Lesson 6 – Leverage in Forex

The leverage in Forex as well as for the other markets on which you can negotiate is a peculiarity of online trading, which allows you to invest on a large number of lots on a considerably reduced budget.

 

In Lesson 5 We saw what are the lots, or the “packages” of shares or currencies on which to invest and which always have a “minimum lot”, or a minimum amount of shares or currencies that can be negotiated.

 

If the financial leverage was lacking, online trading would practically not exist. In fact, if you think of high-cost equities, it would be hard to find so many buyers ready to spend tens of thousands of euros to have a hundred shares. Instead, with online trading you can trade on Forex or other financial instruments with limited budgets but for high shares or currencies.

 What is leverage?

Now let’s see what the leverage is. First, the term refers precisely to the effect of the lever in physical jargon, where it is used to indicate a mechanism that allows you to lift a high weight with an effort (force) less than that of the opposite weight. For example, you could raise 100 kg with a force of 5 kg.

 

Here, obviously we are not here to give lessons in physics, but in this way we can better explain the concept of leverage.

 

Bearing in mind this figure, imagine if in place of the kilograms there were the euro. With €5 we could move €100: In this case we would have a leverage of 1:20 (one to twenty). With a lever of 1:50 we could move €1,000 with €50.

 

How does the Forex lever work?
All this is very nice, but how is it possible? How come brokers give us the chance to earn money by investing in many more currencies than we could negotiate with our actual budget?

 

We answer these two questions from the last one. The leverage was always the first aspect on which “they did leverage” (excuse the joke) brokers in order to attract their customers. In order to offer this possibility, the broker must guarantee the solvency of the customer, a question that obliges us to answer the first question. How is that possible?

 

The leverage is like a small loan: The broker allows us to carry out large-scale and budget operations, but of course it must protect itself if the trader is unable to operate in the correct way and gets overwhelmed by unexpected results.

 

For example, if I want to do a madness and invest 100 euros in a company that loses because today I woke up so, the downside will start to make me lose and then the broker will receive signals like “This trader is losing a lot and is using the lever , it would be better to ask him a small amount covering any risks. ” This sum is called margin, which actually you pay even at the beginning.

 

This margin has the function of covering any wrong operations of the trader, since the broker through the lever finances the missing part of what is missing to the trader to operate with the prices of the actual lots.

Lesson 3 – Discover the Trading platform

 

The platform
In this article we will see what they are and what they offer trading platforms to play in the bag from home via CFD. To start we have to have a trading platform, which will allow us to carry out all the operations necessary for the sale. To get a platform you can follow this very simple and quick path:

 

Now, for the demo account just need an email, because you do not go to work with real money but with virtual money for pure practice. When you want to start trading in real money, then you have to provide your data. These three points can change of order but there are in all brokers and for all platforms, so regardless of the broker you choose, to download or use online the trading platform you will necessarily have to cover all three of these Steps.

 

I downloaded the platform, and now?
Once you download the platform or open it on your browser and you are ready to use it, the practical part of this activity begins. First of all, we recommend to through every part of the trading platform in order to know all its features. Let’s take a practical example with the PLUS500 platform, which you can download for free and use both in demo and real version, depending on whether you only want to practice or negotiate with real money.

 

We are in the “Negotiate” tab (you can see it from the top of the same platform) in which the box is divided into 4 parts.

 

Available Financial instruments (first box on the top left)
Specific financial instruments (first box on the top right)
Account situation (second pane on left bottom)
Chart of the selected financial Instrument (second pane on the right at the bottom)
Flat-Plus500-int

 

Well, now Illustriamoli point by point.

 

1. Available Financial Instruments
Each trading platform first offers the ability to view all available financial instruments such as stocks, indexes, exchanges (or currencies), ETFs and Commodities. As you can see from the photo, each category can have subcategories (eg. major and secondary changes, where the primary are the most important ones). As far as actions are concerned, they are even divided by countries and for each country in alphabetical order. Therefore, not only can we choose between Italy, Usa, Germany, Hong Kong etc. But we can also find a certain title more easily because it is catalogued in alphabetical urines. In our case, we have selected Apple shares, choosing in the US subcategory of the Actions category (as we can see from the main box on the right).

