Markets

The forex market is ultimately driven by economic factors that impact the value and strength of a nation’s currency. Generally speaking, forex traders can look at economic news to assess its impact on interest rates and monetary policy​. News that suggests a more hawkish (aggressive) central bank tends to push forex pairs up in value relative to other currencies, while dovish (peaceful) news can cause a currency to depreciate.

The foreign exchange (forex) market is a decentralized market since there is no one physical location where investors go to buy and sell currencies. Forex traders can use the internet to check the quotes of currencies from various dealers from all around the world.

Liquidity refers to how active a market is. It is determined by how many traders are actively trading and the total volume they’re trading.

Liquidity is considered “high” when there is a significant level of trading activity and when there is both high supply and demand for an asset, as it is easier to find a buyer or seller.

If there are only a few market participants, trading infrequently then liquidity is considered to be “low” (e.g. market opening or rollover).

Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.

Currencies differ from other assets because they are traded in pairs. When you trade shares or gold, you buy or sell with money. With forex, you trade one currency against another currency: you buy one currency and sell the other. Therefore you are trading two currencies, or a currency pair, simultaneously.

Currency pairs are made up of the first currency – the base currency – and the second currency – the term (or counter/quote) currency.

The first two letters in the code represent the country, and the third letter identifies the currency, such as the code CAD = Canadian Dollar.

Forex prices are known as rates, and they express the value of one currency in terms of the other.

For example, a price or rate in euro-chf could be quoted as:

EUR/CHF = 1.08867

The first currency in the currency pair is the base currency (in this example, the euro), and the second currency is the quote currency (in this example, the chf).

On our MetaTrader platforms, currency pairs are displayed on MT4 and MT5 as EURCHF

Looking at this currency rate above, we can see that 1 unit of the base currency (1 euro) is equal to 1.08867 chf, which means to buy 1 euro, you will have to pay 1.08867 chf.

If you are selling, the FX rate specifies how many units of the quote currency you get in exchange for one unit of the base currency. In the example above, the rate tells us that you will receive 1.08867 chf when you sell 1 euro.

Traditionally, the market is separated into three peak activity sessions: the Asian, European and North American sessions. These three periods’ major markets are Tokyo, London and New York. Sometimes a fourth, Australian session (major market: Sydney) is used that fills in the gap between New York and Tokyo hours.

There are a number of data releases that can help traders and analysts understand changes to a country’s economy, the most relevant are:

Capital Markets – The global capital markets are perhaps the most visible indicators of an economy’s health. There is a steady flow of media coverage and up-to-the-second information on the dealings of corporations, institutions, and government entities. A rally or sell-off of securities originating from one country or another should be a clear signal that the future outlook for that economy has changed.

International Trade – The trade balance between nations serves as a proxy for the relative demand for goods from a country. For example, a nation with products or services that are in high demand internationally will typically see an appreciation of its currency. The increased demand will put upward pressure on its value.

On the other hand, countries with large trade deficits are net buyers of international goods. It is likely to negatively impact the value of an importing country’s currency.

Political News – Forex traders are constantly monitoring political news and events to anticipate shifts in government spending and adjustments in regulations imposed on particular sectors or industries. For example, changes in rules regarding margin or leverage available to traders often have a dramatic impact on markets.

Elections with uncertain outcomes are always significant events for currency markets. Exchange rates often react favorably to wins by pro-growth or fiscally responsible parties. 

The fiscal and monetary policies of any government are the most critical factors in its economic decision making. Central bank decisions greatly impact interest rates.

Economic Statistics – Economic reports are the backbone of a forex trader’s playbook. Gross domestic product (GDP) may be the most visible economic statistic, as it is the baseline of a country’s economic performance and strength. However, it is crucial to remember that GDP is a lagging indicator. 

Inflation is also a significant indicator, as it sends a signal of increasing price levels and falling purchasing power.

Employment levels, retail sales, manufacturing indexes, and capacity utilization also carry important information on the current and predicted strength of an economy and its currency.

There are three major forex trading sessions which comprise the 24-hour market: the European session (London), the US session (New York) and the Asian session (Tokyo).

In the investing world, the terms bull and bear are frequently used to refer to market conditions.
A bull market occurs when securities are on the rise, while a bear market occurs when securities fall for a sustained period of time.

A bull market is a market that is on the rise and where the economy is sound; while a bear market exists in an economy that is receding, where most securities are declining in value.

Because the financial markets are greatly influenced by investors’ attitudes, these terms also denote how investors feel about the market and the proceeding economic trends.

When you buy an asset, you are going “long”. When you sell, you are going “short”.

Example: Sam buys stock, so he has opened a long position.

When you trade currencies, you buy one currency and simultaneously sell another currency. So you are going long for one currency and simultaneously opening a short position for another currency.

