6:39 p.m. - 2006-06-15
Short forex tips

About forex

Any novice trader can lose his entire FX investment in minutes. The same risk applies to experienced traders too. In Forex trading, anything can go wrong, against you. Trading is not gambling. It is a solid means of creating income. Income comes to those who approach the market with knowledge and a serious level of education and trading experience. Safety and longevity in trading comes from properly educating yourself on how the markets work first and then knowing how to manage your risk. The most important thing in Forex trading is education !
Any potential Forex trader must become familiar with the Forex Market and the language and terminology of trading.

Most online investors hit the computer screen mentally and emotionally unprepared. They pay dearly for their education. Investors should understand and overcome the psychological pressures of electronic trading, and enter the trading arena clearheaded and ready-to-face every showdown. Traders have to gain self-determination and competence and as they learn to accept the frenetic ups and downs of online trading. Trading is an intense, psychological battle. To win, traders must constantly balance the analytic and intuitive sides of trading. Technical (forex charts are the basis of technical analysis) and fundamental analysis are the forex basics which must be known to every forex trader.

Most traders violate their predetermined plan and take their profits before reaching their profit target because they feel uncomfortable sitting on a profitable position. These same people will easily sit on losing positions, allowing the market to move against them for hundreds of points in hopes that the market will come back. Don't forget that the market may never come back!

Forex trading simulator

Futures and Forex Traders are finding what they need at Peregrine Financial Group (PFG). The future and forex broker and back office staff are dedicated to providing you the futures and or forex trader with only the best brokerage service possible. Unlike larger Futures Commission Merchants (FCMs) with several hundred employees that treat you like a number, at Peregrine Financial Group (PFG) you will always receive the personal human attention that a futures and or forex trader needs. The futures and forex market move fast and when there is uncertainty, human help is only a phone call during the market hours.

Forex glossary

Arbitrage: A transaction in which an investor holds a basket of financial contracts which cost nothing to hold, involve no risk and result in a profit. An arbitrage transaction is based on the assumption that an asset, or derivative of an asset, trades at two different prices. The investor sells the high priced asset and buys the low priced asset.

Arbitrageur: An individual who engages in arbitrage transactions.

Asset Manager: an individual who manages the assets of a third party.

Beta: A measure of the responsiveness of the return (or price) of a security to changes in a broader market index.

Circuit Breaker: A provision in the operation of an exchange designed to limit the length of the trading period, limit the maximum price change during a given period, or correct an order imbalance.

Closing Range: The price range is the high and low prices at which transactions occurred on the close.

Contract Month: The month in which futures contracts may be implemented by making or taking delivery.

Convergence: The move to equality of spot/cash and futures prices as the delivery date approaches.

Daily Price Limits: The maximum and minimum prices at which a futures contract can trade. These limits are established by the clearinghouse and are calculated in relation to the previous day's settlement price.

Daily Settlement: The process in a futures market in which the daily price changes are paid by the parties incurring losses to the parties making profits. The profits and losses are generally settled through a clearing house.

Day Order: An order to purchase or sell a position that is automatically canceled if not filled by the end of the day. Day Trader: A trader who closes out all positions by the end of the trading session.

Deferred Futures: The more distant delivery months in which futures trading takes place.

Deferred Strike Option: An option in which the exercise price is established at a future date based on a pre-determined formula.

Delivery: The process in which a futures contract can be terminated at the expiration of the contract through the sales of the underlying by the seller (short position holder) to the buyer (long position holder).

Delivery Day: The date on which the underlying is delivered to terminate a futures contract.

Delivery Month: The calendar month in which delivery can be made of a futures contract.

Delivery Notice: The written notice given by a seller indicating his intention to make delivery against an open contract.

Delivery Price: The price fixed by the clearinghouse at which deliveries on futures contracts are invoiced.

Delta: The mathematical relationship between the change in value of an option and the change in market price of the underlying. Delta increases as the value of the market price of the underlying rises relative to the strike price of the option. An out-of-the-money option has a delta near zero, while a significantly in the money option has a delta near one.

