What is Forex first of all?

FX stands for Foreign Exchange.

“Foreign exchange” is “a transaction that exchanges currencies between countries”.

“Margin trading” is a transaction that does not actually exchange goods (currencies in this case) and reflects the profit and loss resulting from trading from the account balance.

Forex can be traded continuously for 24 hours on weekdays, excluding the maintenance time of the Forex broker.

This is because FX does not trade only the open hours of the market in that country like individual stocks, but can connect to the world’s market at almost any time by connecting the bank and the market.

Therefore, it is possible for an office worker to trade during commuting hours, a housewife to do housework, and a night shift to make trades in the morning after returning home.

There are operation styles that suit various lifestyles of each person.

In addition, the foreign exchange rate has the characteristic that it is easy to link with the stock market that moves during that time period.

The Tokyo Stock Exchange is open from 9 am to 3 pm in Japanese time and is called the “Tokyo market.”

The Japanese yen tends to play the leading role during the hours.

Similarly,the European market is the “London market,” with the Euro and the Pound as the main players, and when the US is the main market, it is called the “New York market.”

Trading can be done for almost 24 hours, but because the main market participants are swapped in this way, the currency pairs and information to be noticed also change.

List of online Forex brokers

How does Forex market work?

1 EUR was 1 USD a year ago, but now it is 1.10 USD, so the rate of exchanging currencies between countries, between economically developed countries, is always changing.

The method of trading in FX is to use this rate fluctuation.

Let’s explain this mechanism by taking an example of overseas travel.

Suppose that 1 EUR = 1 USD.

You will be traveling to the United States, so you need money to spend locally, so you will exchange 1,000 EUR for US dollars.

Then, it will be from 1,000 EUR to 1,000 USD.

But on a trip to the United States, you couldn’t spend the 1000 USD you exchanged because you could pay all your expenses with a credit card.

When I return to Europe, you don’t need the US dollar, so you have to convert it back to EUR.

If the rate fluctuates to 1.10 EUR at 1 USD at this time, 1,000 USD will be 1,100 EUR, which is a plus of 100 EUR.

A certain trend may appear in the fluctuation of the exchange rate between the EUR and USD.

The fact that there is a tendency to continue rising for a while is referred to as an upward trend.

On the contrary, if it is down, it is a downtrend.

If you find these trends and make proper trades, you will lose profits if you make unexpected moves.

In addition, the state that neither rises nor falls is called a “range price”, and it is expected that the price will go down if it goes up and go up if it goes down.

Margins are not only in the rising phase. In the case of a downtrend, a “sell high, buy cheap” transaction will result in a profit.

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Guide for Beginners in the Forex market

1. Trade on Demo account with virtual money

You now understand the outline of the investment called FX up to some extent.

However, there are many things that you may not understand unless you actually experience it.

You can study the basics of FX on various websites and books, but few people will be able to grasp everything without actually experiencing it.

It is very important to “try it” for everything.

So, let’s try a demo trade where you can experience the flow of trading and the operation of the system with a virtual account.

Various Forex companies have prepared demo trades where you can study and practice trading without spending actual money.

Demo trading is basically like a game, but the exchange rate movement is almost the same as the real one.

The tools you can use are the same as for real accounts.

Since the actual amount of money does not increase or decrease, you can study the basic mechanism of FX without worrying about losing money.

Demo trading can be said to be very effective because you are accustomed to the fast-moving exchange rates and sophisticated computer and smartphone trading tools.

List of online Forex brokers

2. Open a live trading account

Once you are fully accustomed to FX in demo trading, you may challenge real money trading by opening a real account.

If you choose an account that you practiced a lot in demo trading, you can use the same tool, so it is easy to operate.

However, just in case, let’s check the minimum trading unit of the account.

The current mainstream is 100,000 currency transactions, and as explained earlier, if you have hundreds of thousands of USD, you can trade the minimum lot with a margin.

For the very first real trade, it is safer to choose an account with lower amount of currencies.

The account opening procedure is basically done on the Web.

Currently, the number of Forex brokers that can verify your identity using a smartphone is increasing, and such companies can open an account without exchanging documents.

For other Forex brokers, procedures other than identity verification are completed on the Web.

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3. Open positions (Make a trade)

Once you open a trading account and deposit the trading funds, you will finally be able to trade real funds.

From here, we explain the flow of trading and basic knowledge.

First, you have to choose which currency pair to trade in order to make a new entry.

The number of currency pairs that can be traded differs depending on the FX broker, but the major currency pairs that many investors around the world trade such as EURUSD, USDJPY and EURGBP.

Most popular currency pairs are available in any account.

What is FX currency pair? – A currency pair is a combination of currencies and currencies, and represents the exchange rate of currencies on the left and currencies on the right. In FX, you will never buy or sell a single currency, but you will always trade a set of currency pairs. For example, there is a rule that the JPY always comes to the right in the combination of currencies. Therefore, the currency pair in which the JPY is involved is written as “JPY is required to obtain one foreign currency” like the USDJPY and the EURJPY.

