FXC – Forex Broker

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What is Forex?

The foreign exchange market (currency market, Forex, or FX) is a global decentralized or over-the-counter (OTC) market where currencies are traded. Forex is shorthand for foreign exchange and the term is used to describe the buying and selling of international currencies and their derivatives. Practical examples of Forex are International transactions between businesses and consumers, or private individuals exchanging currencies for overseas travel and conduction of foreign trade and business. The majority of foreign exchange transactions are made by Forex traders who aim at buying and selling strategically to turn a profit. The Forex market is the biggest and most liquid market in the world, with over $6.5 trillion exchanged every single day. 

Forex is traded 24 hours a day, 5 days a week across banks, institutions, and individual traders worldwide. Unlike other financial markets, there is no centralized marketplace for forex, currencies trade over the counter in whatever market is open at that time.

What is the Forex market?

Foreign exchange involves exchanging currencies for travel, business, or. foreign trade. Currencies are essential since they allow us to purchase goods and services, hence, International currencies need to be exchanged. For instance, if you’re living in Nigeria and want to buy a laptop from the United State, then either you or the company from which you buy the Laptop has to pay the American shop for the Laptop in US Dollars (USD). The same goes for the exchange of services and travel. A unique feature of this international exchange market is that there is no central marketplace where the foreign exchange takes place. It’s rather conducted electronically over the counter which means that all transactions occur through computer networks among traders around the world. The forex market is open 24 hours a day, five days a week, and currencies are exchanged worldwide in the major financial centers of New York, Paris, Frankfurt, Hong Kong, London, Tokyo, Singapore, Sydney, and Zurich across almost every time zone. Meanwhile, there are four major trading sessions in the forex market. They include the Sydney session, the Tokyo session, the London session, and the New York session. Meaning when the U.S. trading day ends, the fx market begins anew in Tokyo and Hong Kong. Hence, the forex market can be active anytime, with price quotes varying constantly.

A brief history of Forex

The FX market has been active for centuries since people have always been exchanging or bartering goods and currencies for the purchase of goods and services. However, the FX market we understand today is a relatively modern invention. In forex trading, an investor or trader can profit from the difference between two interest rates within the two different economies, and this is achieved by buying the currency with the higher interest rate and shorting the currency with the lower interest rate.

Ways to trade Forex

Forex trades aren’t only made to exchange currencies but also to speculate about future price movements, which is similar to stock trading. Forex traders aim at attempting to buy currencies whose values they anticipate will increase relative to other currencies or sell out currencies whose purchasing power they think will decrease. There are three different types of forex markets which will accommodate traders with varying goals:

1. Spot forex market: the physical buying and selling of currencies which takes place at the exact point the trade is settled i.e. ‘on the spot’ or within a short period. FX trading in the spot market is regarded as the largest because it trades in the largest underlying real asset for the forwards and futures markets. Trading price is determined by demand and supply and is calculated depending on several factors, including economic performance, current interest rates, sentiment toward ongoing local and international political situations as well as the perception of the potential performance of one currency against the other. Previously, volumes in the forwards and futures markets surpassed those of the spot markets. With the advent of electronic trading and the increase in forex brokers, the trading volume for forex spot markets has received a boost.

2. Forward forex market: here, a contract is agreed between two parties to buy or sell a set amount of a currency at a particular price, to be settled at a set date in the future or within a range of future dates.

3. Future forex market: here, a contract is agreed upon between two parties to buy or sell a set amount of a specified currency at a set price and date in the future. Unlike forwards, a futures contract is legally binding.

How does forex trading work?

The Forex market is open 24 hours a day, from Monday to Friday. It is completely decentralized with lots of banks, investment firms, and brokers offering access to the market. Investors buy and sell currencies in relation to one another. These are called currency pairs. For instance, USD and EUR (US dollars and Euros) are the most commonly traded pair in the world. Forex is all about attempting to speculate on the fluctuating currencies between two different countries. These two currencies are usually referred to as ‘currency pairs’ and these pairs are made up of the base currency and the quote currency. The future exchange rate and exchange rate fluctuations are core fundamentals to get under the belt. There are several official currencies that are used all over the world, but only a handful of these currencies are traded actively in the forex market. Instead of physically exchanging the currencies, however, investors pay for a position on a currency. Ideally, the currency they buy will strengthen by the end of the day. Or if they’re selling it, the currency against which they’re selling will weaken. Either way, investors make their profits on the difference. Movements in the market are driven by economic growth, interest rate differentials, and good old-fashioned speculation.

