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The Trader's Toolkit
Our blog provides essential trading and investment insights to equip both new and seasoned traders with the tools they need to trade online.
ForexOur Top 5 Forex Exotic Pairs to Trade in 2023In forex trading, there are exotic pair crosses. This involves the pair containing one major currency (U.S. dollar or euro) trading against a currency with low volumes (like the Turkish lira or Mexican peso). Exotic currency pairs tend to be more volatile than their major alternatives, but may still offer some potential profits if you know what you're doing.
» Learn the differences between major and minor currency pairs
1. EUR/TRY
So far, the Turkish lira is not replicating its volatile performance of 2022, cratering double digits in one session. But the currency is still susceptible to bad public policymaking risks in Ankara, which can help your trade if you are paying attention to the political and economic situation unfolding in Turkey.
Remember, Turkey is still going through an inflationary and currency crisis, so there are plenty of challenges ahead for the lira. With an election coming up, you might want to monitor the results if you are interested in the EUR/TRY trade.
2. USD/SEK
For the USD/SEK currency pair, each country's respective central bank might be the main focus for investors. The U.S. and Sweden are both going through high inflation, and the Federal Reserve and the Riksbank have raised interest rates to combat these price pressures. American and Swedish policymakers have suggested they continue pulling the trigger on rate hikes to bring inflation down to their target levels. Ultimately, the best way to trade USD/SEK might be to concentrate on monetary policy.
3. USD/THB
Despite optimism over the Thai baht and other Asian currencies heading into the new year, market analysts trimmed their bullish expectations and have turned bearish on these currencies amid renewed strength in the greenback on Fed tightening efforts. Indeed, the Thai baht has been the region's top-performing currency so far this year, but experts are unsure whether the currency can maintain its strength.
4. USD/ZAR
What happens in the global economy will influence the South African rand's direction more than what occurs within the continent's largest economy. Of course, if the international marketplace slips into a recession, this would weigh far more on the rand and support the buck. While this is undoubtedly a volatile exotic pair, economic data suggests that there may potentially turn a profit.
Also, you should keep an eye on metal commodities, since South Africa possesses a sizable resource economy.
5. USD/CNH
There are two China-related currency pairs—the onshore yuan, which is mainly used for exporters, and the offshore yuan (CNH), which is used in international markets for investors to speculate on the currency. The USD/CNH is an exotic pair, despite both economies being the largest in the world, and it can definitely be an interesting one to trade on the exotic front.
Although the trade volume is much lower, there is plenty of data and news to utilize, which can undoubtedly add to your strategies. Traders will be monitoring the post-pandemic recovery.
» Interested in XAU/USD instead? Read more about XAU/USD pair
Should You Trade Exotic Pairs?
Are you better off trading the major currency pairs (USD/CAD, EUR/USD, or GBP/JPY), or should you delve into the world of exotic cross pairs? Well, for one thing, exotics are usually more volatile than the majors, which could result in higher potential returns because of these fluctuations. That said, exotic pairs account for a smaller portion of the total forex market, so if you are not careful enough with your strategies, you might be at significant risk of sharp losses.
As always, when you are embarking upon a new frontier, only invest what you can afford to lose and ensure you are equipped with the knowledge to make the right trading decisions.
» Ready to start trading CFDs? Learn more about forex currencies with Fortrade
Cfd tradingHow to Trade Crude Oil CFDs as a Beginner: 4 Essential TipsIt has been a wild ride for crude oil in the past couple of years, going from below $0 in the early days of the coronavirus pandemic to as high as $130 earlier this year. For first-time investors and investing veterans, trading crude oil, especially from the perspective of contract for differences (CFDs), is a popular thing to do.
Crude oil trading is widely done for three reasons: it is highly liquid, it is suitable for both short- and long-term trading, and most movement is based on trends and patterns that stem from news headlines (geopolitics, OPEC, EIA data, and public policymaking).
What You Should Know About Crude Oil CFDs
The first thing that every investor needs to know is that crude oil CFDs require traders to use leverage, so when they open a position, they only need to place a small sum of the full trade value.
This offers traders greater exposure to the energy commodity. However, like every other form of leverage with low barriers to entry, there is an exceptional risk of losing money since it is based on debt.
Meanwhile, crude oil prices can be rather volatile. Two of the three main global benchmarks are West Texas Intermediate (WTI) and Brent. The former is US-based and the latter is concentrated in Europe.
A whole host of facts can influence the price of WTI and Brent CFDs: military conflicts in key producing areas, the Organization of the Petroleum Exporting Countries (OPEC), weekly storage reports, US production levels, and demand volumes from major importing countries.
