Risk/reward signifies how much capital is being risked to attain a certain profit. If a trader loses 10 pips on losing trades but makes 15 on winning trades, she is making more on the winners than she's losing on losers. This means that even if the trader only wins 50% of her trades, she will be profitable. Therefore, making more on winning trades is also a strategic component for which many forex day traders strive.


Forex is the one financial market that never sleeps, meaning you can trade at all hours of the day (or night). Unlike the world's stock exchanges, which are located in physical trading rooms like the New York Stock Exchange or the London Stock Exchange, the Forex market is known as an 'Over-the-counter market' (or OTC). This means that the trades take place directly between the parties holding the currencies, rather than being managed via an exchange.

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The last hour of trading (usually in London sessions) might often tell the truth about how strong a trend truly is. Smart money usually shows its face during the last hour, continuing to mark positions in its favour. As long as a market has consecutive strong closes, look for the trend to continue. The uptrend is most likely to end when there is a morning rally first, followed by a weak close, and vice versa for a short trend.

Forex alerts or signals are delivered in an assortment of ways. User generated alerts can be created to ‘pop up’ via simple broker trading platform tools, or more complex 3rd party signal providers can send traders alerts via SMS, email or direct messages. Whatever the mechanism the aim is the same, to trigger trades as soon as certain criteria are met.
Second, since trades don't take place on a traditional exchange, you won't find the same fees or commissions that you would on another market. Next, there's no cut-off as to when you can and cannot trade. Because the market is open 24 hours a day, you can trade at any time of day. Finally, because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford.
If you've been researching Forex trading, you might have seen the term 'Forex CFDs' at some point. There are two ways to trade Forex: using CFDs or spot Forex (also known as margin). Spot Forex involves buying and selling the actual currency. For example, you might purchase a certain amount of Pound Sterling for Euros, and then, once the value of the Pound increases, you may then exchange your Euros for Pounds again, receiving more money back compared with what you originally spent on the purchase.
A trader thinks that the European Central Bank (ECB) will be easing its monetary policy in the coming months as the Eurozone’s economy slows. As a result, the trader bets that the euro will fall against the U.S. dollar and sells short €100,000 at an exchange rate of 1.15. Over the next several weeks the ECB signals that it may indeed ease its monetary policy. That causes the exchange rate for the euro to fall to 1.10 versus the dollar. It creates a profit for the trader of $5,000.
Before you make your first trade, it's important to consider how to effectively manage your risk in the Forex market. As we've already discussed, trading Forex CFDs gives you the opportunity to trade using leverage, meaning you can use a relatively small deposit to access a larger portion of the market (up to 500 times the value of your account balance, if you're a Professional client). This then multiplies your potential profits to the same extent. However, it also multiplies your potential losses.

Use a stop loss: A stop loss is tool that traders use to limit their potential losses. Simply put, it is the price level at which you will close a trade that isn't moving in your favour, thereby preventing any further losses as the market continues to move in that direction. You can also use a stop loss to conserve any profits you might have already made - the tool to achieve this is known as a 'trailing' stop loss, which follows the direction of the market.


The market determines the value, also known as an exchange rate, of the majority of currencies. Foreign exchange can be as simple as changing one currency for another at a local bank. It can also involve trading currency on the foreign exchange market. For example, a trader is betting a central bank will ease or tighten monetary policy and that one currency will strengthen versus the other.
An important part of the foreign exchange market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have a little short-term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational corporations (MNCs) can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
The foreign exchange market is unique for several reasons, mainly because of its size. Trading volume in the forex market is generally very large. As an example, trading in foreign exchange markets averaged $5.1 trillion per day in April 2016, according to the Bank for International Settlements, which is owned by 60 central banks and is used to work in monetary and financial responsibility. 
Security: Will your funds and personal information be protected? A reputable Forex broker, and a good Forex trading platform will have measures in place to ensure the security of your information, along with the ability to backup all key account information. They will also segregate your funds from their own funds. If a broker cannot demonstrate the measures they will take to protect you and your account balance, it would be best to find another broker.

Every broker offers a demo account – whether you are a beginner or not, test every new strategy there first. Keep going until the results are conclusive and you are confident in what you are testing. Only then should you open a live account and use your strategy in the smallest volume trades available. Be sure to treat your demo account trades as if they were real trades. You may also use Forex simulation software to simulate market conditions, and create an impression of a live trading session.

