Trade anytime, anywhere
Trade anytime, anywhere
|USD ($)||United States||Dollar|
|EUR (€)||Eurozone members||Euro|
|GBP (£)||Great Britain||Pound|
Actually, you have probably participated in Forex trading without even knowing it. Every time you take a trip to another county and exchange money, you contribute to that $4 trillion daily trade volume.
If taking a trip to the US, you would convert your base currency into US dollars. This effectively means that you would be buying dollars and, basically, a share in the US economy.
Trading foreign exchange on the currency market, also called trading forex, can be a thrilling hobby and a great source of investment income. To put it into perspective, the securities market trades about $22.4 billion per day; the forex market trades about $5 trillion per day. You can make a lot of money without putting too much into your original investment, and predicting the direction of the market can be a real rush. You can trade forex online in multiple ways.
The MetaTrader platform is without doubt, the most popular retail FX trading platform. Many traders around the world use MetaTrader 4 as their preferred choice because of its
Want to enter the world of FX but too worried about the losses? Don’t worry. Try out our demo accounts and practice trading till you are confident.If you’re new to forex, you’ll get hands-on forex training with no pressure to sign up. If you’re an experienced forex trader, you will be able to test your strategies in a risk-free long-term environment.
You’ll see two numbers on a forex quote (Currency Pairs)
The bid price on the left and the ask price on the right.
You can try several different methods:
Depending on your Deposit, you can take 2 to 3% margin for trades.
You can place different kinds of orders:
Above all, don’t get emotional. The forex market is volatile, and you will see a lot of ups and downs. What matters is to continue doing your research and sticking with your strategy. Eventually, you will see profits
Forex market is so dynamic that you could see the change in price every second. So, in forex trading it is important to know how Traders make profit with this ever changing relative price of currency pairs.
To understand better let’s say that we place a buy order of a standard lot (1.0) in USD/CHF pair (In forex trading, currencies are always mentioned in pairs). That means we have bought 100,000 units of USD against CHF. Suppose you’ve a leverage of 1:100, the margin required for this particular trade will be $1000. With that, the value of 1 pip will be $10. In this scenario if the price goes up by 1 pip, the profit will be $10. For 2 pips $20, 3 pips $30 and so on till you liquidate the position.
Consider an example: Buying price of USD/CHF pair is 0.9160 and closing price is 0.9170. That means you’ve gained 10 pips. So, for a standard lot of 1.0 the profit will be $100.The value of pip is not the same for all currency pairs. It depends on which currency pair you’re trading and thebase currency of that account
I.e. accounts currency. Let’s see an example of how the pip value is derived.
E.g. let’s say that we’re trading EUR/USD and the current price is 1.3500 and the account currency is USD. As we know, a pip is the basic unit or the smallest increment in any currency pair. In EUR/USD a movement from 1.3500 to 1.3501 is one pip. So, a pip is 0.0001. Hence the calculation goes this way for standard lot 1.0,
(0.0001/1.3500)*100,000EUR = 7.4 EUR
But we want the pip value in USD since account currency is USD. Hence,
EUR 7.4*1.3500 = 10.00 USD
Consider another example in USD/JPY. Say, the value of USD/JPY is 98.00 and account currency is USD. Here a pip is 0.01. For a standard lot,
(0.01/98.00)*100,000USD = 10.20 USD Since base currency itself is USD in the pair USD/JPY we directly get the value of pip in USD. Account currency in forex trading can vary with each individual. However, similar calculationapplies for all currency pairs.
Forex exchange traders would typically look at the currencies available and buy the strongest currency while selling the weakest. So, for example, if after reading the news, you thought the euro was strong and the US dollar was weak, you could buy the euro while selling the dollar.
Because you are comparing one currency to another, Forex is always quoted in pairs. Therefore, an example of a EUR/USD quote would be 1.4650. This means that one euro is worth 1.4650 US dollars at that moment in time. If this rate fell to 1.4422, then this would mean the euro is getting weaker and the US dollar is getting stronger.
