51% of retail investor accounts lose money when trading CFDs with this provider.Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Past performance is not an indication of future results.
Once you’ve gained the necessary knowledge and tested your skills on a forex simulator , it’s time to earn real money, right? If so, you’ll need a reliable broker to invest in. Find out here, how to choose one.
1. Broker’s Regulation
If you suspect an online broker is shady, run far away. Do not be seduced by offers that seem too good to be true, as these are typically there to lure in unsuspecting new traders into giving up financial information or hiding other large fees. Thus governments set regulatory rules that must be followed by brokers. Some strong regulators to look out for are:
The U.S. Commodity Futures Trading Commission (CFTC)
The Cyprus Securities and Exchange Commission (Cysec)
Markets in Financial Directive of Europe (MiFID)
The National Futures Association (NFA)
The Financial Conduct Authority of the UK (FCA)
Golden rule: The more regulations a broker has, the better for you.
2. Trading Platform
The trading platform is your portal to forex markets. Platforms that best forex brokers use are easy to navigate, intuitive to use and have good research tools for you to use. A well designed platform will make it easy to enter and exit trades and offer a strong user experience by having no delays. Opening a demo account is the best way to “road test” trading platforms.
3. Spreads And Commissions
With cost competition brought about by technology, spreads and commission costs have fallen from tens of thousands of dollars to much smaller amounts.
Spread based costs – allow brokers to make money from the difference between the bid and the ask price of a currency pair. The average spread for a major currency pair like the EUR/USD is 2 – 3 pips.
Commission based costs – on the other hand, allow brokers to make money per trade. For example, a broker may charge a fee of $0.08 on a 1,000 lot size, rising to $80 for a 100,000 lot. These types of costs typically require higher deposits than spread based cost structures.
Think about a trade that opens and closes with an amount of $200, with leverage of 1:50. A spread based scenario would cost the trader $3, if the spread was 3 pips. On the other hand, a commission based scenario based on the costs above would cost the trader $1.42.
4. Account Types And Leverage
Most new retail traders do not typically want to deposit huge amounts of money at first. Recognizing this, most brokers will offer mini and micro lot trading accounts to suit budgets of all sizes. Minimum deposits can be as low as $50, while others can be as high as $10,000. Maximum leverages vary from 1:50 in the United States to 1:200 in Europe. If you are offered leverage greater than this, be very cautious about the broker.
5. Customer Service
Good customer service is worth it’s weight in gold. There are two main things to look for. The first is direct online chat functionality, as this is often the best way to resolve problems quickly. The other major thing to look for is the ability to withdraw funds quickly and reliably. If you have a demo account, you can test the customer support by asking a question and seeing how long it takes them to respond.
What is an advisable limit for allocating your cash to a single social trader?
Correct!Wrong!
What is a key risk to watch out for when looking for good social traders?
Correct!Wrong!
What is the minimum amount of time a trader should be active before you choose to replicate their trades on a social trading platform?
Thanks to the modern technology of the 21st century, with social trading you can copy super successful retail traders.
This communication is intended for information and educational purposes only and should not be considered investment advice or investment recommendation. Past performance is not an indication of future results.
Social Trading
Not so long ago finding a freelance currency trader making 20% – 30% of profits a month for themselves and their clients was almost impossible. Of course, everyone wanted to find these people, but traders were mostly anonymous and secretive, and their numbers were hard to prove. This all changed in 2007. Today you can browse through the selection of best eToro traderslike you might look for people to follow on Twitter or to friend on Facebook. Pick whoever looks like they are performing the best.
Etoro Social Trading Network is arguably the most popular platform with over 3 million users and easy-to-use platform. It also has message boards where you can communicate with the traders who you might follow and get a feel for how they think and their techniques.
1. Choose Traders With Reliable Results
Many traders make large gains one week and blow up their accounts the next, so you are looking for consistent profits with minimal periods of loss rather than a one month wonder who made 400% taking crazy risks. Also beware, if traders have large positions left open for a long time, they may be “padding” their stats to gain followers. Always check a trader’s trading history for any anomalies.
2. Don’t Risk All Your Money On One Trader
As good as a track record might look, no trader is infallible. Even the best traders might be wrong 50% of the time but their big winners cover all their losses. Start of with no more than 20% investment sizes, let them prove themselves until you are comfortable putting in a bigger percentage of your account balance.