The practice of taking on excessive risk does not equal excessive returns. Almost all traders who risk large amounts of capital on single trades will eventually lose in the long run. A common rule is that a trader should risk (in terms of the difference between entry and stop price) no more than 1% of capital on any single trade. Professional traders will often risk far less than 1% of capital.
Leverage: Leverage is capital provided by a Forex broker to bolster their client's trading volume. For example, if you use a 1:10 rate of leverage and have $1,000 in your trading account, you can trade $10,000 worth of a currency pair. If the trade is successful, leverage will maximise your profits by a factor of 10. However, please note that leverage also multiplies your losses to the same degree, so it should be used with caution. If your account balance falls below $0, you may trigger a broker's negative balance protection settings (if trading with an ESMA regulated broker), which will result in the trade being closed. Fortunately, this means that your balance cannot move below $0, so you will not be in debt to the broker.
To start, you must keep your risk on each trade very small, and 1% or less is typical. This means if you have a $3,000 account, you shouldn't lose more than $30 on a single trade. That may seem small, but losses do add up, and even a good day-trading strategy will see strings of losses. Risk is managed using a stop-loss order, which will be discussed in the Scenario sections below.
This is an efficient trading strategy for those who keep up with economic and political events, but who cannot devote enough attention to the markets on an hourly basis. A trader will generally execute far fewer trades with the breakout strategy, especially when compared to a Forex scalping strategy. Nevertheless, this is a great strategy to consider and try out.
Spread: The spread is the difference between a currency pair's bid and ask price. For the most popular currency pairs, the spread is often low - sometimes even less than a pip! For pairs that aren't traded as frequently, the spread tends to be much higher. Before a Forex trade becomes profitable, the value of the currency pair must cross the spread.
OANDA (Canada) Corporation ULC accounts are available to anyone with a Canadian bank account. OANDA (Canada) Corporation ULC is regulated by the Investment Industry Regulatory Organization of Canada (IIROC), which includes IIROC's online advisor check database (IIROC AdvisorReport), and customer accounts are protected by the Canadian Investor Protection Fund within specified limits. A brochure describing the nature and limits of coverage is available upon request or at www.cipf.ca.
High Risk Investment Notice: Trading Forex/CFDs on margin carries a high level of risk and may not be suitable for all investors. The products are intended for retail, professional, and eligible counterparty clients. Retail clients who maintain account(s) with Forex Capital Markets Limited ("FXCM LTD") could sustain a total loss of deposited funds but are not subject to subsequent payment obligations beyond the deposited funds but professional clients and eligible counterparty clients could sustain losses in excess of deposits. Prior to trading any products offered by FXCM LTD, inclusive of all EU branches, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the "FXCM Group"], carefully consider your financial situation and experience level. The FXCM Group may provide general commentary, which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. The FXCM Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on the FXCM Group's websites prior to taking further action.
To start, you must keep your risk on each trade very small, and 1% or less is typical. This means if you have a $3,000 account, you shouldn't lose more than $30 on a single trade. That may seem small, but losses do add up, and even a good day-trading strategy will see strings of losses. Risk is managed using a stop-loss order, which will be discussed in the Scenario sections below.
OANDA doesn’t provide any products to American investors besides forex. In some ways, the clarity and concentration of a forex focus is ideal for all types of forex investors. The inexperienced can set their sights on mastering one corner of the market. The seasoned can take advantage of a trading platform that’s designed to manage nothing but forex. That said, if being able to diversify your interests while staying within the same brokerage is important to you, check out thinkorswim or Ally Invest.
A trader thinks that the European Central Bank (ECB) will be easing its monetary policy in the coming months as the Eurozone’s economy slows. As a result, the trader bets that the euro will fall against the U.S. dollar and sells short €100,000 at an exchange rate of 1.15. Over the next several weeks the ECB signals that it may indeed ease its monetary policy. That causes the exchange rate for the euro to fall to 1.10 versus the dollar. It creates a profit for the trader of $5,000.
Due to Forex CFDs being leveraged, traders can access large portions of the currency market at a very low margin - sometimes as low as 1/500th of the size of the market they want to access (based on a leverage rate of 1:500). There are few additional costs as well - most Forex trading accounts have little (or no) commissions, order fees, and account management fees. If there are any trading fees, these are usually a markup the broker has added to the spread.
Spread: The spread is the difference between a currency pair's bid and ask price. For the most popular currency pairs, the spread is often low - sometimes even less than a pip! For pairs that aren't traded as frequently, the spread tends to be much higher. Before a Forex trade becomes profitable, the value of the currency pair must cross the spread.
It's important to consider whether a Forex broker and their trading platform will suit your trading style. For example, you might be interested in following a Forex scalping strategy, which involves making a high volume of small profits on small currency movements. In this case, you would need to ensure that any potential broker has minimum distance between the market price and your stop-loss and take-profit.
Scalping is a higher frequency form of trading, wherein traders focus on lower time frames, trying to profit from the market's volatility. Very often, traders make 15-30 scalps per day, whereas the profit is usually between 5-15 pips. The risk with scalping is usually 2-5% per trade, but bear in mind that if you cross 5% of your risk threshold, your account will be in a danger zone.
Second, since trades don't take place on a traditional exchange, you won't find the same fees or commissions that you would on another market. Next, there's no cut-off as to when you can and cannot trade. Because the market is open 24 hours a day, you can trade at any time of day. Finally, because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford.
^ The total sum is 200% because each currency trade always involves a currency pair; one currency is sold (e.g. US$) and another bought (€). Therefore each trade is counted twice, once under the sold currency ($) and once under the bought currency (€). The percentages above are the percent of trades involving that currency regardless of whether it is bought or sold, e.g. the U.S. Dollar is bought or sold in 88% of all trades, whereas the Euro is bought or sold 32% of the time.

