Forex Training for CFD Traders

Forex traders must be skilled, disciplined, and sufficiently capitalized to survive and prosper in the world’s largest and most liquid marketplace. Similar traits are required to trade financial instruments profitably on Contracts for Difference (CFD) platforms.

CFD and Forex Currency Trading Similarities

  • Both have friendly web-based trade execution processes and are characterized by limitless liquidity. Markets never freeze-up and trades can be initiated whenever they are open, close to the last-price trade.
  • Analytic tools — Basic charting and technical factors are influence both. Forex news is of paramount importance also in understanding CFD price movements.
  • Account margin requirements — In both cases, margin balances are highly leveraged and small price movements in the underlying assets have extremely magnified effects on position balances, requiring close attention during market hours.  Thus both cases are abstractions from underlying assets with no ownership features. Account balance changes are settled for cash
  • Market-maker spread-based revenue model — For CFDs, an overnight fee is assessed on open positions and for forex, depending on the channel and market participants, minimal transaction and financial fees are assessed. But in both, the primary source of income is the buy – sell spread (or premium) on each transaction.  The spread is denominated in pips, usually thousandths of a unit. It can be variable or fixed and is often based on a number of factors, including the currency pair
  • Stability and Viability of Counter-Trade Offerer — In any financial relationship, a trader must concern himself with the opposing party financial stability, its: capitalization, length in business, management experience, network contacts, volume of business, safety of client capital, variety of offered trades and stop orders.

CFD and Forex Currency Trading Differences

For the forex trader, the key difference from trading in CFDs is the increased variety of instruments classes beyond the proprietary CFD platforms compared with the increased CFD instrument types. By this we mean that forex encompasses instruments which are both existing and future assets as well as real and wasting (options), whereas CFDs also relate to non-forex instruments, like shares, indices, and commodities. So, in general, CFD traders have a broader scope of interest beyond forex news. While any significant macro-economic development is part of the forex news cycle and therefore of concern to forex traders, the broad flow of information often affects other instrument classes more directly.

The essence of forex training

Managing risks and rewards is the major issue in forex training. The effort consists largely of using stops and limits wherever possible. Only in this manner can a trader hope to overcome the inherent bias against  the small trader that institutions with unlimited computing and communication power possess.

  • Stop Loss — Limits the risk on an existing position, closing it when the price moves adversely.
  • Trailing Stop — Also limiting existing position risk, but it is set at a fixed distance, in pips, from the current market and “follows” the market as it moves in your favor
  • Entry Stop — Opening a position if the market moves in an anticipated direction; An Entry “Buy Stop” is an order to buy above the current market, and an Entry “Sell Stop” is an order to sell below the current market.
  • Take Profit Order — An order which will incur profits on an established position. It closes a position at a price set by you when the market moves to your benefit. If you have a long position, the Take Profit order is above the current price. If you have a short position, the Take Profit order will be below the current price.
  • Limit Order — Orders designed to open a new position at a better price than the existing one. An Buy Limit is an order to buy at less than the current price, and an Sell Limit is an order to sell at greater than current price.

Essentials of a Forex Trading Course

Every profession requires training to accomplish mastery of the material and in this industry, forex trading courses are also available. Students of the subject seek to answer: “what is forex trading?” and “what is cfd trading?”.  Many approaches are offered with varied curricula, content, methodology, delivery means and price.

Forex trading course essentials include varying aspects and requirements:

