FX Trading

Understanding what forex is and how it works

Forex

FX trading used to be completed exclusively through banks and forex brokers. However, as technology has developed, FX trading has become far more accessible. Individual traders can now access the FX market from their smartphones, and complete trades on the go. Today, the forex market is open 24 hours a day, 5 days a week. The first markets open on Monday morning in Wellington, New Zealand, and the last close at 5pm (ET) on Friday in New York.

The foreign exchange market allows two currencies to be exchanged, at an exchange rate which is floating or fixed. This allows businesses from around the world to complete transactions across currencies. Currencies need to be exchanged to import produce from different countries, for example: a wine merchant in England exchanges their pound sterling (GBP) for euros (EUR) in order to purchase wine from France. Exchanging currencies is the basis for all international trades. Unlike the stock market, the forex market is decentralised – this means that there is no central trading area. Most foreign exchange transactions are executed over-the-counter (OTC) by banks, on behalf of their clients.





Forex Trading Fundamentals

. What are Forex Reserves?

  • Forex reserves are foreign currencies held by a central bank in order to grant greater flexibility.
  • A reserve is any currency held by a financial authority which is centralised.
  • This is due to these currencies being the most common on the foreign exchange market.

. What are Forex Signals?

  • Forex signals are trade forecasts usually issued by knowledgeable and experienced signal providers.
  • Forex signal systems produce either manual or automated signals,buy or sell a currency pair.
  • In an automated system, the software identifies a signal and makes the programmed response.

.What is Foreign Exchange?

  • Foreign exchange is the market where one currency is exchanged for another.
  • It is determined by political, economic and environmental factors.
  • Transactions in foreign exchange are usually conducted in high volumes.

Forex Trading Q&A

Who is a Forex Trader?

  • An FX trader is any individual who exchanges one currency for another. Individual traders commonly use different platforms to exchange foreign currency.
  • These include banks, financial institutions, money changers, or FX brokers.

What is a Forex Pip?

  • Trade a wide range of instruments including FX, indices and commoditiesPIP is the abbreviation of “point in price”
  • It is the smallest unit of price movement in the foreign exchange market.

What is Forex Scalping?

  • Forex scalping is a trading strategy which aims to benefit from small price movements in the market.
  • Scalp traders will target intraday price movements and only hold positions for a small amount of time

What is Forex Leverage?

  • Forex leverage is offered by brokers to enable traders to maximize their trading potential.
  • The forex market offers higher leverage than other markets, and this attracts potential traders.

What is a Forex Spread?

  • The difference between the ask price and bid price is known as the spread.
  • The spread represents the cost of a transaction; the lower the spread, the lower the cost.

What is Forex Hedging?

  • Hedging is a technique designed to reduce the risk caused by adverse price fluctuations.
  • Investors and traders might implement a forex hedge in order to protect their position.

What is a Forex Swap?

  • A swap is simply an exchange of one currency for another.
  • At a later date, the two parties who made the swap will receive their original currency back with a forward rate.

What is a Forex Drawdown?

  • A drawdown is the difference between a relative peak and a relative trough in the value of an investment.
  • In this way, drawdowns are useful for determining the financial risk of a certain asset.

What is Forex Slippage?

  • Slippage refers to the difference between the requested price of a trade and the price at which it is eventually executed.
  • In this way, drawdowns are useful for determining the financial risk of a certain asset.

Forex Trading Hours

FX Market Centres Time Zones in Local and UTC Time

Oceania - Asian Forex Session

Wellington

New Zeland(NZD)

FX Trading Hours : 08:00-17:00
UTC +12(+13)

Shanghai

China(CNY)

FX Trading Hours : 09:00-17:00
UTC +8

Sydney

Australia(AUD)

FX Trading Hours : 08:00-17:00
UTC +10(+11)

Singapore

Singapore(SGD)

FX Trading Hours : 09:00-17:00
UTC +8

Tokyo

Japan(JPY)

FX Trading Hours : 08:00-17:00
UTC +9

Mumbai

India(INR)

FX Trading Hours : 09:00-17:00
UTC +5:30

Hong Kong

Hong Kong(HKD)

FX Trading Hours : 9:30 - 16:00
UTC +8

Moscow

Russia(RuB)

