How does the Forex market work?

The Forex market is a global market operating 24 hours and 5.5 days a week. It’s an online trading platform where traders from all over the world participate. It has no physical workspace, it’s connected through a series of trading terminals and computer networks. Any trader can trade in the forex market through a terminal called MetaTrader.

So, how do you trade in Forex and make profits?

In simple terms- we trade MONEY in the forex market. Specifically, currencies like USD, Japanese Yen, etc.
The price of any currency is a direct reflection of the market’s outlook on the present and future health of that economy. For example, You bought Japanese Yen at the current market price, so you are buying a share of the Japanese Economy. You think that the Japanese economy is doing good and will be even better in the future. After some time, you see that your prediction was right and the Yen price has moved up so when you sell those shares back. Thus, you made a profit from that trade.

“The exchange rate of one currency against the other is a reflection of that country’s economy compared to other economies.”

In a more real sense, you go to Japan for vacation and must exchange your US Dollars. So, you sold your 1 US Dollars for their 100 Japanese Yen. When you make this exchange, you participate in the forex market. You traded one currency (USD) against another (YEN).

You may have bought 100 Yen with 1 USD but if you check 3-4 days later you will see that the exchange rate has changed. It might be higher or lower than before. This continuous change in the exchange rates allows you to make money in the forex market.

In this example, we just described a small percentage of currency transactions happening in the real economy. The actual forex market size is $6.6 Trillion each day! 200x larger than any other stock exchange in the world.

So, as a retail forex trader, you will be trading in only 3-5% of that $6.6 Trillion Volume daily. So, don’t be overwhelmed by all these high numbers.

So, Who Trades in the Forex Market?

Financial institutions, investment banks, commercial banks, and retail investors worldwide participate in the market to trade large hedge funds or stocks and bonds. They usually trade in forex on behalf of their clients with huge capital. But, we are talking about retail trading. As you will be trading one currency against another, you won’t need a much trading balance to start trading in the online forex market.

Types of Forex Market

You can trade currencies in three different forex markets-

Spot Market:

The spot market is one of the largest exchange markets to trade currencies. These exchanges happen through a broker or a bank. If you want to start trading forex currencies, you will be trading in the spot market.

For example, in a typical spot retail transaction, we will see the current exchange rate of EUR/USD, quoted in our broker platform as 1.07624 ask price. Remember, these prices change in seconds.

If we want, we can buy at this quoted ask price with a click of a button. To buy or sell in the forex market, you will need a trading account with any forex-regulated broker. But, we will dive deep into that later in this course.

Currency Futures:

Futures market trading is where investors agree to buy or sell a fixed amount of a specific currency at a fixed exchange rate on a fixed date in the future. It is based on buying and selling a standard-size contract (larger than spot forex) and settlement date on public commodities markets.

Currency Forwards:

This is quite similar to futures markets but the contract between two parties involved is determined by the parties involved and not based on the public commodities market.
As mentioned earlier, forex trading (retail/spot trading) runs electronically. Traders can trade from anywhere, and anytime via the Internet. It does not have to begin and end based on the hours of a particular building or bank located in a particular time zone. Instead, it is 24-hour trading, 5.5 days a week, because there are always different banks operating and offering rates in different places and time zones around the world. Because of its massive liquidity and internet-based platform, fast-order execution and instant-fill confirmation are routine.

Why Should You Start Forex Trading?

Forex trading has several advantages if you are looking to make quick profits with low capital. However, let’s list down a few of them-

• Incredibly attractive market hours with the ability to trade around the clock. The time difference between US, EU, and Asia enables the forex market to be open 24 hours a day.
  Trade Anywhere, Anytime!
• The ability to profit in rising and falling markets. 
• Flexible leverage and lot trading with low-margin requirements. 
• The market has a low entrance fee. The highest daily trading volume, and over 100 currency pairings worldwide.

Is Forex Trading Profitable?