 

2. Specific financial Instruments
As we’ve seen in step 1, once you’ve selected a financial instrument, this will appear highlighted in the top-right pane. It will be highlighted and present some data concerning it:

 

Name: The name of the selected title or financial instrument (e.g. Apple)
Selling Price: The price at which you can sell the stock at that particular moment
Purchase price: Price at which you can buy the title at that particular moment
Change: The percentage change from the start of the trading session
High/Low values: The highest and lowest value affected by the price of the title considered
Preferences buttons: You can mark the title as a favorite and set alerts (e.g. an “alarm” that will allow you to be notified if the price of a stock will drop to a value you set).
Details: All details for title trading including minimum amount of purchase or sale, initial margin and retention margin (very important elements that we will see in the lesson on margins in CFD trading)
Flat-Plus500-1b

 

Available: It consists of the balance available on your account
Equity: is given by your available balance added to the initial margins engaged in the positions
Retention margin: a percentage required to maintain an open position
Profit/loss: general profits or losses produced by your operations
4. Chart of the selected financial instrument
We come to the last element of the platform we have taken into account or the chart relevant to the price of the selected financial instrument. To create a chart, we refer you to the lesson on CFD charts. As you can see in the center bar there is a dropdown menu that allows you to select the time interval between one update and another (eg. 1 minute will mean that the graph is Agios

Fundamental analysis in Forex trading

Fundamental analysis in Forex
In the last lesson we saw what the fundamental analysis consists of and we pointed out how this would permeate everyday life and how we can see its effects. In this lesson instead we will see specifically what are the factors that are taken into account in the fundamental analysis, which are the economic indicators of a given context. We consider it advisable to provide both the Italian and the English words, because those of you who addentrerà in the study could find some initial difficulties in the right translation of certain voices. Well, here are the most considered economic indicators for the fundamental analysis in Forex:
GDP or gross domestic product – GDP
Industrial production
Orders of durable goods – durable goods orders
Retail sales-Retail sales
Company stocks-Business inventories
Wholesalers ‘ Stocks – Wholesale Trade
Order to industry-Factory orders
Household incomes – Personal income
Consumption costs – PCE or personal Spending, personal consuptione Expenditure or personal Expenditure
Unemployment rate-unemployment rate
Trade balance
Interest rate or reference rate
Plus500
As you can easily see, these are terms that are heard every day in the economic insights of the news, or that are very newsworthy in the opening. GDP data is certainly the most resonant, as is the unemployment rate and household income.

 

1 interest rates, crucial for currencies
2 The welfare of the economy
3 Euro against Dollar, the infinite Challenge
Interest rates, crucial for currencies
We have stressed several times that there are some important decisions that when they are announced influence and not just the trend of currency prices. One of the economic indicators to be considered for this is the interest rate. In fact, think of a conference where the President of the ECB or the FED announces the cut of interest rates. This type of announcement has always the immediate effects on the cross currency of reference so it is always good to take advantage of it, or close the positions that can become dangerous.

 

The welfare of the economy
All the economic indicators listed above go to play an important role on what we can define as the welfare of a given economy. An economy that presents positive assessments on all these factors is certainly a healthy economy. Now: it will be simple but not trivial to specify that so much an economy is well, it is solid, the more it will be well and be solid that currency. For this reason, we advise you to always keep as a reference and as a product to invest in, the US dollar. The United States is for sure the strongest and most stable economy in the world, with the potential always around the corner, fueled by a mobility character both in work and in the flow of investments.
Euro against the dollar, the Infinite Challenge
Since the euro, the EUR/USD has always been the most negotiated currency pair and the reasons are manifold. The most important is the relative ease compared to other couples, to predict its movements, especially the excessive ones, precisely related to the above announcements. This couple therefore looks great both to start and to continue a trading activity on Forex.

forex trading Economic indicators for Forex

forex trading – Economic indicators for Forex
To negotiate on Forex and more generally to operate in the financial markets it is necessary to have at least a general smattering on the concepts related to the economy. It is true, to negotiate on binary options you can also follow only the signals of the appropriate software, but to optimize your activity, your efforts and get more gains is good and indeed recommended a deepening in the economic matter. In This portal we will not propose a whole university course of economics or finance, but we will give you the seeds that you will be free to plant to obtain good fruit. In This lesson we will discuss the so-called economic indicators, the so-called fundamentals. Have you ever heard of fundamental analysis? Below we will give some hints.
1 fundamental analysis, what is it?
2 Everyday life
3 The Rumour
Fundamental analysis, what is it?
Although the name may be awe-inspiring, we can assure you that this is a very fascinating topic. If you let yourself be overwhelmed by the dynamics of fundamental analysis, you will be able to find more and more passion for forex trading.
So let’s first see what it is.
The fundamental analysis, together with the “technical” analysis (which we will discuss later in the course), is the study aimed at designating the “right price” of a title taking into consideration the economic and financial aspects to which it refers.

