Basics

Question 1

What does forex stand for?

Answer 1

Foreign exchange

Question 2

What does the forex market determine?

Answer 2

* the relative values of different currencies

Question 3

What does the price of a currency reflect?

Answer 3

What the market thinks about the current & future condition of a country’s economy compared to others

Question 4

What are you doing when you buy USD with GBP?

Answer 4

* buying shares of the US economy
* expecting the US economy to outperform the UK economy

Question 5

What is the task of a forex trader?

Answer 5

* to buy a currency pair when exchange rates are expected to rise in the future
* then sell a currency pair when it’s exchange rate is expected to fall

Question 6

What are currency pairs divided into?

Answer 6

* majors
* crosses
* exotics

Question 7

What do majors represent?

Answer 7

* developed economies
* they’re highly liquid with low spreads
* stable & predictable

Question 8

What are crosses ideal for?

Answer 8

Diversification

Question 9

What are exotics?

Answer 9

* exotics include a currency pair from a developing country
* they’re liquid with high spreads

Question 10

How do you interpret ‘EUR/USD 1.2302’?

Answer 10

1 Euro is worth 1.2302 Dollars

Question 11

What is the base in a currency pair?

Answer 11

* the base is always the first currency listed in the pairing

Question 12

What does PIP stand for?

Answer 12

Price interest point

Question 13

What does price interest point (PIP) represent?

Answer 13

* PIP represents the smallest change in a currency pair
* Usually the fourth decimal point
* e.g. in 1.2302, the PIP is 2 at the end

Question 14

What does ‘spread’ mean

Answer 14

* the difference between the sell quote and the buy quote (in PIPs)
* the higher the liquidity of a currency pair the lower the spread

Question 15

What does Bid and Ask mean

Answer 15

* bid = selling price
* ask = buying price

Question 16

What influences currency rates?

Answer 16

* central banks (interest rates)
* national economy (inflation/deflation, employment/unemployment)
* politics (government stability, military conflicts etc)

Question 17

What does leverage allow you to do?

Answer 17

* increase the potential of realising a profit/loss between 50:200 times faster

Question 18

What are tips for forex beginners?

Answer 18

* never risk all your money
* start slow
* set up a stop loss order

Question 19

What is a stop loss order?

Answer 19

* tells your broker to sell a currency if it hits a certain price