Yes. Forex trading is profitable. The forex market’s high liquidity, volatility, and flexibility of leverage can help you make profits. But, there will be risk and losses.

Making profits in forex trading is not guaranteed just like all other investments. To make a profit in the trading market, you will require proper knowledge of the market, strategy, and risk management. Any new trader should start small to minimize the potential losses while starting to trade forex.

This is what you learned today-

• Forex market is where you buy and sell currencies.
• We trade currencies against each other to make money in forex market.
• There are three different types of forex market.
• Advantages of trading forex

The post 01. What is Forex Trading and How Does It Work? appeared first on SureShotFX.

Let’s list down some of the basic things you will need to do-

1. Learn Forex (Quite Obvious)
2. Choosing a Good Broker ( Your BFF)
3. Find a Good Trading Strategy
4. Paper Trade in Demo 
5. Fix Your Capital and Risk
6. Avoid Beginner Mistakes

Sounds easy?– Now let’s dive deeper!

From Where to Start Forex Trading?

Learn Forex Trading

If you want to learn forex trading, you gotta go in with an open mind and commit to always learning if you want to secure the bag. There are a lot of terms and graphs to unpack if you wanna trade currencies without getting rekt. Therefore, before investing real money, it is strongly encouraged to take the time to properly prepare through research, demo trading, and working with a reputable broker and a mentor. Don’t get discouraged by losses (we all take them).

Choosing a Forex Broker

You will need a forex trading account at a brokerage to start forex currency market trading. Choosing a good forex broker is very important. While choosing a forex broker, compare them in terms of platform availability, regulatory compliance, fees, margin rates, and customer support. SureShotFX has researched for you, you can check out the Top 5 Forex Brokers for you to choose from. Once you have chosen the best forex trading broker that fits your needs, it’s pretty easy to register a forex account with them.

How to Open a Trading Account?

• Provide your proper information on the broker registration site (name, address, tax ID, etc)
• Fill out other information requested by the broker
• Select your account leverage settings (For $100-200, your leverage should be 1:100, If it’s more than 200, choose 1:500)
  If you wish to know more about Leverage– check out Article 8 on this course.
• Verify your identity by submitting proper documents for your passport/license or national ID, a copy of your utility bill or bank statement will also assist you in verifying your address. Additionally, you will need to submit financial and tax documents to comply according to your country’s laws & regulations.

“We would suggest you start with a demo account with your broker and after you have a good grab over everything, go live in a real account.”

Find a Good Trading Strategy

If you are one to research forex, be prepared to invest a lot of your time to learn about multiple trading strategies. Testing them out you could analyze the charts according to these trading strategies and get profitable trades out of them. It’s not like one trading strategy will be it. NO MATE!

You will need to try out several strategies and finally build your trading plan. Through your practice phase, you will learn to control your emotions, how to navigate through these strategies, which pairs to trade, and how to best manage your risk.

Paper Trade on Demo Account

As a beginner trader, you should always practice on a demo account. A demo Forex account lets you put your training into practice in a close-to real-life environment without putting real money at risk. This allows you to make common beginner’s errors while learning without having to pay for the consequences out of your pocket.

• Treat It Like It’s Real. Stick to your trading strategy, and control your emotions like a pre–demo trading is an excellent way to develop your skills as a trader.
• Experiment Like a Mad Scientist: Want to try out a scalping strategy? Or maybe day trading is your thing? Demo is how you determine what works best for you in various market conditions. Think of it as your trading playground!
• Do not trade blindly; instead, use the demo account’s statistics to track your wins, losses, and overall performance.

Fix Your Capital & Risk

Fix the amount you would like to start forex trading. This amount should be the amount you are ready to invest and okay to risk. One of the most asked questions from all new forex traders is Can I start Forex trading 2024 with just $100?- Yes, you definitely can. Because, unlike any other investment opportunities, forex is a market for everyone.

