Welcome to Trading Kings, this page is created with the purpose of helping those new investors who wish to enter the foreign exchange market to learn and grow in all aspects of their lives.
What is Forex? In simple words, it’s the largest foreign exchange market in the world. In it, you can trade with the aim of obtaining success in the currency markets and even liquidity in foreign currencies. All without going through the strict controls of the country where you live.
Welcome to Trading Kings, this page is created with the purpose of helping those new investors who wish to enter the foreign exchange market to learn and grow in all aspects of their lives.
What is Forex? In simple words, it’s the largest foreign exchange market in the world. In it, you can trade with the aim of obtaining success in the currency markets and even liquidity in foreign currencies. All without going through the strict controls of the country where you live.
All new investors who want to enter Forex must have a broker. These brokers are known as Forex Brokers. They are in charge of executing, recommending and monitoring each exchange that you place in foreign exchange market. But they cannot touch the money involved in it.
If you have just made the decision to move into the world of trading and you are confused about how you should take the first steps, relax! You can get assistance from our Brokers, who will explain how and what to do to get started.
Furthermore, you can use our Free Fx – Crypto Signals. These are specific alerts that we will provide you with to make trading easy and without the need to study and analyze complex forex market statistics.
We know that these terms and the subject matter sound complex. But from now on, you can breathe easy, here at TradingKings.io we will teach you the basics of the forex market. What it is, how it works, and if there are good profits to be made from trading, find out today!
What is Forex? - The easiest way to understand
Forex is nothing more than the nomenclature to abbreviate “Foreign Exchange” or currency market. It is an established and recognized trading medium for all countries to buy and sell currencies.
In Forex, billions of dollars are moved every day through negotiations by users -like you and me- with companies and recognized banking entities and even with other users that handle stocks.
Does Forex seem like no big deal? This is where you might be perplexed, as the billions of dollars that are moved on a daily basis often surpass the established stock exchanges and stock markets around the world.
To explain it in an even easier way, Forex is the largest financial currency market in the world. It handles the buying and selling of stocks and tangible as well as intangible financial assets. As this market is independent of commercial operations and changes in its prices, it is a springboard to profits, decreasing the risk of losses.
Why are we so confident? Because of the decrease in activities and operations by institutions in the stock exchange and traders according to the survey issued by the Bank for International Settlements (BIS). The same survey ensures that only in 2019 operations of foreign exchange and its derivatives show daily movements of up to 6.6 billion dollars.
What roles exist within Forex?
Reading about brokers, traders, market makers and Forex in general can be difficult to manage when you are not familiar with this world. To make this knowledge simpler, we’ll tell you the specific differences and what role each broker has within Forex and even what will be yours if you don’t know it yet.
Forex Brokers
They are in charge of executing investors’ orders. From a simpler point of view, imagine you are in a market, you don’t know anything about it but you want to buy lemons.
There are so many prices, sellers, and different fruits that you will not know which one to choose, and that is where you opt for a forex broker. This one will be in charge of going with the order you gave -buy lemons-, and link directly with the seller without moving from the site.
There are three types of forex brokers:
- Market Makers or dealing desk brokers. They are able to create and set their own prices as they do not operate directly in the interbank market.
- STP brokers. They use state-of-the-art algorithms to analyze and decide which are the most profitable operations in the interbank market.
- ECN Broker. This type of Forex broker has only one mission, to connect buyers and sellers or suppliers. They handle pre-set rates or charge fixed fees per trade.
If you ask yourself: “and what role do I play?” You are an investor. There are different types of investors:
- Individual banking entities.
- Central banks.
- Corporations.
- Institutional investors.
- Individual traders. And here is where you are, an individual investor or individual trader.
How does Forex work? – Elements you would like to know before getting started
If you already have a notion of what Forex is, now it is time to know what are the elements that make up this currency market. To begin with, it’s already clear that Forex is a currency market backed by banks, institutions, investors and, of course, companies. You should know that all these operations immersed in the platform are carried out online.
Besides, these currencies are the main assets that come into play in the exchanges of trading in financial and stock markets. These swaps or movements within the market are carried out by the Traders.
In Forex, each operation is made between pairs, that is to say, to buy someone has to sell or in the opposite direction. This exchange/operation performed by a Trader is known as trading or in the slang is handled more often as FX trading.
What currencies are handled within the Forex platform?
All of them, but objectively it is necessary to work with those that have better exchange control and stability over time. Two of which are the most popular and used are the Euro and the US Dollars.