FX Trading Hours : 09:30-19:00
UTC +3



European Forex Session

Frankfurt

Germany(EUR)

FX Trading Hours : 07:00-15:00
UTC +1(+2)

Paris

France(EUR)

FX Trading Hours : 09:00-17:30
UTC +1(+2)

Zurich

Switzerland(CHF)

FX Trading Hours : 09:00-17:30
UTC +1(+2)

London

United Kingdom(GBP)

FX Trading Hours :08:00-16:00
UTC (+1)



North America Forex Session

New York

United States(USD)

FX Trading Hours : 08:00-17:00
UTC -5(-4)

Toronto

Canada(CAD)

FX Trading Hours : 08:00-17:00
UTC -5(-4)

Chicago

United States(USD)

FX Trading Hours :08:00-16:00
UTC -6(-5)

What is a Currency Pair?

Major Currency Pairs


EUR/USD    Euro/US Dollar

USD/JPY    US Dollar/Japanese yen

GBP/USD    British pound/US Dollar

USD/CHF    US Dollar/Swiss france

USD/CAD    US Dollar/Canadian Dollar

AUD/USD    Australian Dollar/US Dollar

NZD/USD    New Zealand Dollar/US Dollar


Cross Currency Pairs


AUD/CHF   Australian Dollar/Swiss Franc

AUD/JPY   Australian Dollar/Japanese Yen

CAD/CHF    Canadian Dollar/Swiss Franc

CAD/JPY    Canadian Dollar/Swiss Franc

CHF/JPY    Swiss Franc/Japanese Yen

EUR/AUD    Euro/Australian Dollar

EUR/CAD    Euro/Canadian Dollar

EUR/NZD    Euro/New Zealand Dollar

GBP/AUD   Pound sterling/Australian Dollar

GBP/CAD   Pound sterling/Canadian Dollar

GBP/CHF   Pound sterling/Swiss Franc

GBP/NZD   Pound /New Zealand Dollar

NZD/CHF   New Zealand Dollar/Swiss Franc

NZD/JPY    Japanese Yen/Japanese Yen

Exotic currency pairs


EUR/TRY    Euro/Turkish Lira

USD/TRY   USDollar/Turkish Lira

USD/SEK   US Dollar/Swedish Krona

USD/NOK   US Dollar/Norwegian Krone

USD/DKK    USDollar/Danish Krone

USD/ZAR   USDollar/South African Rand

USD/HKD   US Dollar/Hong Kong Dollar

USD/SGD   US Dollar/Singapore Dollar

USD/THB    US Dollar/Thailand Baht

USD/MXN   US Dollar/Mexican Peso

Trading Currencies

The Most Traded Currencies

EURO

Europe


The EUR is the official currency of the Eurozone.


It is the second most traded currency in the FX market, beaten only by the US dollar. It is also the second largest reserve currency in the world.


Symbol: €              Code: GBP


Commonly traded with:    USD | GBP | JPY

UNITED STATES DOLLAR

United States of America


The USD is the official currency of the United States of America.

Seven countries use the US dollar as their official currency. Aside from the US, it is the currency of two British Oversees Territories in the Caribbean.


Symbol: €               Code: GBP


Commonly traded with:    EUR | GBP | JPY

JAPANESE YEN

Japan


The JPY is the official currency of Japan.

The yen is the third most traded currency in the foreign exchange market, and is frequently used as a reserve currency alongside the pound sterling, the US dollar and the euro.


Symbol: €               Code: GBP


Commonly traded with:    USD | GBP | EUR

POUND STERLING

United Kingdom


The GBP is the official currency of the United Kingdom.

The pound is the official currency of the UK as well as Jersey, Guernsey, Isle of Man, South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha.


Symbol:£               Code: GBP


Commonly traded with:    USD | GBP | JPY

AUSTRALIAN DOLLAR

Australia


The AUD is the official currency of Australia.


The Commonwealth of Australia uses the Australian Dollar as its official currency. It is popular with currency traders because of the comparatively high interest rates.


Symbol: $               Code: AUD


Commonly traded with:    USD | NZD | GBP | EUR

CANADIAN DOLLAR

United States of America


The USD is the official currency of the United States of America.


