Foreign exchange, also known as FX trading or forex, is the process of converting one currency into another. If you were looking for concrete information on forex, you’ve landed at the right place. Here’s everything you need to know about the platform: what it actually is, how it works, and everything in between.
What is Forex Trading?
FX can be compared to a web of buyers and sellers who move currency amongst each other at a decided rate. Whether we realize it or not, currency conversion actually keeps the world going. It facilitates trade and business.
This is the platform where individuals, businesses, and central banks conduct their money conversions. If you’ve ever travelled abroad, there’s a high probability you’ve interacted with some sort of a forex transaction.
While practical purposes are one of the main concerns when doing foreign exchange, a large population do it with the view to earning a profit. The price movements of a few currencies is extremely sensitive to the amount of currency converted on a daily basis. Paradoxically, it’s this volatility that attracted so many traders to forex: there’s a higher chance of high profits but with that the risk increases.
One interesting part of this international market is that there’s a lack of a central marketplace where the foreign exchange can take place. Instead, the trading is done via OTC or electronically over-the-counter. This means that transactions take place all around the world between traders and not just in one central exchange. The market is open for business all throughout the hours, five and half days of the week. The primary conversion work of these currencies happens in important financial centers of New York, London, Zurich, Hong Kong, Tokyo, Frankfurt, Paris, Singapore, and Sydney. This means that when the trading day on one part of the world ends, it starts on some other side. The forex market is super active at any hour of the day, with constantly changing price quotes.
How Does Forex Trading Work?
There’s’ a bunch of ways in which you can trade forex, but for the most part, the basic idea is the same: buying one currency alongside selling another. In the old days, forex brokers were the main mediums for forex transaction, but thanks to online trading, you can now reap the benefits of forex price movement by checking out derivatives, such as CFD trading,
CFDs are a kind of leveraged product, allowing you to introduce a position for a mere fraction of the actual value of the trade. In contrast to non-leveraged products, ownership of the asset can’t be claimed but counts mainly on whether you hope for the market’s value to rise or fall.
Similarly, leveraged products can increase profits. However, if the market moves in an opposite direction, there could be an increasing level of losses.
Concept You Should Know before trading Forex
1- Spread in Forex
The difference between the cost and selling price quotes for one forex pair is termed as spread. Just like any other financial market, you’ll be presented with two price options upon opening a forex position. If you wish to make a long position, the best way to do so is to trade at a buy price a tad higher than the market price. If a short position seems more feasible right now, trading at the sell price – a bit below the market price – seems to work better.
2- Lot in Forex
Lots are batches of currencies used to systemize forex trades, and currencies are traded in this. Lots are usually very large as forex tends to travel in smaller quantities. 100,000 units of a base currency can make up a standard lot. So, as individual traders wouldn’t always have PHP 100,000 to place on each trade, most of these forex trades are leveraged.
3- Leverage in Forex
Through leverage, you can gain access to large sums of currency without paying the entire value of the trade face-to-face. In that place, you place a small deposit, also known as a margin. Based on the full size of the trades, you’ll make profits or losses after a leveraged position is closed.
On one hand, it brings the joy of magnifying profits, and on the other, there’s an inflated risk of extreme losses – including losses that you wouldn’t dream of. Leverage trading is based on the concept of managing risk wisely.
4- Margin in Forex
Margin is a crucial term of leverage trading and is used to describe the first deposit you make to open and control a leveraged position. While trading forex by using margin, keep in mind that your margin requirement will vary depending on the broker and also how big the trade size is.
Margin is usually denoted as some percent of the total position. For instance, a trade on GBP/EUR may simply need 1% payment of the full value of the position so that it can be opened. So, you don’t have to deposit PHP100,000; you can do with just depositing PHP 1000.
5- Pip in Forex
In a forex pair, pips are used as units of movement measure. A forex pip works like the one-digit in the fourth decimal pair in the currency pair, and the movement of the digits depend on the movement in pairs. So, had the USD/GBP increased to $2.34551 to $2.34561, then we could say that it has moved one pip. The decimal places existing after the pip are known as fractional pips, even pipettes sometimes.
When the currency is listed in extremely small denominations, you can see an exception there. For example, with the Japanese yen, the movement in the second decimal place is what they consider when counting pips.