 

Well, if for actions the fundamental analysis takes into account some aspects such as capitalisation, balance sheets and so on, in Forex the fundamental analysis takes into account different factors, or macroeconomic factors that can impact on a Particular country or community associated with a particular currency.

 

The factors taken into account for the fundamental analysis in Forex are visible in the everyday life. They can be seen in the economy, in house prices, in consumer prices, in the work that is missing. We can follow the news and have an idea of how the economy influences and manifests itself on the lives of all of us, and how it is virtually impossible not to follow it. And here we present another perspective: follow it to optimize your earnings. Not only from newscasts, but also from specialised newspapers like the sun 24 hours online or from the Republic Bloomberg. These are just examples: you can use the sources you want, as long as they are continuously updated and reliable. The upgrade, in trading, is crucial. The best results are achieved by taking advantage of the news and opening or closing positions accordingly. For example, if Dragons announces a cut in interest rates, this will certainly affect the exchange rate ratios with the EUR.

 

However it is not only the large bodies to influence the choices for Forex, but also the individual states, such as these days you have for the Jobs Act. The evaluations concerning the contractual conditions of the workers influence the savings and therefore the consumptions. The latter are fundamental to the macroeconomic well-being of a country, because they are affecting investment, then employment and still GDP.

 

The Rumour
In addition to the real facts, the fundamental analysis can also be made of particular considerations, which refer to the so-called “rumour”, or unofficial voices. These hints, which can sometimes be even simple predictions, often influence the performance of the securities and therefore the fundamental analysis could be considered to make certain corrections.

 

In the next lesson we will see what factors are taken into account in the fundamental analysis in Forex.

forex – Scalping in Forex

 

In online Forex trading we refer to scalping to define an operation to close a position in a very tight time, a feature that makes this practice even more interesting and exclusive, especially if you compare it to normal Possible procedures with bank investment. We have seen that Forex can only be negotiated through the brokerage of a broker, or a brokerage company (in fact) that instead has the authorization to be able to act directly with purchases and sales of financial products. In this series of lessons we refer to Forex, but the practice of scalping is possible in all the specialties of online trading and is the daily bread of those who practice the daytrading, or trading on a daily basis.

 

1 Benefits of scalping in Forex
2 litigation for the use of scalping in Forex
3 Eye on costs
Benefits of scalping in Forex
Among the advantages of scalping is the possibility to exploit the moments of greater volatility of financial products, including currencies. These moments of frenzy are not random, but often respond to events, such as a statement by a member of the ECB (e.g. the President, currently Mario Dragoni), or the IMF (International Monetary Fund), the Fed (federal Reserve) and More. Considering the EUR/USD cross for example, events involving mainly the USA and Europe should be taken into account, in the GBP/USD ratio instead of Britain and so on. The advantage is to be able to act before scheduled events, from the outcomes Pronosticabili. Moreover, factor not of little importance, the possibility of closing a position shortly after time is an more weapon against possible movements in opposite directions to our prediction in order to protect our capital.
Plus500

 

Controversy over the use of scalping in Forex
As you may well understand, the use of scalping in Forex is regulated in such a way as not to allow exaggeration in speculation. Speculation in itself is an entirely legal and normal practice, if made within the limits of the regulations. The high buy low resell is part of that myriad of fundamental pieces of which is composed capitalism and above all the Neo capitalism. In addition, if a broker allows you to do certain operations, the final liability is the broker itself. On the subject of this issue, namely the internal rules of the brokers, the so-called terms of service, we are dedicating an article. For now, you need to know that the trading software of the most important brokers are made in such a way that until you can click, the operation can be said feasible.