There’s a rule that you must keep in mind, you can exchange currencies from Euro to dollars, for example, and this will be expressed in the following way: EUR/USD. The currency to the right of the “/” will be the base, and the currency to the left will be the rate.
A simpler example to appreciate would be that a user wants to trade because he/she believes that on that day, the euro will increase its value with respect to another currency, such as the dollar. Then, this trading will be a sale of euros to buy dollars. It would look like this:
- The FX Trader will buy 100EUR/USD, indicating that it quotes in exchange dollars using “/USD”. This means that the Trader will have to pay at the current value of the dollar to get the euros he/she needed to buy.
- What happens if the Trader (Investor) estimates that the dollar will increase against the euro? It will make the operations buy dollars quoted in euros, being thus; USD/EUR.
Why does this action? Because the Trader is certain that in a few hours or a day the value of the Euro I buy will be higher than another currency. That said, in even simpler terms, he will make money just by making the right decision.
If you are wondering: “how do I know if it is a good time to buy or sell?” This is where FX Brokers we present at TradingKings.io will help you by using real-time economic metrics and statistics.
NOTE: If you intend to start trading currencies on Forex, it is recommended to do so on those currencies that are stable. The reason? There are certain currencies that undergo abrupt changes. As they are less volatile, the risk will be lower and you will still have advantages in your trading.
How are currencies classified in Forex? If you are a beginner, learn more!
If you saw our example above, buying and selling currencies is relatively simple on Forex. Although we mentioned one of the most popular currencies, virtually every currency in the world can be exchanged for another. This will be done at the user’s convenience.
This means that there are certain currencies with the greater flow in Forex than others, so there are three basic types:
Higher Pair Currencies
This covers about 80% of the most traded currencies on the planet. Headed by: USD (US dollar), EUR (euros), GBP (pound sterling), JPY (Japanese yen). CHF (Swiss franc), CAD (Canadian dollar), AUD (Australian dollar), and NZD (New Zealand dollar).
They are considered major currency pairs because of their high availability and fluidity in different countries of the world. Furthermore, they have the best stability according to the metrics of the last few years.
| Shortening of pairs in the Forex market | Description |
|---|---|
|
EUR/USD |
Euro base, U.S. dollar exchange rate (eurodollar) |
|
GBP/USD |
Base Pound Sterling, U.S. Dollar exchange rate |
|
USD/JPY |
U.S. Dollar basis, Japanese Yen exchange rate |
|
AUD/USD |
Australian dollar basis, US dollar (aussie) exchange rate |
|
USD/CAD |
U.S. dollar basis, Canadian dollar exchange rate |
|
USD/CHF |
U.S. Dollar basis, Swiss Franc exchange rate |
|
NZD/USD |
New Zealand Dollar basis, US Dollar (kiwi) exchange rate |
Minor Pair Currencies
It’s the counterpart of the major currency pairs in Forex. It means that they are the pairs that have the least fluidity in the currency market. Although you may see currencies that are popular, they are not as much in demand compared to the above.
| Shortening of pairs in the Forex market | Description |
|---|---|
|
EUR/JPY |
Euro base, Japanese Yen exchange rate |
|
EUR/CHF |
Euro base, Swiss Franc exchange rate |
|
GBP/AUD |
Base Pound Sterling, Australian Dollar exchange rate |
|
EUR/AUD |
Euro base, Australian dollar rate |
|
GBP/JPY |
Base Pound Sterling, Japanese Yen exchange rate |
|
CAD/JPY |
Canadian Dollar base, Japanese Yen exchange rate |
|
EUR/GBP |
Euro base, Pound Sterling exchange rate |
Exotic currency pairs
While the word “exotic” may be confusing to some people, it is merely a term used for currencies that come from countries with low liquidity. This does not mean that you cannot trade for them, only that they are less sought after due to their fluctuation in the foreign exchange market.
| Shortening of pairs in the Forex market | Description |
|---|---|
|
USD/MXN |
U.S. dollar basis, Mexican peso exchange rate |
|
USD/TRY |
U.S. Dollar basis, Turkish Lira quotation |
|
USD/ZAR |
U.S. dollar basis, South African Rand exchange rate |
|
USD/BSD |
U.S. Dollar base, Venezuelan Digital Bolivar exchange rate |
How to know which currency pairs to buy on Forex?
The forex markets are not a newspaper that you will glance at on a monthly basis. They change daily in some cases.
