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Types of Quotations in Forex Market

Forex quotations can complex for the average person. It
takes some practice and knowledge to fully understand that these quotations can
be provided in more than one way. Also, a person should get used to it before
he can quickly understand these quotes used and make keen decisions based on
the same.

Vocabulary

Any forex market quotation always uses the abbreviation of
the currency under question. There are primary currency keys or currency codes
that have been created by ISO. These keys are used for a transaction around the
world.

The key is up of 3 letters. The first two letters of the key
denote the country to which the currency belongs, whereas the third letter of
the key is the first letter of the currency.

Thus, the U.S. dollar is denoted as the USD, Indian Rupee as
INR, Great Britain Pound as GBP, and the Japanese Yen is referred to as JPY.

The exemptions to this rule would be currencies such as
Euro, which is referred to as EUR, and mostly the Swiss Franc, which is CHF.

Direct Quotation – is a method where the quote
is expressed in terms of the domestic currency. This means that the rate
signifies how one unit of local currency relates to foreign currency. Hence, if
a unit of the domestic currency were to be changed, how many units of the
foreign currency would it create? This method is also cited as the price
quotation method. Thus, if the value of the domestic currency rises, a smaller
amount of it would have to be exchanged. A decrease in value would create a situation
where a large amount of local money would have to be replaced. Therefore, it
can be said that the quotation rate has an inverse relationship with the amount
of domestic currency.

The value of the domestic currency is believed to be 1 in
case of a direct quotation. The price being quoted discusses the number of
units of foreign currency that can be replaced for a single unit of the
domestic currency.

The direct quote process is one of the most used quotation
methods around the world. This is the standard for quoting forex prices and is
assumed de facto until another technique has been particularly mentioned.

Indirect Quotation – is the inverse method of
the direct quotation method. In this method, the quote is articulated in terms
of foreign currency. Hence, these rates assume one unit of foreign currency. It
then means how many units of domestic currency are necessary to gain a single
unit of foreign currency. Sometimes this quote is signified in terms of 100
units of foreign currency. This process is often cited as the quantity
quotation method. Since this method is quoted in conditions of foreign
currency, the quoted rate has a direct relation with the national rate. If the
quote rise, the value of the local currency also rises.

The usage of indirect currency quotation is intensely rare.
It is only in the Commonwealth countries such as the U.K. and Australia that
the direct quotation method is used as an outcome of the convention.

The Rare Case of the U.S. Dollar

By convention, most quotations that involve the U.S. dollar
give a direct quote for the dollar. This is because most countries are looking
to purchase the reserve currency of the world. Thus, any currency pair
involving the U.S. dollar will typically begin with USD/XXX, where XXX referred
to the variable counter currency.

Therefore, even if a quote for INR and USD is received in
India, it is written as USD/INR, although Indian Rupee is the domestic
currency. It would be appropriate to provide an INR/USD quote. However, it
would not be the forex market conversion.

A notable exemption to the rule mentioned above would be the Euro and Dollar pair, where Euro is still the domestic currency. Hence, any forex quotation can be explained in different ways based on the type of quotation that is being given, where it is being supplied, and various other market conventions and norms.

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What are the Different Order Types in Forex?

The word “order” refers to how a trader will enter
or exit a trade.

In here we will talk about the different types of Forex
orders that can be set in the forex market.

Traders should make sure they know which types of orders
their broker accepts.

Different brokers take different types of Forex orders.

There are some key order types that all brokers provide and
some others that sound weird.