 

Watch the costs
As interesting and convenient scalping, take into account that for every operation you do (every position you open), the broker deduct a small amount, or the only cost that face for transactions. We remind you that the broker does not earn if you win or lose, but simply applies a small cost to the opening of a position. So in order to be profitable a scalping operation, must see a margin of gain that considers the costs of the operation, and not only the simple rise. The upside, that is, must also cover the cost of the operation. For this reason, the most volatile products are recommended (e.g. raw materials or currencies in times of greater frenzy).

Closing a transaction on Forex

In the past lessons we have seen how in Forex it is necessary to consider the value of the PIP and how this varies depending on the cross currency on which it is invested. At this point it is good to remember a good habit or the diversification of the portfolio. Avoid trading only on a currency pair but diversify your purchases and sales. For example, if in a moment the dollar is better on the euro but worse against sterling, it will be better for you to invest on the dollar in the EUR/USD (i.e. by opening a downward position on the EUR/USD) and investing in sterling in the GPB/USD (i.e. opening a Upward position on the GBP/USD).

 

In this regard, the merits of the EUR/USD must be honoured to be the currency pair that costs less, what brokers offer to the lowest spread and especially the one on which it is easier to find information that can affect its progress.

 

Remarking this, we also resume an in-depth concept previously, or the cost of the broker. Brokers earn their own on the spread, which is the difference between bid and ask. For example, if the EUR/USD is quoted 1,300/1,302 the broker’s earnings will be 2 pips or 10.

 

However, the spread should not be considered only for this mechanism, that is, to calculate the additional cost to add to the overall operation, but also to understand the logic of closing the same operation.

 

Close a Forex Trading operation
When you close a Forex trading operation sometimes the accounts do not come back because we are not fully prepared for the different variables that are considered at the time of closure. For example, if the spread on a cross is 2 and the PIP is 10, the cost of the operation will be 20, but if the spread is 3 with a PIP of 10, the operation costs 30.

 

Let’s take an example on which we ask you a little attention.

 

Plus500

 

Let’s set a stop limit order or take profit, which will automatically close the transaction when the ask value reaches a certain quota (e.g. 120). We pretend to have a bid/ask of 100/103, then we set a take profit for example at 120 that will close the operation when the ask quotation will reach 120.

 

The operation, which in this case is long (purchase), will be closed when you reach a bid/ask equal to 117/120.

 

As you can see, the spread of 3 pip remains unchanged, so in this case they both climbed 17 pips but having arrived ask a 120 as requested by us, the stop limit will close the operation.

 

The importance of the spread is very important because a difference in many pips can also be absorbed by a simple reversal of trends.

 

Hold on and repeat the whole, because they are concepts a little ‘ intrigued but with the practice it will seem much simpler. Practice that you can also do in demo mode on the platforms we have presented on our homepage to play on the stock exchange.

 

In Lesson 13 we’ll delve into the characteristics of Pips.

Calculating the value of Pips

In the last lesson we saw what pips are both in the definition and in the practical analysis of their returns. In This lesson instead we will see how important is the calculation of the value of pips to take into account the value of individual pips for each cross-currency. In fact, as we have just mentioned at the end of the tenth lesson, the value of PIP changes in pairs, for example in EUR/USD is 10 while in EUR/GBP is 17. The value of pips is important because on it are calculated the amount of the spread adopted by the broker, you calculate the profits and losses of the trader (US), you can calculate or plan the quota for stop limit/loss.

 

1 Pips and the Spread of the Broker
2 Pips in the calculation of profits/losses
3 Pips to plan stop limit and stop loss
Pips and the Spread of the Broker
In practice, when you enter an order you ask the broker to make a service on which the broker gets his earnings. In fact, the broker does not earn depending on whether we win or lose, he is completely indifferent, but earns only when we make a purchase order or sale, or when we open a position on the rise or fall. On the real stock exchange, on the other hand, there are transaction costs. The profit of the broker is calculated from the difference between bid and ask, called spread. For example, if the cross EUR/USD is quoted at 1,300/1,302 the spread will be 2 pips. In practice, for each position open on that cross the broker will gain a PIP value multiplied by 2. For example, if for a lot of EUR/USD the PIP is 10 (as we have seen) the profit of the broker will be 20 (2 pips x 10). These 20 will be deducted in an immediate way from the available capital.
Plus500

 

Pips in the calculation of profit/loss
In Lesson 10, we made an example of how to calculate profits based on PIP changes in the value of cross-currency, but we failed to specify what is happening with the spread. For example, if we have a capital of 5,000, a margin of 600, a change in our favour of 4 pips we should also consider the value of the spread so the account of the available capital will be given by 5,000 – 600 + 40 (4 Pips) – 20 (spread) = 4,600. If we close the operation at that time we will have the 600 to guarantee therefore 5,200 of available capital.

