What is Forex?

Forex is the global foreign exchange market that enables you to exchange a currency to one another. Each currency represents a nation’s economy.

When you go to a currency exchange booth at the airport, you can see an electronic display screen with different exchange rates for various currencies.

The exchange rate is the comparative price of two currencies from two other countries. Exchanging your local currency to foreign currency is also a form of forex trading! 

The foreign exchange market is a substantial financial market in the world. It is a global and decentralised market available 24hours a day, 5 days a week.

Since it is an OTC(over-the-counter) market, the data for exact volume is not crystal clear. And yet, it is estimated to be 6.5~7.0 Trillion USD per day! 

Banks and corporations generate most of the trading volume. The second-largest volume is from retail traders speculating currency pairs to gain profit in the future. And only a portion of currency transactions happens in the physical economy. Such as buying products online and exchanging local currency to one another for travelling.

Why Should We Trade Forex?

Foreign exchange market enables traders to bet their position base on the economic status of a country.

Therefore, trading forex implies you are trading the entire economy. It is a cutting-edge advantage compare to other financial instruments! 

More advantages empower traders.

• Position Direction: In forex, you can both long and short your position. For example, when you buy the EUR/USD pair, you are longing EUR and shorting USD in one single trade simultaneously.
• Ease to Access: Since the market operates 24/5 across the globe, it is accessible at any time you desire during the day. It offers you the option to trade whenever you want.
• High Liquidity: Forex market is the MOST liquid financial market in the world. Therefore, you do not have to worry about losing a portion of profit due to slippage. The only thing to concern is the trading fee imposed by the brokers. Most brokers offer ZERO fees and levies the cost on the spread.
• Wide Variety: United Nation advocates that there are officially 180+ pairs of currency that are legal globally. The combination of available currency pairs is massive. And yet, there the most preferred and liquid currencies around the globe like USD, EUR, GBP and JPY.
• Leverage: The brokers borrow capital for traders to utilise margin and leverage. It endows the power for traders to maximise their profit with a smaller amount of fund.

What to Trade in Forex?

Trading forex means you are trading money against another kind of money. There are three types of Forex currency: Major, Minor and Exotic.

Major currency pairs are most frequently and widely traded currencies that represent the world’s largest economy.

Minor currency pairs are those with no US dollar. It is named minor or crosses currency pairs.

Exotic currency pairs are currency pairs with a combination of one major currency and a currency of an emerging country like Mexico, Vietnam, or Turkey.

When Can We Trade Forex?

The Forex market starts each day in Australia and ends in New York. Major forex centres are at Sydney, Hong Kong, Singapore, Tokyo, Frankfurt, Pairs, London and New York.

It opens at 10 PM GMT on Sunday and closes at 10 PM GMT on Friday. The reason why it is available 24 hours day is due to different time zones around the world.

It runs on a decentralised network of a computer at all hours of the day, and it is also an OTC(Over-The-Counter) market with no cleaning house like the stock market.

Who is Trading in the Forex Market?

Central Banks

Central Banks are the face of a nation’s government which plays a vital role in the forex market.

They are responsible for stabilising their country’s currency via trading their notes on the open market to maintain a similar value to other currencies or increase the competitiveness of that nation’s economy.

For example, depreciating the currency using a monetary policy, supplying more money to the public, it would deliberately make exports more competitive in the global market.

It is because of the depreciation(fall in value) of the local currency, which makes domestic products became cheaper to foreign countries.

Commercial and Investment Banks

Interbank market generates the most amount of volume. It means banks are trading currency with each other through their private networks which retail traders could not access. They place these trades for clients and speculative bets from their trading desks.

Multinational Corporations

Any corporations involved in importing and exporting their goods and services, they are compulsorily engaged in the forex market.

Revenues from abroad have to be converted to their local currency to pay the bills for hiring workers and operation facility as well as research and development.

Corporations also trade foreign exchange to hedge the risk of the volatility of the currency as it is directly related to their revenue.

Retail Traders

The trading volume by retail investors is tiny when we compare it to the giant banks and corporations.

But, demand and popularity are increasing, provoked more forex brokers to emerge. Retail investors trade currencies by considering technical analysis, fundamental analysis and sentimental analysis.

With cutting-edge trading platforms, there are lots of individual traders build-up their trading bots or called EA ( Expert Advisors) with consistent and stable profits.

Hence, copy-trading is also an easy and straightforward way to engage with system trading for beginners!

How to Trade Forex?

Step 1: Choose a Broker that is Regulated and Reliable.

• It is a MUST to pick the right broker.
• Unregulated brokers may manipulate the price and even trade against the clients.
• Please take into consideration our Methodology to pick a right forex broker.

Step 2: Choose an Account Type that is Suitable for You.

• Brokers offer several accounts types.
• Every account has different conditions in terms of minimum deposit, leverage, spread and financial instruments.

Step 3: Choose the Trading Platform that you Prefer.

• You can choose to trade on a mobile phone, tablet PC, laptop and desktop.
• Metatrader 4 and 5 are the industry standard trading platform that millions of traders trade every single day.
• There are also other trading platforms like cTrader.
• Some brokers had built there own in-house version of the trading platform.

Step 4: Open-up the Trading Platform and Start Trading.

• After logging into the trading platform, select a currency pair you seek to trade.
• You can approach the market using technical and fundamental analysis.
• Pick your position direction. A buy or sell.
• Execute your trade by placing orders! 

How is Forex Traded? 

Forex trading involves trading exchange rates of currency pairs. The one significant difference from forex to other financial instruments is that you are buying and selling a currency at the same time. 