Similarly, if you wanted to purchase 3,000 USD with Euros, that would cost 2,570 EUR. With a leverage rate of 1:30, however, you could access 3,000 USD worth of the EUR/USD currency pair as a CFD with just 100 USD. The best part, however, is that the size of the potential profit a trader could make is the same as if they had invested in the asset outright. The risk here is that potential losses are magnified to the same extent as potential profits.

Currency speculation is considered a highly suspect activity in many countries.[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced Sweden's central bank, the Riksbank, to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[82] Mahathir Mohamad, one of the former Prime Ministers of Malaysia, is one well-known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
The main trading centers are London and New York City, though Tokyo, Hong Kong, and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session.
The possibility of losing your investment is high, so it is advisable to only use risk capital (money that you can afford to lose) when engaging in Forex trading. The Forex market offers high levels of leverage to traders. Leverage has both the possibility of high returns and high losses, and should only be used with discretion. Be disciplined and don't be tempted to overtrade.
Ready to learn how to trade Forex? The pros at Online Trading Academy are here to help! The foreign exchange market (also known as forex or FX) is one of the most exciting, fast-paced markets in the financial world. Though historically, forex has been the domain of large institutions, central banks, and high wealth individuals, the growth of the Internet has allowed the average individual to become involved with and profit from online currency trading.
Trading in South Africa might be safest with an FSA regulated (or registered) brand. The regions classed as ‘unregulated’ by European brokers see way less ‘default’ protection. So a local regulator can give additional confidence. This is similar in Singapore, the Philippines or Hong Kong. The choice of ‘best forex broker’ will therefore differ region by region.
When learning about Forex trading, many beginners tend to focus on major currency pairs because of their daily volatility and tight spreads. But there are numerous other opportunities – from exotic FX pairs, to CFD trading opportunities on stocks, commodities, energy futures, to indices. There are even indices that track groups of indices, and you can trade them as well.
Forex hedging: Hedging is a risk management technique where a trader can offset potential losses by taking opposite positions in the market. In Forex, this can be done by taking two opposite positions on the same currency pair (e.g. by opening a long trade and a short trade on the GBP/USD currency pair), or by taking opposite positions on two correlated currencies.

The possibility of losing your investment is high, so it is advisable to only use risk capital (money that you can afford to lose) when engaging in Forex trading. The Forex market offers high levels of leverage to traders. Leverage has both the possibility of high returns and high losses, and should only be used with discretion. Be disciplined and don't be tempted to overtrade.
If the velocity of your trades necessitates low fees, know that you will be sacrificing some educational resources in favor of a streamlined system designed for the pros. You’ll be jumping in with both feet. On the other hand, a low minimum account typically comes with the educational resources and communication channels required by new forex investors. The identity of different brokerages rest on the type of investors they aim to appeal to. Choose accordingly.

From a historical standpoint, foreign exchange was once a concept for governments, large companies, and hedge funds. But in today's world, trading currencies is as easy as a click of a mouse—accessibility is not an issue, which means anyone can do it. In fact, many investment firms offer the chance for individuals to open accounts and to trade currencies however and whenever they choose.

More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a "spot deal". It is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement.

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