Example: When Sam buys EURUSD, Sam is going long for EUR and going short for USD.

The exchange rate represents the value of a country’s currency vs. that of another country or economic zone. Most exchange rates are free-floating and will rise or fall based on supply and demand in the market. Some currencies are not free-floating and have restrictions.

In the world of cryptocurrencies, confirmation is a measure of how many blocks have actually passed since a transaction was added to a coin’s blockchain.

The more confirmations that have occurred, the more secure the transaction actually is.

Referring to Bitcoin specifically, six confirmations are advised as a good safe when it comes to larger transactions. Each merchant, as well as the exchange, has to decide how many confirmations they require for each coin.

When it comes to the time between confirmations, it depends on the coin itself, as each coin has a different time frame for how quickly the blocks can be mined. Keep in mind that an unconfirmed transaction is one that is waiting to be added to the blockchain by miners. Each block is then added after that initial block and results in one confirmation. This means that if one confirmation takes 10 minutes, six could take an hour, and so on.

A lot is a standard size of a transaction. It is measured in base currency units.

The common lot sizes are:

• Standard: 100,000
• Mini: 10,000
• Micro: 1,000

Example: 1 standard lot of EURUSD = 100,000 euro; 1 micro lot of EURUSD = 1000 euro.

Pip Value is used to calculate quickly how much your position P&L would change in case of certain price movements. It shows the position P&L change if the price goes up or down by 1 pip. To solve for the Pip Value, please use the formula below:

Pip Value = Position Volume x Counter Currency 1 pip

As a result, you get 1 pip value in terms of the counter currency.

Example: Position 1 lot of EURUSD. Pip Value = 100,000 x 0.0001 = 10 USD

However, it is more important to know the value denominated in your account currency.

Pip Value in Account Currency = Pip Value / Account Currency-Counter Currency Rate

Example: Position 1 lot of EURJPY. Account Currency: USD. USDJPY rate = 80.00. 

Pip Value = 100,000 x 0.01 = 1,000 JPY. Pip Value in USD = 1,000 / 80.00 = 12.5 USD.

A 'pip' is the smallest price increment.

Example: Currency pair prices used to have 4 digits after the decimal point (e.g. EURUSD at 1.2539), and 0.0001 was the smallest amount by which the price could change (e.g. from 1.2539 to 1.2540).

Now, however, prices can change by one-tenth of a pip, or by 1 fractional pip, also called a Pipette.

Example: USDJPY was usually quoted with 2 digits after the decimal point, e.g. 77.21/77.23, and 1 pip = 0.01. Now you can see the following quotation – 78.513/78.524, where the smallest price change is 0.001 = 0.1 pips = 1 pipette.

So the pip traditionally was the smallest price increment – 0.0001 for almost all currency pairs and 0.01 for pairs with JPY as a quote currency. And despite the fact that a currency pair can now be quoted with more decimal places thanks to more precise pricing, the pip remains the same.

A Spot Market is the primary forex market where those currency pairs are swapped and exchange rates are determined in real-time, based on supply and demand.

A Futures Market is used by traders who want to speculate or hedge against future price changes in a currency. It allows traders to opt for a standardized contract to buy or sell a predetermined amount of a currency at a specific exchange rate at a date in the future.

If you open a position and do not close it by the end of the same day, your position will be rolled over to the next day. Rollover is achieved by two simultaneous deals: your position closure at the end of the day at a spot rate and the reopening at the beginning of the next day at a forward rate. This mix of two opposite deals in one operation is called a swap. The differential between the forward and the spot rates is called swap points.

The forward rate is based on the idea that amounts in both currencies are paid with an overnight interest rate. The differential between these two rates, or the Interest Rates Differential, results in positive or negative swap points.

Forward Rate = Spot rate x (1 + interest of the quoted currency x days/base) / (1 + interest of the base currency x days/base)

Swap Points = Forward Rate – Spot Rate = Spot rate x ((1 + interest of the quoted currency x days/base) / (1 + interest of the base currency x days/base)) -1) ? Spot Rate x (Interest Rates Differential) x days/base

where Interest Rate Differential = Interest of the quoted currency – Interest rate of the base currency

An economic calendar refers to the scheduled dates of significant releases or events that may affect the movement of individual trading instrument prices or markets as a whole.

Investors and traders use the economic calendar to plan trades and portfolio reallocations, as well as to be alert to chart patterns and indicators that may be caused or affected by these events. 

The majority of the events listed fall into one of two categories: projections of future financial or economic events, or reports on recent financial or economic events.

A CFD, or a Contract for Difference, is an agreement between two parties to exchange the differential between the opening and the closing prices of a contract at the moment of the contract closure, with this differential multiplied by the number of units of the asset specified in the contract.