For example, let’s say the exchange rate of GBP/USD is £1: $1.3. You expect the value of the pound may increase to $1.5, so you decided to buy the GBP using USD. During this process, you have just sold USD and bought GBP in the meantime.

What are Different Methods to Trade Forex?

Retail Forex

• Retail forex market is the secondary OTC(over-the-counter) market that offers a way for retail traders to trade in the forex market.
• The forex brokers receive price data from LP(Liquidity Provider) and provide a platform for retail traders to trade on the displaying prices.
• You are trading a contract, not the currency itself.
• The transactions in retail forex are closed out via entering an equal but opposite trade with the forex broker. The name of this process is liquidating or offsetting.

Forex CFD

• CFD is the abbreviation of Contract for Difference which tracks the market price of an underlying asset. It is a derivative product that trades are allowed to speculate the price will rise or fall.
• Forex CFD is a contract to exchange the difference in the price of a currency pair from opening and closing a position.
• It enables traders to bet on both directions, both long and short positions.

Currency Futures

• It is a contract that shows the details of the price to be bought & sold at a specific date.
• It was established by CME(Chicago Mercantile Exchange) in 1972
• The futures contacts are regulated and transparent. 

Currency Options

• An option gives the investors the right to buy or sell an asset at a determined price on the expiration date.
• People trade options on an exchange like ISE(International Securities Exchange) and CME(Chicago Mercantile Exchange).
• The options market lacks liquidity compare to the spot or futures market with a limited hour to trade.

Currency ETFs

• ETF (Exchange-Traded Fund) is a basket of assets that offers exposure to a market as a whole.
• Wide range of currencies is in one financial instrument which enables you to diversify your portfolio while managing the risk.
• The ETF market does not open 24 hours a day, 5days a week and requests for a trading fee and expense ratio(operating cost).

Spot Forex

• Spot Forex market is an OTC(over-the-counter) market that operates 24 hours a day.
• It is a rapid, liquid and a massive market with no centralised exchange.
• The participants of the Spot Forex market is called interbank, which includes financial institutions and corporations.
• It is a contract pledged to buy/sell a settled amount of currency at the current exchange rate.
• Spot forex is not where retail traders trade currencies.

What are Pip and Lot?

Pip

Pip is a unit of measurement for the change in value between a currency pair. Most pairs have four decimal places, and a pip is the last decimal place of a price quote.

Let’s say; the EUR/USD moves from 1.1210 to 1.1211, the 0.0001 USD rise is one pip.

Lot

A lot is a unit of measurement for the amount of currency you want to buy or sell—these are four significant sizes of a lot when it comes to forex trading.

• Standard Lot – 100,000 currency units.
• Mni Lot – 10,000 currency units.
• Micro Lot – 1,000 currency units.
• Nanno Lot – 100 currency units.

What is Bid/Ask Spread?

Bid – represents the highest price that somebody is willing to pay.

Ask – represents the lowest price that somebody is willing to pay.

The difference between the bid and ask is called Bid/Ask Spread.

What are Margin and Leverage?

Margin

Margin is the amount of money that a trader needs to put to open a trade. It enables traders to increase their position size and open leveraged trading positions with a small initial capital. 

Margin requirement varies among your region and the forex brokers. If a broker offers a 2% margin, and you want to open a $100,000 position, $2,000 is required to open a position. The leverage is 50:1 for this trade, and the broker provides the leverage.

Leverage

Leverage is a large amount of money borrowed from the broker. It gives traders more control of an enormous amount of capital with the little initial fund. The level of leverage a trader can use depends on the margin requirements of the broker. 

If a trader wants to open a $100,000 position with $5,000, the trader can open a position using 1:20 leverage offered by the broker.

Leverage can give the trader to maximise the profit but also the losses. Therefore risk management is a MUST to be successful in forex trading.

Where Can I Learn About Forex trading?

Forex Websites

• Today, several quality websites offer free and quality contents to learn about forex.
• Basics of technical analysis, fundamental analysis and terminologies are available.
• It provides free indicators and signals for us to go through and learn about them.

Books

• There are tonnes of books released related to forex trading every single year.
• We recommend you to go through the best-selling books to get started.

Forums

• Forums, community and chat rooms are a fabulous place to understand how others approach the market.
• Experienced traders share their ideas and generously offer quality advice as well as free trading systems to try.

Videos

• You can start the basics of forex trading from Youtube to understand the mechanism of the market. But, be careful with those fake gurus trying to sell their useless courses.
• Online course platforms like Udemy offers high-quality videos to learn in-depth knowledge.

Offline Courses

• You can look for offline courses around your region so that you can ask questions directly.
• The best way to learn is to find the right mentor who can instruct you. Again, be careful with fake gurus! 

Types of Orders

Market Order

A market order is simply a buy and sell order at the current price. When you put buy or sell order in the trading platform, it would execute the trade instantly.

It is similar to one-click ordering where you can click once, and you can trade at the current price of specific currency pairs.

During this process, the final price executed depends on the market condition. If the volatility of the market is very severe, you might not be able to trade at the exact price you wanted. It is called slippage.

Limit Order

A limit order is a form of an order that you place the price you want to buy or sell. It enables you to trade at the specific exchange rate of a currency pair. Therefore, you can prevent slippage from occurring.

For example, EUR/USD is trading at the rate of 1.3421, and you want to buy if the price reaches 1.3420. But, the price when further up 1.3425. You can either choose to place a market order before it goes up further or sit and wait until it drops to the price you want to buy.

Stop Entry Order

Stop entry order is orders that are triggered when the exchange rate of a currency pair moves above or below a specific price you have set. When it goes above or below the price, stop orders are converted into market orders to execute at the best price. Buy-stop orders, sell-stop orders, stop-market and stop-limit, are the types of stop entry order. 

