![]() | A New EraAlthough it might seem easy to invest in Forex nowadays, by just logging into an account with a broker, deposit some money and start actively trading; it has not always been like this, as forex industry has rapidly changed in the past three decades.Before technology and free-floating currencies took over the industry, world currency exchanges were operating under the Bretton Woods System of Money Management. This agreement established rules for commercial and financial relations among top economies, tying their currencies to gold. Hence, a currency note issued by any world government represented a real amount of gold held in a vault by that nation. When in July 1944 delegates from all over the world sign off the pact, the main goal was to reduce lack of cooperation between countries and therefore avoiding currency wars. This process of regulating the foreign exchange brought to the foundation of the international money fund (IMF) and the International Bank of Reconstruction and Development (IBRD), today part of World bank Group. However, in the early 70s the real-world economics outpaced the system, dollar suffered from severe inflation cutting its value by half. At that time unemployment rate was 6.1% and inflation 5.84%. Finally, in August 1971, U.S. government led by Richard Nixon took away gold standard, creating the first fiat currency and replacing Bretton Woods System with De Facto. Together with this there were other important measures taken by the USA president to combat that high inflation regime:
1971 represents the beginning of a new forex trading era, bringing this market to be the largest and most liquid in the world, with an average of daily trading volume exceeding $5trn. All the world’s combined stock markets don t even come close to this, what does this mean to you? In an environment which is controlled by free-floating currencies moving constantly, following principles of supply and demand, there are constant and exciting trading opportunities, unavailable when investing in different markets. In this article are shared main features of what is forex trading today and how can be an incredible new source of income for everyone who is into financial markets. What Is Forex?Forex is the acronym for foreign exchange which intends to be a decentralized or over the counter (OTC) marketplace, where currencies from all over the world are traded 24 hours, five days a week. Main financial centres include New York, Chicago, London, Tokyo and Frankfurt for Eurozone. It is by far the largest market in the world in terms of volume, followed by the credit market. Being highly liquid is an important feature that allows traders to be able to enter and exit their positions very quickly. Nevertheless, while trading forex, an investor should be aware of several components:Dynamicity – forex is an extremely fast environment, this means that currency rates can move very fast, influenced by price action signals and fundamental factors. Therefore, going into forex trading, one needs to be aware of adopting serious risk and money management strategies in order to be effective, limiting losses. Zero Sum Game – trading forex is not like investing in the stock market but is known to be a zero-sum game. For example, going into the equity market buying some tech shares, they could both rise or decrease in value. In forex is different because currencies work in pairs; for instance, an investor decides Euro will go up he or she is doing it against another currency. Thus, in this specific marketplace one currency will rise while the other will fall, meaning an investor is buying the currency hoping it will appreciate to the other, or selling the one that will depreciate. See image below: Figure 1: Main traded currency pairs https://preview.redd.it/vu77ziuoyle31.png?width=574&format=png&auto=webp&s=9b1693bf27508fcb142705c309de1fc5b3e8fa19 Currency pairs are composed by a base and a price currency. Main forex trading principle is how much price currency an investor can buy using 1 unit of the base, thus, the base currency, which is the first one in line within the quotation, is always equal to 1. Because like every financial instrument currency pairs are driven by fundamentals of supply and demand, forex is intensively influenced by geopolitical and macroeconomic factors. Capital Markets – these are the most visible indicators of a country economic health, where usually the healthier the economy the stronger the currency. For example, a rapid sell-off from a country will show that nation is not economically stable, subsequently investors will think negatively of it depreciating its currency. Moreover, many countries are sector driven, this means that their currencies are strictly correlated with certain resources. For instance, Canada which is a commodity-based market, CAD is strictly linked to price of Brent and metals, a swing in those will affect the Canadian currency. Finally, credit market is also connected to forex since also relies heavily on interest rate so, a change in bond yield will have major