Within a Forex pair, the first currency is referred to as the base currency and the second currency is referred to as the quote currency. When you buy or sell a currency pair, you are performing an action on the base currency.
The US dollar is by far the most traded currency in the world – with almost 85% of all reported transactions. The euro comes next, followed by the yen, and then the pound. For this reason the rates of all currencies against the dollar are referred to as major rates (USD/JPY) and the rest are cross rates (e.g. EUR/JPY).
Stock indices have „points”, however Forex currency pairs have pips.
In order to demonstrate how margin actually works, let’s find out what happens when you decide to open an account with Forex Broker.
change in the value of the currency pair by 0.0001 (and respectively 0.01 for currency pairs including the JPY) is a 1 pip of movement. For example, if GBP/USD was to move in price from 1.6339 to 1.6340, this would be a movement of 1 pip, and if it moved from 1.6339 to 1.6329, then this would be a movement of 10 pips.
The monetary value of one pip can vary according to the size of your trade and the base currency you are trading in.
One of the advantages of Forex trading is that you can trade sums much larger than your account equity. This is known as margin trading. For example, a margin of 2% (or leverage of 1:50) allows you to open position worth $10,000 by having just $200 in your account ($200 : 2% = $10,000). This means that you can take advantage of the smallest price movements by controlling more money than is available in your account.
With Forex Broker you can leverage up to 200 times the size of your account equity. This means that if you have £1,000 in equity in your account, you can trade up to £200,000 worth of currency.
Although a leverage of 1:200 (a margin of 0.5%) may seem extremely risky, the risk is significantly less when you consider that currency prices usually change by less than 1% during intraday trading. If currencies fluctuated as much as equities, brokers would not be able to provide as much leverage.
While margin can be advantageous in increasing your profits, it can also significantly increase your losses, so it should be used with caution.
A lot is the standardised quantity of a financial instrument. It usually represents the minimum order size. With most Forex brokers, one standard lot is equal to 100,000 units of the base currency, but there are brokers offering trading in lots equal to 1,000 units (also known as micro-lots). Forex Brokers offers you the ability to trade micro-lots (1,000 units).
Before we confuse you any further, let’s see this in practice:
You have a trading account in euro and your account equity is €1,000.
As we have mentioned, traders can use leverage which gives them the ability to buy an amount significantly more than their account equity.
You hold the view that the euro will rise against the US dollar:
You decide to buy 100 lots EUR/USD when our quote is 1.4422/1.4423.
This means that you are buying €100,000, and at the same time you are selling $144,230.00 (= €100,000 * 1.4423).
The value of your position is €100,000. To open the position, you need a deposit (or margin) in your account, which is a percentage of the value of the base currency.
If the currency of your account is USD, rather than EUR, than the collateral for the open position would be recalculated in the currency of the account:
When you close your position, you sell the base currency and at the same time you buy the quoted (second) currency of the currency pair. Because of this, the result of a Forex trade is always in the quoted (second) currency.
Let’s go back to our example, where several hours later the EUR/USD has risen to 1.4639/1.4640, so you decide to collect your profit.
Opening transaction (Buy): €100,000 (100 lots) х 1.4423 = $144,230.00
Closing transaction (Sell): €100,000 (100 lots) х 1.4639 = $146,390.00
Profit on trade: $2,160 ($146,390.00 – $144,230.00).
Since your account is in EUR, this means that your profit from the trade will be recalculated, and €1,475.51 (= $2,160 : 1.4639) will be added to your account.
Although the opportunity to earn significant profits by using leverage is substantial, leverage can also work against investors.
For example, if the currency underlying one of your trades moves in the opposite direction of what you believed would happen, leverage will greatly amplify the potential losses. To avoid such a catastrophe, Forex traders usually implement a strict trading style that includes the use of stop and limit orders. This will be detailed further in the coming articles.