Stop Loss Order

Stop-loss order is an order placed to buy or sell a specific forex pair once it reaches a certain price. Traders widely use it to limit a loss and control risk levels. It is a simple tool which prevents excessive losses and offers great protection.

Trailing Stop

A trailing stop is a method to protect profits by enabling a trade to remain open as long as the price is moving as the trader expected. If a trader sets a 5% trailing stop to a long position, the position will remain open until the price drops 5% from its peak price. It is more flexible compare tp stop-loss order as it tracks the price direction and does not have to reset manually.

Trading Strategy

Forex trading strategy is a system that a trader uses to buy or sell a currency pair. The strategies are majorly based on technical and fundamental analysis. It enables traders to analyse and execute trades with risk management techniques.

Day Trading

Day trading is a strategy to trade a forex pair within a day. As the positions are closed before the market close, it enables a trader to control its risk. It can be a matter of hours or even minutes, enabling a trader to execute multiple trades using technical analysis.

Swing Trading

Swing trading refers to a trading style to hold a trade for several days to weeks. It is best suitable for the patient trader who does not mind the volatility of the market. Swing trading enables a trader to earn a big chunk of profits if the price moves in the trader’s favour.

Trend Trading

Trend trading is a widely used forex trading strategy by lots of traders worldwide. It is a strategy to gain profits based on the market directional momentum. The length of trading may vary depending on the indicator and timeframe analysis. 

Scalp Trading

Scalping is a strategy to trade within seconds to minutes, trading frequently to accumulate small profits which can be done manually or by the automated trading bot. Scalpers make an enormous amount of trades to take advantage of small price movements of a currency pair.

Position Trading

Position trading is a long-term trading strategy that is executed based on fundamental analysis. Technical analysis could be used to enter and exit the position. It is a method to hold a position for months or even years, focusing on the economic factors of currency pairs. 

Range Trading

Range trading is to set the support and resistance price level to place orders around these prices. This strategy works when there are no large volatility and trend within the market. The length varies on the timeframe a trader is in favour of.

Carry Trading

Carry trading strategy is to borrow or sell a currency with a lower interest rate and buy another currency with a higher interest rate to earn the profit from interest rate difference. In addition to trading profit, you can also earn an interest rate. But, it carries huge risk due to the volatility of the exchange rate, which is hard to predict.

Signals and Alerts for Trading

A trading signal is a notification or alerts which offer traders an advantage to enter or exit the position on a currency pair. It can in the form of SMS, E-mail, Direct Messages or even pop-ups depending on which service a trader is using.

The alerts are mostly occurred based on technical indicators or chart patterns like 5 SMA crosses 20 SMA, giving golden-cross signals. It will be beneficial if you find a legit and fruitful signal service with fully backtested indicators to gain profits.

Other than trading signals, there are also price alerts, news alerts, economic alerts that can further help a trader to understand what is happening around the world. These alerts are mostly provided by forex brokers and trading platforms for free! 

Forex Trading Platforms

MetaTrader4 

MetaTrader 4 is a stand-alone online trading platform developed by MetaQuotes Software. It provides access to a range of markets and hundreds of different financial instruments, and you will have all the tools you need to manage your trades and analyze the markets.

MetaTrader5

MetaTrader 5 is the newest and most advanced online trading platform in the industry. It includes a multi-threaded strategy tester, fund transfer between accounts, and alerts to remind you of the latest events.

cTrader

cTrader is a brand-new trading platform that was established in 2010 by Spotware. It offers complete solutions for traders packed up with various features to enhance every aspect of your investment. It provides excellent indicators, advanced order types, fast entry, and execution. The User Interface is stunningly impressive and easy to understand the components.

TradingView

TradingView is a trading platform that offers advanced charting features with a user-friendly and modern user interface used by millions of traders globally. It offers live price data for forex as well as other financial instruments like stocks, bonds, gold, commodities and cryptos. Some brokers launched their services to be able to trade directly via a trading panel of Tradingview.

Frequently Asked Questions

Can I Trade Forex with $100?

Absolutely! You start Forex trading at $100 and even less! The minimum deposit requirements vary on the account type you open in forex brokers. It can be as little as only $10 or high as $1000.

Can I Become Rich from Forex?

This is purely depending on your level of trading. Any financial instruments like stocks, bonds and crypto can make you rich if you have a great trading skill with clear strategies and rules.

Can I Trade as a Full-time Job?

Yes, but you have to be very careful. Gaining consistent profit in the financial market is really difficult. We do recommend you to try with a small amount of fund while working. After trading for a few years and be able to generate consistent profit, you can consider transforming to fulltime trader. 

Is Forex Trading Legal? 

This will depend on the jurisdiction you belong to. It is legal in most of the countries around the globe. Before you register for an account, check the legal status of forex trading in your nation.

Is Forex Trading a Gamble?

It can become gambling if you do not aware of what you are doing. Make sure you have studied the basics of economics and have your own trading strategy before you trade with your own fund. Practising with a demo account is also a great idea.

 

 

What is Technical Analysis?

 

The hypothesis of technical analysis

1.Market Action Discount Everything

The price of an asset is determined by the supply and demand of the market participants. This implies that any factors like economic, politic and social issues are already reflected in the price. Plus, technical analysis also believes that the psychology of the market participants is also reflected within the market. The trend may go up or down and it is believed that there is a certain reason why it is moving in that direction. But, traders don’t necessarily have to know everything but analyse the price movement.

2. Price Moves in Trend

The trend is a very important thing in terms of technical analysis. The first law of Newton, also known as Law of Inertia, implies that when an object moves to a direction, it would not stop until there is another force stopping it. This theory also applies to the market and there are tonnes of research and papers upon the trend. 