6- Volume in Forex
Volume is forex is the sum of all your trades that fall under the exchange rate. Forex brokers use this indicator to determine the size of a customer. To put it in simple terms, it’s the amount of time the currency has passed between the hands of the buyers and sellers.
7- VPS in Forex
VPS is the acronym for virtual private server, which hosts its version of an operating system that can be run from almost any other computer. These functions are very similar to what you’d receive from a typical web hosting server. This can be a good option for forex traders who want to keep their mechanical systems operational and ready to accept signals as all markets are open without the extra trouble of having their eyes glued to the screen the whole time or never leaving their device.
VPS can conveniently be accessed remotely, which is great for forex traders who are always on the move or would like to keep an eye on their trading system and accounts from any part of the world and from any device.
Standard Deviation in Forex Trading
Standard deviation is a statistical term used to define the volatility of prices in every currency. In easier terms, standard deviation measures the difference of the newer values from the mean or average. This difference or “dispersion” is the variation between the true closing value price and the mean closing price or average value.
The larger the difference, the more the volatility of the currency and the higher the standard deviation. So, how is this exactly related to forex trading? Let’s find out:
- Used to look into highly volatile price patterns to determine tops or bottoms in the market.
- Using trends to attack the market. For example, a product has become a hot commodity in the first few days of launch, but you’re sure that the price will fall. Given the trend is strong, you can aim for entry at the average price.
- If there’s a narrow range in the price of trading, and out of nowhere, the high standard deviation forces the prices to move away from the mean, the break can be used as a means to trade.
Is Forex Trading Legal in the Philippines?
The Philippines Securities and Exchange Commission (SEC) released a rather adversarial statement regarding forex trading on 30 October 2018, which went something along these lines:
The public were advised to stop involving themselves in forex and were highly discouraged from investing in investment platforms registered in the foreign lands. The SEC was also very rigid when stating that none of the brokers, agents, or salesman out there enticing people with their colorful schemes had licenses of any sort to deal in those securities, and thus should be ignored or avoided.
This warning was the result of multiple claims from investors who said they had lost a huge chunk of money. Many dishonest individuals and entities lured investors in through deceptive tactics and then took advantage of them.
There was also this much “coveted” get-rich-scheme operations revolving around forex trading, which promised up to 400% ROI in merely a month. Forex trading in the Philippines isn’t technically illegal as the SEC only released that advisory to warn users about the foul entities who act like forex brokers, agents, or salesman. Of course, this is an added risk on top of the one existing with trading itself.
There’s a considerable population still trading FX, but caution needs to be maintained. To make sure you’re not falling for those fraud circles, ensure that your chosen online forex broker is authorized. Also, never let anyone else perform the trading for you. Learn to do it by yourself to minimize chances of getting duped.
Forex Trading Strategies in the Philippines
So now that you’ve got your funded margin account plus a broker that lets you trade forex from the country, you’re probably already drawing plans as to what to do to increase chances of success. We got you!
Check out these five popular trading strategies from retailers that are great, regardless of which corner of the world they belong to.
- Day trading: Basically, during one trading session, you’re going to enter and exit the market to avoid the possibilities of amplified risk involved in continuing for the night. Technical analysis is the base of many trading decisions.
- Swing trading: Focus on the momentum based technical indicators to tell you if it’s the optimum time to buy for low and sell for more. Enter and exit the market accordingly.
- News trading: You’re going to use the extreme exchange rate volatility here. This takes place shortly after there is any change in economic data or the news.
- Scalping: Entering the market, trading at a high volume but for a significantly shorter time and quickly exiting to grab some pips at a time.
- Trend trading: Sometimes going with the trend is the best thing you can do. In this one, you’re going to count a long-term strategy heavily reliant on established directional movements (trends) and then conduct trades until the trends go on.
How to Join Forex Trading in Philippines
Just in general, entering the forex market is quite easy although the stringent regulations and guidelines in the Philippines make everything a bit trickier. So, you’re going to face some hurdles But don’t worry – it’s still very basic.
Here are the primary steps to making an initial forex trade:
Step 1: Get a device with a proper and stable internet connection.
Step 2: Locate an online forex broker that actively serves clients from your country.
