ISO 4217.
The vast majority of these codes contain two characters referring to the country and a third character related to the currency unit.
For example, the ISO 4217 code for the pound sterling is “GBP” – the two first characters refer to Great Britain (GB) and the third one to the pound (P).
In the foreign exchange market, these codes allow traders to eliminate potential confusion caused by names designating more of one currency such as with dollar, peso, pound, or krona.
Currency devaluation is a monetary policy tool used by governments to deliberately reduce the value of a country’s currency in relation to another currency, group of currencies, or standard.
Currency devaluation is a deliberate downward adjustment of the value of a country’s currency against another currency.
Devaluation is a tool used by monetary authorities to improve the country’s trade balance by boosting exports at moments when the trade deficit may become a problem for the economy.
After devaluations, the same amount of a foreign currency buys greater quantities of the country’s currency than before the devaluation.
This means that the country’s products and services are likely to be sold at lower prices in foreign markets, making them more competitive.
Devaluation usually takes place when a government notices regular capital outflows (or capital flight) from a country, or if there is a significant trade deficit (where the total value of imports outweighs the total value of exports).
Governments can use this when their country has a fixed exchange rate or a semi-fixed exchange rate.
Governments devalue their currencies to improve their trading position in the world.
For example, in 2015, the People’s Bank of China (PBOC) devalued its currency by changing the market mechanism for fixing the yuan against the dollar.
This made the yuan weaker and Chinese exports cheaper.
Due to this devaluation, there were fears around the world that other governments might seek to protect their export markets and also devalue their currencies, possibly starting a currency war.
Currency Devaluation vs. Currency Depreciation
Devaluation is a deliberate action and should not be confused with currency depreciation, which is a fall in a currency’s value as a result of non-governmental activities.
- China, the second-largest economy in the world, runs various controls over its currency, the yuan renminbi, despite it now being part of the basket of reserve currencies.
- The Brazilian real is a non-convertible currency, meaning that the currency cannot leave the country. It is not traded on the foreign exchange market.
- Banning or limiting purchases of foreign currency within the country
- Banning or restricting the use of foreign currency within the country
- Setting exchange rates (instead of letting the value of the currency fluctuate according to market forces)
- Restricting currency exchange to retailers approved by the government
- Limiting the amount of money that may be imported or exported
Currency exposure is a term referring to the vulnerability of an investment, cash flow, or financial position to variations in the exchange rate of two currencies.
Currencies are constantly exposed to fluctuations in exchange rates in the global foreign exchange market, which makes them inherently volatile.
Holders of a given currency are vulnerable to its depreciation against other currencies.
Companies that work in multiple currencies are particularly exposed to this risk.
The greater the number of currencies and the volumes of money involved, the greater the exposure or, in other words, the greater the potential threat to the company’s profit margins and bottom line.
Currency exposure can be quantified as the total amount of capital involved in all transactions divided by the total amount of capital involved in currency exchange transactions.
The larger the resulting volume, the greater the currency exposure, and the greater the need to implement a robust currency exposure management strategy.
In order to protect their profit margins, companies implement strategies to manage currency exposure.
These can range from simple forward contracts to more sophisticated alternatives like dynamic hedging, which allows them to fully automate their FX risk management.
A currency forward, also known as a forward contract, is an agreement that allows the buyer to lock in an exchange rate the day on which the agreement is signed for a transaction that will be completed later.
Forward contracts are one of the main methods used to hedge against exchange rate volatility, as they avoid the impact of currency fluctuation over the period covered by the contract.
Currency forwards are an effective hedging resource and also allow buyers to indicate the exact amount to be exchanged and the date on which to settle in the forward contract.
While a currency forward protects the buyer against any negative movements in the exchange rate, it also means that should the exchange rate move in their favor, they will not receive the more favorable rate.
Currency forwards are traded over-the-counter (they are not traded on a central exchange).
Currency hedging is the creation of a foreign currency position. known as a “hedge“, with the purpose of offsetting any gain or loss on the underlying transaction by an equal loss or gain on the hedge.
Whether the future exchange rate goes up or down, the company is protected because the hedge effectively “locks in” a home-currency value for the exposure.
A company that undertakes a currency hedge is therefore indifferent to the movement of market prices.
Hedging differs from speculation, where a currency position is taken in anticipation of an expected change in foreign currency rates.
Currency hedging is the most important element of a company’s currency risk management.
Depending on a firm’s competitive profile, on the nature of the markets in which it operates and on the goals set by its management, a firm can choose between several possible currency hedging strategies, most of which can be executed by means of software solutions that automate the entire process.
Currency manipulation is the act of changing its value against other currencies instead of leaving it free to fluctuate based on market dynamics. This can be done by fixing the exchange rate or deliberately increasing or decreasing its value.
