Novice traders have a lot to ask while learning how to trade Forex online.
Here are 11 most asked questions by our traders from HotForex.
Do you know the answers to all of these questions? Find out now!
1. Is HotForex a non-dealing desk (NDD) broker?
HotForex offers you NDD execution for Forex and spot gold/silver.
It’s important for HotForex to offer you NDD execution as that allows you to trade directly with the market and therefore significantly reduces the number of re-quotes you may get.
2. What are pending orders?
A pending order is the client’s commitment to buy or sell an instrument at a specified price in the future.
Most commonly, you can use a pending order to create an order that will be executed automatically if the exchange rate reaches a certain level.
The order essentially contains two variables – price and duration.
You can specify the price at which you wish to buy/sell a currency pair and also specify the duration that the order should remain active.
3. What’s a stop loss order?
Stop loss orders help you minimize losses in the event the market moves against you.
If the price reaches a stop loss level, the position will be closed automatically.
4. What’s a take profit order?
A take profit order is used to lock in profits if the market moves in your favor.
If the price reaches a take profit level, the position will be closed automatically.
Take profit orders are useful when you’re unavailable to monitor your open positions.
5. Can news announcements affect my trades?
Yes, major news and announcements can often cause volatility or uncertainty in the Forex market and this can affect all major currency pairs.
In times of uncertainty, orders are sometimes filled away from the desired price due to gaps in the market.
When you attempt an instant execution order, you may be re-quoted within a few seconds and in case of a pending order, you may experience slippage.
6. What’s slippage and why does it happen?
Slippage can occur when orders are filled away from the desired price due to gaps in the market.
This can sometimes happen because currency prices can be very volatile or liquidity can be thin.
In these scenarios, orders can’t always be filled at the exact price, but at the next available price.
7. What’s floating leverage?
Floating leverage is a system that automatically applies higher leverage on a trade-by-trade basis depending on your trade volume.
Floating leverage is based on current open positions and the leverage decreases as the size of open positions increases.
8. What’s a re-quote?
Re-quotes are missed prices caused by the market moving in the direction that you wish to trade.
A re-quote occurs when you request to execute an order at a specific price that is no longer available and you’re offered a different quote.
This can happen during fast-moving markets.
9. What is hedging? How does hedging affect my margin requirement?
Hedging is when you have long and short positions in the same instrument open simultaneously.
If you’re fully hedged, you’ll have long and short positions open in equal volumes.
Having hedged positions will reduce your total margin requirement.
The margin required for hedged positions is half of initial margin for each side of the hedge.
For example, if you have an account in GBP with a leverage of 1:500 and open the following trades:
You sell GBPUSD 0.3 lot:
The margin held for this trade is GBP60.00 based on the following calculation:
0.3 lot x 100,000 = GBP30,000
GBP30,000 / 500 = GBP60
You then buy GBPUSD 0.3 lot to hedge your short position:
The margin held for both these trades is GBP60.00
This would be calculated by the following:
Total margin requirement = (½ of initial margin for first leg + ½ of initial margin for second leg)
(0.3 lot x 100,000 / 500 / 2) + (0.3 lot x 100,000 / 500 / 2) = 30 + 30 = GBP60
If you close one side of the hedge, the margin held on your open position will revert to the full margin requirement for the remaining leg.
If you close the buy order in the above example, the margin held on the open position – sell GBPUSD 0.3 lot – will still remain as GBP60.
10. When is rollover time?
Rollover time is around the New York close.
All positions left open from 23:59:45 EET to 23:59:59 EET will be rolled over to a new value date.
11. What’s leverage?
Leverage is borrowing money to supplement existing funds in such a way that the potential profit or loss is magnified.
Leverage is vitally important to your trading activities.
Choosing the wrong leverage could result in large losses and damage potential profits.
The leverage on your account plays a significant part in determining the amount of funds you need to put up for a trade.