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What is FOREX MARKET?



Foreign exchange (also known as forex or FX) refers to the spot market where traders, investors, institutions and banks, exchange speculate on, buy and sell world currencies. 


Forex trading is the act of buying or selling currencies. Banks, central banks, corporations, institutional investors and individual traders exchange foreign currency for a variety of reasons, including balancing the markets, facilitating international trade and tourism, or making a profit. 


The value of a currency pair is driven by economic, political and environmental factors, such as wars, natural disasters, or national elections. Brokers act as intermediaries, facilitating trades by providing clients access to the 24-hour interbank in order to conduct trades.



Why Trade FOREX?

The Forex market is the world's largest market in terms of daily transaction volume, and it's almost the most liquid. This market is highly accessible given that it's open 24 hours a day.


HIGH LIQUIDITY:

Forex is one of the largest trading markets, with a global daily turnover estimated to exceed US$5 trillion. Because the global Forex market is so large, it offers traders significant liquidity, which is the ease with which traders can exchange one asset for another. In this case, the Forex market’s significant size makes it so traders can enter and exit positions very easily.


24-HOUR AVAILABILITY:

One major draw of Forex trading is that the currency markets are open 24 hours a day. Investors around the world want to trade currencies. Investors will find it far easier to combine this kind of trading with part-or full-time work. For example, if a person works a traditional, full-time job between 9 AM and 5 PM in their time zone, they can trade after they get out of work.


SUBSTANTIAL LEVERAGE:

Traders may prefer Forex trading, instead of stocks because when trading the former, they can obtain far greater leverage. By borrowing money to make trades, investors can potentially enjoy stronger returns. For example, if a trader has access to 400:1 margin, they can make a £4,000,000 trade with just £10,000 in a margin. As a result, they would only need to put 0.25% of the trade down as margin. This can provide traders with stronger returns.



Understanding Currency Pairs


All transactions made on the forex market involve the simultaneous purchasing and selling of two currencies. 


These are called 'currency pairs’, and include a base currency and quote currency. The display below shows the forex pair EUR/USD (Euro/US Dollar), one of the most common currency pairs used on the forex market.




What is CFD (Contract for Difference)?
Contract for difference is an agreement between two parties to exchange the difference between the opening price and the closing price of a contract. The contract is then setted in cash when the trades are closed. CFDs trace the price movement of the actual underlying assets such as currencies, commodities, indices or shares etc. Due to this feature, CFD trading allow investors the freedom to trade multiple asset classes using one single trading account.
In return, investors save the hassle of remembering several sets of account details, and are able to centrally manage and hedge their trading positions.

Upon entering a CFD trade, investors do not physically own the assets. Instead they trade on whether the value of the asset goes up or down. Investors can go short (sell) and profit from falling prices or go long (buy) and gain from rising prices. Profit or loss of an investor is determined by the differences between the buy prices and the sell prices of the instrument that is traded. There is unlimited potential to profit from both directions. 

Other Benefits of CFD trading
No Taxes
CFDs are not subjected to taxes or exchange house clearing fees. Due to the fact that no exchange of physical shares has taken place, traders can avoid paying stamp duty tax or tax associated with the appreciation of assets.

No delivery of underlying products
Traders do not need to worry about the underlying asset being delivered to them. As such, they do not need to be concerned about the storage cost of the underlying products.

Fast speed trade execution 
Traders can expect trade execution to be almost instantaneous as most CFDs are usually executed within milliseconds.

Transparent
Market information is known to the public. The pricings are transparent as there are no hidden charges or cost involved.


How to become a Better Trader


As a trader, if you want true and lasting success the self-improvement never really ends. You want to constantly refine your trading methods, stay on top of current events and keep on improving, to remain competitive and relevant and, most importantly, to do the best you can.


Below are 6 ways that you can strive to be a better trader. Start manifesting these behaviors and your trading could improve:


1. The desire to be a better trader. This might sound painfully obvious, but sometimes the most common sense wisdom bears the most repeating. To become a better trader, you're going to have to want to become a better trader and to be willing to put in the work necessary.  


This means recognizing that you have room for improvement and admitting that you don't know everything. It also means that you'll need to take inventory of your strengths and weaknesses, so that you can honestly evaluate where you have room to improve. While it's great to get better at the things you're already good at, there's even more benefit to improving in your weakest areas. It will raise your whole baseline as a trader.


2. Brush up on trading basics. Sometimes, you've got to rewind before moving forward. So, ask yourself this: do you really know how to trade stocks? Do you truly have a good grasp of the basic rules, terms and methods of trading?