3. History Repeats itself

The price movement of financial instruments is reflected on a chart. These charts are formed in 2 dimensions, consist of X-axis and Y-axis. The price movement is eventually generated by the market participants like banks, hedgefund and retail investors. Technical analysts scrutinise the patterns of the market and have realised that it is directly related to the psychology of the human being.

A famous writer Mark Twain once said: “History does not repeat but follows a certain rhythm”. Traders and investors study the past price movement and attempt to reflect on the future. This tendency would continue and will again, reflected the market.

Many people do not like to change their thoughts. Thus, instead of adopting new ideas, humans tend to stick to the original thoughts. This is the reason why the patterns in the past may tend to appear in the near future. 

The Criticism of technical analysis

1.Self-Fulfilling Prophecy

This is a criticism claiming that the patterns on the chart are artificially generated by the market participants using well-known patterns. Technical analysis can be very subjective depending on the market circumstances. And critics think that the technical traders are trying to justify their prophecy.

In fact, it is very difficult to know which kind of chart pattern is forming when we are doing live trading. Even verified traders have a different perspective and advocates on the same patterns. Thus, many technical analysts tend to know the full pattern after the pattern is completed.

Nowadays, a lot of market participant uses trading system via technical indicators or strategies. There are blames saying that these systems are influencing the market and change the direction as it is intended to. On the other hand, the strategies can be millions and considering the variables, it is near to infinite. So the systems may give an impact to the market but it tends to be a temporary phenomenon.

2. Predicting the future using past data

The critics of technical analysis often say that technical analysis can not predict the future using past data or patterns and it is full of justification while making up the patterns. This is very reasonable suspicion.

But, the technical analysts would say we are not trying to predict the future but believe that there is a high probability that it would repeat a certain pattern. And these patterns are the reflection of supply & demand and psychology of the market participants.

3. Random Walk Theory

Random Walk Theory is a theory saying that the market goes up and down randomly. So even though analysing the price movement of the market, it is useless and would not be able to beat the market. Thus, this is a hypothesis claiming that the market moves randomly base on the instrintic value.

Technical analyst disagrees with this standpoint. If the market literally moves randomly, no one could have been able to beat the market and outperform. This is because all the analysis and strategies would not work if the market is very efficient. It would look like random if you do not know what you are doing. Once you research and experience enough, you will realise that the market is not efficient and does not move randomly.

The usefulness of the technical analysis

1.Visualising price data 

The price movement of any asset classes is precious data for technical traders. charts are the visualised data of price movement and the trading platforms like Metatrader4 offers live price data for the forex and CFD traders. Traders believe that the chart is the best tool to analyse the patterns of the price movement.

2.Analysing trend and volatility.

The chart shows the trend and volatility of an asset instantly. This is like a map for traders to analyze the past and current market circumstances and set up the strategies to win in the near future with high probability. It also enables to let traders recognise when to enter, exit, stop-loss and profit-taking. Thus, it would be much more convenient to manage risk.

3. Past price movement on certain events.

The chart enables traders to know the market movement base on certain events in the past (like the financial crisis in 2009). So, when similar events happen, it would give them the hints to analyse and trade successfully.

4. Flexibility and various timeframe.

Technical analysis can be applied to any sort of financial market. Although the characteristics of every asset classes tend to vary, the price is formed by the market participants. Fundamental analysis takes a huge amount of time to study and research all the materials about an asset, technical analysis has no boundary. Traders can also analyse the market in a short, mid, and long period of time and trade base on their strategy

5. It is useful even for non-TA believers.

Charts are fundamentally visualised price data. It would give a big picture upon how an asset has performed even for an investor who does passive investment like asset allocation. Although the chart is widely used by the chartist, non-chartist would also found it useful.

 

 

 

 

 

 

 

 

 

One of the most well-known techniques of technical analysis is support and resistance.

What are the support and resistance?

 

Support and resistance reflect the psychology of market participants. When an asset’s price increases to a certain point, it would be difficult to go further at a certain price. Instead, the trend reverses and enters the sideway market.

This is due to the theory of supply and demand. When the price falls, there is a certain price that the market participants support. This is because the buyers are purchasing an asset at a lower price, and fewer sellers sell the asset. Say, more demand at a lower price and lower supply to sell at a lower price.

 

What is the support line?

 

The support line is formed when the price falls to a certain point, the buyers are buying the asset at a lowe price, and the sellers are not selling anymore. Thu,s at the support line level, the price no longer falls below the line or transfers to an uptrend or moves sideways.

What is the resistance line?

 

The resistance line is when the sellers are selling more than the buyers. This can occur when the market participants determined the price is high and start to take profit. Or else, it could be the buyers who bought at a similar price a long time ago, and when the price comes back, they are selling it to recover the loses. Thus, when an asset’s price increases to the point where the majority of the players determine that the price high enough to take profit or sell-off.

 

Normally the previous peak tends to be the resistance, and the previous low tends to be supported. Hence, one of the most important characteristics of support and resistance is that it will play the opposite role once it breaks through support or resistance. For example, if the price went above the previous high, the previous high turns to support from resistance, vice versa.

 

Why are support and resistance important?

By analysing the support and resistance, we can know where the price is estimated to move toward. If the price fails to break through a support or resistance, this can be a signal that a reversal is likely to occur shortly. Plus, the more the frequency of supporting or resisting a certain price, the more its significance. This is due to the recent price movement is likely to reflect the price movement in a short period of time.

 

It is applicable in all asset classes as this is one of the most fundamental reflections of human psychology within any forms of market. It is a toolset to analyse the supply and demand and the core hypothesis of technical analysis.

