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What is Forex Trading?

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What is Forex Trading?

Forex is a combination of the words foreign exchange, and this is exactly what takes place in forex trading (Also known as FX Trading). This is essentially the trading of one currency for another.

We are here to teach you the terminology used, and to guide you on getting started as a forex trader.

Basic Terminology of Forex Trading

Before you can walk the walk, it is always good to be able to talk the talk. Within forex trading, you’ll encounter a variety of terms that have significance in the market. Understanding this terminology will have a positive impact on your forex trading journey and help you to become a better trader.

Here is a basic rundown of a few terms that you are most likely to encounter along the way:

The Forex Market

The forex market is the market on which you are trading. It is completely decentralized and is where all currency exchange takes place. The exchange of one currency for another is exactly what forex trading is, and precisely what the forex market facilitates.

The volume traded daily on the forex market is more than any other trading market in the world and because of this globalized, decentralized nature, it operates 24 hours a day, 5 days a week around the world. When you get into forex trading, you will have access to the forex market through your forex broker.

Forex Broker

A forex broker is your link to the forex market,eue to licensing requirements different brokers can only accept clients from specific regions. We offer a list of trusted brokers below, and recommend the best for each region.

Not all brokers you that find online are well-regulated, many of them have a poor history of fraudulent behaviour, which is why performing due diligence is important. Below we include a list of brokers which you should avoid.

Currency Pairs

Currencies within the forex market are always traded in pairs. This is just the same as when you frequent a bank or currency exchange. You may see the symbols EUR/USD, or USD/JPY, and more. These are known as currency pairs and signify how much it costs to trade one currency for another.

The layout is also important, the first currency is the base currency, and the second is the quote currency. So where you see EUR/USD is 1.15 for example, this means that 1 Euro is worth $1.15, or that it costs $1.15 to buy 1 Euro at the current rate. Hundreds of currency pairs are available with forex brokers offering them in three categories, major pairs, minor pairs, and exotic pairs.

Leverage

When we talk about leverage in forex, in the most basic of terms it means the additional money that you can borrow from your broker based on the balance of your account. As forex is typically traded in $100,000 standard lots, a lot of trading on leverage takes place. Within Europe, most brokers will offer a 30:1 leverage (the maximum allowed under EU regulation). This means that if you have an account balance of $1,000, you could potentially enter trades to the value of $30,000.

The leverage available really depends on where you are trading from and in some areas, under different regulations, brokers can offer leverage of 500:1 or more.

Margin

Margin in forex trading is invariably linked to leverage also. The margin is how much of your own funds you must have in your account to open a trade, or to keep that trade open. So, if you are trading with a leverage of 50:1 and you want to enter a trade worth $100,000, then you will need a $2,000, or 2%.

Pips

Pip is something you will see a lot of in forex trading and is short for “percentage in point”. A pip is defined as the smallest movement that a foreign currency market can make based on how the rates are listed to four decimal places. The value of 1 pip then is always 1/100 of whatever market you are trading. It is an important measurement to be aware of and calculate, as things like your spread will also be calculated in pips.

Spread

When trading forex you will always see two prices, the buy, and the sell price. The spread is the difference between these prices. Given that many of the top brokers operate on a commission-free basis and with minimal fees, the marginal spread that they do apply is an area where they can make a slight amount from each trade.

The spread in forex differs from market to market and changes all the time based on a number of factors like market volatility and volume, though most of the top brokers start their spread from as low as possible.

How to Get Started in Forex Trading

Armed with all of the most common terms in the industry, you are now well placed to start your journey as a forex trader. Here we will go through a few of the most common steps to take in finding the best broker for you, and what you will need in order to set up a forex trading account.

Choosing a Regulated Broker

With forex trading being completely decentralized, that means there is no one authority overseeing the market and the operations of the many forex brokers within that market. This makes choosing the broker with the best regulations in place a very important task.

There are a number of key, very well-respected regulatory bodies around the world that forex brokers try to become regulated by. The best among these include CySEC in Europe, FCA in the UK, and ASIC in Australia. There are many more that can also point to trusted regulation, but these are some of the most sought after.

Regulatory oversight of your broker from one of these bodies is a very positive sign that you can trust them completely. These regulators also put in place a number of things to help protect you as a trader, including maximum leverage amounts, negative balance protections, and more. Therefore, if you are a new trader and entering the industry for the first time, we would highly recommend choosing a well-regulated forex broker.

Consider all of the Trading Conditions

Every forex broker will of course have their own trading conditions. Some of these will be bound by the regulatory body that your broker is under. Within CySEC regulation for example, trading leverage offered by the broker can’t be more than 30:1. Other conditions though are left very much to the discretion of the individual broker.