This practice is usually frowned upon since it results to an artificial distortion in currency prices. In fact, it is considered an illegal practice based on US laws and international agreements.
This could also give way to unfair trade advantages since artificially devaluing a country’s currency could make its exports relatively cheaper and more attractive. In the long run, this could eventually result to a global trade imbalance.
A currency option is a contract through which a seller offers a buyer the right, but not the obligation, to purchase or sell a specific currency at a defined exchange rate on or before a fixed date.
Currency options are financial derivatives. Its value is “derived” from the underlying asset. In this case, a specific currency pair.
Call options allow the holder to buy a currency pair at a stated price within a specific timeframe. Put options allow the holder to sell a currency pair at a stated price within a specific timeframe.
There are a few key components in a foreign currency option.
- The Premium is the price that the option buyer pays for the right to buy or sell that currency at a fixed rate on or before a specific expiration date.
- The Strike Price is the exchange rate at which the currency will be bought or sold before that maturity date.
A Japanese company with USD/JPY exposure could buy a currency option with an expiration date set for six months later to protect itself against any adverse currency movements if they have a USD payment due on that date.
If the strike price is more favorable than the spot exchange rate on the date on which this option matures, the option expires “in the money” (“ITM”) and the holder should exercise it.
However, if the exchange rate on the expiration date is better than the strike price, the holder will not exercise his option. In this scenario, the option expires “out of the money” (“OTM”).
While currency options are one of the hedging instruments available to businesses, in practice, they are mostly used for speculation.
Currency traders use options to make money by purchasing the option and simultaneously exchanging that cash on the spot market to pocket the difference.
A currency peg is a governmental policy of fixing the exchange rate of its currency to that of another currency, or occasionally to the gold price.
It can sometimes also be referred to as a fixed exchange rate or pegging.
A currency peg is a kind of exchange rate policy wherein a country’s domestic currency is only allowed to fluctuate within a narrow range (usually between -1% to +1%) against the value of another currency.
Currency pegging is usually done by countries that wish to stabilize their global trade operations.
By using a currency peg, the risk caused by exchange rate fluctuations of businesses involved in international trade is reduced.
This kind of exchange rate policy is very useful for countries with robust trade industries.
China, the Bahamas, and the Marshall Islands have pegged their currencies to the U.S. dollar.
Niger and Senegal have pegged their currencies to the French franc.
Bangladesh, Czech Republic, and Thailand have pegged their currencies to a basket of several select currencies.
The currency spot rate, or just spot rate, is the current exchange rate for any currency pair, for immediate settlement “on the spot”.
For most currencies, the spot rate is usually displayed to four decimal places. For certain currencies such as the Japanese yen, it is only displayed to two decimal places.
The exchange rate between two currencies is determined by a variety of factors that affect each currency’s value, including interest rates, national economic performance, and inflation.
It is also affected by the price that buyers of the currency are prepared to pay and, in turn, how much sellers are prepared to accept. These are called the bid and ask prices.
Trading in the highly liquid FX market, exchange rates tend to be unstable and prone to significant fluctuations.
That volatility might be profitable for speculative investors but can be detrimental for international companies with business lines in foreign currencies.
Negative changes in the exchange rate may erode their profit margins to the point of incurring losses.
Currency trading, forex trading, or foreign exchange trading is the buying and selling of currencies on the forex market with the aim of making a profit.
It is one of the most actively traded markets in the world, with individuals, corporations, and banks contributing to a daily average trading volume of more than $5 trillion.
Unlike shares or commodities, currency trading does not take place on exchanges but directly between two parties, in an over-the-counter (OTC) market.
The forex market is run by a global network of banks, spread across four major forex trading centers in different time zones: London, New York, Sydney, and Tokyo.
Currency trading works like any other exchange where you are buying one asset using a currency.
In the case of forex, the market price tells a trader how much of one currency is required to purchase another.
For example, the EUR/USD currency exchange rate shows how many US dollars buy one euro.
There are two popular ways to trade the currency markets. Either with derivative products or through a forex broker.
The most popular forex derivatives are spread bets and CFDs.
Traditionally, a lot of currency trades have been made via a forex broker, but with the rise of online trading, you can take advantage of currency price movements using derivatives like spread betting or CFD trading.
Cycle Theory is based on the following principles:
- Summation – Price movement is the sum of all active cycles
- Harmonicity – Neighboring (cycle) waves are related by the number 2 (i.e. double or half)
- Synchronicity – Cycle waves of different lengths have the tendency to bottom at the same time
- Proportionality – Cycles with longer time spans (periods) should have proportionally higher amplitudes
- Variation – states that the previous principles are just tendencies as opposed to hard rules
- Nominality – A set of harmonically related cycles affect all markets
DAOs (Decentralized Autonomous Organizations) are organizations that operate entirely by encoded computer programs called smart contracts. All the transaction history and program instructions are managed within a blockchain.