What is exchange rate?

The Exchange rate is simply the exchange rate, the price of a currency in relation to another currency, or the numerical ratio of one currency to another. For example, if the exchange rate of GBP/USD is 1.32100, this means that one British Pound costs $1.32100, or it takes $1.32100to to buy one British Pound. An increase in the exchange rate of a currency pair indicates that the base currency is appreciating against the quote or counter-currency or that the counter-currency is depreciating against the base currency. Likewise, a fall or reduction in the exchange rate indicates that the base currency is depreciating against the quote or counter-currency or that the quote or counter-currency is appreciating against the base currency.

How are currencies traded?

Globally, there are over 170 currencies and the U.S. dollar is involved in a vast majority of forex trading. All these currencies are assigned a three-letter code, for instance, USD represents the US dollar. It’s especially helpful for every trader to know these codes. The second most popularly traded currency in the forex market is the euro (code: EUR) and the currency accepted in 19 countries in the European Union. Other major currencies include the Japanese yen (JPY), the British pound (GBP), the Swiss franc (CHF), the Australian dollar (AUD), the New Zealand dollar (NZD), and the Canadian dollar (CAD) All foreign exchange trading is expressed as a combination of any two currencies being exchanged.

Currency Pairs and Traded In Forex

1. Major Currency Pairs: There are numerous currency pairs forex traders can choose from when placing a trade in the forex market. Major pairs are the most widely traded currencies in the foreign exchange market and they are any pair that includes the US dollar (USD), which holds the position of the largest economy in the world. Hence, the major pairs constitute the largest share of the foreign exchange market. Here is a list of the seven most traded forex pairs which are considered to be the most popular across the world.

· EUR/USD (“Euro”)

· USD/JPY:((“Dollar Yen”).

· GBP/USD: (“Cable” or “Sterling”)

· USD/CHF (“Swissy”).

· AUD/USD ( “Aussie Dollar”)

· NZD/USD (“Kiwi”)

· USD/CAD = (“Dollar Canada”)

2. Cross Pairs – These are any 2 major currencies that do not contain the USD as the counter currency. They have slightly wider spreads, deemed more volatile and less liquid than Major Pairs. Examples of cross pairs include EUR/AUD, EUR/CAD, EUR/CHF, NZD/CAD, EUR/GBP, the GBP/JPY, and GBP/AUD to name a few.,

3. Minor pairs / Exotics: These are currencies from emerging economies paired with major currencies. They are lesser well-known currencies with wider spreads, susceptible to manipulations, and can be extremely volatile in the market. They include USD/ZAR (South African Rand paired with US dollar), and USD/SGD (U.S. dollar paired with Singapore dollar).HUF (Hungarian Forint) and PLN (Polish Zloty).

Learn more about which currency pairs to trade

Benefits of Forex trading

● convenient market hours: 24-hour market
● Free education to become a successful FX trader
● All trading styles work
● The cost of trading is low with no commissions
● Range of risk management tools
● Leverage
● Profit from going ‘long’ or ‘short’
● Highly liquid market
● Ability to trade on margin.

What moves the Forex market?

1. Inflation Rates: fluctuations in market inflation bring about changes in currency exchange rates. A country with a relatively lower inflation rate than another’s will most likely observe an appreciation in the value of its currency. When inflation is low, prices of goods and services will increase at a slower rate. IN a nutshell, a country with a consistently lower inflation rate sees a rising currency value while a country with higher inflation typically exhibits depreciation in its currency and this is often accompanied by higher interest rates.

2. Interest Rates: Interest rates are influenced by Central Banks to maintain monetary stability. However, changes in these rates affect currency value and foreign
exchange rates. Forex rates, inflation rates, and interest rates are all correlated. An An increase in interest rates induces a country’s currency to rise due to the increased demand for that currency and higher interest rates provide higher rates to lenders, hence, attracting more foreign capital, which induces a rise in exchange rates.

