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Forex 101: The ultimate guide to forex trading in 2020

What do you expect from forex trading? A lot of people will think “easy money” or “instant riches”, but that’s not the way it goes. Of course there is money to be made – but success is in no way guaranteed, nor does it happen overnight. To be a successful long term trader takes skill,…

What you need to know about forex trading

What do you expect from
forex trading? A lot of people will think “easy money” or “instant riches”, but
that’s not the way it goes. Of course there is
money to be made – but success is in no way guaranteed, nor does it happen
overnight. To be a successful long term trader takes skill, patience, education
and application.

Before you make that first
forex trade, you need to know the key facts about the forex market to help you
navigate it.

In this article, we’ll give
you useful and actionable information about:

  • FOREX BASICS
  • THE COSTS OF FOREX TRADING
  • RISK MANAGEMENT WHEN TRADING FOREX
  • EDUCATION YOU NEED TO TRADE FOREX

FOREX
BASICS

Knowing the basics of the
forex market will give you a solid foundation to build your skills and trading
strategies – so let’s dive in!

What is Forex trading?

The forex market is
recognised as the largest and most liquid financial market in the world. The
average daily forex transaction is now estimated at around $5.3 trillion,
according to the Triennial Central Bank Survey of FX and OTC derivatives
markets.

One big difference you will
note when trading forex is that you trade them in pairs. Unlike trading shares
where you buy or sell the same stock, trading forex means selling one currency
and buying another currency in return.

For example, you want to go
to the US and you’re based in Australia. You need to buy the US dollar (USD)
using Australian dollar.

AX2FX MARKET SIZE
VS OTHER MARKETS; Source: DailyFX

When can I trade Forex?

The global FX market is also
known as a market that never sleeps. It operates on a 24-hour, 5-day cycle that
covers three major FX centres – i.e. Japan/Asia, UK/Europe and the US (North
America). Wherever you are in the world, you can trade forex almost any time of
the day as long as you have access to an online trading platform and a reliable
internet connection.

AX3FX Trading Time
Zones; Source: Forex Market Hours

THE
COSTS OF FOREX TRADING

Trading requires some
capital to get started.  But simply investing
that capital doesn’t mean it’s guaranteed to make you more money.

One of the benefits of
trading forex is that you can start with a relatively small amount of capital. This is important if you’re new to trading
and want to test strategies or learn more about the markets without a big
outlay.

How much do you need to start trading Forex?

Trading forex with any
success takes more than money. You need patience, skill, emotional control and
an ability to look at your mistakes and improve on them. There are some
fundamental things to consider, including leverage, spreads and other trading
costs.

What is leveraged trading and why does it matter?

In trading, leverage means
you only put a percentage of your trading capital up front to open a trade. In
practice, this means you don’t need a lot of capital to get started – an amount
as low as $10 in your trading account, combined with sufficient leverage, can
be enough to get you going. Here’s an example.

At AxiTrader you can get access to various levels of leverage.
For example, if your leverage is 1:30, that means that for every $1 in your
trading account, you can open a position of up to $30.

While that opens the
potential to make a lot of money in a short space of time, you must remember
that higher leverage also means a higher risk of losing money if the trade goes
against you.

As a beginner you won’t want
to be trading at such high levels of leverage because the level of risk is too
high compared to your market knowledge and trading ability.  You may prefer to minimise your exposure by
trading micro or mini positions:

  • Micro – $1,000 (0.01 lot)
  • Mini – $10,000 (0.1 lot)
  • Full lot – $100,000 (1 lot)

To see how this works, use a
Demo trading account and try some test trades.

What are spreads and why are they important?

Spreads refer to the price
difference between the currencies you are buying and selling – the ASK and the
BID price. The size of the spread is an important consideration because it can
spell the difference between making a profit, a smaller profit, or even a loss.

Technically, the spread is
the cost you pay the FX broker to make the transaction: the tighter the spread,
the less you pay. The wider the spread, the more the price has to move in order
to result in a profit or loss on a trade.

RISK
MANAGEMENT WHEN TRADING FOREX

Trading any market,
including the forex markets, involves risks. Most professional and successful
traders in the world believe risk management is one of the most important
factors in their trading success.

A good rule of thumb,
especially for new traders, is to never risk more than 1% of your trading
capital while in learning mode.

Here are the top 5
components of a risk management strategy.

  • Know your own risk profile: Are you a big risk-taker? Or
    do you want to take smaller and calculated risks? Knowing your own risk profile
    or appetite for risk is vital in managing forex trades.
  • Position sizing: How much you allocate per
    trade can also have a big impact on your risk exposure. The bigger your
    position size, the bigger the potential win as well as losses. The reverse is
    also true. The smaller the position size, the more manageable the trade is,
    though it may mean smaller potential for wins and losses.
  • Stop loss: Most of the trading
    platforms give you the ability to set stop loss levels. Setting stop loss for
    each of your trades is one of the most effective ways of managing trading
    risks. Use stop loss to your advantage.
  • Leverage: You can select and pre-set
    the level of leverage you want to use for forex trading. As a new forex trader,
    you may want to keep the leverage level to a minimum when you’re just starting.
  • Your own trading psychology:
     It is also important to know your own trading
    psychology. This means being honest with yourself when faced with big wins and
    losses. If you know your own psychology, you will be in a good position to
    prepare for various situations.

EDUCATION
YOU NEED TO TRADE FOREX

Trading forex involves daily
learning. As markets move and present trading opportunities, you need to be
equipped with the right trading tools, information and strategies.

Take advantage of the myriad
trading education materials including video tutorials, webinars, seminars,
ebooks and trading guides and manuals that are available online.

Check out the AxiTrader
Education Centre to access an extensive range of trading resources including:

AxiTrader offers a Demo account where you can practice trading using virtual funds,
with no obligation to trade your own money.

When you’re ready to trade,
you can open a Live trading account and trade with a trusted,
regulated and multi-award winning broker.

This article was submitted by AxiTrader.
For bank trade ideas, check out eFX Plus

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Daily Financial News

Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Daily Financial News

Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Financial News

Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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