Forex is a leveraged market where your initial investment can grow by 20/30 times and sometimes even a whooping 500 times when you take them. However, even if you have access to leverage of 1:500, trading with $100 in the forex market has its own set of challenges and restrictions. Most importantly, learn proper money management starting with $100. Real trading is different from a demo account. So, go slow and win consistently.

Mistakes to Avoid

In a nutshell, avoid trading with your emotions, avoid over-trading your account, avoid over-staying at your positions, avoid bad money management, and avoid risking what you cannot afford in Forex trading. Forex trading involves a lot of risks and traders are always advised to trade and learn at the same time. Become aware of common mistakes made by most Forex traders and set your own rules during trading in the FX market. Trade with discipline and always prepare to learn new concepts from others. Learn why most forex traders fail.

To start online forex trading it’s essential to have the right training in risk management, technical and fundamental research, and disciplined trading. Rookie traders run a serious risk of suffering large losses if they don’t have a solid understanding of currency pairs, chart patterns, economic indicators, and other concepts. It is best to take your time and learn because there is a lifetime of opportunities.

This is what you learned today-

• Basic steps to start forex trading
• Choosing a good forex broker
• How to open a trading account
• How to start forex trading
• Mistakes to avoid in forex trading

The post 02. How to Start Forex Trading? appeared first on SureShotFX.

And there’s no doubt that forex can be exciting when you know that it’s a $4 trillion per day market. We read everywhere how people are making millions in forex. The first rule of trading Forex is money management and figuring out how much you need to invest.

Can you get rich by trading forex?

Forex trading can make you rich if you are a next-to-perfect skilled forex trader. But, Forex trading is not a Get-Rich-Quick Scheme. However, you did see a lot of forex gurus leading a luxurious lifestyle by trading forex. The reality is much less glamorous. So. can you get rich by trading forex?– yes. 

Consistent success in the forex market demands hard work, dedication, and continuous learning. Think of it as climbing a mountain, not riding an elevator – slow and steady progress, not impulsive leaps, lead to your ultimate trading goal.

What seems so easy is extremely difficult. What seems to give you endless pips and profits will quickly diminish your account in staggering losses. To this end, we have to avoid the twin dangers of over-capitalization and under-capitalization.

Over-capitalization: Never Bet The Farm

Wanting to have a luxurious life has tempted many people into rushing into forex with money they cannot afford to lose. Some people quit their jobs to become “forex traders” with their $6000 savings account, hoping to live off the 30% monthly return they were expecting from their trading. Needless to say, in striving for an impossible return, they over-leverage and over-trade their account into oblivion within a couple of months.

If you are new to trading forex, and you do have money, you should avoid the temptation of over-capitalizing your account.

Undercapitalization:

Undercapitalization occurs when you need more funds to trade safely. It’s like going into battle without armor. You might lose everything.

Many retail brokers offer minimum account deposits as low as $1 or $25, but it would be foolish to trade with the minimum. One losing trade would cause a margin call and force you to liquidate all positions at a loss. A typical forex trader might start with $100-200 in a micro account, but even that size is under-capitalized. So What’s The Amount?

It’s safe to start with $300 at least and trade on 0.01 lot per trade. This will help you gradually increase your account balance. While $100 can get you started with a demo account, undercapitalization can lead to overleveraging (borrowing too much), risking a complete loss of funds, and blowing up your account.

Most new traders lose money, so beginning with a modest capital amount is advisable to effectively manage risks. We suggest following these guidelines below-

Money Management:

You should always risk 2% of your capital per trade. For example, if you have a $500 account, you will be risking 2% of this amount, that is $10. Never over-trade on a single currency or trade. At SureShotFX, we always suggest to trade only 2-3 pairs per day. That helps you balance your risk management as well.

Risk Management:

Risk and reward are two terms where the risk refers to the Stop Loss(SL) and the reward refers to the Take-Profit(TP). Using your allowable money management, for every 1 pip in your stop-loss you must ensure that you gain 3 pips of profit. We term it as a 1:3 Risk to Reward ratio. So, for a 0.01 lot, for every $2 used in the stop loss, you should be prepared to target $6 as your profit.