3. Copy The Techniques Traders Use
Watch how the traders with more than 1000 followers trade and use the tactics for yourself. In addition, ask each trader what their recommended stop-loss percentage is to secure your money. Once you’ve discovered all social trading benefits and mastered it by yourself, others will want to follow your trades as well
eToro is a multi-asset platform which offers both investing in stocks and crypto assets, as well as trading CFDs.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 51% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Past performance is not an indication of future results.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.Take 2 mins to learn more
eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.
Here you’ll find what to look out for in Bloomberg, Reuters and other major news outlet. More importantly, how to interpret the information you see and hear. Once you know what influences exchange rates, you can execute more and more successful trades.
1. Interest Rates
Interest rates help to determine the “cost” of money in each country. For example, if interest rates are higher in the United Kingdom than the United States, then it is more attractive to deposit money in the U.K than the U.S. This is because the return from money held in savings accounts will be higher in the U.K. if interest rates are higher. This will lead to the demand of the GBP increasing, relative to the Greenback (see all currency nicknames).
A country with higher interest rates attracts more foreign investments. Over the long term, this will increase the currency rate. If an economy is having a tough time growing, a central bank may choose to lower the overnight rate that it charges smaller banks to borrow money. This charge is known as the interest rate. If the central bank lowers its interest rate, commercial banks (the kind that you and we deposit our money in) will also lower their interest rates. Lower interest rates make it easier for banks, businesses and consumers to borrow money. This theoretically results in increased investment and spending. In turn, this increased investment and spending should lead to economic growth.
Who Controls Interest Rates
Interest rate benchmarks are set and monitored by the central banks of developed nations. The 8 most influential central banks and their currency symbols are:
Cheaper borrowing – if a business or a consumer can borrow more cheaply, then they have more cash left over to spend on growing or employing more people. Reduced saving – if you earn less interest on the money you have in the bank, you may be more likely to withdraw it and invest it or spend it, rather than save it for less reward. Lower mortgages – when interest rates fall, variable mortgage rates also fall. This makes repaying home loans cheaper, meaning homeowners have more money left over to spend after their repayments. Real estate prices – when interest rates are low, real estate prices rise because more people are encouraged to enter the housing market due to cheaper borrowing and loan costs. Decreasing currency rate – as we saw with other examples, when interest rates fall, high net worth individuals and businesses often choose to move their money to higher interest rate nations. This results in the currency weakening. Export growth – take the example of the well known Swiss watch company “Swatch”. If the Swiss Franc rises against the Euro, then European customers would be less likely to buy Swatch watches because they will be more expensive compared to non-Swiss brands. However, if interest rates fall, and the currency falls, Swatch watches will become more attractive to European customers because they will be more attractively priced.
Negative Interest Rates
In recent times we have even seen some central banks put in place negative interest rates. Why would that happen? The European Central Bank announced that it would charge banks that deposited money with it a fee for that service. This was done by putting in place negative interest rates. The idea was to encourage banks to lend their capital to borrowers, rather than deposit it, in order to encourage economic growth. Negative interest rates are a sign that “normal” policies are not working, and more drastic action is needed.
Many global banks then also put in place a negative interest rate for amounts kept on deposit in order to cover their losses. There are two main reasons why some large clients will put up with negative interest rates. The first one is that keeping large sums of money with small banks increases your risk. The second reason is that bigger banks mean physical safety, and moving large currency amounts across borders is difficult and has its own transaction costs. Greek citizens learned this lesson during 2014. The crisis in Greece meant that many people were worried that the banks might run out of cash. Many people withdrew their cash, but this unfortunately led to a huge increase in robberies across the nation. Many economists believed that negative interest rates would never actually occur. The European Central Bank put negative interest rates in place before it finally committed to quantitative easing (more on that later) to try and grow the economy. Other smaller nations like Switzerland and Denmark also cut their interest rates to negative, but that was to maintain the peg to the Euro, and keep their currency in a targeted range.
2. Inflation Rate
If you were to pinpoint the “pulse” of the economy, inflation would be it. Do you recall how much bread or your favorite chocolate cost when you were a child? How about the price of gasoline when you first started driving? It was much less than now wasn’t it? That’s because the price of things in an economy rise each year. This process is called inflation. Inflation is the annual increase of prices for a defined list of goods and services, measured in percentage terms.