3. Economic Data: economic reports give forex traders a glimpse into a nation’s economic performance and this influences currency rates. Economic data and reports to watch out for include Nonfarm payrolls (employment data), CPI (inflation) data, retail sales, gross domestic product (GDP), and purchasing managers index (PMI) to mention a few.

4. Politics: elections, corruption scandals, trade wars and changes in policies introduce instability which in turn reflects in the forex market. The government has the jurisdiction to influence the economy which can raise or depreciate a currency’s relative value.

5. Volatility: many forex Traders frequently enter smaller positions on the more volatile currency pairs and bigger positions on less volatile currency pairs. However, volatility can strike any of these currency pairs at any time due to changes in the economic outlook, interest rates, or political instability. To trade forex successfully, It is imperative to follow these markets up to date, news, and analysis.

Why do people trade currencies?

The Foreign exchange market empowers every party ranging from central banks to retail investors to potentially capitalize on the profits from currency fluctuations related to the global economy, hence it is currently the largest financial market in the world with a daily volume of $6.6 trillion. The majority of these companies and traders use FX for two main reasons: hedging and speculation. Hedging is used to lock in prices for manufacturing and sales in overseas markets while speculation is used by traders to make money off the rise and fall of currency prices.

Are Forex markets volatile?

A popular advantage of the Forex market is that it is one of the most liquid markets in the world. Hence, they are less volatile than other markets, such as Cryptocurrency and real estate. The volatility of a particular currency is influenced by multiple factors, including economics and politics, and its country. Consequently, events like economic instability in the form of a payment default or imbalance in trading relationships with another currency can result in significant volatility.

Are Forex markets regulated?

Regulation of Forex trade depends on the jurisdiction. For instance, countries like the United States possess sophisticated infrastructure and markets to conduct foreign exchange trades. Therefore, FX trades are tightly regulated there by two bodies: National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC). As a result of the heavy use of leverage in forex trades, countries like China and India have restrictions on the capital and firms to be used in forex trading. Europe has the largest market for forex trades. in the United Kingdom, Financial Conduct Authority (FCA) is in charge of monitoring and regulating forex trade.

How do I get started with forex trading?

As a beginner, the first thing to do is to educate yourself about the market’s operations and forex terminology. Secondly, you need to develop a trading strategy depending on your finances and risk tolerance. Finally, you should open an account with FXCentrum. With FXCentrm, opening and funding an account is easier than ever. If you want to trade Forex successfully you have to put together some factors to formulate a trading pattern or strategy that works for you. There are a number of strategies that you can follow. However, it is imperative to understand and be comfortable with the strategy you are adopting.

Forex terminologies

Leverage up to 1:1000: Leverage is the ratio of the amount used in a transaction to the required deposit. It is the capital that you borrow from brokers for the short term which enables you to control a big position with relatively small capital. FXC clients have the freedom to choose the leverage up to 1:1000 in the registration form. When the clients would like to change the leverage, they can simply contact our support and we will change the leverage as the client wants.

Contact our FXC support to know how to get the FXCentrum investment specialist manager and for advice or explanation

Volume (Lot): Trading is calculated in lots. Lot is a measurement unit used for trading on electronic platforms such as FXC trader or MT5. For example, in 1 lot there are 100.000 units in forex currency pairs. You can see that information anytime by clicking on the information button on the platform at the instrument.

Balance: Balance is the sum of all of the closed positions. For example, you deposit 1.000 USD, open trade, and see a net profit of 135 USD. You close the position. Your position was +135 USD, so this amount will be added to your balance, and you will see the value of your balance is 1.135 USD. The same applies to all of your closed positions, with profit and loss. 

Margin: Margin is the amount of the currency that you have already invested from your balance. The calculation includes the leverage. (see the explanation about the leverage) Pips or points: In forex trading, pip is the measurement value of the currency pair. It is the second last digit in the currency pair. For example, if the EURUSD has a value of 1.15678, then the number 7 is the pip point. If the value of the EURUSD will go to 1.15788, then the currency pair moved 1 pip up. Some traders also use points as a measurement of the movement. Ask price: Is the price, you enter the market when you go long, or exit the market when you go short.

