What is a signal provider?
What is a signal provider? Signal Provider is a trader who grants access to the data on his or her trading operations allowing other traders to copy them on their own trading accounts.Signals can be provided either for free or on a commercial basis. To become a Signal Provider, you need to subscribe to FxPremiere Signals.
What are pips in forex trading?
A pip is a very small measure of change in a currency pair in the forex market. A pip is a standardized unit and is the smallest amount by which a currency quote can change, which is usually $0.0001 for U.S.-dollar related currency pairs, which is more commonly referred to as 1/100th of 1.1%, or one basis point.
What is a pip?
- EUR/USD: A movement from 1.362(9)8 to 1.363(0)8 is a 1 pip moveIn USD/JPY, a movement from 104.4(7)1 to 104.4(8)1 is 1 pip
So how much is a pip worth? This is determined by the currency of your account, the pair you are trading and the position size of your trade.
- A “pip” is the smallest whole increment in any forex pair.For pairs quoted in 3 decimal points a pip increment is based on the second decimal.For pairs quoted in 5 decimal points a pip increment is based on the fourth decimal, like the EUR/USD below.
How does the Forex work?
Example of a Forex Trade: The EUR/USD rate represents the number of US Dollars one Euro can purchase. If you believe that the Euro will increase in value against the US Dollar, you will buy Euros with US Dollars. If the exchange rate rises, you will sell the Euros back, making a profit.
What is a pip worth in forex trading?
The actual cash amount this represents depends on the pip value. For currency pairs displayed to 4 decimal places, one pip = 0.0001. Yen-based currency pairs are an exception, and are displayed to only two decimal places (0.01)
How to Calculate Pips and Spreads
Determining your profits and losses is an essential part of trading so let’s take a closer look at how pips and spreads factor in this equation. A pip is the smallest price change that an asset can make. In the forex market, currency pairs are often quoted in four decimal points so a 0.0001 change equates to one pip. For yen pairs which are stated in two decimal points, one pip is equivalent to 0.01.
What do I Need to Know about the Financial Calendar?
If you are trading in the forex market, you need to keep track of global events that could impact the exchange rate of the currency pair that you are trading in. The easiest way to do so is to use a financial calendar that tracks such market-moving events. Some of the most influential events are changes in the GDP of the nations of the currencies you are trading, interest rate decisions in these countries, Consumer Price Index (CPI), Purchasing Managers’ Index (PMI) and jobs data like the non-farm payroll (NFP), among others.
EUR/USD climbing from 1.3500 to 1.3400 reflects a 100-pip rally while a drop in GBP/USD from 1.3450 to 1.3400 indicates a 50-pip slide. USD/JPY rising from 94.50 to 95.75 translates to a 125-pip climb while a drop in AUD/JPY from 78.50 to 76.00 means a 250-pip selloff.
Meanwhile, the spread is the difference in the bid and ask price. The bid price refers to the rate at which the broker or market maker is buying from the trader and the ask price is the rate at which it is selling to the trader. The bid price is generally set higher than the actual market rate while the ask price is set lower than the actual market rate.
It’s also worth noting that these spreads could also widen for some brokers, depending on market conditions. In that case, slippage can occur and cause your trade to be executed at a slightly different price than what was indicated in your stop or limit orders. These scenarios are often seen during releases of top-tier reports, session overlaps, or central bank announcements. Other brokers, however, are able to offer fixed spreads.
With that, it’s important to compare spreads being offered by brokers before deciding to open a trading account with one. It also helps to practice with a demo account for your broker of choice to see how these spreads are factored in your trades. While some can offer narrow spreads during normal market conditions, widening spreads in volatile situations can also be detrimental to profitability so traders could prefer fixed spreads instead.
For instance, if the spot rate of EUR/USD is 1.3450, a broker can quote the bid at 1.3455 and the ask at 1.3445, amounting to a bid-ask spread of 10 pips. A bid/ask quote for EUR/AUD at 1.4500/1.4520 translates to a spread of 20 pips. Wider spreads can erode trading profits or magnify losses which is why narrow ones are often preferable.
When calculating your potential profit and loss, probably to see if your reward-to-risk ratio shows that it’s worth taking a particular setup, don’t forget to apply the right prices since the spread also impacts your bottom line profitability especially for day traders that take multiple positions in a day. These spreads also apply to stocks, commodities, indices, and futures.