This means that you should take a close look at things like minimum deposits, spreads charged by the broker on the different account types, commission charged, and all other fees that can increase your cost of trading such as deposit/withdraw fees and any fee for inactive traders or holding your positions open for a period of time.

With that said, you can also keep in mind that some of the top forex brokers strive to offer the best deals and often have loyalty programs and rebates for more active traders. Some with have welcome bonuses and other kinds of incentives though this again will depend on the rules of the local regulator.

Try a Demo Forex Trading Account First

One of the best ways to get started and completely risk-free, is to select a forex broker who offers a good quality demo account. These demo accounts from the top brokers are often unlimited in the sense that you can keep them open for as long as you like, and allow you to trade with virtual currency, but in an environment that completely replicates that of a real trading account.

This is a really great way for you to get to know exactly what a broker has to offer, and also learn more about the trading platforms and how to trade forex in general. It is a crucial step that we highly recommend, particularly if you are trading forex for the first time.

Opening your Forex Broker Account

The final step in the process of getting involved in forex trading is to open your forex broker account. This means you will have selected your broker, and perhaps even tried their demo account, and you are now ready to open your own live trading account and start trading for real.

If that is the case, then the process is quite simple, though there are a few steps you should follow.

Prepare Your Documents

The process of opening a forex trading account can be pretty fast, though there are a couple of documents that you should be sure to have prepared to make the process as easy as possible. All major forex brokers will ask for the following:

  • Proof of identification ( Your passport or driver’s license would be best for this)
  • Proof of residence (A utility bill or bank statement within 3 months should be fine here)

With these documents, you typically upload them online through one of the broker’s trusted, secure services and they are verified within a few hours. Once you have completed verification, you will be completely free to trade on your new account.

Choose Your Account Type & Trading Platform

Almost all of the top forex brokers will have a number of account types that you can choose from when opening your account. The trading conditions may vary on these types of accounts, and the minimum deposit usually also changes.

Typically, the higher the minimum deposit is on an account type, the better the trading conditions tend to be in terms of spread, fees, and any bonuses available.

You may also have the chance to choose your trading platform with most major brokers offering the top trading platforms from Metatrader of MT4, and MT5, as well as cTrader. Some brokers will also have their own proprietary trading platforms that you can trade through which can be very user-friendly for new traders too.

Account Funding

The last step in opening an account with any forex broker is to make your deposit. Again, the top forex brokers usually make a range of deposit options available to traders. These can include bank wire transfers, credit and debit cards, or eWallet methods like PayPal and Neteller that are commonly found.

The majority of these funding methods the broker’s usually try to offer without any fee. This can make sure you receive the best possible value for your money when making a deposit. On this point though, you should also check with your own bank about their fee policy particularly if you are making a wire transfer.

Trusted Brokers

Forex.com – United States & Canada

– Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
– Member of the National Futures Association (NFA# 0339826)

City Index – UK

Authorized & Regulated by the FCA (# 113942)

City Index is a trading name of GAIN Capital UK Limited. Head and Registered Office: Park House, 16 Finsbury Circus, London, EC2M 7EB. GAIN Capital UK Ltd is a company registered in England and Wales, number: 1761813. Authorised and Regulated by the Financial Conduct Authority.  VAT number: 524837435

City Index – Australia

ASIC Regulated.

City Index is a trading name of GAIN Capital Australia Pty Ltd. GAIN Capital Australia Pty Ltd, 100 Harris street, Pyrmont, NSW 2009 (ACN 141 774 727, AFSL 345646) is the CFD issuer and  products are traded off exchange.

City Index – Singapore

Regulated by the Monetary Authority of Singapore (MAS)

City Index is a trading name of GAIN Capital Singapore Pte Ltd. GAIN Capital Singapore Pte Ltd 168 Robinson Road, Capital Tower #20-01, Singapore 068912. Tel: 6826 9988. Fax: 6826 9968. Company Registration # 200400922K.

Brokers to Avoid

These brokers should be avoided at all cost

53option.com

Crown Forex

Cyber Market Group

Fixed Star Investments Inc

Forex Macro

FXCM

FXReturns

Titan Trade

TorOption

Trade24

Final Thoughts

Forex trading from an outside perspective may appear to be a complex, even daunting sector to start trading in. The reality is that, with some of the basic knowledge provided, and the help and educational infrastructure of a top forex broker, you can easily become involved.

Once you have made the first steps in forex trading, you can also be open to much of the great potential that a market with trillions of dollars in daily trading volume can bring. We also have a number of other trading articles that can really help you learn and grow on the next steps of your journey as a forex trader.

Forex Risk Disclaimer

“There is a very high degree of risk involved in trading securities. With respect to margin-based foreign exchange trading, off-exchange derivatives, and cryptocurrencies, there is considerable exposure to risk, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or related instrument. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable, or that they will not result in losses.”

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To learn more visit our affiliate disclosure page.