Inflation will occur if there is excess money in a market, and that excess money is greater than the current demand for the goods and services in that market. This situation can occur in a growing economy when the workers in it begin to earn and spend more, but the production of goods and provision of services does not increase correspondingly. Another source of inflation is increasing costs for businesses. For example, if the price of coal increases, then the cost of generating electricity will also increase. The companies who generate electricity will then seek to maintain their profitability by charging their customers more. While it is most peoples first instinct to think that rising prices are a bad thing, that is not always the case.
Shorting a currency – If you are shorting the EUR/USD pair for example, because you believe that the Euro will lose value, and the Eurozone inflation rate suddenly rises, you will be in a profit position. This is because the USD will rise against the Euro in this situation. Growing economy – Inflation indicates that an economy is growing. That means that rising inflation is what central banks and governments are looking for after a financial crisis. Inflation is a sign that the citizens of a nation have money, and more importantly, are willing to spend it. Borrowing money – If you borrow money, and inflation occurs, then it will “cost” you less to repay the loan. That is because inflation affects wages, as well as the final cost of products. Growing wages –If inflation rises but your wage keeps pace with it, then you are in the same position as you were before. If your wage increase outgrows inflation, then your purchasing power has increased.
Going long on a currency – If you have gone long on the EUR/USD pair, believing that the EUR will rise in value, and inflation in the Eurozone suddenly increases, you will be in an unprofitable position. Uncertainty – If the citizens of a nation fear inflation, customers and businesses tend to spend less and act more cautiously. This in turn hurts economic growth. Lending money – If you have lent money before inflation occurs, then you will lose if inflation hits because the money you are paid back will have less purchasing power than before. Fixed income – People who rely on fixed income such as pensions or interest from investments will be disadvantaged by high inflation as their purchasing power does not match the rate of inflation.
3. Deflation
As you might have guessed, deflation is the opposite of inflation. It means that the prices of goods and services are decreasing. That sounds good, doesn’t it? But it actually isn’t a good thing at all if it goes on for a long time. If deflation occurs for more than a month or two then consumers begin to behave differently. Companies and consumers both stop spending money, hoping that they can buy things more cheaply later. This begins a negative chain reaction, which we can illustrate with a recent example from Greece. In 2014 and 2015, the financial crisis in Greece dragged on and demand for products and services weakened.
Businesses were forced to respond by cutting prices
Consumers stopped buying, believing prices had further to fall
Business income dried up, and businesses were forced to lay off employees
As unemployment rose, purchasing power decreased even further and people became even more unwilling to spend
As the situation worsened, businesses could not lay off more workers, and began to go bankrupt
The debt of the Greek government grew and few as total tax revenue shrunk
4. GDP Rate
The GDP is a representation of the value of all of the goods, services and products that are created by a country. This is usually calculated on an annual basis. An annual increase of 3% – 3.5% in a nations GDP is an indicator of a strong economy. If the rate is higher than this, it may signal that inflation is too high. A lower rate or a declining rate is a signal of an possible economic downturn. If GDP growth is negative for 6 months, or two quarters, an economy is considered to be in recession. If GDP is higher than predicted, the value of that nations currency would typically rise. The same is true in the opposite situation, a lower than expected number would lead to currency falls.
5. Employment Statistics
Employment statistics measure the percentage of a nations possible workforce that was unemployed during the previous period, usually a month. Unemployment statistics are usually reported as “the unemployment rate”. If actual unemployment comes in lower than forecasts, this is a good thing, and a currency will rise as a result as strong employment is a sign of a growing economy.
6. Trade Balance
The trade balance of a nation is the difference between the value of exported goods and the value of imported goods. If exports are greater than imports, it indicates that other nations are willing to buy products produced by a country, which creates demand for the local currency.
Imports > Exports = Trade Deficit
Imports < Exports = Trade Surplus
When imports are greater than exports, that is called a trade deficit. A trade deficit shows that a nation has a great demand for foreign goods, which are purchased with foreign currency. This will strengthen the foreign currency and weaken the local currency.
7. Political Events
Political events can have huge and unforeseen effects on currency rates. Elections, referendum results and political turmoil can all affect the forex market. If a country is unstable due to planned (elections) or unplanned (resignations, protests) political events, the value of its currency will tend to decrease as most traders will seek to avoid the uncertainty attached to these events.