impact on currency prices. like increase in yield will favour bullish market for USD International Trade – Trade levels serve as a proxy for relative demand of goods from a nation, a country which goods and services that are in high demand internationally, will experience an appreciation to its currency. This is an effect driven by all other countries converting their currencies into the one of that state to purchase its goods and services. Let’s say a product from USA is in high demand globally, all the other countries must sell their currencies to buy dollars to then see their goods shipped, thus USD will appreciate. Trade surplus and deficit also indicate a nation competitive standing in international trade. Countries with a large trade deficit are usually importers resulting in more of their currencies being sold to buy goods worldwide, thus they will see their currencies devaluate. Geopolitics – The political landscape of a nation places a major role in the economic outlook for that country and consequently, the perceived value of its own currency. Beside building up price action strategies, based purely on price levels, forex traders constantly look at economic calendars and news to gauge what could move currencies. A geopolitical event which is having a great impact on GBP, is the election of Boris Johnson as UK prime minister, driving the local currency to 2 years low, yesterday 29th of July 2019. Therefore, when investors observe instability from a nation political environment, there are high chances that the currency of that country will depreciate. Why Trading ForexBeside swapping from a gold standard to free-floating, which change the whole forex trading game, technology is another crucial factor that helped this financial sector to spread globally. With the introduction of internet in the 90s forex opened to retail investors giving access to various trading platforms. The introduction of online platforms and retail investments have increased forex market volume by 5%, up to $250bn of its daily turnover. Different traders may have different reasons for selecting forex, however, mostly is because this is a fertile market plenty of daily opportunities to gauge price action and profit from it.VolatilityHow traders profit from trading forex? Basics of trading are rather simple to understand. An investor buys an asset at a certain price hoping to get rid of it for a higher price. The more volatile is the market for that specific financial instrument, the more revenue is possible to make. Therefore, a trader is looking for long up and down moves rather than market fluctuating sideways.Volatility is great in forex and a trader can expect to regularly see prices oscillating 50-100 pips on major currency pairs almost any day of the week. Yet again, due to this enormous constant fluctuation, potential losses or gains can be very high thus, rigours money management must be applied to avoid major damages and become a profitable trader. To conclude, volatility is the main characteristic investors are looking at and that is why it is one of the main feature traders can take advantage. See image below: Figure 2: FDAX Volatility, H4 (30th May 2019, 16:00, 30th July 2019, 16:00) Accessibility & TechnologyWhile volatility is the most important element out in the market that tell us why forex is the best market to trade, accessibility comes straight after. This market is more accessible than all the others, trading forex requires an online desk position and as little as $100 to start off an account.In comparison with the other financial markets, forex requires a rather low trading capital. Moreover, trading forex can be easily accessible from your PC, tablet or mobile since most of retail broker firms operate online. Although, accessibility cannot tell the quality of the market by itself, it definitely shows a reason why many investors try their first trading experience on forex. Also, the rapid introduction of technology since the 90s, made trading much easier. There are every year more advanced online platforms to trade on with many possible updates and that is why trading forex is edging for many global investors. Forex PlayersBefore the introduction of free-floating currency and more importantly cutting hedge technology, forex was a market that could have been traded only by institutional investors. Nowadays however, even retail and individual investor can take advantage of the huge volume forex offers every day.Banks Interbank market is the major responsible for the high volume registered daily in forex. This is the place where banks exchange currency among each other, facilitating forex transactions for customers and speculate for their trading desks.
Central Banks Central banks representing their nation’s government, are crucial in forex. They oversee monetary and fiscal policies having massive influence on currency rates. A central bank is responsible for fixing the price level of its native currency on the market, in other words they take care of the regime currencies will float in the open market.