Seven countries use the US dollar as their official currency. Aside from the US, it is the currency of two British Oversees Territories in the Caribbean.


Symbol:$               Code: CAD


Commonly traded with:    USD | EUR | AUD

SWISS FRANC

Switzerland


The CHF is the official currency of Switzerland and Liechtenstein.


The Swiss Franc is also used by the Italian exclave Campione d’Italia. The currency’s coins are inscribed in Latin to account for the different languages used in Switzerland.


Symbol:CHf              Code: CHF


Commonly traded with:    USD | EUR | GBP

RENMINBI

China


The CNH or RMB, is the official currency of People’s Republic of China.


Yuan is the base unit of RMB. The trading of CNH or RMB is done in the offshore (outside China) markets while CNY is traded onshore (within China).


Symbol:¥               Code: CNY


Commonly traded with:    HKD | INR | JPY | USD

SWEDISH KRONA

Sweden


The SEK is the official currency of Sweden.



The Krona has been the official currency of Sweden since 1873, and is often referred to as the Swedish crown as krona means crown in Swedish.



Symbol:kr               Code: SEK


Commonly traded with:    USD | EUR

HONG KONG DOLLAR

Hong Kong


he HKD is the official currency of Hong Kong.


The Hong Kong Dollar is the thirteenth most traded currency on the foreign exchange markets. The currency is also used in Macau alongside the Macau pataca (MOP).


Symbol:HK$               Code: HKD


Commonly traded with:    USD | CNH | EUR | GBP

NEW ZEALAND DOLLAR

New Zealand


The NZD is the official currency of New Zealand.


This currency was introduced as late as 1967, and has a total of ten denominations altogether. The currency has consistently made it in to the top 10 most traded currencies.


Symbol:$              Code: NZD


Commonly traded with:    USD | AUD | GBP | EUR

SINGAPORE DOLLAR

Singapore


The SGD is the official currency of Singapore.


The Singapore Dollar is also accepted in Brunei, just as the Brunei dollar is customarily accepted in Singapore. It is the twelfth most traded currency in the world.


Symbol:S$, $               Code: SGD


Commonly traded with:    USD | CNH | EUR





Forex Trading Fundamentals Analysis




.Macroeconomic Indicators

  • These are fundamental indicators which directly or indirectly point towards a weak or strong economy.
  • This data is then released in reports which have major effects on a country’s currency.
  • Aside from GNP and GDP, some of the major macroeconomics are:Unemployment rate

. Geopolitical Events

  • These types of events have direct or indirect consequences, either worldwide or for a particular set.
  • Geopolitical events have great psychological and emotional consequences for the equity
  • A few examples of such events including: Major events like Brexit, which trigger volatility into worldwide stocks.

.Gross Domestic Product

  • Gross domestic product (GDP) is a financial economic indicator which measures the total value of goods and services produced in a country, over a designated period of time..
  • The rate at which prices are rising dictates the rate at which the purchasing power of the currency is falling.

Forex Trading Fundamentals

What is Forex?

Currency Trading

FX Trading – The Exchange of Currencies

Currency trading, also known as FX trading, is the exchange of currencies between two parties at an agreed price. The trading parties may be financial institutions, multi-national corporations, banks, central banks, hedge funds, money changers, insurance companies, speculators, or individual traders.

Currency trading is done in pairs. A currency pair consists of a base and a quote currency – for example, the currency pair of EUR/USD consists of EUR, which represents the base currency, and USD which represents the quote currency. The exchange rate of EUR/USD at 1.1630 simply means that to own one euro, you need the equivalent of 1.1630 in US dollars.

Asia fx is quoted in pairs, with each representing aThe ultimate goal of FX trading is to identify the correct direction of the markets. It’s all about buying a financial instrument low and closing the position higher, or selling a financial instrument high and closing the position lower.

To begin, traders choose a trading platform to trade currencies on. There are many different trading platforms to choose from, including MetaTrader. Once the trader identifies a trend in the market, they place a buy or sell order on their preferred trading platform. If the trader expects a currency pair to rise, they place a buy order to profit from the increase. If a trader expects the opposite, they will place a sell order, to benefit from the fall. Because the forex market is decentralised, currencies are traded in financial centres across the globe, in New York, London, Frankfurt, Tokyo and Sydney.