 

Pips to plan stop limit and stop loss
Knowing how much is worth an upward or downward pip is very important to understand how much you can earn or lose from an operation. For example, if we want to open a purchase position on a cross because we are convinced that this will get an increase of a pip we will know that equivalent to 10 in the case of EUR/USD or only 8 for the USD/JPY. If in the first case the gain is 100, in the second case with the same sum the gain is 80. A particular not of little account. So if we want to set stop limit and stop loss we will have to remember this difference, because if we want to reach a target of gain expressed in euros (eg I want to earn 1,000 euros), we will have to calculate the amount of the desired figure according to Pips of Cross on which you invest.

 

We invite you to lesson 12 where we will go even more on the practical aspect related to pips.

forex lesson 10 value of pips

 

The PIP or base point, as already mentioned in the previous lessons, represents the minimum amount of
variation possible for a given quotation. We could define it as the unit of measure, the lowest common denominator in Forex prices. The PIP is made up of 0.01% of a percentage point, it would be to say the hundredth part of a percentage point. If 1% is a percentage point, one pip is equal to 0.01%. Sorry for the simplicity but we assure you that specifying it is never trivial but indeed very useful. So, as an example, if interest rates on a given stock increase by 50 pips, the increase will be 0.50% equal to 0.0050 if you consider the price of the currency. Take for example our dear friend EUR/USD. If at 15.00 its value is 1.2800 and at 18.00 equal to 1.2832 the increase will have been of 32 pips. Other names with which Pips are called are: base points, bips, basis.

 

Pips in practice
Although the definition of pips is quite simple, what happens in the practice of trading is a little more complicated. All right, we have seen how to calculate the variation of pips between the values of the currency pairs, but when trading on Forex we must apply the logic of pips to other factors such as capitals and margins. Before proceeding, make sure you understand and remember what was said in the first part of this article. These are simple concepts but we need to make a solid foundation to build our entire path. Are you ready? All right, let’s proceed.
Plus500
A) Let’s take an example considering a starting capital of 5,000 and a lever of 1:200.

 

b) We want to aim for the euro and then open a purchase position of a lot on the EUR/USD with 1,1171/1,1173 quotation.
c) To buy a quantity of 10,000 the initial margin is 0.50%, so 50. So I’ll spend only 50 euros to move 10,000.
d) The available capital therefore will be 5,000 – 50 = 4,950.

 

e) In case there is a variation of 10 pips, I will have to calculate the PIP value for the EUR/USD (in this case 89 cent) and apply it to the variation. So I’ll have 10 pips x 89 cent = 8.9 euros. The positive change will have been 8.9 euros.

 

f) At this point, if I close the position I would have 5.0008 9 euros, because the initial margin will be returned to me.
For now, the lesson we terminate here but we refer you to lesson 11 for calculating the value of pips.

Lesson 6 – Leverage in Forex online trading

The leverage in Forex as well as for the other markets on which you can negotiate is a peculiarity of online trading, which allows you to invest on a large number of lots on a considerably reduced budget.

 

In Lesson 5 We saw what are the lots, or the “packages” of shares or currencies on which to invest and which always have a “minimum lot”, or a minimum amount of shares or currencies that can be negotiated.

 

If the financial leverage was lacking, online trading would practically not exist. In fact, if you think of high-cost equities, it would be hard to find so many buyers ready to spend tens of thousands of euros to have a hundred shares. Instead, with online trading you can trade on Forex or other financial instruments with limited budgets but for high shares or currencies.

 

What is leverage?
Now let’s see what the leverage is. First, the term refers precisely to the effect of the lever in physical jargon, where it is used to indicate a mechanism that allows you to lift a high weight with an effort (force) less than that of the opposite weight. For example, you could raise 100 kg with a force of 5 kg.