Elections
Elections create uncertainty about the future of a country, especially when the opinion polls about the likely winner are close. Different political parties have different approaches to monetary and fiscal policy, such as taxes and government spending. These variables have clear effects on currency levels. Pre-election polls are closely watched by traders for clues about the eventual outcome of an election. If the likely leader of a country is seen as good for the economy or business, the currency will tend to rise. On the other hand, if the polls show that a person who is considered unstable or a threat to the economy is likely to win, currency traders will sell that currency.
Referendums
Referendums have been a hit topic in the news recently, with the Brexit referendum and Italian referendum two examples from 2016. If we use the example of the Scottish independence referendum, we can see that the initial reaction was a decrease in the value of the Pound. However, traders who believed that Great Britain would ultimately stay together were able to benefit by buying the Pound as it weakened, as the currency rose after the referendum failed to win popular support.
Scandals
Political scandals are fairly regular, and can have the effect of inciting protests, large scale strikes or even snap elections. Instability means that currency rates fall as traders avoid uncertainty and the higher probability of losses.
8. Military Conflicts
If Russia were to suddenly send ground troops into Ukraine, what do you think would happen to the Rouble? It is likely that the Rouble would fall as money fled the country. However, there does not have to actually be any “boots on the ground” for the currency to fall. The threat of any armed conflict will influence the currency of the nations involved. Military conflicts can hurt economies, as economic sanctions imposed by other nations, trade barriers and reduced consumer spending due to fear all usually follow. They also increase the demand for perceived “safe” currencies like the U.S. Dollar as Swiss Franc.
9. Quantitative Easing
Quantitative easing (QE) might sound terribly complicated, but in actual fact its not too difficult to understand. QE is intended to put some “fuel” into the economy after or during severe downturns. The way it does this is basically the same as the negative interest rate policies we covered earlier – by creating incentives to lend money.
When the global financial crisis was in its early days of 2008 and 2009, most central banks cut their overnight interest rates heavily in order to try and assist with economic recovery. But once you get to zero or below it, you can’t cut much further! When a central bank undertakes a policy of QE, it is essentially performing a “money printing” exercise. Of course, now money can be “created” digitally, without the need for printing presses at all, but the term has stuck. QE allows the central bank to purchase massive amounts of bonds from smaller banks. The smaller banks then have huge amounts of excess cash on their balance sheets. To earn profits on this new cash, the smaller banks will then lend money to businesses and individuals. All of this is expected to help an economic recovery to occur. If a QE policy is convincing to the economy, then it can also work simply by increasing confidence in the participants in a market.
If the currency of a country decreases, which of these groups DOES NOT benefit?
Correct!Wrong!
If an economic indicator is published, and it meets previously announced forecasts, what is the most likely effect for that currency?
Correct!Wrong!
If an economic indicator beats forecast expectations, what is the most likely effect for that currency?
New traders are often overwhelmed by the volume of information available through various Forex market analysis. Your ability to make decisions will depend on the overall understanding how markets work and if you can spot the trading opportunities before they are outdated.
Fundamental Analysis – involves using political, economic, and social factors to assess a currency.
Technical Analysis – involves studying currency charts in order to recognize patterns and exploit them.
One is not better than the other, and you’ll be an effective trader if you understand both. Just remember, there is a fundamental reason behind the evolution of a technical chart, where fundamental analysis concerns long-term trends, while technical analysis looks for patterns in the short-term behavior of a security. For example, you may use an interest rate change by a central bank (fundamental) to determine that you should go long on a currency pair, and then use a moving average (technical indicator) to determine the best price to enter the trade.
Fundamental Analysis
Fundamental analysis is a method that considers the economic strength of a nation. This strength is influenced by political, economic, and social forces, as well as monetary policy. Interest rates, Unemployment figures and Inflation reports are the top 3 fundamental factors to watch closely.
If the outlook is positive, then the country is more likely to attract investors. This investment results in increased demand for the currency of that nation as foreign currency needs to be converted to local currency to pay for the investments. This leads to a fundamental rule – The higher the demand for a currency, the higher its value will be.
The tension between Russia and the Ukraine led to the Russian ruble falling. Many of Russia’s millionaires moved their money to Switzerland to protect their wealth.
The European Central Bank has taken an active role in the Eurozone economy. One method they have used is to inject massive amounts of cash into the economy to try and stimulate lending and growth. Like any good, more supply lowers the value of the Euro.