When you are trading in micro lots, you will need to provide extra attention while choosing your trades. Only join trades with a high probability of success, and target your setups with well-defined support and resistance criteria. Some chart patterns, like the flag and pennant, have defined profit targets, and the pattern boundaries can also help in defining the stop loss.

If you want to make hundreds or thousands from forex trading, you must invest your dedication, and time and increase your knowledge. We hope that you got an extensive idea of how much do you need to start trading forex.

This is what you learned today-

• Money management is the first rule to trading forex
• Overcapitalization in forex should be avoided
• Undercapitalization can lead to account loss
• Always risk 2% of your capital
• Trading forex with 1:3 risk to reward ratio

The post 03. How Much Money Do You Need to Start Forex Trading in 2025? appeared first on SureShotFX.

Forex Market Open Hours

Forex market operates 24 hours a day. Traders all around the world trade currencies digitally across many countries and time zones. So, when a country’s trading day ends, another begins. Therefore, currency values are always responding to economic and geopolitical developments in various countries.

There are four major forex time zone exchange centers all around the world.

• New York Session
• London Session
• Tokyo Session &
• Sydney Session

Understanding forex market hours help traders make smart trading decisions by helping them optimize their trading during the time of high liquidity. When any of these major markets are inactive, the currency pairs connected with them may have lower liquidity. So, planning your trading strategy on active sessions and overlaps is critical for optimizing possible gains.

Key Forex Sessions & Market Hours

The Asian trading session is typically the least active. Followed by the Sydney and London sessions. The New York session is the most active, because it overlaps with both the London and Sydney sessions.

Major Trading Session

Three main forex time zone are the Asian trading session (Tokyo), the European trading session (London), and the North American trading session (New York). There  open and close hours are as follows:

• Sydney’s Session is 9:00 PM to 7:00 AM GMT, or 7:00 AM to 5:00 PM local time.
• Tokyo is open from 11:00 PM to 9:00 AM GMT (8:00 AM to 6:00 PM local time).
• London’s Session is 8:00 AM and 6:00 PM GMT, or 9:00 AM and 7:00 PM local time.
• 9:00 AM and 7:00 PM local time, or 1:00 PM and 11:00 PM GMT, for New York Session.

Best Hours to Trade

You may have noticed that there are many times during the day when multiple trading sessions are ongoing at the same time. These are overlapping trading sessions. The overlapping trading periods offers the highest level of liquidity for certain currency pairs and results in wider price movements.

Why is it best hours to trade?– well, higher liquidity and increased trading volume are usually beneficial for speculative forex traders. Therefore, when you trade specific pairs in their active sessions, you will be able to take profitable trades. This is especially true for short term strategies like scalping or day trading. So, let’s see the overlapping forex market hours-

• European-North American Overlap (8 AM – 11 AM): 

This forex market timings is widely regarded as the best time to trade forex. It overlaps with the opening hours of both the New York and London major forex trading time zones.

Trading activity in European currencies peaks during this time, offering highest liquidity for currency pairs involving the Euro, Pound, Sterling and Swiss Franc. Notably, this includes the crucial 8AM to 11AM period when both the New York and London markets are active.

• Asian-European Overlap (12 AM – 3AM): 

During this period, Sydney closes at 1:00 AM, while Tokyo, Hong Kong, and Singapore continue trading, overlapping with Frankfurt and London at 2:00 AM and 3:00 AM respectively. This time frame usually sees the highest liquidity for the Japanese Yen and the European Yen crosses.

• Australian-Asian Overlap (9:00 PM – 12:00AM): 

This period marks the overlap between the New Zealand and Australian markets with those of Tokyo, Singapore, and Hong Kong. It offers the most liquidity for the Australian and New Zealand Dollars and their crosses.

During these overlapping sessions, traders can witness active trading in specific currency pairs, such as AUD/USD, AUD/JPY, EUR/AUD, NZD/USD, AUD/NZD, and NZD/JPY.