» Learn more about how to trade crude oil CFDs in a volatile market
4 Tips for Trading Crude Oil CFDs
1. Choose Brent or WTI—or Both
When you are pursuing crude oil CFD trading, it is important to select WTI, Brent, or both. You do not need to delve too much into the other benchmarks, like Urals and Dubai.
Brent and WTI are important because this is where most of the action takes place and they are more susceptible to the current events and data you monitor. In other words, you are watching what the folks on the New York Mercantile Exchange and ICE Futures exchange are watching.
» Read more about Brent Crude vs. WTI Crude and their key distinctions
(Link to blog: Brent Crude vs. WTI Crude: 5 Key Distinctions)
2. Risk Management Strategy
Like every other trading avenue, it is crucial to employ a risk management strategy so that you do not lose sight of your objective—shielding your assets from losses.
Indeed, it might be counterintuitive, but the goal of trading is not generating profits—it is protecting your principal from red ink. In addition, follow these three tips and you will be fine:
Never risk more than you can afford to lose.Stick to your trading strategy (if it is not working after a few months, reconsider your strategy).Rely on Take Profit and Stop Loss orders when opening or closing a trade.
3. Long-Term or Short-Term Strategies
Crude oil can be integrated into both long- and short-term trading strategies. But there is a difference, whether you are using CFDs or not.
If you are going long on crude oil, you are better off depending on oil and gas stocks instead of relying on the front-month contract. If you plan to hold crude oil for no more than a few sessions, then it is better to concentrate on crude oil CFDs.
4. Monitor Market News and Analysis
Finally, it is imperative to monitor market news and analysis when you are day trading or swing trading crude oil CFDs.
For example, on Wednesdays, the US Energy Information Administration (EIA) will publish its weekly storage report that will confirm how much crude oil and other fuels were withdrawn from inventories. Or, as another instance, nearly every month, OPEC will host a meeting in Vienna where it will assess market conditions and make decisions on production volumes. It is vital to pay attention to these components of the worldwide energy landscape.
Final Words
Now, there can be a debate about Brent vs. WTI, but the energy commodity can be easier to invest in based on a treasure trove of elements available to the average person. As time goes by, you start noticing patterns, such as if crude oil is oversold or overbought.
Overall, as long as you grasp the fundamentals of CFD trading—and trading in general—crude oil can be one of the vehicles to make a potential profit.
» Ready to start trading CFDs on commodities? Discover how to open an account with Fortrade
ForexClose Positions in Trading: Everything You Need to KnowUnderstanding trading as a beginner requires learning the basics first, and there's no better way to start than with opening and closing positions. Namely, all instruments in the market move in price, and the asset's price is represented on a chart. This asset can grow in price, leading to the chart going up, or it can fall, leading to the chart going down.
Of course, traders can get potential profit from the market regardless of the chart's direction. Namely, a trader can open a long position, where you expect the price to go up, or a short position, where you expect it to go down—opening a sell trade to get potential profit from the price going down.
However, to profit from a trade, you must understand how you can properly close a position. So, let's see what closing a position means in more detail.
What Is a Close Position in Trading?
Simply put, closing a position in trading means exiting an open trade and taking profits or losses accordingly. This can be done either manually if the trader is tracking their trades closely, or automatically with the help of stop-loss orders that could limit the risks on both long and short trades.
It's worth mentioning that there are many reasons why a trader would close a position. These include:
Taking profits from an open long or short position. Mitigating a potential loss, anticipating that the market is headed in the opposite direction. Preventing forced liquidation by the market or your brokerage. Adding liquidity to your account for a bigger position.
Short Selling
Short selling involves opening a position in an instrument with the expectation that it will fall in price, and closing it to take potential profits. To short sell, you first artificially "borrow" shares from your brokerage to open the position. When the time comes to close this position, you "return" these borrowed shares back to the brokerage, and any profits or losses are calculated accordingly.
Exiting a Long Position
The most common type of position is a long position, where you open a buy trade with the expectation that it will rise in price and close it to earn a potential profit in the price difference. To close such a position, the trader "exits" the market by reversing their trade, effectively selling the asset back to the brokerage at the current market price and earning potential profits.
Exemptions
In some cases, traders are not required to close their position. This can happen if the instrument they used is subject to an expiration date, as with derivatives such as futures or options contracts. In these cases, the position is automatically closed when it reaches its predetermined expiration date, regardless of whether or not the trader would like to close it.
It's also worth mentioning that, in some cases, positions aren't closed voluntarily but forcefully by the brokerage or the market. This can happen due to improper risk management or extremely volatile market conditions.
