Call or email newaccountenquiries. Contact us: Forex trading, also known as foreign exchange or FX trading, is the conversion of one currency into another. While a lot of foreign exchange is done for practical purposes, the vast majority of currency conversion is undertaken by forex traders to earn a profit. The amount of currency converted every day can make price movements of some currencies extremely volatile — which is something to be aware of before you start forex trading.
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Ready to start trading forex? Open an account to get started. A forex pair is a combination of two currencies that are traded against each other. The base currency is always on the left of a currency pair, and the quote is always on the right. A pip in forex is usually a one-digit movement in the fourth decimal place of a currency pair. A price movement at the fifth decimal place in forex trading is known as a pipette. Currencies are traded in lots, which are batches of currency used to standardise forex trades. As forex price movements are usually small, lots tend to be very large.
For example, a standard lot is , units of the base currency.
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Forex trading works like any other transaction where you are buying one asset using a currency. In the case of forex, the market price tells a trader how much of one currency is required to purchase another. Each currency has its own code — which lets traders quickly identify it as part of a pair. To buy a currency pair means that you expect the price to rise, indicating that the base currency is strengthening relative to the quote currency. To sell a currency pair means that you expect the price to fall, which would happen if the base currency weakened against the quote.
The spread in forex trading is the difference between the buy and sell prices. For example, the buy price might be 1. Margin refers to the initial deposit you need to commit in order to open and maintain a leveraged position. Traders speculate on forex pairs to profit from one currency strengthening or weakening against another.
So, traders would likely go long if the base is strengthening relative to the quote currency, or short if the base is weakening. Some of the most popular forex trading styles are scalping , day trading , swing trading and position trading. You might choose a different style depending on whether you have a short- or long-term outlook. Hedging is a way to mitigate your exposure to risk. Currency correlations are effective ways to hedge forex exposure. The forex market is open 24 hours a day thanks to the global network of banks and market makers that are constantly exchanging currency.
The forex trading market hours are incredibly attractive, offering you the ability to seize opportunity around the clock. The forex market is made up of currencies from all over the world, which can make exchange rate predictions difficult as there are many forces that can contribute to price movements. That said, the following factors can all have an effect on the forex market.
Commercial banks and other investors tend to want to put their capital into economies that have a strong outlook. If negative news hits, then demand might be expected to fall. This is why currencies tend to reflect the reported economic health of the region they represent. Market sentiment, which often reacts to the news, can also play a major role in driving currency prices. If traders believe that a currency is headed in a certain direction, they will trade accordingly and may convince others to follow suit, increasing or decreasing demand.
There are several ways to trade forex , including trading spot forex , forex forwards and currency options. All of these — spot forex, forex forwards and forex options — can be traded with spread bets and CFDs. These are financial derivatives which let you speculate on whether prices will rise or fall without having to own the underlying asset. A forex broker provides access to trading platforms that can be used to buy and sell currencies.
Forex brokers charge a fee, usually in the form of a spread. Upon making this choice, they can then delve deeper into the trading basics specific to that market. For example, a new options trader needs to learn about options Greeks , which help determine the price of an option. Those interested in futures trading need to learn about ticks, points, and the various specifications for each futures contract they may want to trade.
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Stock traders need to learn how to short sell, how dividends work, and the differences between pre-market trading and trading during normal hours. Forex traders need to learn about pip values and daily rollover rates. Books on trading and instructional websites can offer information and lessons on these and other more advanced basics topics. The next step is to learn strategies that will produce a profit in whatever market you want to trade.
Such strategies are subjective, which means the source of the information matters. Free resources may provide generic strategies that worked at one time, but no longer work. Finding viable strategies requires much more research and verification than learning trading basics. When learning strategies, review charts and look for examples of the strategy at work.
If it seems it could be profitable on your own small real-world test, then continue investing some time in the method. If not, leave the method alone. The best method of learning a trading technique is to find a professional trader that will teach you their trading technique. Some professional traders offer websites or books highlighting their methods. They may also provide personal mentoring, which is the most direct approach to learning how to trade. It is also possible to learn a discretionary trading technique without any form of instruction.
Self-learning is fine, but it may take longer to come up with a profitable system when compared to learning a system that is already profitable. Many professional traders develop their own trading methods by continually studying charts, noticing certain patterns or tendencies, and then developing a system that exploits those tendencies. This may take months or even years of testing before the trader finds a viable method that produces profits consistently.
Practice doesn't make perfect, but in trading at least, perfect practice makes improvements. You'll never achieve perfect results because not all trades are won, even by professional traders. And that is okay. You don't need to win every trade to produce a good living. You also set stop-loss and take-profit limits.
The stop-loss limit is the maximum amount of pips price variations that you can afford to lose before giving up on a trade. Many come built-in to Meta Trader 4. However, the indicators that my client was interested in came from a custom trading system.
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They wanted to trade every time two of these custom indicators intersected, and only at a certain angle. The start function is the heart of every MQL4 program since it is executed every time the market moves ergo, this function will execute once per tick.
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For example, you could be operating on the H1 one hour timeframe, yet the start function would execute many thousands of times per timeframe. Once I built my algorithmic trading system, I wanted to know: 1 if it was behaving appropriately, and 2 if the Forex trading strategy it used was any good. In other words, you test your system using the past as a proxy for the present.
MT4 comes with an acceptable tool for backtesting a Forex trading strategy nowadays, there are more professional tools that offer greater functionality. To start, you setup your timeframes and run your program under a simulation; the tool will simulate each tick knowing that for each unit it should open at certain price, close at a certain price and, reach specified highs and lows.
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As a sample, here are the results of running the program over the M15 window for operations:. This particular science is known as Parameter Optimization. I did some rough testing to try and infer the significance of the external parameters on the Return Ratio and came up with something like this:. You may think as I did that you should use the Parameter A. Specifically, note the unpredictability of Parameter A: for small error values, its return changes dramatically.
In other words, Parameter A is very likely to over-predict future results since any uncertainty, any shift at all will result in worse performance. But indeed, the future is uncertain! And so the return of Parameter A is also uncertain. The best choice, in fact, is to rely on unpredictability.