Foreign Exchange Forex FX is the domain in which the signals on exchange of money between two countries takes place at a mutually agreed rate. Traders can profit on the movement of the value of one currency compared against another.

Foreign Exchange Forex FX

Forex is the largest financial market globally as it is used by a variety of participants from all over the world, with a
daily turnover of USD 5 Trillion! These include institutional investors like Morgan Stanley and Citi group. The central banks of the world intervene and monitor the health of the global financial markets, namely, the Federal Reserve (Fed), ECB and the Bank of Japan, just to name a few.

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Following them are exporters and importers, and companies who have operations abroad and need to exchange currency to pay salaries and expenses. Finally there are retail investors, the small time speculators who make money out of the markets every day. There is no larger and more liquid financial market than the forex market. The major exchanges like the NYSE and the Tokyo Stock Exchange pale in comparison, as they only account for USD 22.4 billion and USD 18.9 billion trading volume per day. Foreign Exchange Forex FX

Most countries have their own currency like the U.S. and Australia, and these currencies are traded  The U.S. dollar, which is the top currency on the above table, is the world’s most traded currency and is commonly referred to as the global currency and exchanged globally on a daily basis.

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This is due in part to its nature as the global standard amongst central banks and how liquid and recognizable it is. To put it in a more global perspective, the U.S. dollar accounts for 80% of all forex transactions globally. As you can imagine, there are a lot of U.S. dollars in a 5 trillion dollar daily market.

Short (or Short Position)

The sale of a currency with the expectation that it will fall in value.

Long (or Long Position)

The purchase of a currency with the expectation that it will rise in value.

Margin

Margin is the the amount of money required in your account to maintain your market positions, in order to cover some or all of the credit risk
associated with borrowing money on leverage.

Forex Signals Margin and Leverage

Margin Call

Margin Call is a level set by your broker that defines a minimum amount of money required to trade in the market. When your account’s value falls below this level, you will be asked to deposit additional money to maintain your positions. Alternatively you can close some of your positions to reduce your required margin. Learn Forex Online

Stop Out

In the event you are unable to top up your account after hitting
Margin Call, a Stop Out may occur if your account value depreciates
to the Stop Out level. Once your account falls below the Stop Out
level, your positions will be automatically closed to prevent further
loss to your capital.

Leverage

Notice: Leverage is a facility offered by the broker, to help the trader trade large amounts while only holding a small amount of capital compared to what you are trading.

The leverage 1:100
capital $1,000
Your trading amount $100,000

Swaps

Swaps, often referred to as Rollover Interest, are charged when holding onto a position overnight due to the difference in interest rates between the base currency and the quote currency.
As forex trades are settled in two business days from inception, any open positions held from Wednesday to Thursday on a trade date basis will be calculated as three times the swap rate value. The extra calculation is to cover the interest that would normally have been charged on Saturday and Sunday when the market is closed. Carry trades involve selling a currency with a low interest rate, then using it to purchase a different currency with a higher interest rate. This is done to collect the profit from differences between the interest rates.

Pips Profit

If the EUR/USD currency pair moves to 1.3128, it has gained 4 pips.
By convention, the value of a pip is always based
on the quote currency.
EUR/USD = 1.3124
pip
position of decimal place:
1st
2nd 3rd 4th
bought EUR/USD 1.3214
sold EUR/USD 1.3228
made 1.3228 – 1.3214 = 14 pips
You traded 1 standard lot = 100,000 units
1 pip in EUR/USD = $10
Your profit is 14 pips x $10 = 140 USD
A pip is the 4th decimal place in the currency value.
For the Yen, it would be the 2nd decimal place

Spread

With all trading, there is a cost for entering in and out of positions you have in the market. In forex, you are charged the difference between the bid and ask price. This is called the spread. Learning Forex Signal Market

Market Order

An order which is made immediately through the MT4 platform. This gives you the best available price in the market for whatever position you are taking.