The most common type of a force-close position is with a margin call, which is a demand by the brokerage to invest more cash or close the position. Failing to deposit more cash in your account when margin-called might cause a forced liquidation to happen in your account, making you close your positions with a loss.
» Read more about the differences between CFD and futures trading
Closed Position Example
Let's say a trader opens a long position on the price of Microsoft stock (MSFT), which is currently trading at $250 per share. After two days, the price of the stock rises to $255, and the trader decides that it's time to take potential profits, so they close their position. This action will result in the trader making a profit of $5 per share invested.
Let's explain this example in a step-by-step:
The trader sees a chance to potentially profit from the price of MSFT stock, anticipating that the share price will go up after a certain event (like Microsoft releasing a new product).Then, the trader opens a long position with their brokerage (where you buy low and sell high) and waits for an increase in price. Once the share price reaches the trader's expectations (for example, $255), the trader closes the position and takes the potential profits.
Final Words
To summarize, closing positions refers to exiting an open trade and taking profits or losses accordingly. As you can see, positions can be closed either voluntarily or forcefully by the brokerage/market. This decision is based on multiple factors, like the trader's risk tolerance, current market conditions, as well as potential earning opportunities.
Whether you're in a long or a short position, learning how to close positions properly is essential.
» Want to learn more? Check out our free beginner's trading courses
Forex5 Most-Popular Forex Majors to Trade in 2023Major currency pairs are those that are actively traded in the global forex market. Today, the list varies, but it is safe to say that the major currency pairs are currently comprised of USD/CAD, EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, and USD/CHF. Investors will typically trade these pairs because they are considered highly liquid and stable.
» Be sure to understand the basic forex terms before you start trading
1. EUR/USD
The EUR/USD currency pair is perhaps one of the most interesting pairs to trade in 2023. Last year, the euro cratered to more than a 20-year low and reached parity with the greenback (the dollar). Nearly everyone was bearish on the euro amid an energy crisis and a plunging economy. Today, however, market analysts turned bullish on the currency for several reasons: a warmer-than-expected winter, better-than-expected economic data, and the European Central Bank (ECB) possibly ending its quantitative tightening program in the spring on a decent eurozone economy.
2. GBP/USD
Investors have soured on the British pound, primarily due to out-of-control inflation, a Bank of England (BoE) that is terrified of the gilt (bond) market, and a slowing economy. This currency pair trades in either direction based on fiscal and monetary policy, akin to what happened this past fall when the pound cratered and the yields spiked at an alarming size and pace. But some industry observers say that investors should not be surprised if they notice a sideways trend.
On the technical side of things, the pound sterling is the third most-traded currency, behind the U.S. dollar and the euro. This is a double-edged sword: volumes are high, but the price can fluctuate because of its global influence.
3. USD/CAD
When it comes to the USD/CAD currency pair, traders will monitor what is happening on the south side of the U.S.-Canada border than what might be happening in the Great White North. Despite energy commodities soaring in 2022 and Canada maintaining a current account deficit, the loonie failed to catapult to the moon last year. It was all about the greenback. Now, the buck has slumped considerably since November on expectations that the Federal Reserve will begin to slow down the pace and size of rate hikes, but the U.S. dollar could resuscitate a modest rally on risk aversion amid volatility in the financial markets and any re-acceleration of inflation.
Right now, the spread is immense, as the pair trades above 1.30.
4. USD/CHF
For years, the Swiss franc has been considered a safe-haven asset when times are tough, be it a global market meltdown or a recession. While it is still a highly liquid pair, conditions could be fascinating based on the Swiss National Bank's (SNB) plans for the upcoming year. Remember, before the great inflation crisis of the last couple of years, the franc attempted to limit its appreciation to make its exports more attractive. Monetary policymakers reversed this policy during last year's bear market. It is unclear what the institution's intentions will be in the upcoming year, but broader market trends will be the key driver.
The USD/CHF is highly liquid, so there may not be sudden spikes as you would find with, for example, the USD/TRY.
5. USD/JPY
Is what the Bank of Japan (BoJ) does interesting? If you are trading forex or participating in the broader financial markets, it will need to be because policymakers could impact the USD/JPY pair considerably this year. The central bank has employed a series of measures as of late to support the economy that could further dampen the yen: keep ultra-low interest rates intact, push ahead with a Yield Curve Control mechanism, and purchase more bonds since demand has dried up. It might not be economic data driving the yen in the first half of 2023, but whatever policy instrument instituted by Governor Haruhiko Kuroda and his coming successor.
On the technical side, the USD/JPY pair is also a terrific FX trade since it maintains enormous trading volumes.