Many traders use fundamental or technical analyses to predict future exchange rates. Excellent traders use both methods at the same time. However, it is not easy to analyse past price trends and price movements without considering the seasonal factors.

 

The Incredible January Effect

 

There is a concept called the “monthly effect” that has been quite popular in the stock market. The idea was first mentioned in 1942 by Robert A. Haugen and Josef Lakonishok in the book named “The Incredible January Effect”.

In the stock market, the January effect means that from the last trading day of December to the fifth trading day of the next year, the market tends to be bullish. It is due to most investors are selling their shares to realise capital gains or determine losses. On the other hand, some entities make similar transactions to restructure their financial statements.

The January effect is not the only strange phenomenon in the stock market. There is also something called Mark Twain Effect. The theory is that the stock market is fragile in October (derived from Mark Twain’s novel).

Plus, seasonal factors are not unique to the stock market. We can also find seasonal factors in the foreign exchange market. Like the stock market, the most widely known and famous seasonal factor in the foreign exchange market is the January effect.

This is due to foreign investors to exchange their currencies for U.S. dollars and buy stocks with U.S. dollars. Therefore, due to seasonal factors, the U.S. dollar often outperforms other currencies against some currencies. But keep in mind that not all currency pairs always have the same result.

 

Summer Vacation Seasonal Factors

 

July and August are the hottest summer months in the Northern Hemisphere. In the foreign exchange market, summer is the summer vacation period for traders, so volatility is reduced than usual.

Interestingly, both USD/JPY and USD/CAD have unique seasonal factors during the summer months. The two currency pairs show that the dollar strengthens against the counterpart in July and returns to the previous month’s gain in August.

Currency pairs in the forex market do not move the same way to each other. In most cases, foreign economic conditions, interest rates, and price changes affect not only one currency pair but also many different currency pairs.

Every factor is partly interrelated with each other and knowing the extent of this interaction or the direction is useful for developing trading strategies and use as a trading tool. Unless you trade only one currency pair, it is vital to understand the correlation between currencies.

The correlation is calculated using price data and the correlation coefficients to measure the relationship between different currencies. The information from these correlation coefficients helps traders diversify their portfolios or increase their positions to other currency pairs. It enables traders to know the extent of risk exposure, means to increase profit and prevent inefficient trading.

 

Usefulness of Correlation

 

Identifying the correlation between currency pairs in a trader’s portfolio is a perfect way to measure the extent of the risk of exposure. While you may think that you are diversifying your portfolio by investing in different currency pairs, most currency pairs in the portfolio tend to move in the same direction or the opposite direction. The correlation between currencies can be strong or weak, and this correlation can last for several months or even years.

Correlation coefficient numbers allow us to estimate how closely currency pairs move in the same or different directions over a particular period. The correlation coefficient values take a small number and have a value of at least -1.0 to a wedge of +1.0. The correlation coefficient value is close to the +1 value, meaning that the two pairs of currencies move together with the same directionality.

For example, USD/JPY and USD/CHF have shown a correlation coefficient of +0.70 over the past month. Consider converting them into percentages if you are insensitive to values in the form of a decimal number. It can then be determined that there is a 70% correlation between the two currencies. The correlation coefficient value close to +1.0 moves in the same direction. On the contrary, a discount relative to -1.0 indicates the “reverse correlation” between the two currency pairs, which means that the exchange rate moves the other way around.

A strategy of buying one currency pair and selling another may not be desirable. This is because the value of the buy currency pair increases in the upward trend, but the other side of the currency pairs’ value decreases, offsetting the rise in the buy currency pair. This buying/selling strategy does not guarantee the trader’s profit, nor does it precisely zero the loss because the two currency pairs have different pip values. In this combination of portfolios with similar movements between the two currency pairs, the establishment of opposite buying/selling positions can reduce profits and even cause losses.

A positive correlation is not the only useful measurement of connectivity between pairs of currency. A negative correlation is also helpful in building a currency portfolio. In the following example, consider a case with a high negative correlation instead of a positive correlation. Contrary to positive correlation, the closer the correlation coefficient approaches -1, the motion of the call pair is connected in the opposite direction.

Let’s look at the case of EUR/USD, which correlates negatively with USD/CHF. The correlation coefficient between the two currency pairs is -0.80 on a one-year basis and -0.90 every month. What this number means is that the two currency pairs are highly inclined to move in opposite directions. Thus, when two currency pairs take opposite positions, it is equivalent to building positions in the same direction on two currency pairs with high positive correlations. Such a negatively correlated buy-and-sell strategy has the same effect as increasing a position, which consequently increases the portfolio’s risk exposure.

 

Changing Correlation Coefficient Values

 

Anyone who has experienced foreign exchange transactions at least once would know that the foreign exchange market is very dynamic. Various economic conditions, prices, and psychology are changing every day. What should be remembered when analysing the correlation between currencies according to the changing foreign exchange market characteristics is that these critical variables change quickly over time. The strong correlation observed today may differ from that observed next month.

As the foreign exchange market environment continues to change, it is imperative to recognise market trends to use the correlation coefficient analysis method. For example, for AUD/USD and GBP/USD, the correlation coefficient observed for a month is 0.08. This low correlation indicates that the movement between the two currency pairs moves without affecting each other.

However, calculating the three-month correlation coefficient between the two currency pairs increases to 0.24, and the six-month correlation coefficient, calculated in the same way, increases sharply to 0.41, and the one-year correlation coefficient to 0.25. What can be seen from this example is that the relationship between the two currency pairs is collapsing in the short term. Although there is a substantial amount of correlation, in the long run, there is little correlation in a short time.

 

How to Calculate the Correlation

between Currency pairs?