Pending Order

An order which can be placed to be executed at a specific price. The picture below helps detail these orders:

The difference between instant orders and pending orders

Buy STOP

An order placed
above the current
market price to long
at the specified price

Buy LIMIT

An order placed
below the current
market price to long
at the specified price

Sell STOP

An order placed
below the current
market price to short
at the specified price

Sell LIMIT

An order placed
above the current
market price to short
at the specified price

Instant Orders Vs Pending Orders

Exiting Your Trade

Market Order

Closing an order immediately which was made previously through the MT4 platform

Take Profit

An order which you can put on a trade after you have placed it, which allows your trade to automatically close once it hits a certain price in the market that is favourable to you.

Stop Loss

This order exists to protect against losses accumulating out of a comfortable range. If the currency pair moves against you, a stop loss order can be used to automatically close your trade at a specified price and limit your losses.

What makes FX Superior?

Forex

24-hour trading
Typically no commission on trades, and very tight spreads.
Fast execution of orders, with 99.9% of orders filled within seconds
High liquidity at all times, as proven during the global financial crisis
Ability to profit from a rising or falling market
Lower margin requirements
Leverage of 1:100 to 1:200
No middle man involved, hence lower transaction costs

Equities / Bond Markets

Only open during the exchange’s business hours
Commission paid on every trade executed
Execution of order takes place only when there is a willing buyer
Liquidity depends on market sentiment
Only can profit from a rising market
Higher margin requirements with Equities and Bonds
Very low leverage in Equities
High transaction costs in comparison

Over the last few years the forex market has seen rapid growth. During the recent global
financial crisis in 2007, substantial weaknesses of the global financial system were
revealed. Faith in these once rock solid markets has diminished, as they were revealed to
be illiquid during crunch periods. Investors who once played the stock market realised that
stock prices were only as good as the value that someone would pay for them, and as prices
plummeted so did liquidity, leading to huge losses for many investors.
This has fuelled the move to forex trading, contributing to the rapid growth of FX trading. Foreign Exchange Forex FX

What Moves Forex Markets

World Economics

The major world economies wield huge power on the FX markets and most currency pairs trade on the USD, as it is the largest economy in the world.
Some of the major economies include the US, China, Eurozone, Japan, Britain, Switzerland, Australia and Canada.
All of these economies have central banks, such as the FED for the US and the Bank of Japan for Japan. In addition to these central banks, there are
players such as the World Bank and the IMF that can have a large influence over the FX market.

The FED

The Federal Reserve of the United States of America is the largest central bank in the world, and the most powerful when it comes to moving markets.
Whenever the FED chairman speaks, traders around the world pause and listen, and for good reason. It is capable of causing extreme market movements
as was seen in the global financial crisis.

The ECB

The European Central Bank oversees the Eurozone on monetary policy and the health and balance of capital markets in Europe. Currently headed by
Mario Draghi, it is also capable of moving the market heavily. However it is not as powerful as the FED. Economic policy is a tricky process in the
Eurozone as it requires all the members to agree before action can happen. Foreign Exchange Forex FX

The IMF

The International Monetary Fund is the watchdog of the economic world. It provides funding for countries that are in need of loans due to their
struggling economies or are under extraordinary circumstances for which they need capital to rescue themselves. It has played a huge role in the
last few years, helping to bail out Greece and providing monitoring for the Euro Crisis.

Economic Policy

Fiscal policy is a buzz word thrown around in forex which can be easily confused with monetary policy. The main difference between the two is that fiscal policy is executed by governments and not central banks. An example of this would be tax policy or budgets for large governments such as the U.S. federal government. We have seen the effects on the markets from drastic fiscal policy when the debt ceiling in the U.S. was not raised for some time. Monetary policy is economic policy carried out by the central banks of a country such as the FED or ECB. Examples of monetary policy can be large
asset purchases, adjusting of reserve rates, adjusting of interest rates, and expanding monetary supply. All of these policies can have either negative or positive effects on the economy. Using forex signals

Understanding the Impact

1) Fiscal policy is executed by governments while monetary policy is only executed by central banks which are generally separate from governments.
2) Profit can be made from these movements by fully understanding the net impact of these policies on the economies
3) Pay attention to the major players via economic news to make money in the FX market. What Is A Forex Trading Strategy?

Conclusion

Trading forex is a highly dynamic exercise, where there is a strong need to understand the technical aspect of trading, as well as to be aware and constantly updated about political conditions, economic factors and market psychology. Foreign Exchange Forex FX

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