» Confused about currency pairs? Learn the basics of cross-currency pairs in forex trading
What Is the Best Major Currency Pair to Trade in Forex?
If you are just starting out in forex trading, it is always best to trade just one major currency pair. This allows you to get comfortable in the forex market, spot patterns, and determine if your strategy works. So, what would be the one major currency pair to trade in 2023? The EUR/USD is perhaps the most interesting one, mainly because of the upside in the euro. From ING to Morgan Stanley, a plethora of market analysts have abandoned their previous bearish position and initiated "a factory reset." The consensus among strategists is that the currency pair will finish 2023 at around 1.15, which would be a turnaround from the abysmal performance in 2022. Right now, it is trading at about 1.09, so it might be an opportunity to get involved or buy the dip when possible.
Of course, there are other major currency pairs to consider, such as the USD/CAD for stability and the AUD/USD for speculation.
In the end, no matter what major currency pair you trade in forex, be sure to do your research, ensure your account is liquid, trade what you can afford to lose, and pay attention to a whole host of factors.
» Interested in more than the major currency pairs? Discover the difference between major and minor pairs
Stock tradingGER40 vs. GER30: How the Shift Affects the German DAX IndexIndices—also known as stock market indices—measure the performance of a selection of stocks on a given exchange. They are used by individual and institutional investors to track relative changes in the stock market as a whole. Generally, they consist of baskets of stocks that represent different segments of the economy, such as large-cap companies, small-cap companies, or a particular sector. Some of the most popular indices include the Dow Jones Industrial Average (DJIA) in the US, the S&P 500, and, of course, DAX in Germany.
» More interested in US markets? Learn about the US Tech 100 Index
What Is GER40?
Formerly known as the GER30, the GER40 (German Stock Index 40) is a stock index that tracks the performance of Germany’s top 40 companies by market capitalization. It is the benchmark index for the German stock markets and is a key indicator of the overall performance of Germany’s economy. It is one of the most popular indices for traders, as it closely follows the performance of Germany’s top companies. Companies included in the GER40 are chosen based on their size and liquidity.
Namely, the GER30 once listed 30 companies, but was changed to the GER40 after adding the following 10 companies:
Airbus SEZalando SESiemens Healthineers AGSymrise AGHelloFresh SESartorius AG VzPorsche Automobil HoldingBrenntag SEPuma SEQiagen NV
When Did GER30 Become GER40?
GER30 is a part of Deutsche Börse AG, and it was initially established in 1988. As of 2021, it has been rebranded as GER40 (German 40) due to changes in the selection criteria of the underlying stocks that make up the index. The new criteria now include more mid-cap and small-cap companies, which broadens the reach of the index beyond just large caps.
Why Did the Change Happen?
The change from GER30 to GER40 is part of Deutsche Börse AG's effort to make the index more representative of the German economy. By adding more mid-cap and small-cap stocks to the index, it provides investors with a more comprehensive view of the performance of the German economy. This, in turn, allowed for more accurate comparisons and analysis of the performance of different companies in the index.
» Need help trading the DAX? Learn about DAX trading signals
9 Key Differences Between GER40 & GER30
1. Market Capitalization
GER40 includes stocks with a wider range of market capitalization, including mid-cap and small-cap companies, while GER30 only consisted of large-cap stocks.
2. Performance
GER40 is a more comprehensive index and provides investors with a better representation of the performance of the overall German economy.
3. Composition
GER40 has a more diverse composition, which includes stocks from different sectors and industries. Whereas, GER30 was mainly composed of stocks from the banking and automotive sectors.
4. Selection Criteria
The selection criteria for companies included in GER40 are more stringent as compared to GER30. To be included in GER40, a company must meet certain criteria, such as size and liquidity requirements.
5. Trading Volume
GER40 has a higher trading volume as compared to GER30. This is mainly due to the wider range of stocks that are now included in the index.
6. Weighting
GER40 has a more diversified weighting, whereas GER30 was heavily weighted towards the banking and automotive sectors.
7. Return
GER40 has outperformed GER30 over the past few years due to its more diversified composition and higher trading volume.
8. Liquidity
GER40 has higher liquidity than GER30 due to the higher trading volume and a wider range of stocks that make up the index.
9. Fees
Trading fees for GER40 are typically higher than those of GER30 due to the higher liquidity and trading volume.
» Need some extra help with your trading journey? Take a look at our CFD trading courses for beginners and advanced traders
What Affects the Value of the DAX Index?