 

Here, obviously we are not here to give lessons in physics, but in this way we can better explain the concept of leverage.
Bearing in mind this figure, imagine if in place of the kilograms there were the euro. With €5 we could move €100: In this case we would have a leverage of 1:20 (one to twenty). With a lever of 1:50 we could move €1,000 with €50.

 

How does the Forex lever work?
All this is very nice, but how is it possible? How come brokers give us the chance to earn money by investing in many more currencies than we could negotiate with our actual budget?

 

We answer these two questions from the last one. The leverage was always the first aspect on which “they did leverage” (excuse the joke) brokers in order to attract their customers. In order to offer this possibility, the broker must guarantee the solvency of the customer, a question that obliges us to answer the first question. How is that possible?

 

The leverage is like a small loan: The broker allows us to carry out large-scale and budget operations, but of course it must protect itself if the trader is unable to operate in the correct way and gets overwhelmed by unexpected results.

 

For example, if I want to do a madness and invest 100 euros in a company that loses because today I woke up so, the downside will start to make me lose and then the broker will receive signals like “This trader is losing a lot and is using the lever , it would be better to ask him a small amount covering any risks. ” This sum is called margin, which actually you pay even at the beginning.

 

This margin has the function of covering any wrong operations of the trader, since the broker through the lever finances the missing part of what is missing to the trader to operate with the prices of the actual lots.

Lesson 5 – Choose the broker technical details

In Lesson 4 we have presented some characteristics to be taken into account in the choice of the broker but we have sent you to this lesson for those more techniques for which there is a need for a more thorough analysis. The features that we will talk about in this lesson in order to choose the brokers that best suit your needs are:

 

Spreads
Rollover Rates
The lot limits to operate
The type of platform
Financial leverage
Index [Hide]

 

1 spreads
2 Rollover Rates
3 lot limits to operate
4 Type of platform
Spreads
Although we will go back several times and for several reasons on this subject, it is good to familiarize yourself with the spreads right away. In the past lessons we have seen in what is the spread, that to synthesize we can define it as the difference between the purchase price and the selling price of a certain currency pair. This difference constitutes the profit of the broker so the higher the spread, the more the broker earns. Of course, the more you earn the more broker, the more we pay, so you need to find a broker with minimal spreads, significantly low.

 

Now, being the spreads of the “sources of income” that come from the individual transactions, the broker will be in any case interested in the fact that you do more possible operations, and therefore will do the “cheering” for you. Moreover, it should be considered that the more the broker is “populated” than trader, the more it will gain from individual operations and therefore lower can set the spreads. For this reason, if you choose a “big” broker, you can count on the lowest spreads.

 

Plus500

 

Rollover Rates
To explain what rollover rates are we start with the word “rollover” which means “renewal”, which is the end of a loop for the start of another. As far as Forex is concerned, rollover consists of extending the settlement date of an open position (e.g. buying position or “long” on the EUR/USD). In Forex all operations must be closed within the US 17 hours, which constitutes the settlement date. An operation that remains open after this time will be subject to rollover, renewal for the next day. This operation is subject to a rate, called the rollover rate (positive or negative) that we will see better in an article dedicated to it.

 

Lot limits to operate
Presented so it seems really difficult to understand what you are talking about, but in practice it is really much simpler. In practice, when negotiating on markets, including Forex, there are minimal lots to negotiate with. For lots, we mean the quantities of securities or in this case of currencies. It is easier to explain it for actions: for example, if we want to buy Telecom shares with CFD, we can do it with a minimum lot of 100 shares, or we can not buy 50 shares but at least 100. This is the minimum lot to operate.

 

Type of platform
The type of platform depends on the type of broker, which usually specializes in only one type of platform (exceptions are there, such as Markets.com which also manages Top Option). “Typology” can be understood or the large categorization “CfD” opposed to that “binary options”, or the type of platform/broker only with regard to CFD. For example, in the world there are totally automated platforms, some not, other mixed. In Forex there are two large types of brokers such as market maker and ECN. A good example of a CFD platform is Plus500.

 

Market Maker-Type brokers create the market (they are market makers, in fact) so the trades are among those who operate with the same platform of the broker, in a sort of micro market parallel to that of Forex.

 

ECN-type brokers are safer and provide for the acceptance of the order imparted by the customer (you) and execution if this is possible.