Forex has been the largest financial market for decades. It is the root of all transactions and in a broader view, the root of all other financial markets. These reasons make Forex become an ideal place for investing, speculating for not only institutional participants but also retail traders. Nonetheless, the fact that 80 to 90% of traders lose their money in the market is still discouraging potential investors. So, how to truly understand the market and how to invest the right way? Let’s figure it out in this article.
The forex market and how to trade it
Forex or Foreign exchange is the market of currencies in which participants exchange a currency for another. In other words, the currencies are valued by one another and they are always quoted in pairs. Let’s take EUR/USD as an example; if its rate is now 1.20000, it means 1 Euro is worth 1.20000 US Dollar.
In the forex market, the rates of pairs never stay the same but move continuously due to the change in the value of the currency. As a result, traders can take the advantage of that to buy at a low rate and sell at a higher price to gain a profit. The value of a currency is driven by many factors like the strength of the economy, monetary policies, disasters, conflicts, etc. These reasons skew the supply-demand balance of that currency, thus changing its value.
Regarding trading forex in the common term, we are talking about trading the contracts for difference (CFD) of currency pairs. To be specific, traders speculate the change in the value of a pair over a particular contract time instead of buying and selling the physical money. This concept of trading has significant pros as follows:
- Traders can buy and sell regardless of the market direction. For example, you are now trading EUR/USD, if the rate is going up, go long (buy EUR/sell USD) and gain profits from the bullish EUR. In opposite, if the rate is going down, go short (sell EUR/buy USD) and gain profit from the bullish USD.
- Margin trading is allowed. If you notice, the rate of a currency pair changes on a very small scale. The change is as low as it is measured in pip (the fourth decimal of the rate). Therefore, to make a significant profit from that, it requires a giant investment of up to hundreds of grand. And here comes the margin trading, speculating the CFD, traders can borrow money from your broker to leverage your position hundreds of times. For example, NSBroker offers 1:100 leverage. As a result, a small change in value can get a big return.
NSBroker
The forex market is the playground for institutional participants like banks or investment funds which have budgets of billions of dollars. As such, retail traders have no chance to participate in the market directly; instead of that, they have to trade via intermediaries or brokers who receive trading orders and direct them to the interbank market.
For that reason, it is no exaggeration to say that traders are giving their hard-earned money to the brokers. Therefore, choosing a reliable broker is the first and foremost task in forex trading. Looking at the regulation aspect of NSBroker, we can see that it has a good reputation in the industry:
- NSBroker has provided trading services for 10 years. Forex industry is highly competitive and only reliable brokers can exist for such a long period.
- NSBroker is a multi-regulated broker. It manages to have licenses from MFSA (Malta), FCA (UK), ACP (France), BaFin (Germany), CNMV (Spain), Consob (Italy), and complies with MIFID (EU). As a result, NSBroker is bound to strict regulation and is continuously supervised in many countries.
In term of monetary security, NSBroker also implements essential policies:
- NSBroker is a contributor to the investor compensation fund. In the insolvent scenario, this fund can compensate traders up to 20,000 Euro.
- Negative balance protection: Immediately stop trading activities of customers when their balance falls to zero. Margin trading can make traders get into debt if the losses go beyond their deposits so Negative balance protection is vital in trading CFD.
- Segregation of funds: Customers’ funds are separated from NSBroker’s operation fund. It makes sure NSBroker cannot use its customers’ money for other purposes but their trading activities.
Trading Forex with NSBroker
NSBroker offers all common currency pairs. Customers can choose to trade among the major, minor (cross), and exotic pairs.
- Major pairs: These pairs match USD and a currency of a major economy like the UK (GBP), EU (EUR), Australia (AUD), Japan (JPY), or Canada (CAD). The major pairs comprise 85% of forex trading volume.
- Minor (cross) pairs: A minor pair is constituted of currencies of major economies as aforementioned except USD. Some examples are GBP/EUR or AUD/JPY.
- Exotic pairs: As its name states, exotic pairs comprise an insignificant percentage of the total trading volume. An exotic pair has a currency of a major economy and a currency of an emerging economy or a developed one but on a smaller scale in comparison with a major one. For example, EUR/NOK, USD/SGD, or USD/ZAR are exotic pairs.
The difference between currency pairs groups lies in their liquidity reflected by spreads. The majors having a tremendous trading volume always have high liquidity. They are followed by the minors while the exotics usually show low liquidity and high volatility. Therefore, novice traders are always advised to get familiar with the major pairs first. These currencies come from stable economies, have lower spreads, and ensure higher profitable chances.
Let’s take a closer look at 5 major currency pairs to see their natures and what you should prepare to trade them effectively:
- EUR/USD: The most commonly traded currency pairs are made up of the 2 biggest economies which are Eurozone and the United States. EUR/USD is also the most stable pair and suitable for beginners thanks to its tight spreads and low volatility.
- USD/JPY: The once second-largest economy is currently fighting against low inflation. To deal with it, the Bank of Japan has kept a low-interest rate for a long time, making JPY one of the most stable currencies and a haven when conflicts or turmoils arise.
- GBP/USD: This pair was once most traded. Brexit has put more pressure on GBP last year but the Sterling remains the fourth most traded currency. GBP and USD also represent 2 major sessions which are London and New York. Therefore, you should take advantage of the overlap time between them (2 PM GMT+0) to trade the most effectively,
- AUD/USD: AUD is considered a commodity currency as the Australian economy strongly depends on its domestic commodities which are mining ones, beef, wool, and wheat. AUD has remained in a weaker position compared with USD to ensure the export volume of this oceanic country.
- USD/CAD: Similar to Australia, CAD is another commodity currency as its value is determined by exporting natural resources like natural gas or timber. As such, you should keep an eye on the global oil price when trading CAD.
NSBroker has partnered with international liquidity providers such as Citi, Dukascopy, Barclay, etc to maintain stably high liquidity. Plus with the commonly traded nature of these pairs, NSBroker offers tight spreads from only 0.3 pips; thus, significantly lower the trading costs for customers.
NSBroker demo account
Trading the major pairs is a wise choice to start a Forex career, however, practice is always recommended before entering the real market. Understanding that, NSBroker offers a free demo account for all customers registering. Some noticeable benefits of the demo account are:
- Developing trading strategies without risk: a trader can make use of the demo account to plan the strategy and test them thoroughly before putting it into practice.
- Getting to know the trading conditions: trading conditions include leverage, spreads, swaps, and traders need to be familiar with these costs before trading with real money.
Moreover, by registering the account with NSBroker, each customer is assigned with an analyst. If the customer is a beginner, the analyst will instruct them to navigate the trading platform or introduce several basic trading courses to get ready.
Conclusion
To be successful in the forex market depends on your consistency and many other factors. Still, a reliable broker with low trading costs, a free demo account, and basic trading materials like NSBroker should be a good foundation to strive in your trading career.
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