What Is Forex Trading

What is Forex

The forex (FX) market is the largest and most liquid financial market in the world with an estimated USD 5 trillion traded each day. It operates continuously, providing forex traders with 24-hour market access, but closes during weekends and applicable public holidays. 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 keep in mind that currency trading involves significant risk of loss. We suggest you first try your hands at forex investing via demo accounts, carry out your due diligence and choose a regulated reputable broker.

Some terminologies you should be familiar with

-Basic knowledge you should not skip

Currency pairs

In the forex market, all currencies are traded in pairs. The name of each pair comprises two currency abbreviations.

Example:

NZDUSD represents New Zealand 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.

 “NZDUSD is currently trading at “0.8000” means

 1 NZD (base currency) is equal to 0.8000 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

 NZDUSD, 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: the rate at which you SHORT/SELL the currency pair, in this case, it means you can short 1 NZD for 0.8000 USD

Ask: the rate at which you LONG/BUY the currency pair, in this case, it means 1 NZD costs you 0.8001 USD

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 a central bank.

The spread and currency rates may vary subject to numerous factors, for instance, brokers, platforms, market volatility etc.

Lot:Contract size, 1 unit of currency pair contract is called 1 lot, which is usually 100,000 units 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 NZDUSD for 1 lot

Non-margin trading:

You will need 100,000NZD equivalent US dollar, which is 80,010USD

Margin trading: (Assuming 1:100 leverage)

You only need 1000NZD equivalent US dollar, which is 800.1USD

Let’s put all these together

We assume NZDUSD is bullish

Scenario 1:

You Long/Buy 1 lot of NZDUSD

When you enter the trade, the ask price is applied, you want 100,000NZD which costs you 80,010USD

By the time you exit the trade, the bid price is applied, and you sell the 100,000NZD for 80,110USD