Believe it or not, there are plenty of traders out there who never took the time to truly master these important tools of the trade. They might be carving out an okay career, but it could be a whole lot better, if they brushed up on the basics. Even if you did take the time to learn all that you could when you were starting as a trader, there can be benefits to revisiting the basics. Think of it as a tune-up for your foundation.


3. Get a mentor, and meet with them frequently. I'm often talking about how important having a mentor is for your career. But, many people think that once they've obtained a mentor, they can cross that off their to-do list.


Finding a mentor is a great first step. But, to really benefit from their knowledge, you've got to meet with your mentor frequently. Pick their brain and learn from them. Utilize the many tools and resources that your mentor has to offer.


4. Diversify. Don't put all your eggs in one basket. As a trader, diversification is important, because it will spread out your money and ensure that you won't lose it all, if a business deal goes sour. Most millionaires don't have just one stream of income–most rely on three or more different sources.


5. View mistakes as an opportunity to improve. When you make a mistake as a trader (and you probably have and definitely will in the future), do you shut down and retreat? Or, are you able to use the information from your error to move forward in a stronger and more confident way?


It's remarkably difficult to see mistakes as learning opportunities. But, if you can work on this one skill, it can truly make you a stronger trader.


6. Stay updated on the news. Don't just diversify your earning portfolio: diversify your mind, as well. Staying updated on the news is a powerful way to stay current and to become a better trader.


When you are aware of what is going on in the world, you have a better finger on the pulse of things that can affect the stock market. Sometimes, this can give you an idea for an investment, or let you know when you should pull out. Additionally, staying updated on the news makes you a more interesting and articulate person and keeps your mind nimble. It's a win-win situation.




 Leverage and Margin Calculations

Leverage and margin are the basic terms in forex trading. leverage is a borrowed capital to increase your potential returns. The Forex leverage size usually exceeds the invested capital for hundred times. Margin is the amount of capital you need to open and maintain a position.

The amount of leverage that the broker allows determines the amount of margin that you must maintain. Leverage is inversely proportional to margin:
Leverage = 1/Margin = 100/Margin Percentage
Example: If the margin is 0.01 (the margin percentage is 1%), so leverage = 1/0.01 = 100/1 = 100.

To calculate the amount of margin used, multiply the size of the trade by the margin percentage:
Example: You want to buy 100,000 Euros (EUR) with a current price of 1.3 EUR/USD, and your broker requires a 1% margin.
Required Margin = 100,000 × 1.3 × 0.01 = $1,300 USD.

Subtracting the margin used for all trades from the remaining equity in your account yields the amount of margin that you have left:
In the above example, if before the purchase, you had $5,000 in your account. How many more Euros could you buy?
Remaining Equity = $5,000 - $1,300 = $3,700
Since your leverage is 100, you can buy an additional $370,000 ($3,700 × 100) worth of Euros.

Pip Values
In most cases, a pip is equal to .01% of the quote currency, thus, 10,000 pips = 1 unit of currency. In USD, 100 pips = 1 penny, and 10,000 pips = $1. 
A well known exception is for the Japanese yen (JPY) in which a pip is worth 1% of the yen, because the yen has little value compared to other currencies. Since there are about 120 yen to 1 USD. 

Because the quote currency of a currency pair is the quoted price (hence, the name), the value of the pip is in the quote currency. So, for instance, for EUR/USD, the pip is equal to 0.0001 USD, but for USD/EUR, the pip is equal to 0.0001 Euro. If the conversion rate for Euros to dollars is 1.35, then a Euro pip = 0.000135 dollars.

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Forex Glossary



BASE CURRENCY


The base currency is the first currency that appears in a forex pair. This currency is bought or sold in exchange for the quote currency. 

So, based on the example above, it will cost a trader 1.0916 USD to buy 1 EUR.

Alternatively, a trader could sell 1 EUR for 1.0916 USD.


QUOTE CURRENCIES 


The quote currency – also referred to as the ‘counter’ currency – is the second currency tht appears in forex pair.


BID PRICE


The Bid Price is the price a trader is willing to buy a currency pair at. It is given in real-time and is constantly updated. 


ASK PRICE


The Ask Price is the price a trader will sell a currency for.

It is given in real-time and will change constantly, driven by market demand, as well as the political and economic factors that influence the value of individual currencies. 


SPREAD

A spread is the difference between the ask price and bid price. In other words, it is the cost of trading. 

For example, if the Euro to US dollar is trading with an ask price of 1.0918 and a bid price of 1.0916, then the spread will be the ask price minus the bid price. In this case,0.002.


PIPS


A point in price – or pip for short – is a measure of the change in a currency pair in the forex market. The acronym can also stand for ‘percentage in point’ and ‘price interest point’. A pip is used to measure price movements, and it represents a change in a currency pair. Most currency pairs are quoted to five decimal places.