As with most things in life, like working out and dieting, money management is something that most traders preach but few, in fact, actively practise in real life. Why? Just like watching what you eat and hauling yourself from the sofa to the gym, regularly managing your money in forex can seem like a burden and is often thought of as a tiresome activity.
So, to help you identify how you could benefit from money management and potentially avoid losing money in forex trading, in today’s blog post, we’re discussing the importance of integrating money management into your forex trading strategy and detailing exactly how crucial this is for building long-term trading success.
‘Is forex trading profitable?’ those new to the forex market ask. Potentially, yes, so long as certain factors are considered and money is correctly managed to best aid success. Money management in forex refers to a particular set of rules that help you to maximise your profits, minimise potential losses and expand your trading profile. More often that not, it’s those new to forex trading who tend to neglect basic money management rules and end up blowing their accounts as a result.
So, even if you’re confident that you have the best trading strategy out there, this won’t be able to help you unless you have a sound understanding of risk per trade and reward-to-risk ratios, or if you trade too aggressively or don’t use stop-loss orders effectively.
Due to its volatility, the forex market is intrinsically risky. To safeguard your finances, money management should be considered a non-negotiable success strategy for both novice traders and forex veterans alike – after all, without proper money management, you simply can’t become a profitable trader.
For example, let’s consider the following scenario…
One trader has a brilliant forex trading strategy and is profitable 95% of the time, but they don’t manage their risk at all. Conversely, another trader has a trading strategy with an average 60% winning rate, yet they utilise and follow the best money management rules. Who do you think will finish the month with the most profits? The answer is our second trader, as the first is far more likely to lose their entire profits on a single losing trade.
Where many traders go wrong is in failing to realise that you shouldn’t only plan on gaining profit from a single trade, but, in fact, also base your strategy on achieving gains over a long period of time. This is where the ability to manage your finances and trade capital becomes vital.
Avoid trading aggressively – This is the downfall of many novice traders – so we suggest considering whether or not a small sequence of losses would be enough to eradicate most of your risk capital. If so, this suggests that each trade has too much risk attached to it. Having a strict, documented trading plan that contains aspects of money management will help you to manage risk, helping you avoid aggressive, emotional trading
Use stop-losses – A stop-loss order will guarantee that you won’t lose a substantial amount of money on a single trade, and will shield your investment from unexpected shifts in the market. Since the possibility of a loss always exists, set your stop-loss order so that it exceeds no more than 2% of your trading balance for any given trade
Understand leverage – Although leverage offers the opportunity to magnify profits made from your available risk capital, traders need to understand that a higher leverage also increases the potential loss per trade. As a result, we suggest only using leverage when you have a clear understanding of the potential losses
Think long-term – Naturally, a success or failure of a trade will be determined by how it performs in the long term – so ensure you remain wary of risking your future success by placing too much importance on the success or failure of a current trade. In addition to this, ensure you refer to a forex economic calendar, keeping up-to-date with current affairs and other developments in the news to inform your strategy and money management for future trades
As we hope you can now see, money management in forex is as varied, flexible and full of potential as the market itself. The golden rule to follow is that all traders in this market must practise some form of it in order to see potential profit and to be deemed successful. For more useful tips and professional advice on how to best prepare yourself for your trading journey, sign up to one of our free seminars, where you can learn forex strategies that are sure to put you in good stead for your forex career.
As a globally interconnected, 24/5 digital trading market, taking it back to basics with a pen and a piece of paper could well be one of the most effective forex secrets there is. Why? Well, today, we’ll be answering exactly that – detailing 3 reasons you should be keeping a trading journal, regardless of your experience or ability on the forex market.
Review your trades in one convenient place
Your trading journal should primarily serve as a place to document the details and statuses of all of your trades. As such, documenting your trade history enables you to effectively review your trades to obtain a better understanding of your strategy and trends.
At the very least, you should be reviewing your trades with the following factors at the forefront of your evaluations:
Entry and exit day
Entry and exit price
Profit or loss
The most effective way to learn forex trading is to have a thorough understanding of what works for you.As a result, reviewing your own trades is a great learning tool as it focuses on firsthand experiences, enabling you to better comprehend successes and failures.
It’s a great learning opportunity
With that in mind, perhaps the most important reason to keep a trading journal is that it provides you with a great opportunity to learn and grow – making a trading journal an essential forex trading tool for beginners.
As aforementioned, when reviewing your trades you should be able to accurately identify where things went wrong (or right!). Utilise these findings as learning tools to better inform your strategy moving forward, ensuring you don’t make the same mistakes twice. This applies to both the forex novice and expert alike – no matter how long you’ve been trading, there’s always something to learn when it comes to forex!