Before the “Francogeddon,” the Swiss franc was fixed – or “pegged” – to the Euro so that Swiss businesses that exported products to the Eurozone were not hurt by wild swings in the currency rates. The Swiss National Bank did this by buying huge stockpiles of Euros with their own currency. By reducing the supply of Euros and increasing the number of francs, the franc would stay comparable in value to the Euro.
Due to the above events, the Swiss National Bank could not keep pace buying Euros. The Bank suddenly announced it would abandon the very expensive peg. As a result, the Franc exploded upwards. That is what the trading game will teach you : How to put events, like those above, into context. Once you read and learn the lessons, economic and political news will seem different to you. You will be able to spot things that are invisible to others, and profit from them.
For a small trader, it may be hard to think that supply and demand apply to currency. When more people want Japanese yen, its value increases to the highest bidder – the person willing to pay the most to have those yen in her account. Always remember that whenever you buy currency, someone else is selling it.
Technical Analysis
Technical analysts and traders look to past price movements in order to identify patterns. They believe that future price movements will follow the behavior of previous patterns. The theory behind this is that history and reactions to events tend to repeat again and again. Know the history and profit from it every time it repeats itself. There are many patterns that have been identified, but a common resistance pattern is shown below.
Support And Resistance
When the price reaches a certain level, it often tends to reverse as the opposite force (buying or selling) gets stronger and stops the initial movement. Once the other force takes overhand, the price reverses and traders who have followed previous reversals, can use them to profit again and again.
Reversals Tend To Occur On Round Numbers
Because market participants are humans, there is an interesting tendency for major turning points to occur around round numbers. This is due to the psychological tendency of humans to prefer round numbers rather than “messier” decimals. Retail traders also tend to place orders closer to whole numbers. This occurs whether it’s an entry, a stop-loss order, or a take-profit target. Because thousands of traders repeat this behavior, high volumes are often exchanged near whole numbers. That means that prices often hover around these support and resistance levels for longer periods as the backlog of higher orders is cleared. Knowing small secrets like this can help you make better decisions as a trader.
The Golden Rule Of Economic Indicators
Developed nations regularly publish economic figures. Every nation publishes the release dates in advance, and you should plan for them. This is crucial because currency rates will often move even before the information is released.
Markets move on expectations and also on the forecasts that are contained in reports.
If actual results > forecasts = good for the currency
If actual results < forecasts = bad for the currency
For example, if a forecast predicts economic growth, then the market may rise before the report is released. If the actual data outperforms expectations, then the currency will rise even more. But, if growth is lower than expected, then the currency will lose value because it had already increased in expectation of growth.
1. Use An Economic Calendar
Be methodical and have a well-researched well-researched economic calendar that includes release dates for major reports. By being prepared for economic events, you will avoid losses and identify profitable times to trade.
2. Monitor Key Indicators
Make sure you are well informed about relevant economic indicators and understand how they are related. For example, if the British pound (GBP) is weak, it may be due to inflation, unemployment, political fears about Brexit, or a combination of all three. If the U.S. economy is growing, then traders will be watching Federal Reserve officials like hawks for indications about timing or interest rate changes.
3. Analyze The Forecasts
Forecasts are important. These are the “goalposts” that the market expects key indicators to fall within. When the actual results differ, that’s the best opportunity to make a profit. Don’t be caught unprepared for the event.
Fundamental analysis is:
Correct!Wrong!
Using currency charts to recognize patterns and exploit them to trade forex is also known as:
Correct!Wrong!
Currency prices tend to “cluster” around what kinds of numbers?
If you don’t recognize the name Mario Draghi or can’t name the current head of the US Federal Reserve, better read what we’ve prepared for you below! Every publicly stated word from such important people can dramatically impact currency markets. Hear them, profit from them.
1. Central Banks and Heads of Government
Central bankers are capable of influencing Forex markets with just a few well placed words. They are manipulating interest rates and other factors to affect the value of the currency for their own interests – but the free markets will prevail! Along with the heads of central banks, goes governmental figures, such as prime ministers. Here are few notable mentions:
Jerome Powell (The Chair of the U.S. Federal Reserve)
Christine Lagarde (Head of the European Central Bank)
Donald Trump (President of the United States of America)
Even just a sentence from people listed above can have a big impact on the EUR/USD pair. For example, president Trump famously hurt the US dollar’s value after he tweeted it was “too strong” – causing USD to fall markedly. Be aware that events in the world’s largest economies (otherwise known as the G-7 group of nations (the United States, Germany, United Kingdom, France, Japan, Canada and Italy) will likely have knock on effects in the Forex markets which reverberate outside of their own currency.