Choose a financial calendar you are comfortable with
While you could research online for key future political and economic indicators and create your own calendar, there are several reliable online platforms that offer economic calendars, with the indicators being automatically updated at regular intervals. easyMarkets has an excellent financial calendar that also highlights the importance of each economic indicator giving you an indication of which are more likely to move markets. If you’re trading specific markets you might choose to add those indicators into your own personal calendar.
The key to success in using these events to your advantage is not only knowing when they will occur but in anticipating which direction the market will move as a result and why. However, most of the times, the reaction of the markets can be unpredictable, although they do present the trader with excellent opportunities to make a successful trade. It is completely your decision whether or not you want to use these events to trade but knowing when these events will occur still remains crucial. The first step is, of course, to choose a financial calendar that you are comfortable with.
Remember to consider all the political and economic factors
The bottom line is that if you monitor the calendar regularly, you will be able to follow trends better and even spot a trend before the market does and benefit from your analysis of the trend.
While using an economic calendar, what is important to remember is that you will need to consider all the political and economic factors that can impact your currency pair. This essentially means that you need to keep the bigger picture in mind and not just specific announcements or events. For instance, an event that impact a currency that you might not be trading in could have an impact on your pair too. So, while choosing indicators to follow on the calendar, make sure you choose carefully.
Currency Trading Explained
When you go on holiday to an exotic country one of the things you need to do is change your home currency for the currency of where you are going. When you make that exchange, usually through a bank, you’ve conducted a foreign exchange (forex for short) transaction.
What is Leverage?
Currencies fluctuate daily depending on a variety of factors like economic indicator announcements, news and geopolitical events. Some pairs are more volatile than others and the more stable a country’s economy usually means less volatility. The world’s most traded pair, the EUR/USD, for example, moves around 100-150 pips a day (around 1%) on an average day, on days with big announcements like the NFP or ECB we might see movements of 200 or 300.
For traders to aim for any decent returns, leverage is used to magnify these small price movements. Leverage is defined as the ratio of the amount of capital used in a transaction to the required margin. In other words, leverage gives you the ability to control much larger dollar amounts in a trade with only a relatively small deposit (your margin). For example, if the EUR/USD rate moves up 100 pips from 1.1305 to 1.1405 and you had invested $1000, you would have made $10 on that trade.
Trading the Forex Markets
Forex trading is when people buy and sell currencies with the aim to make money on the difference between the two currencies. They will buy currency ‘A’ against currency ‘B’ in the belief that the price of A will increase against B after some time. If the currency does indeed increase in value, they will sell it back and take profits. However, if the currency decreases in value, then the trader will make a loss.
When you trade forex on a platform you are trading it as an Over the Counter (OTC) transactions. This means that you speculate on the movement of currencies against each other but don’t actually take physical ownership of the actual asset (in this case, money). You only take the resulting profit (or in some cases loss).
What Makes Currency Rates Fluctuate?
A number of factors affect the value of a country’s currency in relation to other currencies. The importance and weight of any one of the below factors may shift and should be considered in combination.
Inflation – generally, the lower a country’s inflation, the higher its currency’s exchange rate.
Interest rates – Central banks may manipulate interest rates to manipulate their currency’s value. A higher rate of interest brings in foreign investment raising the exchange rate and vice versa.
Trade – The ratio of export vs import prices leads to the balance of payments. Higher exports (than imports) means the country’s goods are in demand leading to an increase in their currency which is needed to pay for their good.
Political stability – foreign investors look for stable countries to invest in. This leads to greater demand for their currency.
However, by using a leverage of 1:100, every $1 you invest is worth $100, so with your $1000 margin you can open a $100,000 deal. So for this example, your $10 profit is magnified to $1000.
Another way to think about leverage is to think of it as a loan. If you have $1000 and take a ‘loan’ that equates to $100 for every one of your dollars, you have $100,000 to trade with. Once your trade has been concluded, you return the ‘loan’ amount and keep the resulting profit.
It’s important to note that leverage is often considered a double-edged sword since large price swings on accounts with higher leverage increase the chances of triggering your stop loss. Because of that, most beginner traders might prefer to start off using minimal leverage to get an idea of how to use proper risk management in order to minimise losses. More experienced traders may use higher-leverage accounts to maximise their wins and benefit from that advantages that forex has over other financial markets.
How Do I Trade Commodities?
Ever read headlines on falling crude oil prices and wished you can get a piece of the action? Well, there’s a way to make profits off these market moves by trading commodities spanning from precious metals to agricultural products like coffee and soybeans.