Gaining an understanding of forex market hours can help you efficiently manage order execution, news impact, and liquidity. Be alert, modify your trade strategies, and never stop killing it.

This is what you learned today-

• Forex market open hours and major market sessions
• Specific forex market hours for Major exchange
• Best hours to trade forex

The post 04. Forex Market Hours appeared first on SureShotFX.

What is the exchange rate?

The exchange rate is the relative price of two currencies from different countries. The exchange rates fluctuate based on which currency is stronger at that moment. In forex trading, this exchange rate will be displayed in the market watch window of meta trader like this-

What is Base Currency & Quote Currency?

The first currency of a forex pair is called “Base Currency”. Base currency represents how much is needed to buy a single unit of the second currency or quote currency in a forex pair.

Similarly, the second pair is called “Quote Currency”. They are separated with a forward slash (“/”). Currency quotes is the amount of units of the quote currency you will need to exchange one unit of base currency.

Mostly, the dominant base currencies are-

The base currency value is always 1. For example, 1 Dollar, 1 Pound, 1 Euro, etc. The calculation is-
1 unit of Base Currency can buy X units of the quote currency.
If the base currency is USD, such as USD/JPY, a quote of USD/JPY 88.48 means that one U.S. dollar is equal to 88.48 Japanese yen. Likewise, if the base currency is EUR, such as EUR/USD, then a quote of 1.3980 means that one Euro is equal to 1.3980 US Dollars.

Major Forex Pairs

These are widely traded pairs in the forex market. The major forex or currency pairs have the most liquid markets and are traded 24/5.
Liquidity is the level of activity or amount of active traders for a particular forex pair in the forex market. We will use this term quite a few times throughout the course. The most commonly traded currency pairs in 2023 were:

• EUR/USD (Euro/US Dollar)
• USD/JPY (US Dollar/Japanese Yen)
• GBP/USD (British Pound/US Dollar)
• USD/CHF (US Dollar/Swiss Franc)
• AUD/USD (Australian Dollar/US Dollar)
• USD/CAD (US Dollar/Canadian Dollar)
• EUR/JPY (Euro/Japanese Yen)

Minor and Exotic Forex Pairs

Currency pairs not associated with USD are minor currencies. They have higher spreads and lower liquidity than the majors. For example, EUR/GBP, GBP/JPY, EUR/CHF etc.

Exotic pairs are the currencies of emerging market, i.e. USD/SGD (U.S. Dollar/Singapore Dollar). They are not as liquid and has much wider spreads.For their low liquidity, exotic currency pairs can be highly volatile during forex economic news events. 

That’s a lot of information about currencies, right? But the bottom line is currencies or forex pairs are exchanged in the forex market. We hope with this article you have learned extensively about what is a currency pair and types of currency pairs available in the market.

This is what you learned today-

• Exchange rate is the relative price of two currencies from different countries
• The first currency of a forex pair is called “Base Currency” and  the second pair is called “Quote Currency”.
• The major forex pairs have the most liquid markets and are traded 24/5
• Forex pairs not associated with USD are minor currencies

The post 05. What is Forex Currency Pairs? appeared first on SureShotFX.

Pip in Forex Trading?

Pip is the tiniest price/value change in a currency pair. In forex trading pip is the most basic unit of calculating your profit and loss. For example, you might hear a trader saying I made 90 PIPS profit. This means that the trader has made profit of 90 pips. Depending on your leverage/lot size, this one single pip movement in price can be a high amount of profit or loss.

Also note that, pip amount does not mean actual cash amount. The actual cash amount against the pip amount depends on the pip value. We will talk about pip value later on this article.

Let’s understand what is a pip in forex trading through an example-

If EUR/USD price has moved from 1.5001 to 1.5002, it means that EURUSD has moved ONE PIP higher.
A pip is the last decimal number or place in a price quote. Most of the forex currency pairs have 4 decimal places, however, some currencies like the YEN have two decimal places. So, usual currencies like the EURUSD is 0.0001 and for USDJPY it will be 0.01.