 

As we have seen before, since the correlation between currency pairs changes over time, we need to update the correlation values to recognise the trends like strength and direction. The simplest way is to do this is by using the Excel program.

The Excel program can use the correlation coefficient function by selecting a specific period with the currency’s price data to determine the correlation coefficient. Based on the data for one year, six months, three months and one month, we can draw a comprehensive picture of the similarities and differences between the two currencies. We should use many of these data to determine what and how to use them.

 

Here are the steps to calculate the correlation!

 

1. Collect price data for two currency pairs.To make it easier to recognize at a glance, the weekly closing GBP data are arranged in one column, and the USD data is arranged on the other.

2. Set the period for how long, and type the excel function ‘=CORREAL’ in the space below the last column where the two periods match.

3. Then select all GBP price data, enter a comma, and select all USD price data (=correl(GBP data, USD data).

4. The values derived here are the correlation coefficients of the two currency pairs. Although these obtained correlation coefficient values are not required to be updated daily, it is recommended to update them once every other week or at least once a month.

A

Algorithmic Trading

Arbitrage

Ascending Trendline

Ask

Asset

Asset Allocation

ATR

AUD

Aussie 

Average Directional Movement Index

Average True Range 

Awesome Oscillator 

B

Backtesting

Balance

Bar Chart

Barel

Base Currency

Base Rate

Basis Point

Bear

Bear Candle

Bear Market

Bear Trap

Bearish 

Behavioral Finance

Bid

Bitcoin

Bollinger Bands

Bond

Bond yield

Brent Oil

Bretton Woods Agreement

Broker

Bull

Bull Candle

Bull Market

Bull Trap

Buy Limit

Buy Limit Order

Buy Order

Buy Stop

C

Candlestick Chart

Capital Gains

Capital Loss

Carry Trade

Carry-over Charge

Cash FLow

Cash Market

Central Bank

Chart

Closed Position

Closing Price

CME

Commission

Commodity

Consumer Price Index

Contract for Difference’

Cost of living iindex

counter current

 coupon rate

crude oil

cryptocurrency

currency appreciation

currency futures 

currency pair

Currency peg

 

Introduction

FBS was established in 2009 that has clients from 190+ countries. Regulators like CySEc and IFSC regulates the brokerage. It uses NDD (Non-Dealing Desk), and STP (Straight Through Processing) technologies as FBS obligates to guarantee the highest possible order execution speed. 95% of orders are executed within 0.4seconds.

FBS offers free commission with requotes. The 5 digits precision applied to every sort of accounts for tighter and accurate spreads. Leverage is available up to 1:3000 with EA(Expert Advisor) and strategies ready for all the traders. It is suitable for both beginner and advanced traders.

Pros and Cons

Assets

FBS offers five different kinds of asset classes: Forex, CFDs on Indices, Precious Metals, Commodities and Stocks. As FBS utilises STP(Straight Through Processing) technology to FBS terminal, the trading process is rapid and smooth with enhanced engines. Yet, the number of trading instruments is limited.

Leverage

FBS offers from 1:50 to 1:3000 leverage depending on your account type. The brokerage offers the highest leverage in the industry. The range of leverage may differ from which kind of account you have opened.

Leverage enables you to trade with a significant amount of fund with small initial deposits. Yet, it could also lead to the margin call, losing all the money you have a bet. Be cautious when you are using leverage.

Deposits and withdrawals

FBS offers various method to deposit or withdraw your fund. Electronic wallet, credit and debit cards and bank wire transfer. Using electronic wallets like Neteller and Skrill are processed instantly while the other ways may take 1~2 hours by FBS Financial Department.

Maximum time to deposit or withdraw may take up to 48 hours for electronic wallet and 5~7 business data to process. The minimum deposit differs among the trading account you have opened. For instance, Cent Account has required the initial deposit from $1, and ECN account is $1000.

Deposit

Withdraw

Account Types

Initial deposit, Spread, Order volume and leverage varies among the account type. If you are beginner, you can start deposit as little as $1 with Cent Account with tight spread, and enough leverages to give a shot. If you are an advanced trader with experiences, ECN account is recommended as it offers you a negative spread and trader takes the advantage! 

How to open an account?

1.Click ‘Open Account’ at the top of the webpage.

2.Enter your Email and Full name to register.

3.Or you can choose Facebook, Gmail and Apple ID to register.

5 temporary password is generated. Please Set-up a secure password.

6.Confirm your email address in the mailbox.

7.After clicking the confirmation link, please click proceed.

8.Choose your preferred trading platform: MT4 or MT5.

9.Choose your preferred account currency: USD or EUR.

10.Choose the level of leverage you want and click open account.

11.Your account is registered. Enjoy your trading journey!  

Trading Platforms

FBS Trader

FBS trader is a trading platform that FBS has developed recently,  specialised for mobile users, supporting both iOS and Android version. It is an all-in-one trading platform that enables you to access the global market instantly. The user interface is clean and simple to use and understand the components.

Keynotes:

• Compatible with any iOS and Android devices.
• 50+ forex and other financial instruments to trade
• Real-time statistics are trackable with rapid speed.
• Allows editing order with few clicks.
• Instant deposits and withdrawals via over 100 payment systems.
• Easy to monitor Contract Type, Order Volume, and Current Ask/Bid price
• Offers Take-Profit and Stop-Loss functions.

 

MetaTrader4

MetaTrader4 is an industry-standard trading platform which provides instant access to global markets. It plenty amount of tools to help you analyze and trade in the market. With FBS, you can trade Forex, Metals, and CFDs on oil without requotes or order deviations and leverage up to 1:3000.