  1. Market
    Order or Entry Order
    – It is an order to purchase or sell currency
    quickly at the current price.
  2. Open
    Order
    – It is an order to buy or sell a financial instrument that will
    remain open until you close it or you have you broker close it. Example:
    Forex, Stocks, or Commodities
  3. Limit
    Order
    – It is an order put away from the current market price.
    Thinking that EUR/USD is traded at 1.34. If you want to go abridge (place
    a sell order on this currency pair) if the price reaches 1.35, so you put
    an order for the price 1.35. This order is called limit order. So your
    order is arranged when the price reaches the peak of 1.35. A but limit
    order is always set lower than the current price whereas a sell limit
    order is always set higher than the current price.
  4. Stop-Entry
    Order
    – It is an order that a trader give to purchase above the
    current price or an order to sell lower than the current price when you
    think the price will remain in the same direction. It is the contradiction
    of a limit order. Let’s believe that EUR/USD is being trade at 1.34. You
    want to move longer if the price reaches 1.35, so you put a stop-entry
    order to buy at 1.35. Example: Place a buy order on this currency pair.
  5. Take
    Profit Order (TP)
    – It is an order that closes your trade shortly
    after it reached a certain level of profit.
  6. Stop-Loss
    Order (SL)
    – It is an order to close your trade shortly after it
    reaches a certain level of loss. In this strategy, you can decrease your
    loss and avoid losing all your capital. You can make stop-loss order with
    automated trading software. It’s a good thing since even you’re on holiday
    when you don’t watch how the market and currency rates change, the
    computer does it for you.

Execution – It is the process of finishing an order.
When you put an order, it will be sent to your broker, who decides whether to
fill it, reject it, or re-quote it. Once your purchase is filled, you will be
sent a confirmation from your broker. It is critical to have your orders
executed shortly. If there is a delay in brimming your order, it can cause you
losses. That is why your forex broker should execute orders in less than 1
second. Why? Forex is a swift market – and many forex brokers don’t keep pace
with its speed, or purposely slow down execution to abduct a few pips from you
even during gradual market movements.

Re-quote – It is a biased execution method used by
some brokers. It occurs when your broker does not want to execute your order on
the price you put and slows down execution for its own advantage.

How does this take place?

• You decide to purchase or sell a currency pair at a
definite price;

• You click the button to put your order;

• Your broker accepts the order;

• You receive a re-quote notice on the trading app you’re
using;

• You can either offset your order or get a worse price.

How can you avoid re-quotes?

• Find a forex broker with no re-quotes policy;

• Place a set order: tell your broker ahead that you are only open for placing an order at a definite price or better.

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Understanding the Difference Between Revenue and Profit

The total
income acquired by the sale of goods or services related to the firm’s primary
operation is called revenue. Profit, usually called net profit of the bottom
line, is the amount of income that stays after accounting for all debts,
expenses, additional income streams, and operating costs.

Revenue

Revenue is
typically referred to as the top line since it sits at the top of the income
statement. The revenue number is the income a firm produces before any expenses
are taken out.

For example,
with a shoe seller, the money it earns from selling shoes before computing for
any expenses is its revenue. If the firm also has income from investments or a
subsidiary firm, that income is not the revenue; it does not come from the cost
of shoes. Various types of expenses and additional income streams are accounted
for individually.

Profit

Profit, also
called the bottom line, is referred to as net income on the income statement.
There are variations of gain on the income statement that is used to assess the
achievement of a company.

However,
there are some profit margins in the middle of the top line (revenue) and
bottom line (net profit); the word “profit” may appear in the context of
operating profit and gross profit. These are ways to net profit.

Gross profit
is revenue less than the cost of products sold (COGS), which are the direct
prices attribute to the production of the products sold in a company. This
amount includes the value of the materials used in making the goods along with
the direct labor costs used to generate the goods.

Operating
profit is gross profit less than all other fixed and variable expenses related
to running the business, such as utilities, rents, and payroll.

Key
Differences

When most
people refer to a firm’s profit, they are not referring to gross profit or
operating profit, but slightly net income, which is the rest after expenses, or
also called as net profit. It’s possible for a firm to produce revenue but have
a net loss. The loss usually occurs when debts or expenses outstrip earnings.

Special
Points

Accrued
revenue is also the same as unrealized revenue. Accrued revenue is the revenue
acquired by a firm for the delivery of products or services that are needed to
be paid by the consumer.

For example,
a firm sells widgets for $5 each on a net-30 term to all its consumers and
sells ten widgets in August. Since it itemizes its customers on net-30 terms,
the firm’s customers do not have to compensate until 30 days after, or on
September 30. Therefore, the revenue for August will be treated as accrued
income until the firm receives customer payment.

