Benefits of Forex or Currency trading

Foreign exchange (forex) or currency trading is a global market that is highly liquid, with a huge trading volume daily. While traders make a choice of which market to trade, they will look for optimal trading conditions and the best chance of taking a profit. All this cretiria is fulfilled by forex. Forex is often the market of choice for novices and pros alike. If you already know what is forex, you can explore the top 10 benefits of forex trading below, among many other benefits that you will discover on your trading journey.

Few important benefits of forex trading are

1. Largest Market in the World

The Forex market is genuinely global because of its sheer size and trading volume. With traders from all around the world engaging on a daily basis and clocking a daily turnover of roughly USD 6 trillion, which makes forex undoubtedly, the world’s largest market.

It is widely preferred by traders worldwide since they can easily buy and sell currencies at their fingertips using platforms like Winstone Prime.

2. Forex market hours

The forex or currency market  is open 24 hours a day, five days a week and it can be traded from 9pm Sunday to 10pm Friday (GMT). The reason behind the long trading hour is the forex transactions completion between parties directly, over the counter (OTC),instead of through a central exchange. Since forex is a truly global market, traders can always take benefit of different active session’s forex trading hours.

3. Nobody Owns the Market

Due to the sheer size of the forex market and the large amount of participants, it is merely not possible for a single institutional trader (no matter how big) to control market prices for an extended time period. The Forex market shortly readjusts itself and levels the playing field. Moreover the forex or currency market is decentralized market and There are no middlemen in forex.  Retail forex broker simply facilitates the connection between the trader and the other trading participant. The forex  market is influenced directly by the economy itself, but not by one person or a company. You can’t corner it and you can’t control it.

4. Huge volume and Most Liquid Market

Forex Market is extremely liquid market. This means that given the large volume being traded at any given moment, under usual market condition. You can buy or sell as you wish with just a click, as there will usually be someone on the other end willing to trade back. You can even set automatic trading in your platform.

Sometimes, Market has quite time also but generally there are always trades to be made.

5. Leverage

Forex brokers allows the traders to buy and sell in the market by making use of significant amounts of leverage, Thus the trade can trade with higher amounts of money than what is actually in their accounts.

Example : If the trader were to trade at 20:1 leverage, the trader could trade $20 for every $1 that was in the account. That means the trader could control a trade of $20,000 using only $1,000 of capital.

But remember leverage is a double edge sword, without proper risk management, you can lose more than your deposit.

6. It’s for Everyone

Forex trading is for everyone, not just meant for the big shots. Starting forex will not cost a lot of money, especially when compared to stocks or options, and this is main attraction for large number of people globally. With a small capital, forex trading can be started thus forex trading is accessible to the average individual.

Winstone Prime offers trading accounts with only $200 minimum deposit, and leverage up to 1:500 is available*.  This doesn’t mean that you’ll be a forex pro right away, it takes a lot of time and practice to learn and become skillful so we would advice to be slow and warm your way in. Follow our Research and knowledge section to build your trading knowledge.

7. No restrictions on directional trading

Contrary to the stock market, the forex does not have any restrictions on directional trading. Traders can buy or sell a currency according to the state of the market, Trader can either go long or sell short based on the prediction of change in value of the currency. Due to the high liquidity of currencies, brokers do not charge any transaction fees for such trading that are required in stock markets.

8. Low Transaction Costs

The difference between the bid and ask price is the broker’s spread which is the retail transaction cost. Well capitalized brokers can offer tightly competitive spreads which helps in reduction of the trading costs and maximizing the profits.

9. Technology

As the forex market is relatively new compared to stocks, among the advantages of forex is that its participants have embraced technology willingly. There are plenty of software and mobile applications that facilitate trade in real-time from around the world. Meta trader 4   and Meta trader 5  are widely used trading platform and most preferred by the traders.

10. Free demo account to practice

Free forex demo account is available to practice trading before going live. Traders can trade in the real market setups without risking their real money.  A demo account proves helpful for the traders to check and improve their trading skill in the real market condition. And great news is  that it is all for free and without any commitment.

As you are now aware of the top 10 benefits of the forex, why not open account and start your trading journey.

Better than expected Initial Jobless claims favors USD

British pound is trading downside against the greenback during Asian Thursday trading session. Brexit worries, better than expected Initial Jobless claims and concerns over the omicron variant favors the safe haven US dollar and weighs on the pound.