Everything in one place
From those all-important dates on the forex calendar to the status of multiple open trades, you can quickly become inundated with all things forex. Keeping a trading journal is a very effective way of combating this, keeping everything relating to your trades in one convenient place.
Amidst a volatile market environment, stress levels can understandably rise at a rapid rate. Consequently, keeping a trade journal is a great way to provide a little welcome relief by ensuring you’re on top of everything at all points in the process.
What’s more, by having all the relevant information on your trades kept in one place, you increase your ability to act reactively to sudden market changes. In the world of forex, timing often makes all the difference, so being able to seek information quickly may help to turn losses into profits.
It’s easy to see why keeping a trading journal is so valuable. With that in mind, ensure you have all the fundamental market knowledge to effectively utilise yours by signing up to our free industry seminar right here.
With numeracy playing an integral role in today’s society – both in regards to personal and professional financing – it may come as a surprise to you to learn that 49% of adults in the working-age population of England have the same level of maths skills as those in primary school education. That’s right, almost half of English working adults have the same level of understanding as an 11 year old! Coupled with an increased reliance on technology and a greater dependence on smartphones to work out simple sums, this has the potential to gradually reduce a person’s ability to access this particular skill, meaning that there’s no better time than right now to start feeling confident about your calculations.
Today, we’re celebrating National Numeracy Day for the second year in a row in a bid to help both adults and children brush up on their maths skills. So, whether you’re keen to refresh your memory on calculations you haven’t carried out without a calculator since the noughties, or you simply want to understand why having good numeracy skills is as important as it is, today’s blog will help you help yourself this National Numeracy Day.
Confidence is key
A common misconception amongst today’s international community is that having a solid understanding of maths is only relevant if you intend on going into a specific career, such as accountancy or trading, that requires this as standard – however, this couldn’t be further from the truth. When it comes to knowing your numbers, people from all walks of life require a mathematical competency to help them effectively work out their household budget, plan a holiday, understand interest rates or save for retirement.
Having good numeracy skills doesn’t necessarily mean knowing your algebra from your trigonometry, but being confident in understanding how to work out an equation that pertains to your own life instead. So, once you’re able to tap into your mental maths skills and confidently figure out an equation, this will put you in good stead to use this problem-solving technique in all aspects of your life – both professionally and personally.
The importance of financial literacy
With statistics claiming that those with poor financial literacy are more than twice as likely to face unemployment than those with a good maths awareness, encouraging a focus on harvesting solid basic maths skills is crucial to reducing unemployment and aiding both the national and international economy. Additionally, it’s worthwhile noting that in a digital age where technology is constantly advancing, having a workforce terrified of adding and subtracting is a sure way of facing economic decline. As a result, UK workers need to retain and regularly act on their mathematical ability to effectively compete in global financial markets.
It might surprise you how regularly maths is used in day-to-day life. If you’re preparing for your future, understanding maths has the potential to help you make better financial decisions, including helping you to evaluate interest rates on mortgages and understanding how pensions really work. Not only does this help you understand current goings on in day-to-day life, but by mentally stimulating problem solving abilities, maths helps to strategically evaluate a whole host of external situations.
Tips to help you improve your relationship with numbers
Learn from your mistakes – Don’t be afraid to start from the beginning and build a good relationship with numbers by embracing and learning from your mistakes. As with anything in life, it rarely matters if you get something wrong so long as you learn from it and use the experience to better yourself the next time around. After all, everyone has to start somewhere and with every mistake is a lesson to be learned.
Believe in yourself – Maths isn’t easy – there, we’ve said it. But if you go into it with the mindset that you actively want to learn, then you will – maybe not immediately, and probably after a few errors, but you’ll get there if you believe that you will.
Don’t rush the process – Often when you’re doing a sum under pressure or in a hurry, you jeopardise your ability to process the question properly and potentially rush workings out – costing you time, effort and your sanity as a result. Take your time, and write it out – draw pictures or even turn the equation into a rhyme if you have to! Anything that will help you slowly but surely understand the method behind the maths is a winner in our book.
Use readily available tools – There are plenty of tools out there ready to help improve your maths skills. This National Numeracy Day, why not join those all over the country taking up the National Numeracy Challenge? This easy tool will assess your level of numeracy knowledge and set an achievable target with plenty of useful resources to help you achieve your goals – all in your own time. Alternatively, if you work better within a classroom environment, there are plenty of free adult courses all over the country that are ready to help you reach your full potential.