From an
accounting standpoint, the company would recognize $50 in revenue on its income
statement and $50 in accrued revenue as an asset on its balance sheet. When the
firm collects the $50, the cash account on the income statement increases, the
accrued revenue account decrease, and the $50 on the income statement will stay
unchanged.

Unearned revenue accounts for money prepaid by a consumer for goods or services that have not been delivered. If a firm requires prepayment for its products, it would recognize the revenue as unearned. It would not recognize the revenue on its income statement until the period for which the goods or services were delivered.

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The Difference between Amortization and Depreciation

For those business
assets, amortization and depreciation are two methods of calculating value. Each
year over the life of the asset, the cost of business assets can be expensed.
To reduce the tax liability for the business, the expense amounts are
subsequently used as a tax deduction. Amortization, depreciation, and one more
common method used by businesses to spread out the cost of an asset will be
reviewed in this article. The involvement of a type of asset being expensed is
the key difference between all three methods.

Amortization

The practice of
spreading an intangible asset’s cost over that asset’s useful life is called
amortization. Physical assets are not intangible assets, per se. Intangible
assets that are expensed through amortization might include the following
examples:

  • Patents
    and trademarks
  • Franchise
    agreements
  • Proprietary
    process, such as copyrights
  • Cost
    of issuing bonds to raise capital
  • Organizational
    costs

Amortization is
physically expensed on a straight-line basis, meaning the same amount is
expensed in each period over the asset’s useful life, unlike depreciation.
Additionally, unlike with depreciation, assets that are expensed using the
amortization method typically don’t have any resale or salvage value.

When using the
term amortization since it carries another meaning, it is important to note the
context. As in the case of a mortgage, to calculate a series of loan payments
consisting of both principal and interest in each payment, an amortization
schedule is often used.

Depreciation

The expense of a
fixed asset over its useful life is called depreciation. Physical assets that
can be touched are fixed assets or tangible assets. Fixed or tangible assets
that are commonly depreciated includes some of these examples.

  • Buildings
  • Equipment
  • Office
    furniture
  • Vehicles
  • Land
  • Machinery

Depreciation is
calculated by subtracting the asset’s salvage value or resale value from its original
cost since tangible assets might have some value at the end of their life. The
expected life of the asset over the years is when depreciation is evenly
different. In other words, a tax reduction for the company until the useful
life of the asset has expired for the depreciated amount of expensed in each
year.

An example, an
office building can be used for many years before it becomes run down and is
sold. With a portion of the cost being expensed in each accounting year, the
cost of the building is spread out over the predicted life of the building.

A large portion of
the asset’s value is expensed in the early years if the asset’s life, meaning
the depreciation of some fixed assets can be done on an accelerated basis.

Special Considerations

Another way the cost of business assets can be established is by depletion. the allocation of the cost of natural resources over time is what it refers to. All three methods are a non-cash expense with no cash spent in the years they are expensed—depreciation, amortization, and depletion. The terms amortization and depreciation are often used interchangeably in other countries to refer to both tangible and intangible assets, which is an important thing to note.

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The Difference between Bottom-line Growth and Top-line Growth

Two of the most
critical lines on the income statement for a company are the top line and
bottom line. Signs of any changes from year to year are being paid attention
from investors and analysts.

A company’s revenues
or gross sales are called the top line. The company is experiencing an increase
in total sales or taxes when it has top-line growth.

The bottom figure, or
the company’s net income, on a company’s income statement, is called the bottom
line.

Expenses have been
deducted from revenues, after all. The bottom line is a company’s income.
General and administrative costs, interest charges paid on loans, and income
taxes are included in the expenses. Net earnings or net profits are also a
company’s bottom line.

Key Differences

When both top and
bottom lines grow, the company is said to be profitable. However, more
established companies might have lower sales or revenue for a reporting period
but are still able to improve their bottom line through expenses reduction.
During periods of sluggish economic activity or recession, cost-cutting
measures are standard.

