Introduction
What is Forex
The Forex (FX) market is the largest and most liquid financial market in the world with an estimated USD 4 trillion traded each day and it is a continuous market providing Forex traders with 24-hour market access. Market closes on weekends and public holidays subject to market secessions and local holiday schedules. Forex trading, also known as “foreign currency trading”, offers currency traders huge opportunities to benefit from fluctuations in the currency markets. This can be achieved by opening a Forex margin trading account with us, and you can either go long or short on all currency pairs. But also we would like you to be caution that currency trading involves significant risk of loss. We suggest you to try your hands on Forex investing via demo accounts, make sure you carry out your due diligence and choose a regulated reputable broker.
Currency pairs
In Forex market, all currencies are traded in pairs which named by two abbreviation of currencies.
*Example:
AUDUSD represents Aussie dollar against US dollar. The "Base" currency is the first currency in the pair. The "Quote" currency, or "counter" currency is the second currency in the pair.
“AUDUSD is currently trading at 1.0200” means 1 AUD( Base currency) is equal to 1.0200 USD(Quote currency)
Pip/Tick
The minimum rate fluctuation is called a point, a pip or a tick.
For currency pairs quoted with 4 decimal points, say AUDUSD, the minimum rate fluctuation is 0.0001
For currency pairs quoted with 2 decimal points, say USDJPY, the minimum rate fluctuation is 0.01
Hantec offers fractional pips, which is why on your trading platform you may see 5th or 3rd (for 2 decimal pairs) digits after the pip point (0.00001/0.001).
Bid & Ask Rate
On your trading platform, you will find the currency pairs are quote this way:
Bid | Ask | |
AUDUSD | 1.0200 | 1.0201 |
Bid: the rate at which you SHORT/SELL the currency pair, in this case, it means you can short 1 AUD for 1.0200 USD
Ask: the rate at which you LONG/BUY the currency pair, in this case, it means 1 AUD costs you 1.0201USD
Spreads and Currency Rates
Spreads: The difference between the Bid and the Ask prices.
Currency rate: the value of one currency expressed in terms of another. The fluctuation rate depends on numerous factors including the supply and demand on the market and/or open market operations by a government or by a central bank.
The spread and currency rates may be vary subject to numerous factors, for instance, brokers, platforms, market volatility etc.
Lot: Contract size, 1uint of currency pair contract is called 1 lot, which is mostly 100,000 unit of base currency.
Margin trading
Margin trading contains leverage which enables investors to trade assets with a higher value than the capital held in their accounts by borrowing money from their broker. However, this does involve more risk and substantial losses are possible if the market moves against the trader’s position.
Example: To go long on AUDUSD for 1 lot
Non-margin trading:
You will need 100,000AUD equivalent US dollar, which is 102,010USD
Margin trading: (Provided 1:100 leverage)
You only need 1000AUD equivalent US dollar, which is 1020.1USD
Your broker pays the rest, interest involved if trade stays open overnight.
Let’s put all these together
Hope this provide an integrated picture of trading, we assume AUDUSD is bullish
@ Entry | Bid | Ask |
AUDUSD | 1.0200 | 1.0201 |
@ Exit | Bid | Ask |
AUDUSD | 1.0204 | 1.0205 |
Scenario 1:
You Long/Buy 1 lot of AUDUSD
When you enter the trade, the ask price is applied, you want 100,000AUD which cost you 102,010USD
By the time you exit the trade, the bid price is applied, you sell the 100,000AUD for 102,040USD
You earn | Initially you need to invest in | Percentage return | |
30 USD | Non-margin trading | 102010USD | 0.0294% |
Margin trading(1:100) | 1020.1USD | 2.94% |
Scenario 2:
You Short/Sell 1 lot of AUDUSD
When you enter the trade, the bid price is applied, you sell 100,000AUD for 102,000USD
By the time you exit the trade, the ask price is applied, you buy 100,000AUD back by paying 102,050USD
You loss | Initially you need to invest in | Percentage return | |
50 USD | Non-margin trading | 102000USD | -0.049% |
Margin trading(1:100) | 1020USD | -4.9% |