Bid price: Is the price, you enter the market when you go short, or exit the market when you go long.

Charts used in Forex trading

There are three types of charts used in forex trading.

Line Charts: Regarded as the most common and basic type of chart used by forex traders, line charts are used to identify big-picture trends for a currency. They tend to show the closing trading price for a currency for the periods specified by the user. There are trend lines identified in this chart that can be used to develop trading strategies. For instance, you can use the information in a trend line to identify breakouts or a change in trend for declining or rising prices. Line charts are generally used as a starting point for further trading analysis.

Bar Charts: They represent specific periods for forex trading. Bar charts provide more price information than line charts. Each bar chart stands for one day of trading and contains the opening price, closing price (OHLC), highest price, and lowest price for a trade. Colors are sometimes used to point out price movement, with white or green used for periods of rising prices and black or red for a period during which prices declined. In forex trading bar charts assist traders to identify whether it is a buyer’s market or a seller’s market.

Candlestick Charts: these were first used by Japanese rice traders in the 18th century. Candlestick Charts are visually more appealing and much easier to interpret than the other two chart types described above. The upper part of a candle is used for both the opening price and highest price point and the lower portion of a candle is used to indicate the closing price and lowest price point. An up candle represents a period of increasing prices and is shaded green or white while a down candle is a period of declining prices and is shaded black or red.

Forex market participants

1. Central banks: central banks play an important role in the forex markets. They are responsible for controlling the money supply, inflation, and interest rates and often have target rates for their currencies. They also use their substantial forex reserves to stabilize the market. However, the effectiveness of central bank “stabilizing speculation” is questionable since these banks do not go bankrupt if they make large losses as other forex traders would. Conversely, there is also no convincing proof that they make a profit from trading.

2. Commercial companies: An important part of the forex market comes from the financial activities of commercial companies seeking foreign exchange to pay for goods or services. These companies frequently trade fairly small amounts compared to those of speculators or banks and the impact of their trades on market rates is often short-term. However, some multinational corporations (MNCs) could have an unpredictable impact, especially when very large positions are covered as a result of exposures that are not broadly known by other market participants.

3. Investment management firms: these are firms that manage large accounts such as pension funds and endowments on behalf of customers). Investment management firms use the FX market to facilitate transactions in foreign securities. For instance, an investment manager bearing an international equity portfolio needs to buy and sell several pairs of foreign currencies to pay for foreign securities purchases. Some investment management firms also have more speculative specialist currency overlay operations, which manage clients’ currency exposures intending to generate profits as well as limit risk. While the number of this type of specialist firm is quite small, many have a large value of assets under management and can, therefore, generate large trades.

4. Hedge fund investors: hedge fund is an investment fund that pools capital from institutional investors and other accredited individuals and invests in a variety of assets, often with risk-management and complex portfolio-construction techniques.

5. Retail trader/ Individual investors: retail foreign exchange trading is a small fraction of the larger FX market where individuals speculate on the exchange rate between different currencies.

6. Forex brokers: these are financial services organizations that provide forex traders access to a platform for executing forex transactions. They serve as intermediaries between interbank currency facilities and traders

Risks of Forex trading

There are additional risks to FX trading than other types of assets because it requires leverage and traders use margin. Prices of currencies are continuously fluctuating, but at very small amounts. Hence forex traders need to execute large trades with the use of leverage to make money. The leverage will be considered if a trader makes a winning bet since it can magnify profits. However, leverage can also magnify losses, and it sometimes exceeds the initial amount borrowed. Additionally, if a currency falls drastically in value, leverage forex users open themselves up to margin calls, which enforces them to sell their assets purchased with borrowed funds at a loss. Transaction costs can also add up outside of possible losses, and possibly eat into what was a profitable trade.

 Furthermore, take note that those who trade forex are like little fish swimming in a pond of professional traders. Hence the Securities and Exchange Commission constantly warns about the potential fraud or information that could confuse new traders.