  • Introduction and Basics: What is forex trading starts with terms and definitions. Understanding the lexicon and vocabulary is necessary to accurately interpret developments and commentary. You then need to understand the industry structure to appreciate who makes money, when and how. In addition to the facilitators and agents, various players profit from different market scenarios and actions. Timing is of the essence in fx trading and so the ability to read forex charts to understand market cycles and trends is or paramount importance. Forex charts can be denominated in varying units to help you gain insight on varying hours of the day and days of the week. The contemporary trading offerings require that traders understand what is cfd trading, a relatively new means by which proprietary platforms allow traders to interact directly with counter-party principals without brokers and market and which are settled for cash only based on opening-closing price cash difference.
  • Currency Pairs: Forex trading is a world of currency pairs. Information, strategy, framework and performance measurement. It is a pure binary world. Every loss is offset by a corresponding gain. Of course as actual physical instruments, the issue of liquidity is paramount as you cannot realize indicated gains or losses without an actual transaction and the ability to execute a transaction at the stated price depends on a transaction counter-party, so the popularity of a given pair trade is critical.For analytic purposes, currency pairs can also be thought of as belonging to groups. Among the groupings that lend themselves to profitable correlation analysis are: Commodity currencies, emerging markets, majors and (the largest volume)  US dollar pairs.
  • Trading Styles: While individual traders lack the wherewithal to evolve into full-fledged algorithmisists, the era of Do-It-Yourself algorithms is upon us. So that while cloud-enabled big-data crunching is not within everyone’s capability, it is ever-present in the market and trader’s employing simplistic rules do so at their own peril as their intentions and actions can be aggregated and exploited. Nevertheless, empirical studies do confirm that trading with trends can be profitable.  Markets do exhibit crowd behavior and the “trend is your friend” can be a winning strategy.So while the ability to “scalp” or “swing” trade grows increasingly difficult, the individual can still operate based on the random unfolding of events, in an analytic manner largely defined as “fundamental”, or price determination resulting from underlying real data. In the world of forex trading, the movers of foreign currency values are macro-economic determinants, starting with interest rates and extending to trade balances and currency flows.

Any forex trading course must cover all the basics, including “what is forex trading”, “what is cfd trading”, forex charts, and the like. It must also detail currency pairs and trading styles.

Day Trading Forex For Beginners

The allure of easy money draws many to the world of day trading forex. Before proceeding to the issues of what to do and what not to do to profit in this field, anyone seeking to consider entering this profession must first address some basic self-definition issues.

The first questions to be addressed are psychological:

  • Rational basis for actions: Are your actions based on objective causes? How much do you act out of unacknowledged fear or greed? How well can you interpret forex signals? How systematically can you research to find a forex broker? How disciplined and focused can you be in the face of disparate, diffuse and partial information? When you trade according to a valid setup and a loss results, can you discard this aberration and continue with a successful strategy? Can you envision tweaking trading rules to account for new circumstances?
  • Time horizon orientation: Can you orient yourself to the demands of intra-day decision horizon? Can you successfully formulate and stick with decisions in an environment requiring rapid execution? Can you prepare for future decisions by building on past activities?

No less important in the question of “what is forex trading?” are the financial questions to be addressed:

  •  Market hours availability: Can you devote yourself to this profession full time? So that you can always receive forex signals and connect with your forex broker as necessary?
  • Adverse results: Can you afford to lose your trading capital? Can you accept losses as part of the results of a larger trading portfolio? Can you wait out interim results until they turn around?

What is forex trading

Only after successfully answering these self-defining issues can you begin to look at what is forex trading and how to successfully day trade.  With ever-more calculating power and speedier execution characterizing the day trading forex market, the individual trader must be increasingly methodical and sophisticated. Strategies and rules must be constantly evolving.

The essential point for the individual trader is not that she is required to know everything and outsmart everyone, rather only that her trade is one step ahead of the thundering herd. And that she not read more into her analysis than is warranted by the circumstances.

Of paramount importance is that traders avail themselves of available technical and fundamental tools. Ours is an age of man-machine interface and optimization, with day trading forex at the forefront. The implications for our era of big data, where, in real time, powerful processors generate algorithms based on millions of data points is that— the challenge for an individual alone to consistently outsmart the market — is daunting.

Day trading forex

All these pressure points are multiplied and accentuated for traders who choose to operate totally within a single trading day. So it can be concluded that day trading forex is a profession that requires psychological acuity, nerves of steel, self-discipline, an analytic mindset and familiarity with fundamental and technical analysis. Additionally, day trading forex requires a sufficiently diverse trading portfolio that losses can be sustained without altering decision-making rules and procedures.