The Basics of Currency Trading

FX Trading

Traders can now easily access the markets thanks to devices like smartphones, and as a result currency trading is becoming increasingly popular.

The user-friendliness of trading platforms and the 24-hours/five-days-a-week trading schedule makes currency trading highly appealing. The markets’ high liquidity means traders can trade almost any volume at their desired price, and are not likely to experience price manipulation.

If that wasn’t enough, a daily turnover of about $5 trillion, the availability of leverage, and educational resources provided by some brokers attract a huge number of traders across the world. There are many different strategies which are commonly used among traders:

1. Day Trading
2. Swing Trading
3. Position Trading
4. Scalping
5. Hedging
6. Trend-following
7. Breakout
8. Range-bound
9. Channel Trading
10. Discretionary Trading
11. Mechanical Trading
12. Automated Trading
13. Financial News Trading

Demo Trading vs. Live Trading

Demo trading :Accounts are perfect for traders looking to establish the fundamentals and work on their technique. Beginning on a live account means that there’s the possibility of losing real money as you work out which technique works best for you.Traders who want to iron out the creases in their trade before they hit the live markets have a range of demo accounts to choose from.Before moving on to a live trading account, it is a good idea to try out a few different approaches, and practice with a demo account. Demo accounts grant traders the opportunity to develop and test their trading skills, without facing the kind of risks you do on a live account.

Live Trading Accounts: After you’ve refined your skills and experimented with different types of analysis and indicators on a demo account, it is time to switch to a Live Account and start trading with real money! Demo Accounts are great for practice, but Live Accounts offer all the real advantages of the FX markets.

Once traders are ready to move on to the live markets, having established a trading strategy which works for them, they can set up their first Live Account. Like Demo Accounts, there’s a huge range of options available for a trader looking to upgrade their trading from Demo to Live.



Forex Trading Tools and Software

Free online trading tools and software every trader should use

FX Trading Tool

Different types of trading tools for technical analysis:When it comes to finding the right tool for daily analysis, a trader has a wide range of technical analysis tools to choose from popular indicators include: the moving average indicator, which filters out price fluctuations to help traders identify trend directions, and Bollinger Bands, which plot two lines, two standard deviations away from the moving average.


Oscillators based on statistical concepts are another common addition to the trader’s toolkit. Oscillators are used to estimate whether an asset is overbought or oversold. Popular oscillators include the RSI (Relative Strength Index), MACD (Moving Average Convergence/Divergence), Momentum, Stochastic and ADX (Average Directional Movement Index).


To identify turning points in the markets, and analyse chart patterns, FX traders commonly use support and resistance, along with Fibonacci retracement tools and Japanese Candlestick patterns.

Forex Trading Software:

There are many FX trading platforms that a trader may choose from. Some of them have a monthly subscription, but most are available for free. Some popular forex trading platform providers include Zulutrader, Ninjatrader and TradingStation.



Forex Trading Signals

A forex signal is a suggested entry or exit point for a forex trade, usually with a specific price and time indicated. Forex signals can be obtained from either specialist companies or a number of knowledgeable and experienced traders.

The services may be free or come with a charge – most brokers offer their own forex signals either for free or for a low price. Traders can view the performance results for any signal provider on a platform, and decide to accept or reject future trade recommendations into their trading accounts. Due to providers protecting their strategies, traders may have to blindly follow a signal provider.




More Insights into Forex Trading

.Forex Videos

Learn about key forex terms, basic trading terminology, technical analysis concepts, the importance of discipline, risk management and much more by watching our educational videos. At FXTM, we do everything possible to give you and everyone who trades with us access to great Forex trading educational resources for beginner and advanced traders.

.Forex Glossary

No Forex Education is complete without the help of a good glossary. That’s why we’ve compiled our complete glossary of forex terms to help you navigate through the countless terms you’ll encounter in the forex industry.Our glossary keeps things simple and covers a range of key forex terminology. Take on the forex markets equipped with all.

.Forex Education

We believe the best trader is an educated one. That’s why we offer traders the chance to expand their knowledge of FX trading with Asiafx educational articles.Written by our Head of Education, this series guides traders through an eclectic range of topics – from bitcoin mining to bearish and bullish trend reversals.Our articles are designed to give both novices.

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