Trade Sample on EUR/USD:

If you buy EUR/USD at 1.3505 and sell at 1.3525, you would have made 20 pips.

Trade sample on USD/JPY:

If you sold USD/JPY at 88.95 and exited at 89.25, you would have lost -30 pips.

Any quote price beyond 4th or 2nd decimal places is called pipettes or points. So, if GBP/USD moves from 1.30000 to 1.30001, then that 0.00001 USD move is one pipette.
Here is a how you can read pips-

What is a tick in forex trading?

Tick is the smallest change/move of a currency/asset. For example, if your broker only updates the price after every $0.50 move, then the tick size is 0.50. And your currency pair price movement will be similar to this tick size, i.e. 100.00, 100.50, 101.00… Again the increase and decrease factor will depend on your broker’s tick size.

What is the Difference Between a Pip, Tick and Tick Size?

Pip and Tick in forex trading are almost synonymous. As we have seen, pip is the smallest incremental price move of a currency. Tick size is the smallest possible change in price – very similar. With 4-digit brokers, the EUR/USD has a tick size of 0.0001, which means that the smallest increment that the price can move from 1.3840 would be up to 1.3841 or down to 1.3839.

How to Calculate Pip value?

Pip value depends on three things and based on these, value of a single pip can have a big impact on the value of your trade-

1. The currency pair being traded
2. The size of the trade
3. The exchange rate.

Suppose you enter a $50,000 position with USD/CAD forex pair. You decide to close the trade when USD/CAD price reaches 1.3050. You gained 50 pips from this trade. Here’s how you can calculate pip value or profit in money amount–

• Find out how much each pip is worth in CAD:

Take the trade amount ($50,000) and multiply it by 0.0001 (the standard way to represent one pip in forex trading)
So, $50,000 x 0.0001= $5 per pip in CAD

• Calculate the value of each pip in USD:

Divide the value per pip in CAD (from step 1) by the current exchange rate (1.3050)
So, $5 ÷ 1.3050 = $3.83 per pip in USD

• Calculate the total profit/loss:

Multiply the number of pips gained (50 pips) by the value of each pip in USD (from step 2)
So, 50 pips x $3.83 = $191.50 in Profit

Therefore, you made $191.50 profit from your $50,000 trade by gaining 50 pips with USD/CAD.

Free Pip Calculator

If you find all these math difficult, then don’t worry. You can use SureShotFX Pip Calculator app from Google Play Store. This free app will help you calculate pip for any trade. Additionally, it will help you calculate pip value according to your contract size.

This is what you learned today-

• Pip is the smallest movement in forex trading
• How to calculate pip
• Tick is the smallest value movement in forex trading
• Difference between pip, tick and tick size
• How to calculate pip value
• Free Pip calculator

The post 06. What is Pip in Forex Trading? appeared first on SureShotFX.

Key Factors of Choosing a Forex Broker:

Spreads, Costs & Commission

The first step is considering the costs of trading with a forex broker. All forex brokers make money by charging fees and commissions from every trade you place. These costs can vary from broker to broker. Therefore, it’s important to understand your broker’s spreads, commissions, and fee charges before registering with them. Always choose a forex broker with zero to low spreads and lower commissions.

Forex Swap Rates

A forex swap rate is an overnight interest added or deducted when holding a position open overnight. It’s determined by the interest rate difference between the currencies in the forex pair and whether the position is long or short. Swap rates are usually measured in points.

Some currency pairs may have negative swap rates for both ‘long’ and ‘short’ positions. Platforms like MetaTrader 4 and 5 automatically convert these rates into your account’s base currency. Each currency pair has its own swap charge based on a standard size of 1.0 lots (100,000 base units).