Company performance
The performance of individual stocks in the index affects the overall value of the DAX Index. Market sentiment
Investor sentiment and market trends have an impact on the value of the index. Economic conditions
Changes in economic conditions can influence the performance of stocks in the index, which in turn affects its value. Political events
Political events can cause fluctuations in the value of the DAX Index. Supply and demand
The supply and demand of stocks in the index can affect their value. Interest rates
Changes in interest rates can have an effect on the price of stocks in the index.International events
Changes in global events, such as a trade war or pandemic, can affect the value of the DAX Index. Trading volume
The trading volume of stocks in the DAX Index affects its overall value. Macroeconomic factors
Macroeconomic factors, such as inflation or consumer spending, can influence the performance of stocks in the index and affect their value. Other factors
Other factors, such as weather conditions or natural disasters, could also have an impact on the value of the DAX Index.
How Is the DAX Index Calculated?
Accounting for market cap, the DAX is determined by a free-float methodology that evaluates stocks on their liquidity and float. This means that only shares available for public trading are taken into account when calculating the index’s value. The DAX is calculated and published each trading day by the Deutsche Böerse AG, which evaluates and updates it in real-time.
What to Consider When Trading It
Like the majority of other indices, traders should consider their own financial situation and risk appetite when trading the DAX Index. Additionally, it is important to be aware of the various factors that can affect the index’s value, as well as the implications of possible outcomes. Most notably, trades must consider the higher trading volume of GER40 and the heavier weighting towards stocks from different sectors when making trading decisions.
» Ready to trade the GER40 and other indices? Learn more about opening an account with Fortrade
Cfd tradingFree Margin & Its Role in CFD TradingMargin in CFD trading is the deposit that is needed to open and continue a leveraged position while engaged in CFDs and spread trades.
As you trade on margin, you will enjoy complete market exposure by only submitting a fraction of a position's full value, whereas, without margin, retail traders' access to the broader financial markets would be rather limited.
Ultimately, margin can change your trading experience, be it CFDs or standard investing.
What Is Free Margin & How Does It Work?
Free margin refers to the equity in a trader's account that is not tied up in a margin for open positions. In other words, free margin is the usable margin that traders can use during their investing pursuits.
Used margin is the amount of account equity currently committed to maintaining open positions, but free margin is the difference between equity and used margin. So, this is the amount that is available to open new positions if needed, and it is also the amount that can be moved against existing positions. If the open positions are profitable, traders' equity will increase, and so will their free margin. Similarly, if open positions lose money, equity decreases, and so does the free margin.
Traders can use free margin to determine how much room they have on their current holdings before they are hit with a margin call. Margin calls generally occur when the account's margin drops below 100%.
Free margin also lets traders know how much they can withdraw from their account if they have no hedged positions.
» Learn more about margin calls, what they are, and how to avoid them
(Link to targeted post: Margin Calls: What They Are & How to Avoid Them)
How to Calculate Free Margin
When you want to calculate the margin needed for a long position for the price of the stock purchase, you will need to multiply the number of shares x the price and the x margin rate.
For example, if your equity is $1,000 and you have used $500 of your margin, your margin level is ($1,000/$500) x 100.
Free Margin in CFD Trading
When you trade with CFDs, you need leverage, a key feature of the contract, and it is important to know your margin as it enables you to evaluate open positions.
Free margin tells you where you stand. You must have the necessary funds in your account to keep your CFD trade running as this is needed to cover your margin. Free margin gives you that backing and ensures you do not reach a situation of a margin call, enabling you to always have something on hand to cover your losses (if any).
Advantages of Free Margin
Free margin is very useful when trading CFDs as it allows traders to avoid margin calls and to use their margins sensibly—there is no logic in risking the total funds in a trading account as this can increase the risk of a margin call.
Free margin gives you leverage—it is the amount of money you keep in your account that you can use for opening additional leveraged positions. It is equal to the funds in your trading account minus the funds already acting as collateral for your existing leveraged positions.
Most traders try to ensure their free margin does not fall to zero because that would leave them with only used or required margin. In such a scenario, brokerages can close a trader's open positions. As a result, it is well worth a trader's time to closely monitor their free margin and ensure it does not fall to zero, as this can increase the risk of a margin call, and no pending orders will be executed without a free margin.
Free margin can also be seen as a risk management indicator, providing a buffer amount before a margin call or forced liquidations.
Risks of Free Margin in CFD Trading
Free margin is a constantly changing balance. Prices move throughout the day thus the free margin can also fluctuate constantly. That is why traders must monitor their margin levels during the trading day.
Final Words
In the end, traders must be vigilant of their free margin because if it decreases, they will not be able to cover their losses. There is no right or wrong percentage of free margin to have. Some traders believe too much free margin makes them less competitive and risk-averse, while others feel it gives them the peace of mind to invest sensibly.
