Forex Training Summary and Quiz
Currency Trading Conventions
Currencies are traded in currency pairs - for example EUR/USD. In this case, EUR is the base currency and USD is the quote or counter currency.
Exchange rates for currency pairs are displayed with both a bid price (what you receive when selling) and an ask price (what you pay when buying).
The difference between the bid price and the ask price is known as the spread.
"Pip" stands for "price interest point" and is equal to 0.01 for exchange rates expressed to two decimal places. For rates expressed to four decimal places, one pip is equal to 0.0001.
Some brokers offer an additional digit of precision for certain exchange rates. This extra digit is commonly referred to as a "fractional pip".
Buy = to take a long position. Sell = to take a short position.
To close a position, you need to buy or sell an equal amount of the open order, thereby reducing the open position to zero.
Unrealized gains / losses are the profits or losses that would result if an open position were closed at the current exchange rate. Once the position is closed, gains and losses are said to be realized.
An end-of-day rollover - or rollover swap, is used by most forex brokers to close out an open position at the end of the business day. A new position is automatically created for the next business day and the net financing charge or credit (finance earned minus finance paid) is calculated for the open position at the time of the rollover.
Putting It All Together
- Currencies are traded in currency _________.
groupings
sets
pairs
derivatives
- In the EUR/USD currency pair, EUR is the ________ currency and USD is the _________ or counter currency.
long, short
objective, subjective
first, second
base, quote
- The difference between the bid price and the ask price is known as the _________.
vig
exchange rate
interest rate
spread
- A _________ is equal to 0.01 for exchange rates expressed to two decimal places, or 0.0001 for exchange rates expressed to four decimal places.
trade
pip
selling price
spread
- Some brokers offer an additional digit of precision for certain exchange rates. This extra digit is commonly referred to as a _________.
multiplier
fractional pip
realized gain
profit
Buy = _________ and Sell = _________.
short, long
cost, revenue
long, short
spread, exchange
- To close a position, you need to buy or sell _________ amount of the open order, thereby reducing the open position to zero.
a greater
an equal
a partial
a different
- _________ gains / losses are the profits or losses that would result if an open position were closed at the current exchange rate.
Future
Potential
Unrealized
Present value
- Once the position is closed, gains and losses are said to be _________.
confirmed
theoretical
banked
realized
- A _________ is used by most forex brokers to close out an open position at the end of the business day, and reopen an identical position as of the next day.
carry trade
rollover swap
margin calculation
spot trade