List of online Forex brokers

4. Check the 2 Way Prices (Bid and Ask prices)

Once you have decided which currency pair you want to trade based on your trading strategy, you can place a new order, but you will notice that there are two prices.

In FX, a system called 2 WAY price is used, and there is a price difference between the selling price (Bid) and the buying price (Ask).

Ask is always higher than Bid, so you will buy higher and sell cheaper for the same currency pair.

This price difference is called “spread” and is the profit of the Forex company.

What is Spread? – Looking at the position at the moment of new entry, in most cases you will start from a minus. This is actually the cost of the spread. For example, assuming that the spread of a currency pair involving USD is 1 cent, if you enter a new purchase of 10,000 currencies, if you do not change the price immediately after placing an order, you can trade from a loss of 1 USD. When trading 10,000 currencies with a USD-related currency pair is a gain or loss of 1 USD, so trading starts from a distance farther than the spread. In order to raise the price by 1 cent and finally get the price range of zero, 10 cents, the price must increase by 11 cents. This is what spread is all about.

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5. Choose the trading volume and leverage

When you trade, you have to decide the number of lots to trade.

Set the number of lots based on risk.

As mentioned earlier, in a currency pair involving USD such as EURUSD and GBPUSD, one cent at the time of 10,000 currency transaction is 1 USD profit/loss.

This means that if you go backwards by 1 cent, you will lose 100 USD.

For example, if you buy a EURUSD, there is a possibility that it will rise forever, and no matter how much you rise, the trade will not end unless the investors settle.

Limited to buy trades, the theoretical profit is infinite.

But the loss is finite. Under the above conditions, the fund is 1,000 USD.

First, the margin required to trade is locked.

If the EURUSD is 1 USD, the margin for 10,000 currency transactions is 400 USD.

So, 600 USD, which is 1,000 USD minus 400 USD, is actually available for trading.

In this situation, if the price drops 6 cents or more, you will run out of trading funds.

This means that the loss is finite. Also, even if the final line on the number is 6 cents, the level at which you feel mentally burdened may be even lower.

For example, if you do not want to lose more than 100 USD in one trade, you have to withdraw with a loss of 1 cent.

In this way, deciding the number of lots is the basis of the basics of a trade plan, based on the criterion “I do not want to lose more than I want”.

Also, since such calculations are a little difficult, one idea is to start with the lowest lot for the time being.

What is Leverage? – FX trading can be leveraged, so you can hold a position with less money than you actually need. However, there are some misunderstandings about leverage in the FX. First of all, just because leverage is 500 times doesn’t mean you win or lose 500 times more than you originally have. The leverage function is that “a position can be held with a small amount of money that is compressed from the originally necessary amount”. When you trade 100,000 currencies with a USD-related currency pair, the profit and loss of one cent is 1 USD, which is the same as the leverage.

List of online Forex brokers

6. Hold open positions

FX has no expiration date for holding a position.

You can delay the payment forever as long as the forced stop out is not made.

Carrying over the positions bought or sold the day before the next day is called “rollover”.

Swap points occur at this timing in the so-called day span.

You already know the concept that the leverage is x times as a measure of risk, but you should also learn about the margin maintenance rate.

Margin maintenance rate is a number that you can judge how much money you can afford,

It is calculated as net assets ÷ required margin x 100, and is expressed as a percentage.

When it reaches 100%, the net asset and the required margin amount become the same amount, which means that there is not enough money to use for the transaction.

You need to have a lot of funds or a small number of positions to keep a high value of margin maintenance rate.

In reality, the amount of investment is limited, so it is effective to reduce the number of lots in order to maintain a high margin maintenance rate and operate safely.

What is stop out? – As mentioned above, if the margin maintenance rate falls below a certain level, a compulsory stop out will occur. Mandatory stop out sounds terribly negative, but it also has the side effect of protecting investors’ assets. If the market continues to go backwards contrary to your expectations, not only will all the assets get settled, but the assets will become negative and additional margin (additional funds) will be required. Mandatory stop out are made to prevent further loss growth, even before this happens.Depending on the Forex broker, when the mandatory stop out level approaches, the display on the screen may change or an email may be sent.

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7. Close the positions to realize profit/loss

The profit or loss of the trade is fixed only after closing the position.

Undetermined profits and losses before settlement are called unrealized gains and unrealized losses.

In addition, fixing profits in the state of unrealized profits is called profit taking, and fixing unrealized losses is called stop loss.

What is pips? – There is pips in the expression to describe the profit and loss of FX (singular is pip). This is the minimum unit for trading, and 1 pip = 0.01 yen = 1 sen for a currency pair involving yen. The combination of foreign currencies makes the calculation a little more complicated. For a pair of currencies against the US dollar, such as Eurodollar and pound dollar, 1 pip = $0.00001 (0.01 cents). Currently, most Forex companies have a minimum trading unit of 0.01 pips.