As with most matters in life, when you put your mind to something, you can achieve it. So, whether you’re looking to brush up on your maths skills to help you advance in your position within the forex market, or simply want to start from scratch and expand your mathematical knowledge, join the community in celebrating National Numeracy Day, today! For more information, keep up to date with what’s going on on the National Numeracy Day website, and follow us on Twitter to keep up with our activity surrounding the special event.
When it comes to strategy, reversal trading is a tried and tested method proven, when executed correctly, to be one of the best ways to trade forex. But what is this popular trading approach and how can you incorporate this useful weapon into your daily forex arsenal? Luckily, today we’re showing you how by helping you understand why this advanced strategy continues to have profitable potential.
So first things first, what actually is reversal trading?
In layman’s terms, a reversal trade is a setup that reverses (either up or down) the direction a price has been moving in. It capitalises on advantageous market entry, opening a position at a prosperous price and riding the momentum to profit, sell or buy when the market is about to reverse direction.
A reversal is identified by observing your forex signals, with a price falling from an established high in a bullish market or, juxtaposingly, rising from an absolute low amidst downtrend in a bearish market.*
*Not yet familiar with all the day to day trading jargon? Not to worry! We’ve put together an industry glossary detailing an array of definitions for the most commonly used words, terms and phrases within the world of forex – you can find it right here!
How do I spot these reversals?
While it’s easy to identify reversals after they happen, the real skill is recognising them as they develop. After all, that’s where the potential profit is made! Check-in with your forex indicators and charts, keeping the following at the forefront of your observations:
Downtrend – This is defined by a recurring series of lower highs and lower lows, with the market eventually hitting rock bottom with an absolute low price value. From here, a reversal takes place with an upward trending price action, establishing a recurring series of higher highs and higher lows
Uptrend – In contrast, uptrend is a consistent series of periodic higher highs and lower lows. Subsequently, the market eventually reaches an absolute high value price, where a reversal then occurs marked by the downward trend of price of action
When do these reversals happen?
Market direction changes frequently, with reversals occurring suddenly within seconds or as a result of gradual development. All it takes is an imbalance of supply and demand caused by an increase in participation. As a rule of thumb, there are 2 main forex indicators that signal the possible occurrence of a market reversal:
Technicals – To the strategically sufficient analyst, technicals can serve as clear reversal drivers. From pivot points to moving averages, a technical analyst can interpret plenty from their forex charts to accurately predict when a market reversal may take place
Fundamentals – The less experienced forex trader should instead turn their attention to fundamentals as a means of predicting a market reversal. Consider external and internal events that may have an impact on the market – anything from changes in monetary policy to breaking news can wreak havoc on the stability of a market’s direction
Though a single event can (and indeed has and will) cause a market reversal, a reversal is more commonly a cause of the convergence of both technical and fundamental factors.
So when do I trade?
In essence, reversal trading is a counter-trend method.
A trader enters the market against a price momentum, which greatly increases their risk of sustaining large drawdowns. However, this tactic can prove especially profitable if timed correctly – as such, timing is everything. When implementing a reverse trading strategy, be sure to consider the following:
Risk/reward – As mentioned above, reversal trading can be a risky strategy, leaving you open to potentially quick losses. Though this should be the case in all trades, adherence to risk vs reward consideration is consequently vital before placing a reversal trade
Trade selection – In order to obtain any considerable success through this strategy, you must be sure the accelerants of market reversal are at play. The convergence of fundamentals and technicals may provide credence to a directional change, so be sure to keep one ear to the ground at all times and time your trades perfectly
The modern digital forex market moves fast, with high levels of speed and velocity. Subsequently, reversal trading can be a risky and potentially dangerous strategy when not executed to perfection. As such, why not look to brush up on your forex knowledge and strategy by attending one of our free two-hour educational seminars? You can sign up right here!
For many, the strongest appeal of the forex market is its accessibility. Open 24/5, traders can enter and exit the market at times convenient to them, allowing them to work their trading around their normal day-to-day life. For the experienced trader, this enables them to spend as little as 30 minutes a day on the market while still making a substantial income on the side.
However, reaching the level of expertise where 30 minutes of chart checking a day will suffice necessitates an advanced comprehension of strategy and market movement that, in itself, requires a substantial amount of time and effort to obtain. That’s why today, we’re offering up our best forex tips on how (and why) to make time for the forex market – after all, time is money.
Keep forex at the forefront of your mind
We understand that your day-to-day life is hectic enough as it is. Therefore, an effective way of making more time for foreign exchange trading is subsequently to keep forex at the forefront of your mind, taking every situation as a potential learning opportunity.