2. For-Profit Banks
Banks of all sizes across the world trade billions of dollars worth of currency every day. They trade with each other, or on behalf of their customers to make monetary profit for themselves and to execute trades for clients. Banks are speculators just like you only on a much bigger scale! A big difference from most best individual tradersis that banks can move the price strongly with their orders, given the large size of the positions they can afford to trade.
3. Large Corporations
In a globalised world, large corporations operate in many nations, and collectively turn over tens of billions of dollars every year. As a result, they constantly need to use the Forex markets to purchase and sell different currencies for their business needs. If many corporations decide to move their assets for a common reason, currency rates are likely to be influenced.
4. Individual Traders/Funds
Individual traders and “Hedge Funds” are the most aggressive large participants in the Forex markets as they operate solely to make profit through their trading. Of all individual Forex traders George Soros is possibly the most celebrated. He earned the nickname “the man who broke the Bank of England” due to a brilliant short British Pound (GBP) trade that earned him $1 billion in a just a single day.
Traders like George Soros operate through multi-billion dollar hedge funds with huge financial resources. Their actions can often upset Central banks and politicians, as they can influence the value of a currency hugely. Government Officials sometimes have to make very expensive interventions in the markets to keep the exchange rate steady as sharp swings in the Forex markets can have very negative effects on the economy of a country.
Conclusion
Knowing who you are dealing with is essential in any competition. The currency Markets are no different. Understanding how biggest Forex market players use the markets can help you find that all important niche and trading edge.
Remember, you are all looking at the same charts!
What is the market with the highest daily trading volume?
Correct!Wrong!
Which of the following people is NOT a head of a Central Bank?
Correct!Wrong!
Which brilliant individual trader earned the title “the man who broke the Bank of England?
Because of the many different time zones in the world, Forex trading is available for 24 hours, 5 days a week from Monday to Friday. Best of all, you don’t have to give up sleep to be a highly profitable trader. Here’s how.
Forex Market Hours versus Stock Exchanges
Unlike trading stocks, where the market is open only few hours a day,you can open & close Forex trades whenever you spot an opportunity. A retail trader in the stock market will be stuck with his positions if it is after the closing bell, but a Forex trader can wake up in the middle of the night, see opportunity and capitalize upon it.
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The magic happens, when Forex trading hours overlap. The absolute best time to trade for volatility is at the end of the trading day in Europe and the beginning in the US. That’s when trading volumes are the highest, because majority of biggest forex market playersare actively trading at this time. The more traders there are speculating in the market the more aggressively the price can/will move. This movement in the price ultimately decides your profit potential. Make sure your money is where the action is.
Best Days Of The Week for Trading
Trading is generally slower on Monday than other days, as businesses and banks return to work from the weekend. The most active and liquid days are the middle of the week from Tuesday to Thursday. Remember that you don’t have to trade every session. Doing that is both unsustainable and certainly opposite of what highly successful traders would do. Instead choose the time that suits you best and trade consistently.
1. Avoid Trading On Fridays
Fridays typically are quieter days. This is due to major market participants like banks and hedge funds closing their positions before the weekend. Remember the news feed is ongoing and a chance to make money could happen at any moment of the day or night.
2. Don’t Leave Trades Opened Overnight
Be aware that if you leave a position open overnight, many best forex brokers will charge you a fee for the privilege. Brokers fees eat into your profits, so make sure you read their policy before you leave an overnight trade position open.
3. You’re Under Great Risk When Angry Or Upset
A simple rule to follow is to not trade when you are over excited or angry. If you trade during times of raised emotion you are much more prone to errors and biases. Trading is much more likely to be profitable if you are calm and measured.
4. Avoid Trading On Holidays
Banks and Hedge Funds traders also need a rest from money making. Holiday periods can be very thin on the market. Thin trading volumes can sometimes cause big moves unexpectedly, so don’t give up entirely on trading around the holidays – just practice and develop your skills on a real-time trading simulator!
