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The foreign exchange market

What is FOREX?

The Foreign Exchange Market better known as FOREX, is the most traded financial market in the world, over $5 trillion worth of currencies are traded across the globe by Banks, Institutions and Individuals investors every day.

When can I trade the market?

Trading Week for FOREX begins on Monday morning at 10am in Sydney, and follow the sun westward as the world major financial capital open and close from Tokyo to London and finally closing at 5pm eastern time on Friday evening in New York. This unique opportunity gives FOREX trader to trade 24 hour/day, 5 days/week

Understanding of currency pairs

Which currencies can I trade?

Much like exchanging money overseas in FOREX, every transaction involves the purchase of one currency and the simultaneous sale of another. To make it easy, FOREX market refer to trading currencies in pairs. With names that combine the two different countries being traded against each other. The seven most frequently traded pairs are referred to as majors. By some estimates, these seven major currency pairs make up 75-80% of daily FOREX trading volume. The majors include the EUR versus USD, the GBP versus USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD and NZD/USD.

 

Understanding FOREX quotes

How do you read and interpret a FOREX price quote?

In FOREX trading, currencies are always traded in pair. That is because you are changing one country’s currency for another, hence the exchange in foreign exchange. So every time you place a FOREX trade, you are buying one currency while simultaneously selling the other currency.

For example EUR/USD - 1.4624/1.4626

Reading a currency pair quotes is simple, you just need to remember two things. The first currency listed is called the base currency, is the EUR in this example, the other currency in the pair is called the counter currency, which in this example is the USD in this example. The value of the base currency is always 1. For this example, that means 1 EUR, the base currency is equal to 1.4624USD. If the EUR is the base currency, and the quote goes up, which means the EUR has strengthen in value and the USD has weaken. A rising quote means 1 EUR can now buy more USD than before.

Just like other market, the currency quote always consists of two prices. The BID is the price at which you can sell the base currency and the ASK is the price at which you can buy the base currency. The difference between the bid and ask price is called the spread. “EUR/USD 1.4624/1.4626” in this example you can buy at the ask price of 1.4626 and sell at the bid price of 1.4624. The difference between the two prices is two PIPS.

 

So what is a PIP?

For nearly all major currencies, a PIP represents the 4th digit to the right of the decimal. Typically the forth digit after the decimal which equal to 1/100th of 1%. For Japanese Yen, PIPs refer to the second decimal point. This is the only exception among the major currencies. The spread will vary based on the liquidity of the currency pair. The tighter the spread the more liquid of the currency pair, conversely the wider the spread the less liquid of the currency pair.

How to calculate profit and loss with pips

Let review a few examples of currency price movements. If the EUR/USD moves from 1.5755 to 1.5745, that is a decrease of 10 PIPS. If the EUR/JPY moves from 157.40 to 157.80, that is a increase of 40 PIPS. So now that you understand what a PIP is, the next obvious question is, what is the value of a PIP? Well, it varies from currency to currency based on the relative value of the two currencies in the pair. If the USD is on the counter side or on the right side of the pair, each PIP equal $1USD per 10,000 traded. For example if you bought, €100,000, you would earn $10USD profit for every PIP increased in your favour. In this example, the EUR/USD moves from 1.5745 to 1.5775, that’s an increase on 0.0030 or 30 PIPS. To calculate the profit in this example, you would multiply 30 PIPs by $10, which equal a $300 profit. Conversely, if the EUR/USD moves against you, from 1.5745 down to 1.5715, you would have lost 30 PIPS or $300. The good news is the BLAFX platform will automatically calculate profit and lost for all your trades, so you don’t have to. Your trading account will always be expressed in USD. Even you are not trading a currency pair that includes the USD.

Margin and Leverage – explain how margin and leverage affect your account balance and offers tips for using the leverage responsively.

Margin and leverage are two concepts that go hand-in-hand in currency trading. When you trade on margin, you aren’t require to put up cash for the full value of your position. Your account’s leverage ratio determines how much cash you need to enter a trade. For example, if your leverage is 100:1, then your account is magnify by 100. The margin you need is 1/100 or 0.001. The higher leverage available in FOREX trading, is designed to help you take advantage of currencies’ tiny price swings. However, leverage should always be used responsively. Since increasing leverage also increases your risk.

Let’s walk through an example, say you want to buy 1 mini lot of USD/JPY or 10,000 unit of Dollar/Yen and your account is set at 200:1 leverage, that means you need to have a minimum of 1/200 of $10,000 deposit to trade or 10,000 x 0.005 = $50. You can see the potential advantages of leverage immediately. It enables you to trade $10,000 worth of currency in this pair with just $50 deposited. The disadvantages are just as important. If the trade goes against you, and your account dips below $50, your position will be automatically closed out.

The best way to having avoid your trade automatically closed out, is to leave STOP LOSS order for each open trade and to keep maintenance margin in your account. These extra funds act as a cushion to protect you from the market moves against your trade. It is important to know your risk is always limited to your funds on deposit.

