Foreign exchange – forex or the FX market, as it is commonly known – is one of the biggest marketplaces in the world. Here, no trading floor exists; banks, brokers, companies, and governments trade among themselves through high-tech computer networks, such as those offered by Reuters and Bloomberg.
It’s hard to comprehend the colossal amount of money traded in this market on a daily basis, which totals around 6.6 trillion USD per day, as reported in a 2019 survey by the BIS Triennial Central Bank Survey. Approximately 10% is fueled by companies trading overseas, needing to convert currencies for routine commerce, such as import/export businesses; the rest is pure speculation and investment.
Today, it’s possible for anyone to trade currencies – even with a small amount of money thanks to deriv.com. You can also trade in the FX market regardless of which country you are in. Prices are always being quoted and are universally accessible.
The currency market offers nearly 24 hours of seamless trading – starting on Sunday at 9:00 pm GMT, which is early morning in Asia, and carrying on all the way until Friday evening in New York, or 10:00 pm GMT. Although the FX market is liquid almost all the time, the most active times are typically around 1:00 pm GMT to 4:00 pm GMT when the London and US markets are both open. This is also known as the overlap sessions. Another busy time is around 8:00 am GMT, when London initially opens and the Far East is closing down for the day.
Whilst FX is a global market, the two biggest trading centres are London and New York, accounting for 50% of the trading volume. This timeframe also coincides with many US economic data releases which are reported in the morning New York time, such as unemployment numbers, and these can cause sharp moves in currencies.
Although cryptocurrencies such as Bitcoin are starting to be more frequently used for cross border transfers, the total volume of crypto exchanges is still tiny compared to the FX market.
Investors and speculators
In this article we will look at how Investors and speculators trade currencies in an attempt to benefit from movements in the currency exchange markets. They do not intend to use the money itself for any practical purposes; instead, their motives are purely driven by speculation and a simple desire to profit from the price differences. The actual principal is not changing hands.
the majority of all FX trades – i.e. approximately 80% – involve the US dollar (USD). The USD remains the world’s reserve currency, used when trading commodities such as Gold and Oil (which are quoted in USD per ounce or barrel). Companies that do business throughout many parts of the world still report in USD. Bitcoin whilst a cryptocurrency is still quoted the majority of the time in US Dollars.
What can you trade with Deriv.com?
The most popular, commonly traded currency pairs, such as EUR/USD and USD/JPY. All major pairs include USD since it’s the world’s most traded currency.
Currency pairs that don’t include USD, but still encompass the currency of developed countries. This could be GBP/CAD or EUR/CHF
Currency pairs consisting of one major currency and the currency of a developing country, such as Turkey (available on DMT5). Pairs such as USD/RUB or USD/THB would come under this group.
Unique Digital options offered by Deriv.com
Digital options have a fixed payout and a fixed premium. Before purchasing each trade, you’ll know the exact cost of each trade and how much you stand to gain or lose. At worst, the maximum that you could ever part with is the price initially paid to purchase the trade; at best, you’ll win back your initial stake plus the payout amount displayed for your consideration when you first bought the trade. Thus, as forex trading goes, the digital option route is clear-cut and predictable in terms of the potential outcomes. Your risk on DTrader is strictly limited to your premium.
Deriv Digital options give you a variety of ways to profit from a currency pair
In my new E-book How To Trade the Forex market I go into more depth on the different ways to back a currency as well as how I use technical analysis to help spot trends in the market. I also go through the Forex terminology and take your through trading examples.
FX Contracts For Difference (MT5)
A CFD is a derivative product that you can use to speculate on the future direction of a market’s price. You’ll never take ownership of the underlying asset (in this case, currencies). Profit or loss results only from the difference in the price of the underlying asset when the contract is closed. A CFD gives you exposure to a market and allows you to go long (trade for the price to go up) or short (trade for the price to go down). The CFD will remain open until you close it or it gets stopped out.
Deriv.com believes in reasonable trading and offer ways to limit your risk such as stop loss, take profit and limit orders they also offer a no negative balance guarantee which means should a trade go heavily against you and you don’t have a stop loss order you will not be asked for additional funds.