 

The Value of Foreign Exchange Currency Conversion

Converting the value of one currency into another through a forex calculator is the fundamental basis for international trade and commerce. This process is carried out countless times on a daily basis for every imaginable reason. The classic example is travellers who need to know how much foreign currency they’ll need for their trip and the ability to check the exchange rates for purchasing various currencies. It also represents one of the most popular web pages as our current era because the information is easily available instantaneously and institutions have a vested interest in your securing the information from them because it is both a service that can be rendered for a percentage fee and it can serve as an entree for rendering other services. Particularly for currencies which are not widely disbursed (relatively illiquid), foreign exchange currency conversion. And while the vast majority of this price discovery occurs in trading markets, increasingly it is cfd trading that gives individual traders the most liquidity.

Often, while direct cross rates between many major currencies exist, not all transactions qualify for cross rates and so the rates shown are indicative only and do not guarantee execution at such terms.

Additional Features

Other information likely to be offered on internet sites supporting foreign exchange currency conversion include:

  • Precious metal data — retail purchase opportunities, mining data, refining services, prices, both spot and derivative, present and historical, denominated in US dollar, British Pound and Euro
  • Charts — Depending on the associated activity, historical and live charts are likely to be offered. Increasingly, with interactive features and associated tools to fully utilize available forex signals. Often, these charts are available for you to embed on your websites. The functionality granted requires little from the chart originator while the benefit to him reference to and traffic through his site makes this worthwhile for all parties involved.
  • News — Foreign exchange currency rates respond to news and forex signals. News can be both breaking developments and analysis of behind-the-scenes events. Often times, a mash-up of different feeds gives a more comprehensive picture. Finally, news can include educational offerings.
  • Commentary — Both regular and occasional opinion pieces are often offered in  hopes of giving forex signals.
  • Mobile Apps — With continual access to the vast computing and communication power of the internet, mobile apps are the new growth field for foreign exchange currency conversion. With information as diverse as market alerts, price discovery and calculation available anywhere all the time, this field offers interest to both provider and consumer. The vast majority of development resources in this field are for forex calculators on the major Android and iOS platforms. The world of cfd trading is especially appropriate for the mobile platform as the confluence of technologies is appropriate for the cloud-based platforms.

Forex Regulation Considerations

This process also has a regulatory aspect. European purchasers must comply with the provision contained in the Payment Services Directive (PSD) that requires transparency of exchange rate information. Title III of the PSD that apply to payment services made in Euro or any of the official EEA currencies.

All about forex exchange rates

The forex exchange rate is the ratio of currencies’ worth, one to another. Usually, it is expressed as how much of one currency it takes to buy one unit of the other. In addition to staying on top of forex news, a deeper understanding of the mechanism is required for a successful approach to forex trading.

What is forex trading

The largest counter-party in forex trades is the US Dollar (USD), accounting for 87% of all trades. The Euro (EUR) was the second most traded currency, but its share fell to 33% in April 2013 from 39% in April 2010, while the EUR/USD pair accounted for some 10 billion daily trades in August 2015. In addition to the Euro, other popular counter-parties to USD trade include:  GBP (the British pound sterling), JPY (the Japanese yen), and CHF (the Swiss franc). Occasionally, AUD (the Australian dollar) is also among this group of currencies called “the Majors” (because they represent the majority of the currencies traded in Forex).

Forex exchange rates terminology

Terminology is important in understanding both the framework and available actions. The numerator (the counter or quote currency) is called the “base currency” and the denominator the “quote currency”. The (denominator) base currency is thus given a value of one. So the exchange rate informs the purchaser how much of the quote or counter currency must be offered to get 1 unity of the base currency. Similarly, the exchange rate informs the seller of the value of what he is to get in the counter or quote currency when offering 1 unit of the base currency.