 

The risk involve in FOREX trading

At BLAFX, we are dedicated to your success and are important for us to let you know the potential of margin/leveraged trading, without being exposed to the risk. First Sound risk management plan such as stop-loss setting should be placed in all your trades. BLAFX has various setting such as stop out levels, margin calls, margin requirement for certain products and etc. for all accounts so that we can help minimised the potentially (risks) losses that exceed the total amount invested. Understand your risks:

l Risk of trading multiple markets – having broad focus on multiple markets leads to lack of focus and missing the best opportunities.

l Risk of volatility and liquidity – price volatility and spread fluctuation due to market risk periods such as news, event and economic date announcement; trade size will also be limited at times of low liquidity such as end-of day rollover periods and important events.

l Risks associated with Margin close Out – Your positions will be liquidated one by one starting with the position with the highest loss at the rate of time of closing when the equity of account falls below 40% of your total margin used.

l Risk associated with multiple trades opened – Lose focus of many open positions simultaneously, a significant opposite movement of one of the positions may adversely affect your margin level for the whole account.

 

How to trade better? Few good notes to take.

l Create useful and short watch-list with the most liquid and volatile markets with tight spreads

l Trade after news or event for better market direction and avoid low liquidity periods

l Open less position at one time and concentrate on them alone.

l Reduce the usage of leverage by trading small volume, for example 1 to 2 lots at most, for every $10,000 USD account. Request for lower leveraged account if you need to.

 Futures

Futures are standardized forward contracts and are usually traded on an exchange created for this purpose. Usually, the average contract length isapproximately 3 months and include of any interest amounts.

Futures contracts products are contracts specifying a standard volume of a particular product to be exchanged on a specific settlement date which are similar to forward contracts in terms of their requirement, but differ from forward contracts in the way they are traded. They are commonly traded by speculators who hope to capitalize on their expectations of exchange rate movements.

 Options

A Foreign Exchange Options is a derivative where it gives you the right (but not the obligation), to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a particular date. The deepest, largest and most liquid market of all kind in the financial market.

 Index

Standard and Poor's 500

Standard and Poor's 500 is the major U.S. stock market index since 1957. The index is based on the market capitalizations of United States 500 large companies having common stock listed on the NYSE (New York Stock Exchange) or NASDAQ. Standard and Poor's 500 index is one of the most commonly followed equity indices and commonly used as a reference of the U.S stock market stability and indicating the trends of United States economy.

Standard and Poor's 500 Index features:

1. Free-float capitalization-weighted index

2. The index consists of company stocks that are chosen by specialized committees, to ensure that the company has the ability to represent the United States economy in all major sectors, including some non-US companies

3. An important indicator for the economy in United States

4. These contracts and margin requirements are quoted in US dollars

 Nasdaq 100

The NASDAQ 100 index is the US stock market index made up of 107 equity securities issued by the 100 of the largest non-financial firms that re listed in NASDAQ. The index reflects the Industrial, Technology, Retail, Telecommunication, Biotechnology, Healthcare, Transportation, Media and Services sectors of United States. The index began since the end of January 1985.

 Nasdaq 100 features:

1. The market value of the Index, the formulation of rules, avoid excessive index of a giant performance of the Company

2. Owing to the outside of the United States including the company so that the Index and Dow Jones Industrial Average vary

3. As a result of financial companies, so that the index and the Standard and Poor's 500 Index Different

4. Most of the world's most prestigious one index

 The FTSE 100 index points

The FTSE 100 index is a stock index on the London Stock Exchange listing of the 100 highly capitalized company. The index is the most popular British stock index, is deemed to be that of the state of the performance of the commercial activities of an index. The FTSE 100 index of market value of the Index. The index began in January 1984, 3 January, 1000 standard starting point.

 The FTSE 100 Index Features:

1. The market value of the Weighted Index

2. The authority of the British stock (includes only the company headquartered in the UK)

 Dax 30 Index of Frankfurt Points

Dax 30 Index of Frankfurt stock index is a total return, by the 30 of the Frankfurt Stock Exchange (FSE) listed 30 major German companies. The index used in the calculation of free float of Shares. The DAX index began on 31 December 1987 to 1,000 points starting standard.

 The DAX 30 Index of Frankfurt feature

1. The Euro v area is the large-scale economic entities in the most authoritative stock

2. From the volume of the order and the market value of the measured angle 30 of the largest German company performance.

 Precious Metal

Gold and Silver in the history of mankind, economic and cultural development process. A very important role in the modern currencies, gold and silver are served as the currency and storage of wealth. As a result of the gold of the east and west, regardless of gold and silver to feel that the Awareness and gold and silver became the supplies, ornaments, jewelry consumer goods and investment tool.

 In the modern financial markets gold and silver's main role has been transformed into a popular investment tools, gold and silver to both the investment market structure, transaction trading and settlement operations are very similar, therefore, Bai concentrated only in gold as the focus for the interpretation of the market structure and the transaction theory of operation, these explanations can also apply in silver trading.

 Advantages:more inclined to demand for speculation; a leverage effect; mobile; open and fair price; did not enter the settlement, do not need to bear the physical storage of silver risk.

 Disadvantage: there is a certain trading restrictions are high-risk investments; the need for professional investment skills.


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Risk Warning: Forex, precious metals, CFD CFD and other investment products there is a high risk, investors need to be there based on individual investment objectives and risk level and make an independent assessment or consultative foreign exchange, precious metals, CFD CFD and other investment products high degree of risk, investors need personal investment objectives and risk level according to make an independent assessment or counseling
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