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Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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GBP Forex Market Not Disturbed by Leaders Condition

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GBP Forex Market Not Disturbed by Leaders Condition
  • British PM Boris Johnson Admitted to Intensive Care
  • GBP Gaining Slightly Against Dollar
  • US Markets Continue to Look Upwards

Sterling has gained momentum early against the US Dollar. Forex trading in the market does not appear to have been hampered at all by the fact that British Prime Minister Boris Johnson has spent the night in an intensive care unit. He is in ICU at St. Thomas’ hospital in London after his persistent coronavirus symptoms apparently worsened. These gains are in stark contrast to the pressure the market has been under in recent weeks. It points to renewed optimism in the US market as traders move away slightly from the Greenback.

Britain Remain Upbeat on Prime Ministers Condition

Many may have expected the surprising news on Johnson’s admission to intensive care to have shocked the markets on Tuesday. The reaction though, has been much more optimistic than predicted. This confidence from the market has seen forex brokers open to a busier than expected Tuesday as the US trading session gets underway. It has also been matched by a similar positive tone from Downing Street. The Prime Ministers spokesperson said he was “stable”, and in “good spirits”. This after having been admitted to hospital on Sunday before being transferred to the intensive care unit yesterday.

The leader was diagnosed with coronavirus more than 10 days ago before being admitted to hospital over the weekend for testing with what he referred to as “persistent symptoms”. For the moment, Dominic Raab, the First Secretary of State for the UK, is deputizing for the hospitalized Johnson.

Pound Gains on Movement Away From USD

The GBP/USD forex market was up more than 0.5% in early trading despite the news surrounding the Prime Minister. This movement comes more from the fact that traders have begun pulling back from the US Dollar and the safe haven that it has been in recent weeks. This movement is still tentative, but regardless of the political news and how it may impact the Pound, the pair is currently continuing to ride the wave of positive market sentiment.

There are certainly more twists and turns to come in the days and weeks ahead. For the moment though, with no significant changes in leadership or direction looking likely in the UK, the Pound has managed to stay relatively steady, and benefit from the USD pullback of the last 24 hours.

Positive Signs as Stocks Jump on Opening Bell

Yesterday’s rally on Wall Street has continued into the morning trading session in New York. All major markets increased sharply early on in the morning. The NASDAQ, and S&P 500 both gaining more than 1% immediately. The Dow Jones also rocketed more than 800 points.

Movement has settled somewhat at the time of writing, but the positivity looks set to continue, with traders rebalancing their portfolios amid a hopeful drop in cases of coronavirus. There is still a long road ahead though before market confidence is fully restored.

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GBP Forex Market Not Disturbed by Leaders Condition
- #1 Broker in USA
- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

Click Here to Visit Forex.com

GBP Forex Market Not Disturbed by Leaders Condition
- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index
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What is Hedging in Forex?

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What is Hedging in Forex?

Hedging as it applies to the forex market and trading, at its most basic form, is a strategy to protect you from losing big in a certain market position. There are many types of hedge that move from the very simple, to the more complex if you are an advanced trader, but the premise is the same. To protect your position in one currency pair by placing a trade within that same market in the opposite direction.

The Fundamentals of Hedging in Forex

The first point to note is that hedging is not always permitted by all brokers. Therefore, you should check their policy first. As mentioned, the majority of traders who engage in hedging are doing so to provide themselves with a form of protection in the event of adverse market changes. By nature, hedging is particularly common in times of market volatility when the movement is quite unpredictable.

Hedging in the forex market is also more common than in many others. This is often due to the fact that the forex market can be seen as slightly more volatile than many others that are traded. As a forex trader, there are several types of hedge that you can place to protect your position in the market.

Forex Hedging Strategies

While there are a range of hedging strategies available that vary in complexity, here we will outline some of the most common you can utilize depending on your broker policy and level of experience.

Simple Forex Hedging

This strategy is also known as direct hedging. It is one of the most widely used, and easy to understand hedging strategies. Direct hedging occurs when you open a position to buy (or go long) on one currency pair. You then open the same position to sell that currency pair (short).

There may be a number of reasons for doing this, but in any case, a few things happen. You now have two open positions in exactly the opposite direction. Although you do not make a profit on the actual hedge itself, it does allow you to keep your original position. This means you do not have to close your original position for a loss, and can instead start to make money through your short position. Maintaining the original position also means you could again profit if the market trend reverses.

Multiple Currency Hedging

Moving into one of the more complex hedging strategies. If you are trading in multiple currency pairs, then this strategy could be effective to a certain extent for you. Multiple currency hedging takes place when you but a long position, and a counteracting short position in one of those currencies.