» Ready to start trading? Discover how to open an account with Fortrade
Stock tradingDAX 30 Index Trading Signals ExplainedIf there is one thing we learned in the last couple of years, it is that indexes are extremely popular. An index follows the price performance of a basket of stocks that represent a specific market segment or section. The most popular ones are the S&P 500, the NASDAQ Composite Index, the Russell 2000, and DAX 40 (previously known as the DAX 30).
But what exactly is the DAX 30 and how do you use it? Keep reading to find out.
What Is the DAX 30 Index?
The DAX 30 (now DAX 40) is a German blue-chip stock market index that tracks 40 of the largest companies listed on the Frankfurt Stock Exchange. It was created in 1988 and has increased in value by nearly 1,100% since its inception. Considering some of the companies listed on the DAX, it is understandable why it is perhaps one of the most successful indexes in the world. The most popular ones include:
Adidas AGDeutsche BankPorsche Automobil HoldingSiemens AGVolkswagen AG
How to Use DAX 30 Trading Signals
Investors are always on the prowl for trading signals. These are, essentially, alerts to potential trading insights in the market you are participating in, whether indexes or commodities. They are analytical tools for entering or exiting positions and taking profits or limiting losses.
So, for example, a common trade signal is if there is a sharp selloff in the financial markets because of geopolitical tensions in the Middle East, but the fundamentals still indicate that the market is in good shape. As a result, investors may choose to buy the dip if there is a good deal available in the stock market.
» Want to increase your trading knowledge? Take a look at our CFD trading courses for beginners and advanced traders
Can You Create Your Own Trade Signal?
You may be wondering—is it possible to create your own trading signal for the DAX 30? This is a common question that investors have when they start analyzing financial markets, and the answer is yes.
The first step is to establish a blueprint with these steps:
Think about the type of indicatorDetermine what features will be added to your indicatorCome up with rules to figure out where and when price movements could happenExperiment with your indicator in the real market with your money or a free demo account
The thing you need to consider is which inputs you should utilize for your trading signal. Some of the more common ones are:
Volatility levelsMarket volumesMoving averagesMonetary policyTechnical patterns
So, for example, let's say that Deutsche Bank has been slapped with another billion-dollar fine and could be under investigation by regulatory bodies. This would immensely impact the DAX 30 since there may be spillover effects. Your trading signal would respond based on volatility and market volumes, as well as moving averages and deeper insight into technical averages.
Key Takeaway
Trading signals are critical for anyone who is involved in the investment community since they can help you live and work comfortably. It is extremely beneficial to incorporate them into your daily arsenal, as the feature can help you notice trends and enter or exit a position at a good price.
» Learn more about DAX 30 index with Fortrade
Forex9 Basic Forex Terms You Should Know Before TradingTrading in the foreign exchange (forex) market can be a daunting experience for a beginner, but with a basic understanding of forex terms and concepts, you can quickly become comfortable trading fiat currencies. Today's article will discuss nine of the most important terms used in forex trading, such as leverage, margin, pips, and spreads.
Moreover, we will also discuss some key concepts, like the importance of having a trading strategy and understanding the different types of order executions. With this knowledge, you can start trading currencies with confidence. So let's get started and learn the basics of forex trading.
1. Currency Pairs
In simple terms, currency pairs are the two currencies that make up a currency exchange rate. A currency pair is typically listed as a number of base currency units per one quote currency unit. They are divided into three main categories: major, cross, and exotic pairs.
Major Pairs are the pairs of currency that are most commonly traded, and include:
EUR/USD USD/JPY GBP/USD AUD/USD
Cross Pairs are currency pairs that do not include the US dollar and most commonly include:
EUR/GBP NZD/JPY CHF/JPY
Exotic Pairs are currency pairs that involve less commonly traded currencies, such as:
EUR/TRY USD/MXN CAD/JPY
So, if you are looking to trade, let's say dollars and euros, you would be looking for the EUR/USD currency pair.
» Learn more about CFDs on forex currency pairs available for trading
2. Exchange Rate
An exchange rate is a price for exchanging one currency for another. Exchange rates are determined by a variety of factors, such as supply and demand, economic conditions, and political stability, and can be either floating or fixed.
Floating exchange rate: The value of the currency is determined by the market and can change from moment to moment.
For example, the EUR/USD has a current exchange rate of 0.97. This means that one euro is worth 0.97 US dollars. Fixed exchange rate: The value of the currency is set by a central bank and remains constant.
A popular example is the Danish Krone, which is fixed to the euro at 7.4 DKK per 1 EUR.