Now there’s no need to worry about having tons of cocoa or gallons of crude oil being delivered to your doorstep when trading commodities because the goods aren’t actually being exchanged. Instead, trading commodities through futures contracts simply involves cash settlement once the trade is closed. In other words, your broker will calculate the difference in the commodity price when you opened and closed the trade then add or deduct this value to your account.
Contract sizes, margin requirements, and minimum trade sizes
Once you’ve gotten these market drivers down pat, it’s also necessary to understand contract sizes, margin requirements, and minimum trade sizes. Some commodities require a minimum contract order of 50 barrels or 10 metric tons to trade, which corresponds with equivalent margin requirements that are important considerations when deciding how much to deposit in your trading account.
Unlike equities, commodities don’t offer dividends or earnings and can be more volatile compared to certain stocks. Commodity trading is generally recommended for those who can hold a long-term position in the market to take advantage of trends. Also keep in mind that with all CFDs and most other investment vehicles there are risks involved. When you trade on margin, you are leveraging your opportunities to make money but also leveraging the risks, so you should trade wisely.
On the FXPremiere platform, commodities are priced in US dollars, making it easy to compare and calculate potential profits or losses. Commodities offered range from WTI and Brent crude oil, natural gas, heating oil, gas oil, wheat, soybeans, coffee, sugar, corn, cotton, and cocoa.
Different Trading Types
It is often said that no two traders are the same. Each possesses his or her own personality traits that factor in their trading preferences, not to mention lifestyle differences that can also influence the type of trading strategies they implement.
As the name implies, day traders hold on to positions for a day. Day trading can still involve short-term time frames but the activity isn’t as fast-paced as that of scalping. Day traders can keep a few positions open for hours but typically would like to end the day by closing everything out.
This type of trading strategy is suited for those who are able to monitor their positions throughout the day or the trading session, making the necessary adjustments such as trailing their stops or adding to their positions along the way. Fundamentals usually play into this type of trading, which means that you need to be able to keep track of economic reports released for the day or any headlines that might influence your position.
Intraday inflection points are also important considerations, as day traders can look at the average movement of a particular pair for a day to determine whether reversals or continuations are in order.
As you’ve probably guessed, swing traders keep their positions open for more than a day and focus on medium-term time frames such as 4-hour or daily charts. This usually involves trying to catch ongoing trends or pinpointing market tops and bottoms.
With that, swing trading involves a larger degree of patience compared to scalping or day trading. This also means that you may need to be able to tolerate placing larger stop losses and going for larger targets, even dealing with intraday noise that can sometimes lead your positions to be in the red for a while.
Swing traders usually take fewer positions compared to scalpers and day traders, too. This can allow you to pick setups that you think might have a higher probability of turning out profitable rather than taking multiple setups all at once. Technical tools, such as leading and lagging indicators, are often applied to gauge where trends might start and end.
Lastly, position trading requires the greatest amount of patience among these trading styles, as this can involve staying in a trade for weeks or months at a time. Spreads and transaction fees no longer factor into your bottom line as much, but what’s more crucial to consider is the carry or rollover.
You see, brokers apply interest rates on positions that are kept open overnight and these rates are based on the benchmark rates offered by central banks. For some position traders, it’s important to maintain a positive carry that may add to their profits, which means going long a currency that has a higher interest rate against a currency with a lower interest rate.
Although they keep positions open for a long time, position traders still need to check in their trades every now and then to spot any opportunities that may allow them to maximize their success along the way. Fundamentals are seen to play the biggest role in determining the longer-term direction of price action so a solid understanding of economics and market forces may be a position trader’s strongest tool.
Position trading also requires a certain degree of resilience since large stops are required to stay in prolonged trends. This means that you’d have to be able to filter the short-term noise that typically cause large pullbacks and keep your eyes on the bigger trends.
Also, position trading requires a large amount of capital that can weather hundreds of pips in corrections without getting a margin call. If you are easily swayed by various market opinions that may cause you to panic and exit your positions right away, you might need to think about shifting to a shorter-term trading style.
Currency Acronyms and Abbreviations
Countries around the world have their own currency and traders learn to quickly recognize those currencies by their three-letter acronym or abbreviation.
The two letters at the start refer to the name of the country and the third is the currency. E.g. AUD is the Australian Dollar. This is based on the ISO international standard – 4217. The table below is to assist you when you trade to quickly recognise the currencies.
The euro as a standard currency has been adopted by 18 of the 28 European member states at the time of writing. Additionally, the euro has also been adopted by Monaco, San Marino, The Vatican City and Andorra. Also four territories dependent to France and one to Britain. In the list below we list the countries’ original currencies and note the euro.
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