5. Last But Not Least – Beware Of The Weekends
In May 2017, the French election was held on a Sunday, when markets were closed. The Euro positive news of a Emmanuel Macron victory caused EUR/USD to “gap up” when the market opened on Monday. It means the price moved so dramatically and quickly up that there was a space on the chart between the new price and the old price point. If you were short (selling) the pair you could have suffered a large loss as your stop-loss would not trigger prcisely.
Which trading day concludes halfway through a weekday?
Correct!Wrong!
Closing time on any trading session is generally:
Correct!Wrong!
Which two of these events will typically signify a lower volume trading session?
Many of world’s countries have their own unique currency (like Pesso in Mexico) while some countries share a currency to simplify trading with key geographical partners (like Euro in Europe). Knowing how to read them is perhaps first skill you must have, before entering the market.
Simple Rule On How To Read Currency Pairs
Currencies are traded in pairs as their value is relative to one another. The pair system might seem daunting at first but it’s extremely simple – you will learn it the fastest on a real-time forex simulator.
The first currency shown is the controlling one in terms of placing your order. So if you see EUR/USD then you are always choosing to buy or sell the first currency (Euro) against the second currency (U.S. Dollar).
Majors
Majors are widely traded by beginners and professionals alike. This is because they have the most liquidity, lowest spreads and the broadest range of movements. Unlike small currencies, majors are generally more stable. The economic and political institutions of these nations are generally long established and predictable compared to other nations.
Crosses
The crosses are any currency pair that doesn’t feature the USD and they do not hold any less profit potential than the majors. Too much US Dollar exposure can lead to all your trades heading in the same direction, a big problem if that direction is against you. Two examples of great crosses are GBP/AUD and EUR/CAD. They are both significant pairs which will provide you some shelter if you are uncertain about the direction of the USD.
Exotics
The “Exotic” currency pairs are less traded and so much more costly to buy or sell. Don’t let the cost put you off, because many of the greatest traders of all time made their fortunes with exotics. For example, one of the 5 greatest forex traders, George Soros gained $800 million profit from selling Thai Baht (THB) in 1997 Asian crisis. In situations like these never shy away from great chances of success, just because fewer speculators are aiming at them. It just means you’ve outsmarted others.
The most highly traded currency pairs are known as:
Correct!Wrong!
How many major currency pairs are there?
Correct!Wrong!
A currency pair that is a “cross” does not have which currency in it?
Foreign Exchange / Forex / FX – whatever you call it, trading two currencies without the basic knowledge is equal to gambling, where you rely on pure luck. Master the ABC’s and you’ll already be better than majority of beginner traders!
Forex Market Size
As we have mentioned in other forex school lessons, weekly turnover of the forex market is over $25 trillion. That means on any given trading day, an average of $5 trillion of currency changes hands. In Donald Trump’s words: HUUGE!
Forex trading by retail investors makes up just 5% of trading volumes. This means you must understand and accept you are a little fish in a giant ocean but that doesn’t mean you can’t chase the big sharks and make money!
If you think the price of a currency will increase, you will want to buy it (go long/up).
If you think a currency’s value will decrease, then you will want to sell the currency (go short/down).
Going long is easy, you buy the asset and sell it when it’s price rise. Going short is a little more complex, but it’s taken care of without you lifting a finger. Basically, the broker or trading simulator will lend you the currency you want to sell. When the price falls, you pay the broker back at the lower price. The difference between the price that you borrowed at and the price that you pay back is your profit.
As a Forex trader, you will be going simultaneously long and short as you trade a pair. For example, long EUR/USD means you buy Euros and sell Dollars. You will make money if the chart rises, and lose money if it falls. It’s best to try out how it works in the forex game with real-time market data.
Currency Pairs Being Traded
The price of a currency pair is, essentially, a reflection of what the global market thinks the future of its economy will be, compared to another country. For example, if you are buying British Pounds against U.S. Dollar (GBP/USD), you are basically betting for the British economy. In other words, you think the British economy will grow more rapidly compared to United States. Afterwards you just have to know how to read currency pairs.
Bulls versus Bears
While bulls are known for throwing an opponent in the air, bears tend to smash them down to the ground. This is a iconic analogy in the Forex as it represents rising and falling markets. A bull market is a market that is rising in value. A bullish trader is one who believes the market will rise, thus goes long.
Pips and Pipettes
A pip is the abbreviation of the phrase “Price Interest Point”. This is the basic and most important unit of measurement in forex.