Keynotes:

• Mac, Windows, iOS, and Android supported.
• 3 types of charts are available (Candle, Bar, and Line Chart).
• 9 time-frames to monitor the market.
• 50+ technical indicators to analyze.
• Fully customizable interface.
• MetaEditor for EA is ready for you.

 

MetaTrader5

MT5 is the newest version of the trading platform launched in 2010. It has a more function implemented compare to MT4 such as more technical indicators, analytical objects, more specified timeframes with alerts and an economic calendar. FBS offers leverage up to 3000 with 4 different asset classes to trade.

Keynotes:

• Mac, Windows, iOS, and Android supported.
• 38+ technical indicators are implemented.
• 44+ analytical objects are available.
• 21 time-frames and an unlimited number of charts are offered.
• Alerts to remind up-to-date market events.
• Economic calendar and email system.

Analytics & Education

FBS prepared several functions that traders can utilize to help trading decisions. News, market analysis, live broadcast, economic calendar and calculators are ready for you to use for free. In terms of education, all the contents are mainly focused on forex. Guide book, webinars, videos and glossary are available for everyone! 

Market Analytics

• Forex News
• Daily Market Analysis
• Forex TV

Trader Tools

• Economic Calendar
• Forex Calculators
• Currency Converter

Forex Education

• Forex Guidebook
• Forex Books
• Tips for Traders
• Webinars
• Video lessons
• Seminars
• Glossary

Promotion: Quick Start Bonus

FBS is operating a promotion named Quick Start Bonus which offers you $100 for trading financial instruments via FBS Trader, an in-house developed mobile trading platform. There are 7 steps to acquire a $100 bonus.

1.Open a bonus account with $100 in FBS Trader.

2.Go through the key tools.

3.Place your first order.

4.Explore how to manage risks

5.Manage your funds

6.Trade on your own

7.Transfer the profit to a real account in FBS Trader.

Customer Service

FBS is available 24hours a day, 7 days a week. You can ask any questions straight to FBS customer service team. As FBS is customer-orientated broker, they offer 18 languages of support to help out issues you have.

FBS not only support live chat and phone calls, but also provides services across multiple social media platforms like WeChat, Telegram, Facebook chat, WhatsApp, and Line. These are evidence of how much they care about serving the users.

Regulation and Licensing

Accepted Countries

Restricted countries: Japan, USA, Canada, UK, Myanmar, Brazil, Malaysia, Israel and the Islamic Republic of Iran

Conclusion

FBS is a regulated broker by regulators like CySEc and IFSC.  It charges no fee upon deposit and withdrawal fee which is satisfying. Order execution was fast enough to trade with tight spread. Plus, 24/7 customer support is really rare to see as a broker.

However, FBS has limited trading instruments to trade. 40+ financial instruments on 4 asset classes are a considerably narrow range of choices compare to other brokers. Hence, the educational materials only cover Forex, lacking materials for newbies.

Lastly, the Cent Account requires $1 as the minimum deposit with leverage up to 1:3000 which means you can try with a small fund. If you are a newbie in trading, It is a great opportunity to join FBS broker with the on-going promotion.

Introduction

XM was established in 2009 and currently has over 1.5 million traders in 196 countries. Rigorous institutions like CYSEC, ASIC, IFSC, and FCA regulates the XM group to make sure it is legitimate and legal.

The brokerage has over 1000+ financial instruments for trading with transparent fees and commissions. The speed of execution is pretty rapid, and traders can test it with a demo account. Register and try it out today! 

Pros and Cons

Assets

1000+ financial instruments, along with six asset classes, are offered at XM. The asset classes are forex, stocks, commodities, precious metals, energies, and equity indices.

Forex

• 55+ Currency major, minor, and exotics pairs are available with tight spreads and no re-quotes. Leverage up to 1:888 based on your account type with no hidden charges levied.
• “Swap” function is also offered, which is paying or obtaining currency pairs’ interest rates difference after you enter a position automatically at 00:00 (GMT+2) via the XM terminal.

Stocks CFDs

• 1230+ Stock CFDs are offered by XM, which enables you to get instant access to the global equity market with no complicated procedures. You can use your position long and also short them based on the market movement.
• It is one of the best advantages of CFDs. You can directly approach the international market to Long and Short with transparent fees and commissions along with leverages. Plus, you will get a dividend yield by holding stocks!
• There are 19 countries’ international stock CFDs to trade.

Commodities

• XM provides Commodities like Cocoa, Coffee, Corn, Sugar, Bean, Cotton, Copper, and Wheat as futures CFDs in XM. The maximum leverage is up to 1:50, with a 2% margin percentage.
• It means it is ideal for beginners to try with low deposits! The spreads are tight, and it enables you to Long and Short the position. Along with the forex market, the commodity is an excellent means for portfolio diversification and risk management. 

CFDs for Indicies, Precious Metals and Energies

• In terms of Equity Indices CFDs, XM also offers Cash Indices CFDs like AUS200Cash, US100Cash, EU50Cash, and more. It is basically like an index of the fiat currency, which quite different from forex pairs.
• There are 10 Futures indices CFDs like EU50, FRA40, GER30, JP225, US500, and more. These are CFDs that you can trade based on the equity index.
• Gold, Silver, Platinum are available as Precious Metal CFDs.
• Offers Brent oil, WTI oil, and Natural gas as Energies CFDs.

International Stocks (Stocks Account ONLY)

• Lastly, there are 100 International Stocks from the US, UK, and Germany offered in XM via a Stocks Account, a different sort of account from other types. Amazon, Apple, Netflix, Google, and more stocks are available for you to trade them.
• The charges for all US shares are $0.04 commission per share, with a minimum of $1 commission per transaction.
• UK shares are 0.1% per commission transaction with a minimum of $9.
• German shares are 0.1% commission per transaction with a minimum of $5.