An additional term in general use is “cross rates” which usually refers to  the currency exchange rate between two currencies, neither of which is the official currencies of the nation which the forex exchange rates quotes are given in. Often times, forex signlas are first detected through cross rates. This expression is also occasionally used to mean currency quotes which don’t include USD, irrespective of which country the quote is supplied in and are an integral part of the definition of what is forex trading.

A further concept of significance is the unit of measurement in which the trade is denominated, basis points (pips). These measurements denoted fx rates measured in ratios of up to 4 decimal places, both for positive and negative trends.  For example, if you wanted to trade USD with JPY at a value of 122.5430, but if USD rate goes up to 122.5440, the difference would be a ten-pip gain.

Furthermore, traders must also understand the multi-tier nature of the foreign exchange system. Inherent in any market trader transaction is an agency premium, most commonly reflected in a bid-ask spread. Only licensed Forex brokers can access official quoted rates. Retail customers must pay a premium to several levels which usually include brokers and commercial banks.

Purchasing Power Parity

This discussion has focused on actual rates and not delved into the concept of real rates, as defined by purchasing power parity (PPP). PPP is both an abstract and actual formulation most famously calculated in the “Big Mac” index whereby currencies are deemed over – or under-valued based on the price of a McDonalds Big Mac. Alas, tariffs, and other institutional barriers demonstrate that prices for the same good can remain significantly different for extended periods of time, stifling what should be forex signals, despite the abundance of forex news innundating traders and regulators.

 

Understand the Forex Rate with Tools, Charts and Converters

The factors determining forex rates are many, across all defining characteristics.  The causal reasons are so varied that individual traders are advised to focus their efforts on a limited information set and expand their range through a gradual process. In this manner, the “known-unknowns” can be identified and dealt with scientifically.

All manner of forex factors warrant consideration and among the leading determinants are the movement and valuation of other currencies. Thus, a forex converter is a key tools in the arsenal of ongoing evaluation. In order for traders to be able to instantaneously evaluate a currency’s worth, he must be able to understand it in relation to other outstanding benchmarks of national worth — through a forex converter.

For market participants who are not principals (that is, who are not money-center banks or major security dealers), securing the services of a forex broker is a critical element in a successful trading strategy.  In today’s world of abstraction and hyper-processing power, a contemporary trading platform would include a seamless and full-featured interface across the entire range of environments.

What is Forex Trading

With the development of Contracts for Difference (CFDs) and other proprietary trading platforms, the definition of “markets” has become blurred and the distinction between a trader’s broker and counter-party has increasingly lost meaning and context. With ever-lower margins and fees, the essential question of “what is forex trading?” comes to the fore. From the trader’s perspective, the issues remain as always:

  • timely and relevant knowledge
  • speed and reliability of order execution
  • transaction cost (in the full sense of the concept)

Given the universality of high-speed internet and increasing access to cloud-based computing power, ours is an era of Do-It-Yourself algorithmicists, with each trader creating and operating his own forex converter. More so than at any previous time, the forex rate is driven by the collective opinions and judgements of the “market.” The question of “what is forex trading” is thus distilled to its essence of millions of different viewpoints taking positions reflecting their collective wisdom and acumen.

On the other hand, ours is an era of hyper-regulation and regulatory overload. Add to this, unprecedented and unimaginable amounts of national debt created since the 2008 financial crisis and the conclusion emerges that currently, central bank governors and treasury clerks are the real arbiters of national currency value and hence driving the forex rate. It is to the detriment of all market participants that Main Street and even Wall Street count for so little. When traders are focused on deciphering the entrails of pronouncements out of Brussels rather than analyzing real economic activity, an artificiality and distortion of the whole effort results.

Furthermore, central bankers also fall prey to a self-aggrandizing conception that not only can they drive forex rates with their monetary aggregates and interest rate tinkering but they can also use these blunt tools to manage the real economy. Over the last few years, as the world economy has recovered tepidly despite unprecedented liquidity and monetary accomodation, neither they, nor treasury minions have understood that without pro-growth fiscal policies, their monetary largesse is increasingly for naught.