Deriv.com use Metatrader 5 (MT5)
MetaTrader 5 (MT5) is a robust online trading platform developed by MetaQuotes Software. Whilst, at first sight, MT5 can look a little overwhelming, take it a bite at a time and you’ll easily be able to rise to master it. The software is available free of charge and can be downloaded on a desktop or you can use a mobile device will apps available for Android and iPhone/iPad
The power of Leverage
If you have say $1,000 with no leverage then the most you could trade is $1000 which is not that appealing fortunately Deriv offer generous leverage which will vary depending on your country of residency. Lets take for example 50:1 leverage this means for every $1000 you can control $50,000 this of course will magnify your gains and losses so should be used carefully. I explain risk management techniques in my E-book How To Trade Forex
Trading a pair
In currency trading you are always trading a pair, its one currency The base currency against the quote currency. If you went long (buy) EUR/USD then you are buying Euros and Selling US Dollars, you cannot just say buy Euros.
Bid price: The bid price (SELL) is what the broker is willing to pay for the base currency in this example 1.18816
Ask price: The ask price (BUY) is the rate at which a broker will sell the quote currency. The ask price is always higher than the bid price in this case 1.18831
Spread: The difference between the ask price and the bid price, which allows the broker to earn a commission on your trade. After you cover the spread between the bid and ask prices, you can start making a profit on your position. (Spread = Ask price minus Bid price). Tighter the spread the better.
Overall currencies do not move in large percentages but what exaggerates the moves is the use of leverage. A 0.5% daily move when you have 100 x leverage becomes magnified.
Average True Range (ATR)
The chart below of the EURUSD was plotted using MetaTrader5, by MetaQuotes. It is the standard for charting Forex pairs, and is free to download from Deriv. It shows a daily chart, where each candle represents a full day.
At the very bottom you can see the ATR, which stands for Average True Range. The parameter, 20, indicates that it is an average of the last 20 candles. It's current value is 0.00633. If you look at the last 10 bars as the price is dropping the ATR has gone up which means more volatility.
You can easily change this in MetaTrader5 if you want an average for a longer or shorter period. The average month has 20–22 trading days and 20 is a popular one to use.
Ready to discover more?
You can download my new 75 page Ebook How To Trade the Forex which will cover:
- The Simple Basics of Forex
- Who Needs and Uses the Currency FX Market?
- Popular Digital Options FX contracts
- What Makes a Currency Go Up or Down?
- Which Currencies Can You Trade?
- Trading commodities with Deriv
- Currency pairs you can trade with Deriv
- Fundamental Analysis
- Technical Analysis and Trading
- 3 Possible States for Currency Pairs
- Three Main Tools a Trader Can Use
- Chart Formats
- Power Tools for Forex Traders
- Support and Resistance: How to Make Money from a Sideways or Dull Market
- Deriv Meta Trader 5 – Step up to the next level
- Money Management and keeping your emotions in check
- 7 Top Tips to Help You Trade profitably with Deriv
- Glossary of Key Terms Used in Forex and Digital Options Trading
You can also put your new found skills to the test zero risk by using a deriv.com practice (demo) account.
CFDs offered by Deriv Investments (Europe) Ltd are considered complex derivatives and may not be suitable for retail clients. They may be affected by changes in currency exchange rates; If you invest in this product you may lose some or all of the money you invest; The value of your investment may go down as well as up.
CFDs offered by Deriv Investments (Europe) ltd also come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with Deriv Investments (Europe) ltd. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital options, and certain leverage levels for CFDs exposed in this article are not available for clients residing in the European Union or in the United Kingdom.
CFDs on Cryptocurrencies are not available for clients residing within the United Kingdom
This information is for educational purposes only and it is not intended as financial or investment advice”.
This article is being brought brought to you by Deriv Investments (Europe) Ltd. Registered office: W Business Centre, Level 3, Triq Dun Karm, Birkirkara, BKR 9033, Malta. Deriv Investments (Europe) Ltd. is licensed in Malta and regulated by the Malta Financial Services Authority, under the Investment Services Act to provide investment services in the European Union. It is also authorised and subject to limited regulation by the Financial Conduct Authority in the UK. Details about the extent of our authorisation and regulation by the Financial Conduct Authority are available from us on request. The company is authorised to deal on own account and is both the Manufacturer and Distributer of its Products”.