Spread & Commission

XM provides tight and low spreads as 0.6pips to the traders with determination. The Chief Dealer of XM quotes, ” We aim to get optimal prices from liquidity providers to offer the best bid and ask clients prices. We update the price three times per second to keep spreads tight.”

There are no hidden fees or commissions. The trading fees are already applied to the spread to trade 1000+ CFDs. Yet, for the shares (not CFDs), fees are levied per share depending on a corporation’s nationality.

Variable spreads are offered instead of fixed spreads. Fixed spreads tend to charge higher than the variable one, which traders can take advantage. Plus, XM also offers fractional pip pricing instead of 4-digit quoting prices; it offers 5th digit fraction, enabling traders to trade with tighter spread and accurate quoting!

Leverage

The extent of leverage you can utilise varies on the amount of equity in your account ( Equity = balance + credit). The leverage can scale from 1:1 to 1:888 maximum. You can also request XM brokerage to increase or decrease the leverage. The negative balance protection is applied to prevent your balance from going negative.

Remember, leverage is a short-term credit provided by the broker. It could let you acquire more financial gains but also significant losses. In the worst-case scenario, a stop-out may occur, which means losing all the funds you have a bet. Capital Management is necessary, and to bet a fraction of your fund makes your yielding curve much more stable based on Kelly’s formula.

Deposits and withdrawals

Deposits:

You can USD Credit/Debit Cards, Neteller, Skrill, WebMoney, and SticPay as a means of depositing your fund. XM charges no deposit fee! Using credit/debit cards and electronic wallets let you deposit instantly right after the transfer.

Withdrawals:

Neteller, Skrill, Webmoney, and International Wire Transfer are the options to withdraw your fund. Again, XM charges no withdrawal fee too! Instant withdrawals for electronic wallet and took two business days for bank transfer.

If you have another account of your XM brokerage, it also supports the internal transfer, eliminating the inconvenience of withdrawing and re-depositing your fund to an account! 

Account Types

Trading Platforms

Metatrader4

MT4 is the industry standard trading platform that millions of traders trade daily. XM also offers MT4 as the trading platform with no requotes and no rejections. The broker offers up-to 1:888 leverage based on your account type.

Keynotes:

• Mac, Windows, iOS, and Android supported.
• 1000+ instruments are available.
• TIght spread – as low as 0.6 pips.
• Three types of charts are available (Candle, Bar, and Line Chart).
• Nine time-frames to monitor the market.
• 50+ technical indicators to analyse.
• Fully customisable interface.

Metatrader5

MT5 is an upgraded version of MT4 that was launched in 2010. It has more functionality compare to MT4, which empowers traders to trade with confidence. XM MT5 offers in addition to 1000 stocks that XM MT4 does not provide. Forex, commodities, precious metals and more are supported with no requotes. The maximum leverage you can use is up to 1:888.

Keynotes:

• Mac, Windows, iOS, and Android supported.
• 1000+ instruments are available.
• TIght spread – as low as 0.6 pips.
• 38+ technical indicators are implemented.
• 44+ analytical objects are available.
• 21 time-frames and an unlimited number of charts are offered.
• Multi-threaded strategy tester.
• Alerts to remind up-to-date market events.
• Economic calendar and email system.

Research&Education

XM offers various research tool to acquire an overview of the market with up-to-date news, economic calendar, podcast and more. All of the contents that are implemented in the Research section is very well-organised and provides in-depth insights to understand what is happening around the world.

The ” Trade Ideas” seem to be very interesting as it offers lots of trading ideas upon 1000+ instruments which you could consider during your trading! These functions are available for the members-only, so you may need to register to utilise all these useful functions! 

In terms of education, XM provides Economic calendar, XM live, Educational Videos, Forex Webinars, Platform Tutorials and Forex Seminars. It is mostly concentrated on videos instead of materials like e-book and PDF files. These videos may give you an overview of how to use the platform 100% along with the basics of trading. 

Promotions

Currently, XM has lots of promotion going on. 

• Acquire $30 for opening an account.
• 50% deposit bonus up to $500 and 20% deposit bonus up to $4500
• Raffle draw event with a 100% bonus, $5000 total in the prize.
• $35 per friends invited
• Free VPS service for EAs and fast order execution.

These promotions are perfectly designed for a new trader who wants to participate in the world of forex and CFD trading. A fantastic opportunity that you may not want to miss out! 

Customer Service

XM’s Customer Service was fast and friendly. You can use live chat, phone call and email to contact them. They are available 24/5, which means no support on the weekends. The answers to specific questions via live chat were well-replied and relevant. You can also ask anything related to trading financial instruments! 

Regulation and Licensing

Accepted Countries

Restricted Regions: XM Global Limited does not provide services for the residents of certain countries, such as the United States of America, Canada, Israel, and the Islamic Republic of Iran.

Conclusion

XM gave us an impression of where it is very client-orientated. Because it charges no deposit and withdrawal fees, low CFD fees, and numerous promotions going-on for the newcomers. It offers 1000+ instruments in 6 different asset classes with tight spread and fast order execution.

But, the forex trading fee is industry average and charges inactivity fee (if inactive for 90+days, $5 is charged per month). Plus, investor protection is applied to only EEA countries, which means clients from non-EEA has no protection when the company has an accident. The good thing is that even though the customer belongs to the non-EEA country, the funds are secured via segregated accounts.

Overall, XM offers what is necessary for traders. Minimise the fees and provide tools to aid their trading, There User Interface of the entire website might not be that fancy as others, but remain organised and easy to understand. It would be an adequate broker for new participants of the market with privileges to enjoy from the beginning.