Portfolio managers and hedge funds are the second investors in forex after central and investment banks. They are hired by huge institutions such as pension to manage their assets. However while portfolio managers of pool funds will buy currency to speculate on foreign securities, hedge funds execute speculative trades as part of their strategies. Corporations Also international corporation play a big role in forex. Those firms operating globally, buying and selling goods and services are involved in forex transactions daily. Imagine an American company producing pipes that imports Japanese components and sell the finished product to China. After the sale is closed the CYN must be converted back to USD, while the American company must exchange USD into JPY to repay for the components supply. Moreover, company involved in international trade have an interest in forex in order to hedge the risk associated with currencies fluctuations making several foreign exchange transactions. For instance, the same American company might buy JPY at spot rate, or enter a swap agreement to obtain JPY in advance, overtaking the risk of the Japanese currency to rise in the future. Therefore, forex become crucial to run companies with many subsidiaries and suppliers all over the word. Individual & Retail Investors Even though this investor cluster brings to forex a very limited volume compared to financial institutions and corporations, it is rapidly growing in numbers and popularity. These base their trades on a mixture of fundamentals and technical analysis. Bottom line, main reason why forex is the most traded market in the world is because gives everyone, from top financial institutions to retail and individual trades, opportunities to make returns on capital invested from currencies price fluctuations related to global economy. |
Risk Warning: Forex trading imposes a high level of risks and is not suited for all traders and investors. As much as trading on foreign exchange markets may be potentialy profitable, it can also lead to significant losses. Ensure that you have enough trading experience, knowledge and full comprehension of potential risks involved. Most derivative contracts have high leverage and low margin ... This stands for percentage in points and typically when trading forex, 1 pip is a 1 point movement in market value based on the fourth decimal place of your currency pair in most cases including the USD. For example in case of EUR/USD: bid/ask of 1.08335/1.08340 (0.5 pips spread) bid/ask of 1.08335/1.08345 (1 pip spread) bid/ask of 1.08335/1.08485 (5 pips spread) One of the only exceptions ... Basically, the Forex currency market is the sum of all transactions made by its participants (banks, exchanges, funds, investment, brokerage and external trading firms, as well as private persons, i.e. traders) to exchange some types of currency. Each second, the Forex market processes thousands of transactions, bringing profit to participants. FOREX.com's execution statistics represent orders executed on FOREX.com's suite of trading platforms during market hours between April 30, 2020 5:00 pm ET and May 31, 2020 5:00 pm ET for FOREX.com's US entity only, excluding trades/orders entered on the MetaTrader platform. 10 Best Low Spread Forex Brokers and Trading Platforms Maximizethe stockMarkets with 1:2 leverageon the world’sleading stocks Open FREE Trading Accout For many Forex traders, the minimum spread is the most important factor when choosing their Forex Broker. A tight spread not only minimizes a traders’ losses but it is an important factor to consider for traders […] In foreign exchange (forex) trading, pip value can be a confusing topic.A pip is a unit of measurement for currency movement and is the fourth decimal place in most currency pairs. For example, if the EUR/USD moves from 1.1015 to 1.1016, that's a one pip movement. Most brokers provide fractional pip pricing, so you'll also see a fifth decimal place such as in 1.10165, where the 5 is equal to ... This would make one pip equal to 1/100th of a percent, or one basis point. For example, if the currency price we quoted earlier changed from 1.1200 to 1.1205, this would be a change of five pips. For instance, when trading 0.1 lots on the EURUSD pair, a one pip profit roughly translates into $1. Hence, half a pip spread cost represents $0.5 on a 0.1 lot trade. Note that the spread doesn’t increase with the number of pips gained. It remains constant and is paid regardless if the trader makes a profit or not. When trading 1 lot of EUR/USD, the value of a pip is USD 10. This means your direct expense would be about USD 20 by the time you opened a position. If you are looking for a 5 pip gain per trade (USD 50), this means that you would actually have to go up 7 pips from your initial starting price (7 pips - 2 pip spread = 5 pips). That is nearly 50% more pips. This is why you should only scalp the ... Forex trading, or foreign exchange trading, is a unique kind of trading. Unlike other forms of trading that we commonly see or practice, the traders don’t exchange goods or service. In the world of forex trading, people trade currency. Therefore, forex trading is the trade between currencies of different countries. To make it simple, imagine an activity at financial institutions where people ...
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A forex trading strategy is a technique used by a forex trader to determine whether to buy or sell a currency pair at any given time. Forex trading strategies can be based on technical analysis ... This video will share you how to trade using Scalping technique. In this video, i will share the rules of this scalping strategy base on my experience. 1. Make sure your broker has a lowest spread ... Qué es 1 Pip Forex, 1 ... Pips y Spread (FOREX) - Duration: 13:09. Zero Trader 53,822 views. 13:09. CÓMO VIVIR del Trading?💲 Los 4 PILARES para Lograrlo en MENOS TIEMPO - Duration: 35:56 ... PIP Value And Trading The Forex The value of a PIP varies based on the “Lot Size” chosen for the trade. Consider the lot size as a type of level of risk and level of reward desired by the day ... 50 pips a day forex trading strategy. http://www.financial-spread-betting.com/course/technical-analysis.html PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MO... How to calculate pips in forex trading? A lot of people are confused about pips forex meaning and the forex trading pip value. You need the value per pip to ... PIP Value And Trading The Forex The value of a PIP varies based on the “Lot Size” chosen for the trade. Consider the lot size as a type of level of risk and level of reward desired by the day ...