Delta Hedge: An options hedge in which the number of contracts is based on the reciprocal of the option delta.

Delta Neutral: An option position in which the delta is zero.

Derivatives: Financial instruments or arrangements that derive their value from an underlying asset.

Dynamic Hedge: A hedging strategy in which an asset is hedged by selling futures in such as manner that the position is adjusted frequently to take into consideration changes in basis between the prices of futures contract and asset being hedged.

Early Exercise: Exercise of an option before its expiration date. (u.s. style options).

Exercise: The process by which a call option is used to buy or a put option used to sell the underlying on option expiry.

Exercise Limit: The maximum number of option contracts that one investor can exercise over a specific period.

Exercise Notice: A notice in writing delivered to a clearinghouse giving notice of intent to make or take delivery of the underlying.

Exercise Price: The price that the underlying may be bought or sold for under a call or put contract.

Expiration: A date after which an option or futures contract no longer is in effect.

Fair Value: The value of an option derived from an option pricing model.

Financial Futures: A futures contact on a financial underlying asset such as a bonds or currencies.

Foreign Currency Futures: A futures contact on a foreign currency.

Forward Contract: A contractual agreement between two parties to exchange an underlying asset at a set price on a set date in the future.

Front Month: the most actively traded futures delivery month.

Gamma: The rate at which the delta of an option moves up or down in response to changes in the price of the underlying. Gamma is positive for calls and negative for puts.

Globex: An international electronic / automated market for trading futures contracts operated by the Chicago Mercantile Exchange.

Good Till Cancelled (G.T.C.) Order: An order that remains valid until manually cancelled.

Hedge: A transaction in which a participant seeks to offset a perceived price change on an asset owned or owed using an offsetting futures or forward contract. Hedge Ratio: The ratio of options or futures contracts needed to achieve a desired relationship between the price change of any assets owned or owed in the spot or cash market with hedging contracts in the futures or forward market.

Hedged Portfolio: A portfolio being hedged.

Hedger: An individual who hedges.

Historical Volatility: The standard deviation of an underlying assets volatility using historical data.

Implied Delta: Delta of an option calculated using an option pricing model using the option's implied volatility as the model's input.

Implied Volatility: The underlying price volatility at which the option's fair value equals its market value.

Initial Margin: The minimum amount of money that must be in an investment account on the day the transaction takes place. On futures contracts, the initial margin must be met on any day in which the opening balance starts off below the maintenance margin requirement.

Intrinsic Value: The profit, if any, from the assumed exercise of an option at its current price.

Limit Down: An situation in which the futures price moves down to the lower daily price limit.

Limit Move: A situation in which a futures price hits the upper or lower daily price limit.

Limit Order: An order to purchase or sell a security, option, or futures contract that specifies the maximum price to pay or the minimum price to receive.

Limit Up: A situation in which the futures price moves up to the upper daily limit.

Long: A position in the cash or futures market in which the investor owns or has contracted to own the underlying.

Long Hedge: A hedge involving a short position in the spot market and a long position in the futures market.

Maintenance Margin: The minimum amount of money that must be kept in a margin account on any day other than the day of the transaction to maintain an open position.

Margin: Funds kept on account with a clearinghouse or in trust for the purpose of covering losses on positions in the cash or futures market.

Margin Call: A request from a broker or clearinghouse for additional funds to cover losses on an outstanding open futures position.

Mark To Market: To debit or credit on a periodic basis the market value of positions / contracts held.

Market On Close (M.O.C.) Order: An order to purchase or sell securities, options, or futures that requests the broker to execute the transaction at a price as close as possible to the closing price.

Naked Call: An option written by an investor (a seller) who does not own the underlying.

Offsetting Order: A futures or option transaction that is the exact opposite of a previously established long or short position.

Open Interest: The number of futures or options contracts that have been established that have not yet been offset or exercised.

Open Outcry: The execution process used on an exchange in which bids and offers are indicated by humans communicating by voice and hand signals.