This is especially true when consuming current affairs. Whether you prefer to read a newspaper, listen to a podcast or watch the 6 o’clock news, begin to observe current affairs through a trader’s lens, asking yourself ‘how will this affect my trades?’. With everything from geopolitical tensions to natural disasters having an impact on currency valuation, start to view the global news as your daily forex news outlet instead – ensuring you’re up to date with all the latest market context without the added hindrance of making extra time in the day.
Reconsider your watchlist
Managing expectations is imperative to the success of any forex trader. For novices and veterans alike, the sheer size of the world’s most liquid market means that temptation is ripe, with a multitude of potentially profitable trades catching your eye at any given time. As such, it’s common for traders to have a vast array of pairs on their watch list.
The continuous overseeing of a large number of currency pairs is, however, incredibly time consuming. Indeed for many part-time traders, it’s an unrealistic expectation to stay on top of an ever-expanding watchlist. Instead, reduce the amount of pairs you watch and dedicate a set time to check-in on your charts and indicators each day. During this time, pick out the pairs you predict could provide set-ups – there are many trading tools that can assist here, allowing you to set alarms that subsequently notify you if the price reaches a particular level.
Pick an overlap window (and stick to it)
Though forex trading hours dictate an ‘open all hours’ policy throughout the working week, there are periods that boast higher potential profitability than others. In the interest of time efficiency, pick one of these windows and set time aside each day to trade within it.
Deciding upon which window is right for you depends on a variety of factors (which we’ve covered in another blog post right here), however it is fundamentally dictated by your choice in base currency. For any major pairings, the New York/London overlap is your best bet. Running between 1pm-5pm GMT, this 4 hour window not only boasts the longest overlap period of all the windows, but also lays claim to the highest levels of volatility – it’s why more than 70% of all daily trades on the forex market are placed during this time.
Making time to trade forex isn’t always easy, but it’s an absolute necessity to anyone desiring any substantial profitability. As such, look to incorporate these tips into your daily schedule – not forgetting to set 2 hours aside for our free, expert-led industry seminar… you can sign up right here!
Welcome to the Learn To Trade industry glossary – your comprehensive, go-to guide for all things forex, detailing an array of definitions for the most commonly used words, terms and phrases within the world of foreign exchange trading.
Balance of trade – The balance of trade is calculated by the value of a country’s exports minus their imports.
Bar chart – A chart that shows four significant points: the high and low prices, the opening price and the closing price.
Base currency – The base currency is the first currency in a pair currency, showing how much the base currency is worth when measured against the currency it’s paired with. The US dollar is normally considered the base currency for quotes, however, the British pound, euro and Australian dollar are exceptions.
Base rate – This is the lending rate of a country’s central bank.
Basing – A pattern used in charts that can show if a product’s demand and supply is almost equal.
Bearish/Bear market – A term used by traders to suggest they think one currency is going to weaken against another.
Bears – Describes a trader who is expecting prices to decline and holds short positions.
Bid/Ask spread – This identifies the difference between the bid price and the ask price.
Bid price – Put simply, this is the price at which the market is prepared to buy a financial product.
Big figure – This refers to the first three digits of any currency quote.
BIS – Abbreviation for the Bank of International Settlements, which is located in Basel, Switzerland. The central bank for central banks.
Black box – This is the term that describes a systematic or technical trader.
BOC – Abbreviation for the Bank of Canada which is the central bank of Canada.
BOE – Abbreviation for the Bank of England which is the central bank of the UK.
BOJ – Abbreviation for the Bank of Japan which is the central bank of Japan.
Bond – This describes a type of debt that’s issued for specific time periods.
Broker – An individual or a firm that brings buyers and sellers together for a fee or commission.
Bullish/Bull market – A term used by traders when they believe one currency will strengthen against another.
Bundesbank – This is Germany’s central bank.
Buy – To buy a financial product with the expectation that it will rise in value.
G7 – The Group of Seven major economies as reported by the International Monetary Fund (IMF). There are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
Gapping – A quick market move, usually following an economic news announcement, in which no trades occur.
Go long – Buying a currency position with the expectation that it will increase in value.
Go short – The opposite of going long; entering a trade with the expectation that the currency pair will decrease in value. Note that every forex trade requires one trader to go long and another to go short.
Gold standard – Now obsolete monetary system in which the value of a currency was defined in terms of a fixed amount of gold. The system was abandoned during the Great Depression of the 1930s but fluctuations in gold prices still have a marked effect on currency markets.