Having said that, the instability of a currency is generated in the country of origin of the currency. If there’s political instability, sanctions due to international measures, wars or catastrophes, it will directly and almost immediately affect the inflation of that currency.
It’s in these brief declines that the more astute traders buy or sell to maintain profits or avoid losses. Therefore, it is important to keep abreast of the official quotations issued by central banks to evaluate how certain currencies evolve with respect to others and to obtain the right point where to make operations.
What are the Forex opportunities?
One of the most frequently asked questions is this, why would an investor look to trade their currencies? There are many reasons, but three specific ones would be:
- It may sound obvious, but the main reason is based on speculation. Traders speculate to win some money on raising the value of the currency in the market.
- They need to sell their local currency in order to cover foreign currency expenses.
- By wanting to somehow protect their capital by opting for a stable currency with the possibility of growth, which translates into profits!
Spreads in the Forex market - A term you should know
Spread is the most common term if you want to trade currencies in the market. In simple words, we could say that it’s the difference between, the bid and ask, the price of an asset. What’s more, it’s used as a metric to visualize the liquidity margin you have at that moment.
When making a currency transaction there will be two implicit prices, the one you want to buy and the price at which you will sell. In simpler terms of understanding and using Forex nomenclature; if for example, you have, USD/EUR. The base is the USD, known as the bid and the quote to its left EUR is called the ask price.
- The bid. It is the price that is established in the foreign exchange market. In other words, is the sell price per unit of currency in the market.
- The ask. It is the price in the currency market established for the trader to buy. This’s the purchase price per unit of currency.
Both prices can vary during the day, but the interesting thing is that the difference obtained between the bid and the ask, is known as the Spread.
Forex Lots - What are they?
Trading with a knowledgeable broker is the best choice you can make, and probably, if you choose one of the brokers that Trading Kings offers, you’ll get to know why we make that affirmation.
Forex lots are the unit of value that measures the amount of a transaction. It is the size of a financial contract. This means that depending on the number of lots you trade, the amount invested will be higher or lower.
But, why are Forex Lots born? These units are applied in the market to access better benefits for each transaction made. They were born with the goal to make it economically feasible for newcomers to invest in the market.
In short, a lot in Forex refers to the set of assets or financial instruments traded in the official market; currencies, assets, patents, and shares. In turn, these lots can be of three different classes or types:
Standard lot
It is the measure established in the Forex market to recognize that (1) one unit will be equal to 100,000 units of the base currency in the operation regardless of the currency quoted.
Example:
- 1 lot USD/EUR = 100,000 USD.
- 2 lots EUR/USD = 200.000 EUR
- 4 lots GBP/JPY = 400.000 GBP
Mini Lot
It is the measure established in the foreign exchange market to recognize that (1) one unit will be equal to 10,000 units of the base currency in the transaction regardless of the currency, it is quoted.
Example:
- 0.1 lot USD/EUR = 10,000 USD.
- 0.2 lots EUR/USD = 20.000 EUR
- 0.4 lots GBP/JPY = 40.000 GBP
Micro Lot
It is the measure established in the foreign exchange market to recognize that (1) one unit will be equal to 1,000 units of the base currency in the transaction regardless of the currency it is quoted in.
Example:
- 0.01 lot USD/EUR = 1,000 USD.
- 0.02 lots EUR/USD = 2.000 EUR
- 0.04 lots GBP/JPY = 4.000 GBP
Is it really necessary to use lots in Forex? It is! Brokers use lots to establish a number of units per asset and thus, to trade with it without so many complications and to obtain profits in such operations.
And how are you going to use these lots in your trading experience? When buying or selling currencies, you must indicate the kind of lot you are using. You also must know that the lot you pick will affect your winnings or losings.
What is a Forex Pip and how does it work? - Learn how to calculate the Pip
The Pip is one of the most common and useful tools you could use in FOREX. It’s the shortcut for “Percentage Point” and it’s the decimal movement that a currency has in its value. People use PIPS to determine when they make a profit or a loss.
In Forex trading, the smallest price movement represents the last decimal point. Given that most major currency pairs, such as USD, EUR and GBP, are priced to four decimal places, a pip in this case is a price movement of 0.0001. To understand it better, if GBP/USD moves from 1.4000 to 1.4001, it has moved by one pip.
How was a Pip established in currency trading? As briefly explained above, the PIP, It’s represented often in the fourth decimal place of the value in a currency. Let’s see how to calculate pips changes in the image below.