Swaps for FX, Metals, Bonds, and CFDs on Commodities can have triple the usual rate on Wednesday nights. The same thing happens on Friday nights for Energies, Indices, and Cryptocurrencies. You can check the latest swap rates within your MetaTrader 4 and MetaTrader 5 trading terminal by right-clicking on any instrument in the ‘Market Watch’ section. Then, select the ‘Specification’ option from the dropdown menu. This will display the long and short swap rates for the selected pair in a new window.

Regulation

Always choose a regulated forex broker. Regulatory bodies (government agencies) ensure that these brokers follow certain rules and guidelines that will protect you from fraud—Manipulated; actions and other unethical practices. Regulated forex broker ensures fair and transparent trading.

Markets to Trade

When you are choosing a forex broker, make sure to check out the trading assets they are offering. You might want to trade currency spot market, but the forex broker you choose only offers cryptocurrencies or stocks. So, consider choosing a versatile forex broker that offers a variety of trading assets for you to trade.

Customer Support

A good customer service is a very important part when it comes to choosing a forex broker. Any of your concerns or queries regarding your trading account or investment should be dealt with promptly. So, it’s essential to have access to a reliable customer service from your broker. SureShotFX has created a list of top five forex brokers. You can check them out to see if they are worth being your forex broker.

This is what you learned today-

• Choosing a forex broker relies on the costs associated with them
• Spreads, Commissions, and fees should be lower.
• Always choose a regulated forex broker
• Having reliable customer service is a must

The post 07. How to Choose a Forex Broker? appeared first on SureShotFX.

What is Leverage?

“Leverage is the loan or ability to use a large amount of capital than your own capital through the help of your broker”

Leverage is like a loan from the broker. It allows you to control a larger amount of money than you actually have. It is expressed as a ratio. Different levels of leverage are available depending on your broker.

Let’s say, you want to trade with a $100,000 capital in the forex market. Your broker offers you a deal. They will set aside $1,000 from your account to make this trade happen. This relationship between the amount you control and the money you put down is a ratio (in this case, it’s 100:1). So, you’re controlling $100,000 with just $1,000 of your own money.

So, how does this help you?

If this $100,000 goes up in value to $101,000. You’ve made a $1000 gain. If this was your actual investment, you would have gained only 1% ($1000 gain from $100,000 investment). This is 1:1 leverage which is really next to nothing, right?

But, with the help of your forex broker whatever the amount of your actual investment is, you will be able to control a larger position with a smaller account size. It will amplify your potential profits drastically. However, it’s important to remember that although leverage increases potential profits, it also increases the risk of losses.

How leverage works in forex:

Here are two examples to help you understand how leverage works in forex:

01. Positive Outcome:

• You have 10,000 euros as your capital.
• Your broker offers 1 to 100 leverage.
• You can control a trading capital of 1 million euros.
• If you buy the euro against the US dollar at 1.3055 and sell it later at 1.3155, you could almost double your capital.

02. Negative Outcome:

• Same trader, same 10,000 euros capital.
• Has 1 to 100 leverage.
• Buys the euro at 1.3055 but sells it at 1.3005, losing almost half of the capital.

The main point is that leverage can amplify both profits and losses. So, it’s important to use it wisely to avoid magnifying your losses.

This is what you learned today-

• Leverage is the ability to control a large capital; loaned by your broker.
• How leverage works

The post 08. What is Leverage in Forex? appeared first on SureShotFX.

Margin is the money you need to deposit with your forex broker to open positions and trade in the market. This is a portion of your balance kept aside by your broker as collateral.

Why do you need to provide a collateral?- well it’s an assurance that you are able to hold the trade until it’s closed. Margin is like a safety deposit set aside by your broker. Your broker temporarily holds this to make sure you have enough to cover potential losses while your trade is open.

What is the Margin Requirement?

The margin is shown as a percentage of the “full position size”. This percentage is called the Margin Requirement. The Margin Requirement can be different depending on the forex pair and the specific forex broker you’re using.