Good ‘til cancelled (GTC) – A trade order that is left with a dealer to buy or sell at a fixed price. The order stays in play until specifically cancelled by the client.
Good ‘til date – A trade order that will last until a stipulated date, if it is not filled in the meantime.
Gross domestic product – The value of all goods and services produced within a country or region over a given time period – generally measured quarterly or annually.
Guaranteed stop – A stop-loss order that guarantees to close your position at a pre-specified level if the market moves to or beyond that point.
Handle – The part of the price quote belonging to both the bid and the offer. If the EUR/USD currency pair, for example, has a bid of 1.4231 and an ask of 1.4255, the handle would be 1.42. Also known as the big figure.
Hawkish – If a country’s monetary policy-makers (usually the central bank) are hawkish, they believe that interest rates should increase. This is usually a response to high inflation.
Head and shoulders – A common chart pattern with a high peak (the head) that can be seen between two lower peaks (the shoulders).
Hedging – Reducing the risk of adverse market movements on a trader’s portfolio to guard against volatility. There are various hedging strategies but all seek to minimise losses in the event of an unexpected market movement.
High/low – The daily high and low prices for a given currency pair.
Hit the bid – Sell everything at the current market bid.
HK40 – The Hong Kong Seng Index
Hyperinflation – A period of very high inflation. There is no defined rate at which an economy enters hyperinflation but economists generally consider monthly rates of 50% or higher to be hyperinflation.
International Commodities Clearing House (ICCH) – A clearing house based in London for future markets around the world.
International Foreign Exchange Master Agreement (IFEMA) – This is the agreement set forth by the Foreign Exchange Committee to reflect the best practices for conducting transactions in the foreign exchange market.
Illiquid – An illiquid currency pair lacks liquidity and does not have an active secondary market. This can make it difficult to find a price to trade on.
The International Monetary Market (IMM) – A currency futures market based in the Chicago Mercantile Exchange. IMM futures are traded on the floor of the Chicago Mercantile Exchange and the IMM session runs from 8am to 3pm New York time.
Implied rates – The interest rate as determined by calculating the difference between spot and forward rates.
Industrial production – A measure of an economy’s output as produced by manufacturers, mines and utilities. This can serve as a good indicator of forthcoming employment and personal income data.
Inflation – A sustained increase in the price level of goods and services in an economy over a period of time. Essentially, each unit of currency buys fewer goods or services, lowering its real-terms value.
Interbank rates – The forex rates that large international trading banks such as Deutsche, Citibank and the Bank of Tokyo will quote between each other. Individual traders do not have access to these rates.
The International Monetary Fund (IMF) – An international organisation headquartered in Washington DC that aims to promote international monetary cooperation, international trade, employment, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty.
Intervention – In financial terms, this generally refers to the intervention of central banks to influence the value of their associated currency.
Intraday trading – An intraday trader is one who opens and closes his or her position in the same day or trading session. Intraday traders typically capitalise on small moves in the market using leverage.
J curve – A diagram where the curve falls at the outset before rising to a point higher than the starting point (suggesting a letter ‘J’). In financial circles, this generally indicates a period where an initial loss is followed by a significant gain for an overall profit.
Japanese machine tool orders – An economic news item relating to the Japanese yen. It’s a measure of all new orders within the country, places with machine tool manufacturers. This provides a strong measure of the demand for companies that make machines, providing an indicator of future industrial production. An indication that manufacturing is improving generally signifies economic expansion.
JPN225 – Another name for the Nikkei 22, the most quoted stock market index for the Tokyo Stock Exchange.
Keeping your powder dry – Limiting your trading activity while conditions are unfavourable and waiting until they improve before making your move. The phrase comes from military/naval use of gunpowder.
Kill of fill – An order that cannot be partially filled. It’s all or nothing – if it cannot be completely filled, the order is cancelled or ‘killed’.
Knock-in – A trading option requiring the underlying pair to trade at a certain price before a previously bought option becomes active. The strategy can be used to reduce premium costs and can also trigger hedging activities.
Knock-out – A trading option that negates a previously bought option if the underlying spot price hits a specified level.
Ladder option – This option locks in gains when the underlying asset hits certain price levels, like rungs on a ladder. These gains remain locked in, even if the price drops subsequently.
Leverage – Also known as a margin, this is the multiplier that allows you to trade notional values higher than the capital you have in your trading account. A leverage of 50:1, for example, means you can trade 50 times more than the amount you have in your trading account.
