Forex Trader Training 1 — Questions and Answers
Question 1: How big is a STANDARD LOT?
- 100,000 currency units (Correct answer)
- 1,000 currency units
- 1,000,000 currency units
- 100 currency units
Correct answer: 100,000 currency units
In Forex trading, a standard lot represents 100,000 units of the base currency. This is a common unit of measurement for trade sizes, with smaller lots like mini lots (10,000 units) and micro lots (1,000 units) also available for traders with smaller capital.
Question 2: Describe LIMIT order.
- A directive to keep the price at the going rate
- A request to purchase a specific quantity of lots
- A request that must be fulfilled right away
- An order to buy or sell at a specific price with no room for negotiation (Correct answer)
Correct answer: An order to buy or sell at a specific price with no room for negotiation
A limit order is an instruction to buy or sell a security at a specific price or better. For a buy limit order, the order will only execute at the specified limit price or lower, while a sell limit order will only execute at the specified limit price or higher, ensuring the trader gets their desired price without negotiation.
Question 3: Describe market order.
- A directive to purchase and mark the orders
- A request to restrict the order to particular markets
- A purchase order placed at the going rate (Correct answer)
- A request that must be fulfilled right away
Correct answer: A purchase order placed at the going rate
A market order is a directive to buy or sell a security immediately at the best available current price. It prioritizes execution speed over a specific price, meaning the trade will be completed as quickly as possible at whatever the prevailing market rate is. This makes it suitable for investors who want to enter or exit a position without delay, accepting the current 'going rate'.
Question 4: What does the REVERSAL pattern's name mean?
- Currency
- Double bottom (Correct answer)
- Double pattern
- All of the above
Correct answer: Double bottom
In technical analysis, a 'reversal pattern' indicates a change in the direction of a price trend. The 'Double bottom' is a classic bullish reversal pattern, signaling that a downtrend may be ending and an uptrend is about to begin. It forms when the price makes two distinct lows at roughly the same level, with a moderate peak in between.
Question 5: What does having GO LONG actually mean?
- You purchased the base currency with the expectation that it will increase. (Correct answer)
- On your open position, you have earned money.
- You have closed out every position you had.
- You overspent your margin on purchases.
Correct answer: You purchased the base currency with the expectation that it will increase.
To 'go long' in trading means to buy an asset, such as a currency, stock, or commodity, with the expectation that its price will increase over time. Traders who go long profit if the asset's value rises, allowing them to sell it later at a higher price. This strategy is based on a bullish outlook for the chosen asset.
Question 6: What does this price pattern's name mean?
- Triple top
- Diamant
- Double top (Correct answer)
- Double bottom
Correct answer: Double top
The 'Double top' is a bearish reversal pattern in technical analysis, indicating that an uptrend may be ending and a downtrend is about to begin. It forms when the price reaches a high point twice, with a moderate dip in between, suggesting that buyers are losing momentum and sellers are gaining control. This pattern signals potential price declines.
Question 7: What does having a SHORT position mean?
- You lost money on a position.
- You anticipate a decline in the base currency.
- You've bought the counter currency and sold the base currency. (Correct answer)
- You purchased the base currency and then sold it.
Correct answer: You've bought the counter currency and sold the base currency.
Having a 'short position' or 'going short' means selling an asset that you don't own (typically borrowed) with the expectation that its price will fall. In currency trading, this involves selling the base currency and buying the counter currency, anticipating that the base currency will depreciate. If the price drops, you can buy it back at a lower price, returning the borrowed asset and profiting from the difference.
Forex Trader Training 1
How big is a STANDARD LOT?