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Trading Guides

What are swaps?

The swap is essentially a fee for holding a position overnight. Generally, this fee is to do with the central banks’ interest rates of the underlying currencies quoted in the currency pair with brokers possibly adding an extra commission on top of swap. This fee can either be debited or credited to your account depending on the interest rate differential.

For example, let us take the GBP/USD. If we are long the currency pair and the central bank interest rate for the UK is higher than the US’ central bank, you should experiencing something called a positive carry – where the interest rate received from holding the GBP position long is higher than the interest rate paid holding the USD short.

In contrast, if we were short the currency pair we would experience a negative carry – where the interest rate received from holding the USD position long is lower than the interest rate paid holding the GBP short.

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What is a Japanese Candlestick?

The Japanese candlestick tells uses a box and whiskers type format, changing between two colors dictating whether it closed higher or lower. Japanese candlesticks can be used for any time frame, and are used to describe the price action during that time frame.

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What is a resistance level?

A resistance level is a general level where prices have not been pushing upwards for a certain period. This occurs when there are sellers at the price level, preventing the price of the asset surpassing above that level. With regards to technical analysis, a resistance level may be drawn with a line across the highest highs for the time being considered.

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What is a support level?

A support level is a general level where prices have not been falling below for a certain period. This occurs when there are buyers at the price level, preventing the price of the asset dropping below that level. With regards to technical analysis, a support level may be drawn with a line across the lowest lows for the time being considered.

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How to determine the base currency

When looking at a currency pair, the base currency is the first currency quoted. For example, in GBP/AUD, GBP would be the base currency. The currency after the base currency is the quote currency. The notation is how much of the quote currency would you need to get 1 unit of the base currency.

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What is the bid / ask price?

The bid and ask price (from the client’s perspective) is the highest price that a group of buyers / group of sellers are willing to pay / sell and asset for. The difference between the bid and ask price is called the spread. A variable spread occurs when the bid and ask price to fluctuate due to the demand and supply of the currency pair. In comparison, a fixed spread ensures the difference between the bid and ask price stays consistent, regardless of market conditions.
However, sometimes currency prices change irrespective of Economic, Political and Central bank factors. During non-turbulent times, the currency pair may hit strong support / resistance levels in which buyers / sellers increase or decrease their exposure to the currency.

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What causes currency prices to change?

Currency prices are fundamentally affected by supply and demand. Economic and Political factors may affect supply and demand as traders buy or sell currency pairs in reaction to news that was just released. Central bank intervention may affect the supply of a currency by releasing more money in the financial markets, or purchasing currency back, taking said currency out of the markets. A good example of this would be the GBP/USD plummeted after a referendum was passed for the UK to leave the European Union

However, sometimes currency prices change irrespective of Economic, Political and Central bank factors. During non-turbulent times, the currency pair may hit strong support / resistance levels in which buyers / sellers increase or decrease their exposure to the currency.

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What is the Spread?

The spread is the differences between two prices. In this case, it’s the difference between the buy (bid) and the sell (ask) price. In forex exchange, the spread is likely to be the commission charged by the broker/ or the liquidity provider for providing filing the buy/sell order.

The spread in forex is measured in “pips”, which is the smallest unit of the price movement of the currency pair. One pip is equal to 0.0001. Therefore, a 2 pip spread between the EUR/USD would be 1.1050 / 1.052

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What is a Commodity?

Commodities (Specifically, “Hard” Commodities) are generally regarded as a input in the production or use for other goods or services. Generally, a commodity has the similar/same characteristics, regardless of the location it is harvested in. In this example, West Texas Intermediate (WTI) is a type of crude oil primarily traded on the New York Mercantile Exchange (NYMEX), although any oil produced which have the right characteristics can be considered as WTI.

Hard Commodities are not to be confused with Soft Commodities which share similar characteristics in being relatively homogenous such as rice, wheat, and cattle. The difference between hard and soft commodities consist of how its produced, with hard commodities such as oil and gold being non-renewable and soft commodities, mainly agricultural products, must be grown and cared for.

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Black Bull Group Limited (trading name: BlackBull Markets) is a New Zealand registered and incorporated company (company number: 5463921). We are also registered with the Financial Services Provider Register (number: FSP403326).

Black Bull Group UK Limited is registered in United Kingdom, Company Number – 9556804. Payment clearing services provided by: BlackBull Group UK Limited (Company Number – 9556804) Address – 483 Green Lanes, London, Greater London, United Kingdom, N13 485

Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any questions or concerns as to how a loss would affect your lifestyle.

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