Liability – In strictly forex terms, liability is the obligation to deliver an amount of currency to a counterparty on a specific date. It can also be used in more general terms to refer to any potential loss, debt or financial obligation.
The London Inter-Bank Offered Rate – This is the rate that banks use as a base rate when lending between one another.
Limit order – an order to make a trade only at a specified rate or better. This can be used in either direction: to buy at lower levels than the current market of sell at higher levels.
Limit price – The rate or price specified as part of a limit order.
Liquid market – A market that has sufficient active buyers and sellers.
Liquidations – In forex terms, this is the act of closing our short of long positions by offsetting transactions. In general terms, it can also be used to refer to the selling of a bankrupt entity’s assets.
London session – The London trading session, between 8am and 5pm GMT.
Long position – A position where the base currency in a currency pair is bought, with the expectation that the market will rise. The position increases in value when the market price increases.
Loonie – Slang term for the US and Canadian dollar (USD/CAD) currency pair.
Macro trader – The longest-term trader. The holding period can run from six months to years.
Manual trader – A trader who inputs his or hers trades manually, i.e. without using an API, or application programming interface.
Manufacturing production – A subset of the industrial production figures that can serve as a good indicator of forthcoming employment and personal income data. This refers only to the manufacturing part of the overall industrial production.
Margin – Also known as a maintenance margin, this is the amount of collateral required to maintain an open position. To keep an open position of £100,000 with a leverage of 50, for example, you would need a margin of £2,000.
Margin call – A call for additional funds or collateral to cover a position that moved against the trader.
Mark to market – Recording profits and losses at the end of a trading session, according to the value of all open positions at current market prices.
Market close – The end of the trading session. The forex market is active 24 hours a day, since one market opens as another one closes. Most traders stick to certain sessions and some are more active than others.
Market maker – A dealer who enables a two-way market by quoting both the bid and the ask prices.
Market order – An order to buy or sell at the best possible price.
Market rate – The current quote for a given currency pair.
Market risk – Level of exposure to changes in market prices and conditions.
Maturity – The date on which the settlement for a transaction is due, where the date is predetermined at the time of entering the contract.
MoM – Month on month. The change in statistics and other data relative to the level of the previous month.
Momentum traders – Traders that follow an intra-day trend attempting to grab 50-100 pips.
Forex currency pairs are the bread and butter of currency trading, forming the foundation of every trade and serving as the measuring posts for potential profit and loss. But what exactly is a currency pair and how exactly does this means of currency trading work? Let’s take a closer look…
An introduction to currency trading
Let’s start with the basics. At its most basic, forex trading is the buying of one currency and the subsequent selling of another – these two units make up our currency pair.
A trade is placed when a broker speculates one currency will rise or fall in value (strengthen or weaken) against another, buying or selling accordingly with the aim of making a profit from movement in foreign exchange rates.
What is a currency pair?
To readily judge the fluctuations in these values, one unit must be measured against another.
As such, a base currency is used as the foundation of the trade and is measured against the quote currency – this quote currency thus informs a trader of the value of that unit against 1 unit of the base currency. For example, if the USD/GBP pairing is trading at a market value of 1.1000, it means $1 is the equivalent of £1.30.
The base currency therefore acts as the informant for buying or selling a trade. In the aforementioned example, if a trader believed his USD base would strengthen against the GBP, he would buy the base (USD) and subsequently sell the quote (GBP).
To use some traders’ jargon, the buying of this base currency is a forex trading strategy known as ‘going long’ (hoping to profit from a rising pair). The selling of your base, on the other hand, is known as ‘going short’.
The most frequently traded pairs on the forex market are the majors. These 8 popular currencies all contain the USD within their pairings as either a base or quote, boasting the lowest spread and most liquid trades of any currency pairings. These 8 major currencies are:
US dollar (USD)
Great British pound (GBP)
Japanese yen (JPY)
Canadian dollar (CAD)
Swiss franc (CHF)
New Zealand dollar (NZD)
Australian dollar (AUD)
Of all these majors, the EUR/USD pairing is the most commonly traded, accounting for almost 30% of all daily trades on the forex market.
Pairings that don’t trade with the USD are known as cross-currency or crosses.
With the USD historically acting as the base for all conversion rates (you can find out all about how and why this was the case right here), a currency would traditionally need to be converted into US dollars and then converted into the desired unit to establish a set exchange rate. With the introduction of cross-currency pairings, brokers are now able to offer a direct exchange rate.
The most popular of these crosses are pairings including the three major non-American currencies – the euro, the British pound and the Japanese yen. These pairings are more commonly referred to as ‘minors’.