The value of the Pip used to be a subtle increase when exchanging a currency pair. Nowadays, this has taken a turn due to new accurate pricing methods.
In Forex, every trader will make transactions with at least two currencies, let’s say for example EUR/USD. If a currency gets a high in its value by cents, it’s easier to say that the currency increased by 60 pips , than say the currency went higher by 0,0006 cents.
Of course, we have to point out that on most currencies, the pip is calculated on the fourth cent. But, in the JPY, the PIP is calculated on the second cent.
Why is it necessary to use the word Pip on trading platforms?
By speaking of the pip as the unit of measure, the risk of confusing other terms related to trading, such as position and lot type, is avoided. But you must distinguish that within the Pip unit of measure, it can be fractionated as: Pips, Pip and pipettes. For example:
- Pips. if you have a trade with a currency pair EUR/USD from 1.26531 to 1.26631, the increase to 0.0010 USD is 10 Pips.
- Pip. if you have a trade with a currency pair EUR/USD from 1.26521 to 1.26531, the increase to 0.0001 USD is 1 Pip.
- Pipette. if you have a trade with a currency pair EUR/USD from 1.26521 to 1.26522, the increase to 0.00001 USD is 1 Pipette.
How to use pips in forex trading
Knowing how to use Pips during every trade you make is one of the skills you need to know, it’s a must. But before we get into how to use pips in forex trading there is a necessary term, it is position.
What is the position in Forex?
In trading and finance, the position is the term used to refer to the number of shares, assets, or ownership of investments held by a particular investor, company, institution, or organization.
This means that in Forex you will see that every time a purchase or sale is made, the position of that trade will remain open, indicating availability. There are two types of pivotal positions.
- Long position. This name is given when a trader has bought a lot and has not sold it, keeping the long position open. In the case of selling it, it can be incurred that the long position is closed.
- Short position. If the trader enters into a sale for a currency pair, for example, EUR/USD, it is said that he has opened a short position. In the case of buying a lot, the trader is said to have closed the short position.
What is the difference between the two? Long positions can be entered in all currency markets, as it is the normal entry position in an investment. It means that first you buy and then you sell. Now, the short position is the opposite, where you have to sell the asset without having previously bought it
How to calculate the position size in Forex? - Easy Steps
It is essential for a beginner trader to know that pips can be used for position sizing calculation.
Why? Is it necessary? They are! By calculating the position sizes of a currency pair in a trade, you will know if the positions are too large and have a tendency to experience a series of losses. If this is accurate, your capital base is likely to disappear. This makes it essential to execute a trade with appropriate position size.
Steps in calculating Forex positions
1. An investor must determine the amount of capital they are willing to risk per currency trade. This means, that if for example, this will be 1% for each trade, they could make a minimum of 100 trades before using all of their capital.
2. Traders can set a limit, known in Forex as a “stop-loss” in Pips. For example, if a trader goes long EUR/USD at 1.5000, he could set a stop-loss limit at 1.4940. This is equivalent to 60 Pips.
3. Depending on the lot size (remember we discussed it in a previous chapter?) with which you want to trade.
- Standard lot. refers to 100,000 units of base currency and is equivalent to $10 per Pip movement.
- Mini lot. It refers to 10,000 units of base currency and is equivalent to $1 per Pip movement.
- Micro lot. Refers to 1,000 units of base currency and equals $0.10 per Pip movement.
For example, a Trader risks 5% of his balance of $6,000 per trade for one Micro lot ($0.10 per Pip move).
The position size would be: $300/(300pips x $0.10) = 30. Therefore, the trader’s position size would be 30 micro lots.
How do Pips work in Forex?
In Forex, if a trader or investor enters a long position, for example, at EUR/USD at 1.6000 and it moves to 1.6080, the price has moved 80 pips in the trader’s favor. This is beneficial to the trader on the face of it if the trade is closed.
However, if the trader goes long, with EUR/USD at 1.6000 and the currency declines to 1.5980, the price drops negatively to 20 pips against the trader. This generates a loss on the trade if the trade is closed.
Looking at these two examples, the Pip in Forex and general trading is all about measuring price movements, profits and losses. Pips are essential for managing risk in forex trading and for calculating the correct amount of leverage to use.
How to calculate a Pip? - Calculate Pips in Forex and How to use PIP in Forex?
A pip is in general, the last decimal place in a quotation. How are they calculated? We have already mentioned that most currency pairs use the Pip as a move to the fourth decimal place. There are certain currencies that do not apply this rule, such as the JPY (Japanese Yen), whose movement will be made to the second decimal place.