Option: A financial contract giving the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in a case of a put option) a fixed amount of a given asset at a specific price within or by a specified time period.

Option Premium: The price of an option.

OTC (Over The Counter) Derivatives: Derivatives that are transacted through dealers and not through organised exchanges. Example Forex.

Physical Delivery: Settlement of a contract by the delivery or receipt of the underlying.

Pit: An area on the trading floor of some exchanges to facilitate communication of traders in futures and options markets.

Position: The holding of a long or short contact (open position) in a market.

Position Day: The first day of a three day sequence leading to delivery in which the holder of a short position notifies the clearinghouse of the intention to make delivery two business days later.

Position Limit: The maximum number of options or futures contracts that any one investor can hold.

Position Trader: A futures trader who normally holds open positions for periods longer than one day.

Price Sensitivity Hedge Ratio: The number of futures contracts used in a hedge that leaves the value of a portfolio unaffected by a change in a variable such as interest rates.

Put: An option to sell an underlying asset, usually at a specified price on or before a specified date.

Put - Call Parity: The relationship between the price of a put and call on the same underlying asset with the same strike price can be calculated if the theoretical value of the put or call is known.

Settlement Price: The official price calculated by the clearinghouse at the end of each day for use in the daily settlement.

Short: the holding a short position. A short position involves an investor who has sold a futures contract or owes the asset to someone for future delivery.

Short Hedge: A hedge transaction involving a long position in the spot market and a short position in the futures market.

Short Sale: A transaction in which securities are borrowed from a broker and sold and later repurchased to be paid back.

Speculator: An investor who buys or sells contracts in hope of profiting from a perceived price changes.

Spot Market: The market for assets that involves immediate sale and settlement.

Spot Price: The price of an asset on the spot market.

Spread (Bid - Offer): The difference in price/points between the Bid (buyers) and Offer (sellers) on a quote.

Spread (Bear -Call): The simultaneous writing of one call option with a lower strike price and the purchase of another call option with a higher strike price.

Spread (Bear - Put): The simultaneous purchase of one put option with a higher strike price and the writing of another put option with a lower strike price.

Spread (Bull - Call): The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price.

Spread (Bull - Put): The simultaneous writing of one put option with a higher strike price and the purchase of another put option with a lower strike price.

Spread (Calendar): An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price.

Spread (Options or Futures): An option or futures transaction consisting of a long position in one contract and a short position in another similar contract.

Spread Delta: A measure of the sensitivity of a spread to a change in the price of the underlying.

Stock Index Future: A future on an stock index. Straddle: An option transaction that involves a long position in a put and a call and with the same exercise price and expiration.

Strangle: A long put at one exercise price and a long call at a higher exercise price.

Strap: An option transaction involving a long position in two calls and one put, or two calls for every put, with the same exercise price and expiration. Strike Price: Exercise price or the price at which an option is deemed at the money.

Strip: An option transaction that involves a long position in two puts and one call, or two puts for every call, with the same exercise price and expiration. Swaps: A forward contractual agreement to exchange one type of cash flow or asset for another, according to predetermined rules.

Synthetics: A customised hybrid instrument created by blending an underlying bond or note with a futures contact or option. Synthetics are typically used to change the effective yield or maturity of bonds or notes.

Synthetic call: A combination of a long put and long assets, futures, or currency that replicates the price behavior of a call.

Synthetic futures: A combination of a long call and a short put that replicates the price behavior of a long futures contract.

Synthetic put: An combination of a long call and short asset, currency, or futures that replicates the price behavior of a put.

Theta: The rate at which the price of an option changes because of the passage of time. This is also known as time value decay.

Tick: The minimum permissible price fluctuation established by an organized market.

Time Value Decay: The rate at which the price of an option changes because of the passage of time. This is also known as theta.

Traded Options: Option contracts traded on the floor of an exchange.

Uncovered Call: An option strategy in which the writer of the option does not own the underlying.

Underlying: The asset on which a futures or option is written.

Warrant: A security convertible into a specified number of shares of stock, a call option.

Writer: The person or institution that sells an option.

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