Though the term may sound tantalising, exotic pairings are made up of currencies from smaller, emerging economies that subsequently lack liquidity within the market. As such, trading these pairings can often be more expensive. Popular exotic currencies include:
Turkish lira (TRY)
Swedish krona (SEK)
Norwegian krone (NOK)
Danish krone (DKK)
South African rand (ZAR)
Singapore dollar (SGD)
Hong Kong dollar (HKD)
So there you have it
Now that you understand the inner workings of currency pairings, why not look to further expand your knowledge of the forex market by attending a free, expert-led seminar? You can sign up right here!
Risk management is of fundamental importance to a trader’s success on the forex market. In a risky and volatile trading environment, the ability to minimise the likelihood of losses can make all the difference, often being the defining factor that separates the proverbial men from the boys. That’s where hedging comes in.
In today’s post, we’re taking a closer look at what hedging in forex actually is and how you can use forex hedging strategies in your own trades to reduce the possibility of losses – enabling you to learn from your strategic mistakes without the added financial implications.
So, first things first: what is hedging forex?
Direct hedging allows a trader to buy a currency pair and, simultaneously, place a different trade selling the same currency pairing. Although the total net profit is subsequently zero while both trades remain open, more money can be made if your market timing is right – all without any additional financial risk.
This foreign exchange hedging strategy protects you by allowing you to trade in a contrasting direction to your initial trade without having to close the latter. This means that, regardless of whether the market is moving with or against your initial trade, you’ll be protected by your opposing second trade.
Here’s an example:
A trader buys a USD/GBP pairing with the USD as his base currency, and a contrasting GBP/USD pairing with the GBP as his base. The market moves against his first trade, with the GBP falling in value against the USD. However, the trader’s losses are insured by his second pairing, with the USD rising in value against the GBP. When the trader suspects the market will reverse in favour of his initial trade, he can close his second trade and begin reaping the profits of the first.
To put it (very) simply:
By placing a trade against yourself, you’re creating a ‘win-win’ situation where any losses are counteracted by your profitable contrasting trade.
But it gets a little more complicated than that:
Unsurprisingly, brokers are beginning to ban direct forex hedging strategies from being placed on the same account. There are alternatives, though.
A less secure foreign exchange hedging approach is to use two alternate pairings. For example, a GBP/USD and USD/CHF pairing would hedge your USD exposure. However, this does create uncertainties. Fluctuation in the valuations of GBP or CHF could cause an unbalanced counter-trade, with the shift in one currency not necessarily mirrored in the second trade.
If hedging in forex with this technique, be wary of the risk of value fluctuations. Be smart and logical in your pairing choices, picking a strong and consistent base currency.
If you’d like to put these tips and tricks into action, learn forex trading from our team of industry experts by signing up to one of Learn To Trade’s free seminars right here.
As one of the leading trading educators in the world, our voice can have an impact. The way we talk about forex trading and who we talk about it to, has a huge influence on the type of people that end up walking through our doors, and even the doors of our competitors. This International Women’s day we’re asking ourselves one very important question. How can we help to balance gender disparity in the trading industry?
Since we opened our doors 16 years ago we’ve helped train over 300,000 people how to trade on the foreign exchange market. Now we can’t give you the exact statistic, but if you asked us how many of those people were women, we’d have to say around 30%. And that’s being generous.
We know this isn’t because women are not interested, or not capable. So, to find out more about how we can balance the scales, we sat down with one of our newest trader students Julie Davies, to discuss her introduction to trading and how she thinks we can make the trading industry more inclusive.
Why do you think men dominate the trading industry?
This is a question I’ve been asking myself a lot lately since I enrolled on the course.
Although I’ve only recently become interested in the currency market, I studied economics at A Level and enjoyed finance as part of my Business Degree and MA. But as soon as I dismissed the idea of being an accountant, I never explored any other options. I guess because the stereotype of the City as a place ‘run by men for men’ put me off. I didn’t want to enter such a male and often misogynistic industry.
We don’t see that image of the city going away any time soon, so how can women start to make changes?
For me, I found a way back into finance that suited me. There are different ways to get involved in the industry and luckily forex trading is something you can do without even stepping foot in the City. You can trade from home and trade very successfully at that! Of course, that doesn’t solve the overall issue. But every step is worth it, no matter how small. Who’s to say that my daughter won’t be inspired by me trading from home and take on the industry by storm when she’s older?
Women have a proven track record of being some of the best traders and finance professionals, we certainly see that on our trading floor. How do you think we can help to champion this notion?