Different brokers may have different requirements. Some examples of margin requirements are-

Here’s how it works in a practical example with a EUR/USD trade:

Let’s say, you want to buy or sell 100,000 EUR/USD without using leverage. Generally you would normally need the full value of the position, which is $100,000. But with a Margin Requirement of 2%, you don’t need the entire $100,000. Only $2,000 (the Required Margin) of your funds is required to open and maintain that $100,000 EUR/USD position.

How to Avoid Margin Calls?

You will need to maintain a margin percentage at all times. Your margin percentage is set by your broker. This is the minimum amount of cash you must maintain in your account proportional to its total value. So, if your margin is 25%, you need at least 25% of your account’s total value in cash.

That’s why you need to regularly monitor your account. Brokerage firms may adjust the margin requirement during volatile market conditions. Margin calls are typically based on your account value at market close, generally around 4 p.m. EST. However, if the market is highly volatile, margin calls may come earlier.

Thus, it’s essential to keep a close eye on your account and be prepared to take action if necessary.

This is what you learned today-

• Margin is the amount of money your broker keeps aside as collateral.
• The margin requirement is the percentage (%) amount of money of your initial capital required to open a position in the market.
• Keep a close eye on your margin to avoid margin calls.

The post 09. What is Margin in Forex? appeared first on SureShotFX.

Learn the Equation of Spread in Forex?

A spread is a difference between the “ask” and the “bid” prices of a broker’s currency quote. The bid is the price you can sell the base currency and the ask is the price you can buy the base currency.

Spread = ask price – bid price

What’s the Importance of Spread?

Spreads are normally collected by no commission broker as a fee for executing an order. Instead of charging you a separate fee for each trade, brokers include the cost within the buy and sell prices of the currency pair you’re trading. This way, when you buy a currency, you pay a slightly higher price, and when you sell, you receive a slightly lower price.

From the broker’s perspective, they’re providing you with a service, and they need to make money somehow. They do this by selling you the currency at a slightly higher price than they paid for it, and vice versa when they buy it back from you.

So, whenever you engage in forex trading, you’re paying a small fee, represented by the spread.

How to Calculate Spread?

Spread is always measured in pips. For example, a 2 pip spread for EURUSD would be

Ask Price – Bid Price
1.2083 – 1.2081 = 2 Pips

In this quote, you can buy EURUSD at 1.24378 and sell it at 1.24367. The spread right now is (1.24378-1.24367)= 0.00011 or 1.1 pips. That means if you buy EURUSD now and close it right away, then you will lose 1.1 pips.

Let’s assume, you are trading with 7 mini lots, so 1.1 pips (spread) x 7 mini lots (your lot size) x $1 (pip value per mini lot) = $7.7

Types of Spread

There are two types of spread available depending on your forex broker.

01. Fixed Spread:

The fixed spread remains the same regardless of the market conditions. This is usually offered by market-making brokers.

02. Variable Spread:

Variable spreads mean that they are constantly changing. Variable spreads are offered by non-dealing desk brokers. As they receive prices from several liquidity providers, the spread usually widens based on the supply-demand of currencies and market volatility.

For example, you saw the spread of EURUSD is 2 pips, however, when you went to buy EURUSD during the FOMC news release, the spread increased to 20 pips!

03. Raw Spread:

Raw spreads are simply the difference between the buying and selling prices of a currency pair, without any extra fees added. Traders using raw spread accounts get direct access to the interbank market, which means they can get better prices and lower costs.

04. Zero Spread:

Zero spreads are fixed at 0 pips, meaning traders don’t pay any spread cost regardless of market conditions. Zero-spread accounts, like ECN-based accounts, link traders directly to liquidity providers. Unlike raw spreads, zero spreads usually involve a fixed commission per trade, typically ranging from 0.2 to 3.5 pips based on the trading instrument and your forex broker.

This is what you learned today-

• Spread is called the difference between Bid & Ask Price
• Spread is a way to make money for your forex broker.
• Types of spreads available in forex.

The post 10. What is a Spread in Forex? appeared first on SureShotFX.