Step 3: Fund the account using an online payment service. Make sure it’s a service the broker receives.
Step 4: Start a margin account. Time to make your first deposit using that very payment service.
Step 5: Download a forex trading platform that serves your needs in terms of trading as well as device compatibility.
Step 6: Get on to doing your first trade!
Where Can I Open My Forex Account in the Philippines?
It’s recommended that you go for authorized brokers, but international online forex brokers aren’t under any mandatory rules that tell them they need to be approved by the SEC, so they can take Filipinos as customers. Thus, you can start your online forex trading journey as long as they receive customers from the Philippines.
How Much Fund is Needed to Start Forex Trading?
Thankfully, you won’t need a heap of pesos to begin forex trading in the Philippines. Any amount you’re comfortable with is a decent starting place, even as small as PHP 6,000. As time goes by, and you grow more comfortable, you can build on that fund. Regardless of that, some online forex brokers ask for a minimum deposit that can range anywhere from PHP 5,000 to PHP 600,000.
When to Buy and Sell in Forex
Traders try to make profits by placing bets on a currency’s value. It can either soar or drop against other currencies. For instance, assume that you’re buying U.S. dollars and selling Euros. So, for this scenario, you’re betting that the dollar’s value will rise against the other currency. If your bet turns out right and the dollar’s value truly increases, a profit is made.
Making cash on winning bets and eliminating losses when the market flows in a direction opposite to yours is the main game of trading forex. Using leverage in the market, profits (and losses too) can be increased.
What are Forex Signals?
A forex signal system is a collection of analyses a forex trader utilizes to decide if you should buy, sell a currency pair or not to at any fixed time. These signals could be based on news-based events or technical analysis charting equipment. A typical day trader’s currency trading system constitutes a tangled web of signals that function together to make a buy/sell decision.
Forex trading signals will be available free of charge, for a payment, or are Created by traders.
When is the Best Time for Forex Trading?
Every hour has a unique charm that comes in handy during currency trading. 5 pm EST of Sunday is when the week begins; it keeps going until 5 pm of Friday. Not all hours were created equal for trading. The optimal time to trade is when the market has reached peak activity. There’s a heightened trading environment when two or more markets are open together, which means there’ll be a ton of significant fluctuation with currency pairs.
What is the Best Platform for Forex Trading?
On our quest to find the best brokers in the Philippines, we put together a list containing all the brokers who accept new customers from the Philippines. Then they were judged by Trust Score Ranking.
Based on this assessment, here are the best forex brokers you can find in the Philippines:
● IG – Best Overall Broker 2020.
● Saxo Bank – Best client experience for VIPs.
● Interactive Brokers – Best for professionals.
● Swissquote – Best banking services.
● City Index – Excellent list of offerings
● FOREX.com – Great platform and pricing.
● Pepperstone – Best alternative.
How to Calculate Stop Loss and Take Profit in Forex
Undisputedly, one of the most useful tools in forex trading would be “take profit” and “stop loss” orders. This lets traders draw the line on what they require to close an order, either to minimize potential losses or to maximize profits.
You can use the given formula to decide where to place your “stop less” or “take profit” pending overs.
Multiple points size with target/point profit. You’ll get the price change in points. Note the price change for every point, and depending on whether you’re wanting to buy orders or sell ones:
– Opening price + price change (points) = Take profit.
– Opening price – price change (points) = Stop loss.
– Opening price – price change (points) = Take profit.
– Opening price + price change (points) = Stop loss.
Withdrawing Funds From Forex Platforms
If you need to withdraw funds, simply log into the trading platform and select “Add Funds.” Click “Withdraw funds” option. These funds need to be taken from the originating source of said deposits.
Excess funds can conveniently be withdrawn via wire transfer or bank transfer. If you add another account that can withdraw excess funds, you’ll need to provide a bank statement to prove FOREX.com.
Now that you have a slightly better understanding of forex trading in the Philippines, it’s up to you to decide whether this market is the one for you, and if investing would be a good decision. There is an abundance of online platforms that enable you to open both live and practice accounts and begin trading up to 30 currency pairs! Make sure to do your homework before putting your hard-earned money on the line, or you might just brew a recipe for disaster.