A Japanese candlestick pattern signaling a bearish reversal. It forms at the top of an uptrend or near a resistance area.
During the course of an upward movement, a long black candlestick closes below the midpoint of the previous long white candle. The black candle opens above the previous high.
A dark pool is a trading platform in which pre-trade transparency is deliberately limited, typically by withholding information about market depth or likely transaction price.
Dark pools limit transparency in order to induce liquidity suppliers to offer greater quantities for trade.
Dash (DASH) is a cryptocurrency based on Bitcoin software but has anonymity features that make it impossible to trace transactions to an individual.
It was created by Evan Duffield in 2014 and was previously known as XCoin (XCO) and Darkcoin.
Dash describes itself as digital cash that aims to offer financial freedom to everyone. Payments are fast, easy, secure, and with near-zero fees.
Built to support real-life use cases, Dash aims to provide a fully-decentralized payment solution. Users can purchase goods at thousands of merchants and trade it at major exchanges and brokers around the globe.
A dead cat bounce is a small, brief recovery in the price of a declining asset.
The phrase “dead cat bounce” is used to describe a brief recovery in the price of a declining asset that is shortly followed by a continuation of the downtrend.
The phrase comes from the saying, “Even a dead cat will bounce if it falls from a great height.”
This phrase originated on Wall Street and was popularly applied to situations where one can see a small comeback during a major decline.
In technical analysis, a “dead cat bounce” is seen as a price continuation pattern.
During the initial stages of a Dead Cat Bounce pattern, it might be confused with a trend reversal.
It begins with a downward move followed by a significant price retracement.
However, after some time, the price stops rising, and the downward trend continues, breaking previous support levels and creating new lows.
As such, Dead Cat Bounce patterns may also result in what is called a bull trap, where traders open long positions and hope for a trend reversal that never happens.
The earliest usage of the phrase is in an article by Chris Sherwell in The Financial Times, December 7, 1985:
“Despite the evidence of buying interest yesterday, they said the rise was partly technical and cautioned against concluding that the recent falls in the market were at an end. This is what we call a ‘dead cat bounce‘, one broker said flatly.”
A dealer is a financial intermediary that stands ready to buy or sell assets with its clients.
A dealer is an individual or firm acting as a principal, rather than as an agent, in the purchase and/or sale of securities.
Dealers trade for their own account and risk. This is in contrast to brokers who trade only on behalf of their clients.
The Debt-to-GDP ratio measures the amount of a country’s national debt in relation to its GDP.
Often expressed as a percentage, this figure indicates a country’s ability to pay back its debts based on its output. The lower the debt-to-GDP ratio, the more capable the country is of paying back its debt, and the lower the risk of default.
Decentralized means not controlled by any single entity or institution. Blockchain is an example of something that is decentralized, all full nodes in the network own a copy of the blockchain. And not just a single entity (which would make it centralized). In a decentralized system, if one node goes down, the rest of the network continues to operate without hiccups.
A default occurs when a person or entity fails to meet its debt obligations. It can be in the form of unpaid loans, mortgages, bonds, and promissory notes. A debtor is also considered to have defaulted when a violation of loan conditions is committed (i.e., not making a scheduled payment).
Deflation is an economic phenomenon involving a generalized decline in the price of a basket of goods and services. in a country or region.
Deflation happens when the annual inflation rate turns negative. Such an event is usually brought about by a reduction in the money supply and/or credit.
It is the opposite of inflation and is therefore often referred to as “negative inflation”. It occurs once the rate of inflation falls below 0%.
Deflation strikes fear into the hearts of central bankers because it’s much harder to fight than inflation, which requires painful but relatively straightforward interest rate hikes.
Falling into a deflationary cycle tends to be extremely negative for an economy and is a development every country tries to avoid.
Deflation prompts consumers to delay purchasing decisions because they expect prices will drop further.
This reduces industrial production and economic activity, depresses business profits, drives down wages, and/or layoffs which increases unemployment.
As prices continue to fall, profits are squeezed further and companies respond by cutting wages further, laying off more employees, which reduces demand for their products and worsens the problem.
It’s a self-reinforcing cycle that can only be broken with massive spending, normally by governments with the help of their central bank.
To avoid this, central banks tend to use different monetary policy tools at their disposal.
For example, following the outbreak of the 2020 COVID-19 pandemic, the major central banks reacted by cutting their interest rates in an attempt to facilitate credit flows and launched massive bond purchasing programs to stimulate inflation by boosting the money supply.
In the forex market, these measures translate into a sharp increase in currency volatility.
Expansionary monetary policies tend to weaken the related currency against the currencies of the main trading partners.
These expansion programs, simultaneously implemented in different countries, lead to sharp fluctuations in the main currency crosses and pose serious challenges to companies exposed to currency risk.