Talking about the Brexit Saga, Irish Foreign Minister Simon Coveney crossed wires while signaling no Brexit deal between the European Union (EU) and the UK over the Northern Ireland (NI) protocol during 2021. However, Northern Ireland Secretary Brandon Lewis said he is optimistic to reach a deal but also cited the odds of triggering Article 16.

While the EU-UK Brexit deal is in limbo, the US-UK post-Brexit trade talks are also fragile as both the nations recently jostled over Washington’s failure to remove tariffs on UK steel and aluminum.

On the other hand, On Wednesday, two Fed policymakers favor a fast bond taper. In an appearance at the Congress, Fed’s Chair Powell reiterated that a faster wind-down of the QE’s program is necessary so that the Fed could tame inflationary pressures. Later on, Cleveland Fed President Loretta Mester expressed that a more rapid taper would be like “buying insurance” in the necessity of hiking rates as need it.

Elsewhere, better than expected Initial Jobless claims also favored the USD. Initial Jobless Claims for the week ending on November 26 rose to 222K which is better than the 240K forecasted, while the Continuing Jobless Claims for the week ending on November 18 rose to 1.956M which is lower than 2M for the first time, since March 2020.

Concerns about the new variant of the coronavirus eased after the World Health Organization (WHO) official said that some of the early indications are that most Omicron cases are mild. This, in turn, was seen as a key factor that undermined the safe-haven USD.

GBP/USD 4 Hour Chart:

Support: 1.3240 (S1), 1.3205 (S2), 1.3149 (S3).

Resistance: 1.3330 (R1), 1.3386 (R2), 1.3421 (R3).

All the catalysts favors the safe haven US dollar against the Britain Pound, we expect a bearish trend for GBP/USD.

Upbeat Australian data favors AUD

Australian dollar is trading slightly higher against the American dollar on Wednesday Morning Asian session.  Better-than-forecast Australia Q3 GDP details favored the Australian dollar. It has to be noted that the quote has bounced from the yearly low 0.7061 just few hours before.

Australia’s third-quarter (Q3) GDP had a rise of 3.9% YoY against the 3.0% YoY expectations whereas the QoQ figures decreased from the -2.7% market consensus to -1.9%. Earlier in the day, Australia’s Commonwealth Bank Manufacturing PMI jumped past 58.2 figure to 59.2 for November.

Further favorable for the Aussie was the comment of the Goldman sachs. Goldman Sachs’ Andrew Boak said, “Australia is well positioned for recovery into the year-end and 2022.”

Elsewhere, Early Wednesday morning in Asia, China’s Vice Premier Liu He said that the dragon nation’s 2021 GDP growth will exceed the goal.  This upbeat comment also acted as favorable catalyst for the Aussie.

On the other hand, Growing market worries from the spread of the new coronavirus variant created risk sentiment in the market. The mood deteriorated further after the chief executive of drugmaker Moderna warned that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19. This risk sentiment headwinds the quote.

Further Dovish stance of the RBA Bank also headwinds the quote. The central bank stressed that inflation was still too low, although it also omitted its previous projection that rates were unlikely to rise until 2024 and dropped a key target for the April 2024 government bond.

“The RBA have made every effort to sound dovish” in the policy statement, “so in that sense there’s clearly an attempt to push back on market pricing,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

AUD/USD 4 Hour Chart:

Support: 0.7068 (S1), 0.7011 (S2), 0.6960 (S3).

Resistance:  0.7175 (R1), 0.7226 (R2), 0.7283 (R3).

However as of now, the upbeat Australia Q3 GDP favors the Aussie, we expect a bullish trend for the AUD/USD.

Margin in Forex trading

Meaning of Margin in trading

Margin in trading is the deposit which is required to open and maintain a position.

By trading with Margin, traders will get full market exposure by putting up just a small amount of trade’s value. The amount of capital required as margin required will be usually given as a percentage.

Margin is one of the most important concepts to understand in forex trading.

There are two types of margin: initial margin and maintenance margin. The initial margin is the deposit that is required to open a trade position which is often called the deposit margin or just the deposit. Whereas, Maintenance margin is the amount that must be available in the trader’s account for funding the present value of the position and to cover any running losses.

Working of trading on Margin

Trading on margin works by allowing the trader to open a position while by paying only a percentage of the full value of the position. The margin is determined by broker’s margin system, and the amount of capital required will depend on the asset being traded. Those with higher volatility or big positions may need a huge deposit.

After opening the position, the trader may require to make more deposit in case he incurs a loss in trade and the initial margin is not sufficient to maintain the position. On happening of such scenario, the broker will place the trader on margin call and He will be required to add more funds in the account – this is the additional capital which known as maintenance margin.