3. Leverage
Leverage is the use of borrowed capital to increase one's buying power in the forex market. You can use leverage to trade larger amounts of currency than what you have in your trading account.
For example, if you have a trading account with a brokerage that offers 50:1 leverage, it means that you can trade up to the value of $50 for every $1 in your account. This way, you can make larger trades than you could otherwise with just your own capital.
If you’re still a forex beginner that’s not completely familiar with all the trading terms, it wouldn't be the best idea to start using leverage just yet. For beginners, it is best to start with a demo account that offers leverage and practice trading without risking your own capital.
» Learn how to trade on forex: Try out our free demo account
4. Bid / Ask Price / Spread
Understanding the terms bid, ask price, and spread is essential for any investor looking to trade in the forex market. They refer to the prices of currencies when buying and selling, as well as the difference between those two prices.
Bid price: The bid price is the highest amount of money a buyer is willing to pay for a currency pair.
For example, if the EUR/USD bid price is 0.96, this means that a buyer is willing to pay 0.96 US dollars for one euro. Ask price: The ask price is the lowest amount of money a seller is willing to accept for a currency pair.
For example, if the ask price of EUR/USD is 0.97, this means that a seller is willing to accept no more than 0.97 US dollars for one euro.Spread: The spread is the difference between the bid and ask price. It is typically expressed as a percentage of the mid-market rate and can vary depending on the market conditions.
In the examples we used the bid price for EUR/USD was 0.96 and the ask price was 0.97, which results in a spread of 0.01.
5. Long / Short Position
In forex trading, your position (long or short) refers to your expectations of the market. If you think the market will go up, then you take a long position. Conversely, if you think the market will go down, then you take a short position.
Long position: A long position is when an investor opens a buy trade of a CFD currency pair expecting its value to increase. The investor will then open a sell trade at a later point in time at a higher price, thus making a potential profit. Short position: A short position is when an investor opens a sell trade of a CFD currency pair expecting its value to decrease. The investor will then open a buy trade at a later point in time at a lower price, thus making a potential profit.
6. Margin
In forex trading, a margin is the amount of money a trader must put up in order to open and hold a position, expressed as a percentage of the total position size.
Typically, this money acts as collateral for the brokerage to cover any losses if the trade goes against the trader. Some of the key terms you need to understand related to margin are:
Used margin is the amount of money in your trading account that is used to open and maintain a position. Free margin is the amount of money in your trading account that is available to open new positions. Margin call is when a trader or investor has an account that has fallen below the brokerage’s minimum margin requirement, then the brokerage can place a margin call on the account, in which case the investor would have to either deposit additional funds into their account, or close some of the trades they are holding.
7. Pip
Pip is the smallest unit of measurement when trading currencies, and generally refers to 1/100th of 1% or 0.0001. For example, if the EUR/USD exchange rate moves from 0.96123 to 0.96124 this would be considered one pip movement.
Fractional pips or pipettes are even smaller units of measurement and are expressed as 1/10th of a pip.
For example, if the EUR/USD exchange rate falls from 0.961221 to 0.961220 this would be considered a 0.1 pip, or one-tenth of a pip movement. Pip value is an important term to factor in, and this is the amount by which a currency pair moves when the exchange rate changes. It is calculated by multiplying one pip (0.0001) by the amount of currency being traded.
For example, if you traded 10,000 units of EUR/USD and the exchange rate moved by 1 pip, the value of this movement would be 10,000 x 0.0001 = 1 USD.
8. Lot size
A lot size refers to the number of currency units being traded in a forex position. Commonly, it is expressed as a standard lot, a mini lot, or a micro lot.
Standard lot is the equivalent of 100,000 units of the base currency in a forex trade. Mini lot is 10,000 units of the base currency.Micro lot is 1,000 units of the base currency.
By specifying the amount of currency being traded, traders can better manage their risk and ensure they are trading within their risk tolerance.
In some cases, brokerages can also offer fractional lot sizes which give traders more flexibility to control the size of their trades. For example, a fractional lot size might be 0.01 of a standard lot which is equal to 1,000 units of the base currency.
9. Bear Market / Bull Market
A bear market is a market trend in which prices are falling and investors are selling off their holdings. In the forex market, this means that the value of a currency is decreasing.
For example, if the EUR/USD exchange rate continues falling for months on end (usually 3-6 months), analysts would say that we’re in a bear market.
A bull market is a market condition in which prices are rising and investors are buying up assets, leading to price increases. In the forex market, this means that the value of a currency is increasing.
In essence, both bear and bull markets can provide possibilities for traders to make profits, depending on their trading strategy.