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Decide your trading style in Forex

Since the FX market price keeps running for almost 24 hours on weekdays, it can be said that there is a high degree of freedom when making new entries and when making payments.

Therefore, you can decide the trading timing and position holding time according to the lifestyle of the investor and the trend of the market..

If you work from weekday mornings to evenings, it’s a good idea to do your trading on the night time after returning home.

FX trading styles can be classified into 4 types according to the holding time of the position.

Seconds to tens of minutes
Day trade
1 hour to several hours. No days
Swing trade
Days to weeks
Long-term trade (position trade)
Months to years

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Analyze the market trend technically and fundamentally

In order to monetize FX trading, you need to conduct market analysis firmly and obtain current trends and future prospects.

There are innumerable types of analysis approaches, but the core analysis type is two kinds:

  1. the technical analysis based on the chart analysis;
  2. the fundamentals analysis judged from the economy, politics, geopolitics, etc. of each country.

Technical analysis is to grasp the price movement from the past that can be read from the chart.

By analyzing the arrangement, length, and shape of candlesticks lined up on the chart and displaying technical indicators on the chart, the trend of price movements can be grasped and future price movements can be predicted.

The technical index is a recalculation of the price fluctuation appearing on the chart, and the calculation result is visualized with lines and figures.

Famous examples include moving averages, Bollinger bands, Ichimoku Kinko Hyo, RSI, and MACD.

A fundamentals analysis predicts the future strength of a currency based on the economic and political conditions of each country that issues the currency.

The most important of these are economic indicators, which are official announcements such as employment statistics, GDP, and interest rate policies, and can be a factor that greatly move the market.

In addition, remarks by dignitaries such as US President can have a major impact on the market.

Note that technical analysis and fundamentals analysis are not opposite concepts.

It is important to learn both equally because they are interlocking, rather than thinking in two alternatives.

List of online Forex brokers

Master the Order Types on platforms

When you talk about FX traders, you might be watching many screens and associate people who are buying and selling in real time each time.

Of course, some people have succeeded in trading in such a style, but FX as asset management is possible without necessarily sticking to the market price chart.

Because FX trading can use pre-orders that specify prices.

By setting in advance, such as “Settle when the USD reaches — dollar”, you do not have to keep an eye on the chart.

There are two major FX orders. It is a real-time market and a pre-order to specify a price, a limit and a stop orders.

A market order is an order for which a transaction is completed as soon as possible from that point onwards, and no price can be specified. It is used when you want to enter or settle immediately, and the investor must operate the order at that time.

Limit price and stop loss are specified in advance to “enter with — dollars” and “settle with — dollars”.

  1. Limit orders
    Orders that buy cheaper and sell higher. At the time of new entry, you will buy when it becomes cheaper than now and sell when it becomes higher than now. At the time of settlement, it will be an order for profit determination.
  2. Stop loss order
    Orders that buy higher and sell cheaper. At the time of new entry, you will buy if it becomes higher than now and sell if it becomes cheaper than now. At the time of payment, it will be a loss cut order.

The relationship between the limit price and the stop loss is difficult to understand, but since it is classified to place two types of pre-orders, let’s get used to it.

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Manual Trade or Automated Trade

Up to this point, we have explained about discretionary trading where investors themselves place orders.

In FX, automatic trading is also popular, and by setting a trading strategy in advance, trading is automatically performed, so it is suitable for those who are particularly busy with time.

Compared to discretionary trading, automatic trading also has the merit of not being burdened with mental aspects.

Investors are not required to make decisions on the spot because they are bought and sold in a fully automatic manner.

However, automatic trading also has the disadvantage of delaying response to unexpected price movements.

Keep in mind that you can’t fix the trajectory as quickly as a discretionary trade.

There are roughly two types of environments for executing automatic trading of FX.

One is to use the trading system prepared by the FX company.

Investors do not need to keep their PCs or smartphones running, as trades are made on the servers within the Forex company.

You can start automatic trading right away, but usually there is a transaction cost different from the spread.

See the list of FX Copy Trading Services

The other is to run an automatic trading program called EA on the trading software called MT4 or MT5.

The hurdle is rather high, such as always running MT4 or MT5 in your own environment and having to get the EA file, but there is also an advantage that transaction costs can be suppressed more than the former because there are no fees other than spreads.

List of online Forex brokers

Choose the FX broker for yourself

In the page here, we introduce a number of major Forex companies.

You may try to choose an account that suits the trading style you want to do.

It’s a good idea to choose based on the tools you want to use, easy to use smartphone apps, narrow spreads of currency pairs you want to trade, many swap points, and participate in bonus promotions.

In addition, there is also a way of thinking that the support is substantial and that non-FX products such as stocks and CFDs can be traded.

There are also many bonus promotions and trading contests that you can participate to increase your trading volume or profit rate.

With FXBonus.Info, you can see the list of all the latest campaigns and contests.

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