At Bforex, we know that knowledge is power and we understand the importance of educating our traders about trading on the Forex market. Our goal is to help you understand the key characteristics of the Forex market and trade with confidence. You should keep in mind this includes both potential risks and gains.
Making a transaction on the Forex market is simple and the process is similar to that of other markets. Trading on the Forex market is based on the basic business model of buying and selling; traders buy and sell foreign currencies against each other, and speculate on the constantly changing foreign exchange rates. The Forex trader is not charged any commission for trading, like in the stock market. Instead, the Forex broker is compensated through the buy and sell differential (commonly known as the spread).
ENHANCE YOUR FX TRADING KNOWLEDGE
Buying and Selling (B/S) on the Forex Market
The Buying and Selling model is an easy process for the novice trader. There is one simple principle for buying and selling – you buy one currency pair while selling another. For each currency pair, such as the commonly traded EUR/USD cross, there are two prices. There is the bid price (price at which the market buys) and the ask price (price at which the market sells). The difference between these is referred to as the spread.
When placing an order, you first need to choose an amount (how much you want to buy or sell).
For example, if you make a decision to sell 100,000 EUR/USD by clicking BUY/SELL you are actively opening a position in the market, and you will automatically receive a notification on your trading platform.
Another important aspect to consider is that the Forex Buy and Sell rates are influenced by a variety of different factors. These may include currency rate differentials, global economic trends, political events, weather and even extreme situations such as war or terrorism. These are often referred to as fundamentals.
FOREX TRADING MARGINS
The Margin is the difference between your capital used as collateral and the amount that you can trade. This is the amount of collateral required by Forex traders to maintain their open positions on the Forex market. Unlike stocks and commodities, there are no margin calls in Forex. If an account falls below the margin requirements, then all open positions are automatically closed.
For example, if an fx trader buys one mini lot of the EUR/USD pair for 1.50 at 1:100 leverage, then they will need $150 of their account in margin to maintain that open position.
FOREX CURRENCIES QUOTATION SYSTEM
The main instruments traded in the Forex market are currency pairs, for example, the GBP/USD or USD/JPY. The first currency in the pair is called the “base currency” and the second is called the “counter currency”. The basis for buying and selling is the “base currency”.
For example, if a trader wants to buy EUR/USD, then he will buy Euros and sell Dollars. This means that he expects the Euro to gain against the Dollar. Every transaction on the fx market is double-sided, and performed with a buy/sell order.
A Rollover means moving a Forex position to the following delivery date, in which case you are likely to either pay or receive a rollover fee. If a trader holds a trade in the spot Forex market overnight, this position is rolled over. The rollover fee is determined by the difference in interest rates between the two currencies underlying a transaction. The trade transaction is settled after 2 days. If positions are held overnight, then the Forex broker closes trades at the conclusion of the trading day, (5 PM EST) and new trades are simultaneously opened.
For example, the USD/JPY pair is traded at 1.40, the JPY interest rate is 3.5% and the USD interest rate is 1.5%. The pip differentiation is 0.60 pips. As a result, if you were to be long on JPY and short on USD, your trade would be found at 0.60 pips higher than previously. The example was calculated out by completing the following calculation: (base currency interest ÷ counter currency interest) × (day/days) × (traded rate).
LEVERAGE ON THE FOREX MARKET
Leverage allows Forex traders to control more currency in a trade than they have deposited in their trading account. This is where the real power of Forex trading lies. Trading with the leverage system wisely can work in your favor, and bring you big profits.
If your margin is 1%, this means that the leverage is 1:100, i.e. you need only have 10 euros in your account so you can buy 1,000 Euro on the currency market. Thus, it would only take 100 units to control 1 mini lot (10K) in the fx market or 1000 units to control 1 standard lot (100K).
FOREX TRADING HOURS
The Forex market is based on "spot transactions" and trading takes place 24 hours a day, 5 days a week. The only time trading ever ceases is on weekends and holidays. This includes Christmas and New Year’s Eve, when the Forex market closes early.
How to Trade Forex
The world of Forex is always changing and there is always something new to learn. Bforex knows how hard and overwhelming it can be for new traders to start trading on Forex and that is why we have provided our clients with the basics they need to become successful traders. Whether you are a beginner, intermediate or experienced trader – expanding your Forex knowledge and keeping up to date with current global Forex events is essential to successful trading. Here at Bforex we understand the importance of enhancing your fx knowledge and that is why we offer our clients access to multiple tools – a number of Forex lessons that will give you the confidence you need to trade successfully on the Forex market.
These valuable lessons were created with every Forex trader in mind and are written and updated consistently by our experienced analysts. We aim to provide our clients with a valuable resource and tools to aid you in your trading experience. The lessons begin with an introduction to fundamentals, including an overview of Forex concepts, such as supply and demand, currency pairs and interest rates. Also included are lessons on Forex terminology, such as leverage, lots, margins and pips. We also offer more advanced lessons that cover key aspects related to fundamental and technical Forex analyses.
Bforex values all new customers, and we understand the importance of educating our traders to the highest level. Our aim is to enable fx traders to trade on Forex with confidence. We are certain that the lessons we provide will enhance your Forex knowledge and prove valuable and advantageous during your Forex trading experience.
Take a look at our Forex lessons:
– Provides an outline of basic fx concepts, such as supply, demand, currency pairs and interest rates.
2. Pips, Lots, Leverage & Margins
– Offers an explanation of common terms required for Forex trading.
3. Placing Orders
– Describes the variety of different Forex orders and explains what various types of orders should be placed when trading on the Forex market.
4. Technical Analysis: An Introduction to Chart Reading
– Outlines the meaning of technical analysis, the art and science of reading a price chart, as well as the various types of charts that need to be analyzed for fx trading.
5. Support, Resistance, and Moving Averages
– Offers an explanation of what causes support, resistance and moving averages.
6. Trends & Trendlines
– Provides details on uptrends, downtrends and ranges, as well as an explanation on how to use trendlines for fx trading.
7. Indicators, part I: The Trend Followers
– Offers an explanation of various types of trend-following indicators that are used to help analyze price movements in Forex trading.
8. Indicators, part II: The Oscillators
– Offers an explanation of various types of oscillating indicators that help in analyzing price movements during Forex trading.