Pips are used to measure gains and losses. The cash figure that a pip actually represents will vary depending on the pip value. The pip value varies depending on the pair being traded. Luckily, all best forex brokers will calculate the pips automatically for you.
Spread
The spread is the fee that you incur when trading currency. The broker executes your trade at a slightly higher (Buy) or lower (Sell) price than the market rate, and takes the difference between the two as its fee.
Lots
The concept of a lot is the same as any grocery item that is sold in a multiple pack (like a six-pack for beer). Currencies are bought and sold in minimum size packs that are called lots. This is so that tiny amounts cannot be traded, because this would be inefficient and unprofitable for market participants.
Standard lot – 100,000 units of the base currency
Mini lot – 10,000 units of the base currency
Micro lot – 1,000 units of the base currency
Nano lot – 100 units of the base currency
Leverage
Leverage allows you to earn large profits without having to raise huge amounts of cash. U.S. maximum leverage is 1:50. In Europe, normally it is up to 1:30 due to ESMA restrictions. Without any leverage, you would need $100,000 in your account in order to trade a standard lot. With leverage of 1:100 you need just 1/100 of the amount, or $1,000 as you are lent your account size X100 by your broker. Remember, that leverage works on both sides of the trade – when you’re winning, and also when the market goes against your prediction.
If you think a currency will rise, you would buy it. This is also known as going what?
Correct!Wrong!
Which of these is the largest social trading community?
Correct!Wrong!
Selling short means that you think a currency will…?
Imagine yourself lying on a tropical beach, tasting an icy refreshment and looking over charts, as money’s pumping into your trading account. Sounds like a dream, however it’s only one of 5 main advantages you get from Forex trading.
1.Trade Wherever, Whenever You Want
Forex trading is available for almost 6 days a week as the international nature of the market means that it opens in New Zealand and closes in New York. Wherever you are at the moment, the only thing you need is internet connection, and you can start trading directly from your smartphone.
2.Access Your Funds Instantly
The Forex market is the largest financial market in the world with over $5 trillion traded on average each day. Even if you earn only 0,00001%, it equals $500,000.
You can enter and exit large positions quickly and easily and never get stuck with a position you don’t want to hold. In comparison, if there is no one to buy your shares, then you cannot sell them. This means that in a stock market, you could be losing a lot of money, while being powerless to do anything about it.
3. Trade in a Crisis-Free Market
When there is an economic crisis, most financial markets deteriorate markedly. Stock trading slows or freezes, real estate sales grind to a halt, and regular businesses lose profitability. The Forex markets aren’t affected by recessions because you trade currency pairs. If one currency goes up in value, another one must fall, thus you can earn on both sides of the market conditions, but losses could also occur. Learn what influences exchange rates and you can start to form your own opinions about what will rise and what will fall!
4. Start Trading Without A Huge Investment
As recently as the new millennium (year 2000), the deposit required to open a retail Forex trading account was as high as $50,000 or even more! Now you can open a Forex account for as little as $100 depending on the broker you choose. Trading costs (like commissions and spread) have also fallen dramatically in recent years. For a new investor, Forex trading without a doubt is one of the most cost effective markets to be involved with.
5. Use leverage to trade with smaller capital
Nowadays, you can trade up to 30X bigger investment sizes than the capital you have available for trading. It’s called leverage. For example, leverage of 30:1 can allow a trader to deposit $100 and trade with as much as $3,000, thus allowing far higher profits. Of course, if the market moves against your prediction, beware that the same ratio will determine how fast your investment will be lost. For this particular reason, best traders use “stop losses” to make sure they can afford the potential loss.
What do you need to get started in forex trading?
Correct!Wrong!
With many online brokers, what is a minimum amount that you can begin forex trading with?
Correct!Wrong!
What is the typical minimum amount needed for a premium trading account?
Thanks to the modern technology of the 21st century, with social trading you can copy super successful retail traders.
New traders are often overwhelmed by the volume of information available through various Forex market analysis. Your ability to make decisions will depend on the overall understanding how markets work and if you can spot the trading opportunities before they are outdated.
Foreign Exchange / Forex / FX – whatever you call it, trading two currencies without the basic knowledge is equal to gambling, where you rely on pure luck. Master the ABC’s and you’ll already be better than majority of beginner traders!