Having said that, each currency has its own value. This is relative and can change according to the fluctuations of each currency. Thus, it is necessary to calculate the value of a pip for each currency pair in which trading will be done in particular.
To apply the calculations the currency rates will be expressed as a base currency per quoted currency. That is, if you trade EUR/USD and it has a value of 0.9986 it will be written as: 1 EUR / 0.9986USD.
With this example, if we trade 10,000 units of EUR/USD, a one-point movement in the exchange rate would mean a difference of approximately 1.4 USD in the value of the position (10,000 units x 0.00014 EUR/unit).
- Calculations if you trade EUR/JPY and it has a value of 143,2143 it will be written as 1 EUR / 143,2143 JPY.
With this example, if we trade 10,000 units of EUR/JPY, a one-point movement in the exchange rate would mean a difference of approximately 69,825 EUR in the value of the position (10,000 units x 0.0069825 EUR/unit).
Forex Leverage - The Strategy you need to Know
In the foreign exchange market there is one important tool in particular, and that is leverage. This is to get a firm position in the market through a trade with a higher nominal value compared to the amount of current resources you have.
Using leverage correctly allows investors to take positions in trades with up to x times the full value of their capital. In simpler words, when an investor decides to leverage, he gets the benefit of trading much larger volumes than usual. And what is the X value? It depends on the broker you use, but for example for AvaFX, the average leverage ratio is around 400:1.
For example:
The investor wants to open a trade in USD/EUR of 0.1 lots, here we are talking about 10,000 units of the base amount. The contract value is $10,000 and the leverage is 200:1 or 0.5%. This means that the investor needs 0.5% of $10,000, which is $50, as a deposit to open the trade thus obtaining a large trading volume.
Formula for calculating Forex leverage
The formula to know what will be the amount of leverage in certain operations is very simple and applies to almost any case.
Leverage = Position / Investment
For example, you have a capital or investment of 1,000 USD. The position or contract you opt for is 5,000 USD. Applying the formula we get that the Leverage = 5.000USD/1.000USD. Resulting in 5 USD.
Formula for calculating the maximum position that the investor can reach on Forex
This position depends only on the capital that the investor has and the position that the FX Broker allows you to open . Continuing to use the previous example, we will have that:
Initial capital = 1,000 USD, the maximum leverage provided by the FX Broker = 1:100.
1,000 USD investment capital * 100 (maximum leverage position) = 100,000USD.
Advantages of using Forex leverage
Using the leverage tool can bring benefits, some of them are:
- It allows you to optimize the total investment in long trades. This means that only a fraction of the initial investment is committed.
- You will be able to access positions with larger volumes. This is inaccessible with basic trading.
- The return or profit is usually higher in proportion to the investment.
Swap in Forex
This term is used to call the interest that is paid or charged on each open trading session position. Sounds complicated? Wait! In simpler words, it is a kind of “ticket” with which you can keep a position (publication in a good position) open for more than one day. Swap, overnight or rollover are similar terms.
How is the swap calculated? Each position (publication) lasts a full day, after that day you must;
- Pay interest on the currency you wish to sell. If the interest of the currency being sold is higher than the one being bought, the Swap applied will be an extra cost for the investor.
- Charge interest for the currency you buy. If the interest on the currency being bought is less than the one being sold, the Swap applied will be a gain for the Broker.
Entering the Forex market: Is it necessary to do it with a broker or not?
Accessing the Forex market as a beginner or a small investor is not so easy. In fact, it depends on the capital you have at your disposal to enter Forex investments.
That said, it is necessary and advisable to access the market through an FX Broker. This will be in charge of carrying out the operations ordered. Regardless of whether the order was to buy or sell, the broker will have to fulfill the order and be available 24 hours a day to what happens with the operations.
So, we come to a crucial point, here the choice of the Broker is the key factor to ensure that everything goes as it should no matter the time or place. So, our best recommendation is to opt for a broker that has the prestige or is regulated by a reliable organization.
If you still do not have any in mind or would like to go for a safe option, choose us! In TradingKings.io you will get the best brokers, advisors, and the options you need to get winnings based on good decisions and investments.
You can also join our Telegram group today and enjoy the Free Fx – Crypto Signals. Or better yet, belong to the elite group together with advisors that will lead you to success. In alternative, you can click here and Join our Vip Fx – Crypto Signals following the instructions.