Forex Trading Forex Trading Fundamentals 2 — Questions and Answers
Question 1: What is the 'spread' in Forex trading?
- The daily trading range of a currency pair
- The difference between the bid and ask price (Correct answer)
- The total profit of a trade
- The margin required to open a position
Correct answer: The difference between the bid and ask price
The spread is the difference between the bid (sell) price and the ask (buy) price, representing the broker's primary source of income.
Question 2: Which Forex trading session overlaps with both the Asian and European sessions?
- New York session
- Tokyo session
- Sydney session
- London open (Correct answer)
Correct answer: London open
The London open overlaps briefly with the tail end of the Asian session and dominates the European session, creating high liquidity.
Question 3: What does 'going long' mean in Forex?
- Holding a trade for more than one day
- Buying the base currency expecting it to rise (Correct answer)
- Selling a currency pair
- Using high leverage on a trade
Correct answer: Buying the base currency expecting it to rise
Going long means buying the base currency of a pair with the expectation that it will increase in value relative to the quote currency.
Question 4: What is a 'margin call' in Forex trading?
- A broker's request to deposit more funds to maintain open positions (Correct answer)
- A notification that a trade has closed at profit
- An alert for a major news event
- A fee charged for overnight positions
Correct answer: A broker's request to deposit more funds to maintain open positions
A margin call occurs when a trader's account equity falls below the required margin level, prompting the broker to request additional funds or close positions.
Question 5: Which of the following best describes a 'cross currency pair'?
- A pair that always includes the US Dollar
- A pair involving two major currencies but excluding the US Dollar (Correct answer)
- A pair traded only during the Asian session
- A pair with low liquidity
Correct answer: A pair involving two major currencies but excluding the US Dollar
A cross currency pair consists of two major currencies that do not include the US Dollar, such as EUR/GBP or AUD/JPY.
Question 6: What is the role of a Forex broker?
- To set global interest rates
- To act as an intermediary between the trader and the interbank market (Correct answer)
- To guarantee profits on trades
- To issue currency
Correct answer: To act as an intermediary between the trader and the interbank market
A Forex broker acts as an intermediary, providing traders access to the interbank market and platforms to execute currency trades.
Forex Trading Forex Trading Fundamentals 2
What is the 'spread' in Forex trading?