Investors can
determine whether a company’s management is growing their sales and revenue and
managing expenses efficiently when they know the factors that impact both the
top and bottom lines.

Special Considerations

To increase the bottom
line, management can enact strategies. The topliners should filter down and
boost the bottom line, for the starters to increase in revenue. By lowering
sales returns through product improvement, increasing production, expanding
product lines, or increasing prices, this can be done. Other income, such as
interest income, investment income, co-location fees, or rental, and the sale
of property, also increase the bottom line.

Through the reduction
of expenses, a company can increase its bottom line. Using different input
goods or with a more efficient method, a company’s products could be produced.
There are ways to improve the bottom line, such as operating out of less
expensive facilities, decreasing wages and benefits, utilizing tax benefits,
and limiting the cost of capital. A boost to the company’s bottom line finding
a new supplier for basic materials that appeared in a cost savings of million
dollars, is an example. Conversely, an indication the company has suffered a
dip in income or a surge in expenses if a company’s bottom line shows a curb
from one period to the next.

On the income
statement, the bottom line of a company does not carry over from one period to
the next from an accounting standpoint. All revenue and expense accounts are
included in closing all temporary accounts, accounting entries are performed.
The bottom line is transferred to maintained earnings upon the closing of these
accounts.

Net income or the
bottom-line figure can be sent in several different ways by a company’s
executives. To issue payments to shareholders in the form of dividends as an
incentive to maintain ownership, the bottom-line can be used.

Alternatively, to
repurchase stock and retire equity, the bottom line can be used. Or a company
may keep all earnings reported on the bottom-line to utilize in product
development, or other means of improving the company.

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The Difference between Cyclical and Non-Cyclical

The words cyclical and
non-cyclical refer to how highly equated a company’s share price is to economic
variations. Cyclical stocks and their firms have a direct relation to the
economy, while non-cyclical repeatedly outrun the market when economic growth
decreases.

Shareholders cannot rule
the cycles of the economy, but they can alter their investing process to its
ebbs and flows. Adapting to economic transitions needs an understanding of how
their relationship to the economy describes industries. It’s necessary to know
the fundamental difference between cyclical and non-cyclical firms to determine
between sectors concerned by economic changes and those that are more immune.

Cyclical
Stocks

Cyclical stocks and their
firms are those that follow the trends all over the economy, which makes them
very resilient. So, when the marketplace increases, prices for cyclical stocks
rise. Contrarily, if the economy experiences a downturn, their stock prices
will decrease. They follow all the movements of the economy from expansion,
peak, and recession until recovery.

Cyclical stocks represent
companies that make/or sell unrestricted items and services many customers buy
when the economy is doing right. These include hotel chains, restaurants,
airlines, furniture, automobile manufacturers, and high-end clothing retailers.
These are also merchandise and services people tend to forget when time is
tight. When people stop or refrain from buying because of a reduction in
purchasing power, company revenues may start to decrease. This, in return, puts
pressure on stock prices, which also begin to fall. In the prolonged downturn,
some of these firms may leave out of business.

Shareholders may find
opportunities in cyclical stocks hard to conclude. That’s because of the
relationship they have to the economy. It can often be challenging to guess how
well a cyclical stock will do since it’s hard to predict the highs and lows of
the economic cycle.

Non-Cyclical
Stocks

Non-cyclical stocks
frequently surpass the market when economic growth slows. Non-cyclical
securities are generally profitable despite economic trends because they
produce goods and services we always need, including things like food, water,
gas, and power.

The stocks of firms that
produce these goods and services are called defensive stocks because they are
“defended” against the effects of economic decrease. They give great
places in which to invest when the economic outlook is bitter. 

Investing in non-cyclical is an excellent way for investors to prevent losses when highly cyclical companies are suffering. A utility is an example of a non-cyclical company. People will always need heat and power for themselves and their families. By providing a service that is used continuously, utility companies grow secretly and do not change dramatically. They are not going to rise when the economy experiences growth, although they provide safety.

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