For example, a trader could open long positions when the market is in a bullish trend and then sell when it turns bearish. Alternatively, they could short-sell when the market is in a bearish trend and then make profits on the falling prices. By trading these trends appropriately, traders can take advantage of both bear and bull markets.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The above should only be considered as an example for a better understanding and clarity about investments in CFDs and in no way should constitute or be understood as investment advice.
» Ready to start trading with a variety of CFDs on forex currency pairs? Learn more about trading with Fortrade
Cfd tradingHow to Trade Crude Oil CFDs in a Volatile MarketAs an asset, crude oil has been one of the most important energy sources in the world for almost a century. In addition to powering vehicles, oil products are also used to heat buildings, produce electricity, and even as a material in creating certain products.
Because of this, oil has consistently held a relatively solid price over the last 50 years. However, since it's both sought-after and rare to find, oil is susceptible to price fluctuations, particularly after major macroeconomic events.
What Is Crude Oil CFD Trading?
To trade with the price change of oil, you'd have to buy/sell it when it hits a low/high price and sell/buy it later for a potential profit/loss. However, unless you have the logistics to manage this (including storage and resources), buying and selling physical oil is a difficult feat. This is where crude oil CFDs come in.
Namely, a CFD, also known as a contract for difference, is a derivative financial product that allows you to trade with the price difference of an asset without having to physically own it. CFDs give you great exposure to the market as they can be used to trade a wide variety of assets, including crude oil price. Moreover, traders can use leverage to magnify their potential profits or loss, even if their starting balance is low.
Of course, CFD trading is not risk-free, as you'd have to risk at least some of your capital to potentially profit from it—and this is magnified in the case of a volatile asset like oil. Still, those who know how to trade CFDs could get potential profit from these price fluctuations.
» Become a more experienced trader: Trading courses for beginners and advanced trading courses
Important Pre-trading Considerations
Now that we've established why trading crude oil CFDs can be potentially profitable, it's important to take some aspects into consideration before you start trading. Namely, performing detailed research, due diligence, and having a specific strategy go a long way when planning to trade crude oil CFDs. With the right considerations, you may get some potential profit; but there is still risk exposure to the market.
Commodity Choice
When it comes to oil, there are two main types: Brent Crude Oil and WTI Oil. Brent Crude is extracted from the North Sea and used as a benchmark to price two-thirds of the world's internationally traded crude oil supply. The volatility of crude oil is primarily based on geopolitical events happening in Europe, Asia, and Africa, which is where this type of oil is primarily used. For example, after the start of the war in Ukraine, Brent Oil went up 23%.
On the other hand, WTI or West Texas Intermediate is a type of crude oil that's extracted from Texas and used as a benchmark for pricing in the US. The price of WTI is primarily based on US domestic events such as the opening of the Keystone XL oil pipeline. After the war in Ukraine, WTI went up 19%, which shows that there's a correlation in the price between the two commodities, but also that they're never trading at the same price. This price difference is known as the Brent/WTI spread.
Trading Strategy
When you're planning to trade oil CFDs, it's important that you have a clear strategy in place. This includes setting entry and exit points as well as stop-loss and take-profit orders. Your trading strategy should also consider the time frame you plan on holding your position as well as the amount of capital you're willing to risk.
Risk Management Strategy
As with any type of trading, oil CFD trading comes with its own risks that need to be managed. This includes the risk of losses as well as the price fluctuations of the commodity. To mitigate these risks, it's important to have a proper risk management strategy in place. This includes setting stop-loss orders at key levels or possibly including a hedging strategy.
CFD Brokerage
Last but not least, in order to trade oil CFDs, you'll need to find a reputable CFD brokerage. This is a platform that will allow you to trade a variety of assets without having to own them, including commodities like crude oil. When looking for a brokerage, it's important to consider the fees associated with trading as well as the features and tools that are available. If you're a beginner, we highly recommend, that you open an account with a reliable brokerage and trade with a user-friendly platform, like Fortrade.
» Struggling to understand complex trading terms? Take a look at our glossary of terms.
How to Start Trading Crude Oil CFDs
Now that we've gone over the important considerations to take into account before trading oil CFDs, let's go over the steps on how to start trading.
Open an account at a reputable CFD brokerageDownload and install the brokerage's trading platformDeposit the funds you're willing to trade into your accountStart opening and closing trades via the platform
» Ready to get started? Learn more about opening an account with Fortrade.
Conclusion
Even though crude oil has been a historically volatile commodity, CFD trading may become a potentially profitable endeavor if you take the necessary precautions. This includes performing detailed research, diversifying, and always being up-to-date with geopolitical events. With the right considerations in place, you can trade crude oil CFDs successfully and get potential profit even in the most volatile market conditions.