A CFD is a derivative linked to the underlying asset price. It does not involve physical asset delivery. When you trade in forex online, you do not buy or sell real assets. If you open EURUSD long, you do not physically buy euros and sell dollars. You trade CFDs. You make a deal that, at the moment you close the deal, you will receive or pay the differential between the opening and the closing prices multiplied by the number of units.

Day trading, as the name suggests, involves making dozens of trades in a single day, based on technical analysis and charting systems. Day traders typically do not keep any positions overnight.

Swing trading is based on identifying swings in stocks, commodities, and currencies that take place over a period of days or weeks. Unlike a day trader, a swing trader keeps positions at least overnight, therefore margin requirements are higher. 

Day traders typically use short-term buy and sell signals while swing traders typically use trends and momentum indicators.

Equity

Equity refers to the amount of money a trader has in their trading account (i.e. their Balance) plus or minus the bonus and any profit or loss from open positions. If, however, the trader doesn’t have any open positions, his or her equity is equal to his or her balance.

Margin

Margin is the amount of money that a trader needs to put forward in order to open a trade. When trading forex on margin, you only need to pay a percentage of the full value of the position to open a trade.

Free Margin

Free Margin is the amount available on your account to open new positions.

 Free Margin = Equity – Used Margin

  — Equity = Balance + Profit & Loss

The foreign exchange market (FOREX) is the biggest and the most liquid market in the world with an average daily trading volume of about $5 trillion.

Forex is traded 24 hours a day, 5 days a week across banks, institutions and individual traders worldwide. Unlike other financial markets, forex is a global decentralized or over-the-counter (OTC) market for trading of currencies. 

The Forex market is where one currency is exchanged for another one at a specific rate. This currency pair rate changes every second as a result of the constantly fluctuating global demand and supply for both currencies of the pair.

The Forex market allows participants, such as banks and individuals, to buy, sell or exchange currencies for both hedging and speculative purposes. The foreign exchange (forex) market is the largest financial market in the world and is made up of banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers, and investors.

Fundamental and Technical analysis are two major schools of thought when it comes to approaching the markets, yet are at opposite ends of the spectrum.

Fundamental analysis evaluates stocks by attempting to measure their intrinsic value. Fundamental analysts try to determine a company’s value by looking at its income statement, balance sheet and cash flow statement. 

Technical analysis differs from fundamental analysis, in that traders attempt to identify opportunities by looking at statistical trends, such as movements in a stock’s price and volume.

Technical analysts focus on scrutinizing the chart itself for patterns to predict future price movements.

Leverage is a gear or a multiplier required to open a position bigger than your deposit. In online forex/CFD trading leverage is the credit that a broker provides to a trader to increase the trader’s open position and correspondingly the trader’s Profit & Loss (P&L).

Example: Sam deposits 1000 USD into his account. Sam’s broker provides him with a 1/100 leverage. The maximum position Sam can open equals his deposit multiplied by his leverage = 1000 USD x 100 = 100,000 USD. Sam’s P&L is correspondingly multiplied by 100.

Quotes for trading instruments usually have two sides: the bid price and the ask (offer) price. The bid price is the price of an asset at which the market or broker is ready to buy from a trader (that is, the trader can sell, or go short, at this price). The Ask or Offer price is the price at which a trader can buy an asset.

Spread is the difference between the Bid and the Ask price.

Example: The quoted EURUSD rate at the moment is 1.30290/1.30303. This means that 1.30290 is the bid price – a trader can sell EURUSD at this price, whereas 1.30303 is the ask price – a trader can buy EURUSD at this price. The Spread is 1.3 pips (Bid – Ask = 1.30303 – 1.30290 = 0.00013 points or 1.3 pips).

MetaTrader 4 (MT4) is the most popular retail platform for currency trading. MetaQuotes created the trading platform in 2005

Numerous factors determine exchange rates such as Differentials in Inflation, Differentials in Interest Rates, Current Account Deficits, Public Debt, Terms of Trade, Strong Economic Performance . Many of these factors are related to the trading relationship between the two countries. Remember, exchange rates are relative, and are expressed as a comparison of the currencies of two countries.

EU Summer:

The Forex market with MidasFX opens at: 00:00 GMT+3 on Monday and closes at: 23:00 GMT+3 on Friday

or

EU Winter:

The Forex market with MidasFX opens at: 00:00 GMT+2 on Monday and closes at: 23:00 GMT+2 on Friday

The major currency pairs on the forex market are:

• EUR/USD 
• USD/JPY 
• GBP/USD
• USD/CHF.

We receive our price feed directly from our liquidity providers and we provide them to our clients as such in the trading platform.