For example, you may take a long position in the GBP/USD market, and a short position in the USD/JPY market. In this example, you are protected against your USD exposure to a high degree. This strategy though does not cover movements in the other currencies you are exposed to though. In these cases, if the JPY, or GBP were to fluctuate, you would still be exposed.

A variation of this strategy also sees traders take long and short positions in currency pairs that are positively correlated, meaning that if one currency pair goes down, the other will go up. Such an example of these positive correlated pairs may be the GBP/USD, and EUR/USD. So, if you hold a buying position in one, and selling position in the other, in theory, they should offset. Still though, this is not as exact a strategy as a simple direct hedge.

Forex Options Hedging

An option in forex is an agreement to exchange at a specific price in the future. It is a common instrument used by forex traders who wish to hedge their position. Again, this is referred to as something of an imperfect hedge since it can still result in some losses for you as a trader.

Using an example of how you may buy a forex option to hedge your risk, consider the following:

You have gone long on the EUR/USD at $1.08 expecting the pair to go higher. You are now concerned though that it may fall further on the release of economic data coming in the next few days. In order to mitigate this risk, you may but a put option with a strike price at something like $1.07 on the pair, and an expiration date of the option at some point beyond the data release.

If the pair then does go lower, the trader is paid out on their option based on the contract conditions set. If the news does not materialize, and the pair continues to go higher, then the trader can continue to hold their long position and will have only lost the premium set out in the option contract.

Who Hedges Forex and is it Worth It?

While only you as a trader can make the decision on whether hedging is worth it, the benefit of engaging one of the strategies mentioned here is that you do limit at least some of your exposure in the markets you are trading. Timed right, it can also put you in a more profitable position.

The question of who hedges in forex is more complex, but generally speaking, as long as the forex broker you are trading with allows hedging, then there is nothing to stop you from doing it. It is important that you understand why you are hedging and how you want the market to react but beyond that, almost all levels of trader can get involved with at least some of the strategies above.

Forex Hedging Fees and Costs

There are no direct fees related to forex hedging, but depending on your broker, you may have to pay a commission or spread on the market you are trading. This, as well as any other fees like a swap-fee if you are keeping the position open, are some other important things to factor into your calculations when determining if you should try hedging in forex.

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US Unemployment Rate Doubles Causing Forex Market Waves

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US Unemployment Rate Doubles Causing Forex Market Waves
  • Rate has doubled from Previous Weeks Record
  • Record High is worse than Analysts Predicted
  • EUR/USD Slides Again as Oil the Only Positive

US unemployment rate figures just released make for very grim reading. A hammer blow to start Thursday, the figures show that more than 6.6 million Americans filed for unemployment benefit amid the ongoing COVID-19 crisis. These numbers more than doubled the already unprecedented record of 3.3 million jobless claims from the previous week. The market has been somewhat slow to react to this news, but remains poised for the jobs report to be released later today.

New and Unwanted Records Being Set

Last week’s unemployment numbers of 3.3 million were far beyond the previous record high set in 1982. The number was almost 10 times greater than that set almost 40 years previous. The new weekly number from today puts that even further into the shadows. These are unprecedented times of difficulty throughout the US and global economy which show little sign of let up at present. At the time of writing, the Dow Jones was trading 150 points lower on release of the news which sees more than 10 million people in the US now filing unemployment claims in the past two weeks.

Some solace can be found in the fact that the latest $2 trillion stimulus package has made it easier for workers who have been furloughed in the crisis to remain on unemployment benefit, and also expanded the scope of those who could apply for the benefit. The previous high of 695,000 claims in 1982, and the 665,000 during the previous financial crisis of 2009 now seem miniscule by comparison.

Numbers Outpace Expert Prediction as Euro Falls

Analysts had predicted that numbers would should a marked increase. The results though, have gone far beyond even what the most pessimistic of onlookers imagined. This movement looks set to continue with more labor data to come on Friday. This government data release is set to show more huge losses across the board.

The forex market impact is already being felt as the EUR/USD market fell back below the $1.09 mark. The currency pair had worked hard over the previous week to build back up significantly, but on release of more negative data from the US, it has given way to the continually increasing safe-haven role of the greenback.

Oil Rebound Provides Glimmer of Positivity

At the opening bell, the one positive to garner from the start of the day comes from the news that the price war between Russia and Saudi Arabia may be nearing an end. Prices rallied across the oil markets more than 10% on these hopes. Nothing has been ruled out and there hasn’t been any concrete word besides an offering on Wednesday from US President Trump that the two sides would “work it out” in the coming days. This news would appear to have some truth behind it and has bolstered the market from record low levels.

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US Unemployment Rate Doubles Causing Forex Market Waves
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- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

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US Unemployment Rate Doubles Causing Forex Market Waves
- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index

 

 

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Forex Brokers

Forex BrokersReview

- #1 Broker in USA
- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

Click Here to Visit Forex.com

- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index