Connection between margin and leverage

Before going further, Lets understand  the concept of leverage which is closely connected with the Margin. More margin that is required, the less leverage traders will be able to use. The reason behind this is the trader will have to fund more of the trade with his own money and thus he is able to borrow less from the broker.

Leverage is the two edge sword as it has the potential to produce large profits and large losses. Thus it is crucial that traders use leverage responsibly. Please note that leverage can vary between brokers. Typical margin requirements and the corresponding leverage are produced below:

Example of buying on margin

For example let’s say EUR/USD is trading at $1.12825 , with a buy price of 1.12832 and a sell price of 1.12805. You decide to go with long entry of 1 lot of EUR/USD (equivalent to 100,000 units of the base currency) as you think the Euro to gain value against the dollar. Hence you decided to buy value of €100,000 ($112832).

However you need not want to put the entire amount of the trade. By choosing to trade with margin, you need only a percentage of the total value of trade and get exposure to the full value of the trade.

In Winstone Prime, EUR/USD has a margin factor of 0.2%, so you only have to commit €2000 ($22566) as margin. In this example, your leverage would be 500:1.

FOREX MARGIN TERMS

Margin requirement: The amount of money (deposit) required to place a leveraged trade .

Equity: The Current balance in the trading account after summing current profits and subtracting current losses from the cash balance.

Used margin:  A portion of the account equity which is kept aside to keep existing trades on the account.

Free Margin: The equity in the account after subtracting margin used.

Margin call: This happens when a trader’s account equity falls below the acceptable level prescribed by the broker which triggers the immediate liquidation of open positions to bring equity back up to the acceptable level.

Forex margin level: This is the ratio of your Equity to the Used Margin of the traders open positions, indicated as a percentage.

Leverage: Leverage in forex is a important financial tool which  allows the traders to increase their market exposure beyond the initial investment by just funding a small amount of the trade and borrowing the rest from the broker. As already stated, Leverage is a double edge sword which could result in large profits AND large losses.

Margin Call :

Two words traders never want to hear : Margin Call. A margin call is an informal word which indicates that the trade has went in to negative territory and additional money has to be into the account to keep a position or positions open. There is a specific amount of maintenance margin that is essential to maintain a trade open. Thus, if trades don’t have that value of cash in their account, they will have no choice but to liquidate the leveraged position.

Traders should always avoid margin calls at all costs. Margin calls can be avoided by monitoring margin level on a regular basis, using stop-loss on each trade to manage the loss level and keeping your account adequately funded.

Margined trading is available across a range of investment options and products. One can take a position across a wide variety of asset classes, including forex, stocks, indices, commodities and bonds.

Advantages and disadvantages of margin in trading

Advantages of margin in trading

Margin can help to magnify trader’s profits, as any gains on position are calculated from the full exposure of the trade, not just the margin that is put up as deposit.

Buying on margin means having potential to spread the capital even further, as the trader can diversify the positions over a wider array of markets.

Disadvantages of margin in trading

However margin can magnify the profits, it can also magnify the losses if the market moves against the trader. As the loss is calculated from the full value of the position, not the deposit, and it is possible to lose more than the initial deposit made on a trade.

Managing the Risks of Margin Trading 

When trading on a margined account it is important for traders to understand check amount of margin required per position. Be aware of the relationship between margin and leverage and how an increase in the margin required, lessens the amount of leverage available to traders.

Traders should keep an watch on the important news releases with the use of an economic calendar to avoid trading during such volatile periods.

It is always advisable to have a large amount of account equity as free margin. This will assists traders to avoid margin calls and ensure that the account is sufficiently funded in order to get into high probability trades as soon as they appear.

Final words :

Margin is simply a portion of the traders fund that the forex broker sets aside from account balance to keep the trade open and to ensure that the trader can cover the potential loss of the trade. This portion is locked up for the duration of the specific trade. After the trade is closed, the margin is released back into the trader’s account and he can use it again to open new trades.

Margin is not a transaction cost, but rather it is a security deposit that the broker holds. Trading forex on margin is a popular strategy, as the use of leverage to take larger positions can be profitable. However, at the same time, it’s important to understand that losses will also be magnified by trading on margin. Traders should take time to understand how margin works before trading using leverage in the foreign exchange market.

Traders should always be aware that their forex positions could be liquidated if their margin level falls below the minimum level required.  Go through New to Forex to get started and open demo account to start practice.

Happy trading!!!