I think the time has come to eliminate the idea that trading is a man’s game and build the confidence in women to learn, understand and feel empowered enough to buck the trend. I’m definitely on that journey now and keen to spread the word. Sometimes it’s nothing major, it’s just talking about female success in the same way you would male. Highlight our wins, bring us into the conversation.
How can we support more women wanting to get involved in finance or learn to trade themselves?
Encouraging more women to enter the finance profession generally and ultimately take up positions of leadership will help improve visibility and promote a more positive gender balance. The more organisations do to promote and support women from graduate hires right through to succession planning to board level the better.
I also think that understanding how money works is an essential part of being empowered and something to start as young as possible in schools.
What is it that attracted you to forex trading?
I Ieft my permanent job a year ago and set up a coaching business so I’m moving into the entrepreneurial space. This was a way for me to hopefully have some extra income to grow my business.
Probably the best thing about it, is the flexibility. The beauty of this if that I don’t have to leave my house. Trading from home works flexibly around family life so I’m not making compromises for home vs. work.
What are you looking forward to as you start your trading journey?
Personally, I’m looking forward to creating wealth, financial freedom and choice for myself and my family over the coming years. I also know this is a skill that I can pass on to my children and share with my family. My daughter will have exposure to forex trading from age 11 and I could not be happier!
So, consider this a call to arms for anyone interested. Come and help us balance the scales. We want the women founding their own businesses or supporting new initiatives. Women refusing to make compromises or sacrifices in any one area of their lives. Brilliant and trail blazing women not content to live with the status quo. Our doors are open.
The ‘open all hours’ 24/5 aspect of the forex market can be one of its greatest appeals, but to inexperienced trading novices, the desire to hit the market running right away can be their immediate downfall.
Though it may be tempting to trade all day and night, this strategy can not just deplete a trader’s reserves rapidly, but can also burn out even the most avid of forex traders. That’s why in today’s post, we’ll be showing you the best time to trade forex, offering our expert forex trading tips and tricks to demonstrate that (sometimes) timing is everything.
When does the forex market open?
Unlike other trading markets, the opening hours of the forex market are determined by four separate time zones, meaning trading windows are consistently open. The opening times of the four markets are as follows (times given in GMT):
London – 8am
New York – 1pm
Sydney – 10pm
Tokyo – 12am
When does the forex market close?
The closing times of the aforementioned four markets are as follows (times given in GMT):
London – 5pm
New York – 10pm
Sydney – 7am
Tokyo – 9am
When to buy and sell forex
To incorporate the day-to-day business hours of the various global time zones, there are overlaps in the market hours. These overlaps provide the best opportunity to trade, as overlaps result in higher price ranges and, subsequently, better opportunities. Everyday, there are three market overlaps (times given in GMT):
New York/London (1pm-5pm) – The New York/London overlap is the longest that occurs, providing a 4 hour trading window. This window is the best time to trade forex in the UK, with more than 70% of all trades occurring in this time. Consequently, volatility is high
Sydney/Tokyo (7am-9am) – Although not as volatile as the New York/London overlap (due to the Euro and USD being the two most prominently traded currencies), this window still offers the opportunity to trade in a window of higher PIP fluctuation. It’s best to trade with the primary currencies influenced by this overlap; trading in EUR/JPY pairings is our top tip here
London/Tokyo (8am-9am) – Seeing the least amount of trading action, this small overlap window gives little opportunity to see large PIP changes occur
As a rule of thumb, the most optimal time for trading is when the market is most active. This occurs during these overlap windows, with heightened trading activity leading to greater fluctuation in currency pairings.
But which market is right for me?
Choosing which market to trade on should generally be influenced by your choice in base currency. Each boasts its own individual advantages, however:
London – Dominating the currency markets across the globe, London serves as the trading capital of the world. With just over a third of global trading thought to go through the city, heightened market activity is guaranteed during UK hours of operation
New York – The globe’s second largest forex giant, the New York market is heavily observed by foreign investors – this is hardly surprising given how an unrivalled majority of currency trades involve the USD
Tokyo – GBP/CHF, GBP/JPY and USD/JPY pairings are the ones to watch within these trading hours, with the latter performing particularly well when Tokyo is the only open market – this is due to the heavy influence the Bank of Japan has over currency exchange rates and activities
Sydney – Despite this being the smallest of the mega-markets, the Sydney market does experience a lot of initial action as the first market to reopen after the weekend break
Now that you know which market hours best suit you and your trading desires, ensure you know how to put your strategy into practice by attending one of Learn To Trade’s free industry seminars. You can sign up right here.