Derivatives related questions
Foreign exchange trading is conversion of one currency to another. When
there are fluctuations in the forex market, traders can profit from the price difference between
currencies. Currency fluctuations are influenced by factors such as politics, war, disasters,
epidemics, global economy, monetary policy, interest rates, and inflation, which affect the demand
and supply of currencies and cause exchange rate fluctuations. The daily trading volume of the
forex market reaches $7.5 trillion, which means no institution or individual can manipulate the
forex market, and it provides a way to participate in trading anytime and anywhere.
The forex market includes major currency pairs. Among them, EURUSD,
GBPUSD, USDJPY, USDCAD, USDCHF, AUDUSD, NZDUSD are the seven major currency pairs in the world.
When conducting forex trading, orders for these currency pairs are placed in the interbank market
composed of banks and non-bank institutions. Generally, we will find a difference between the
"buy" and "sell" prices of currency pairs, which is called "spread" and depends on the liquidity
provided by banks and non-bank institutions. Usually, the more the market liquidity, the easier
the orders are executed, and the more favourable the quotes. Best-trader offers traders 36 currency
pairs to trade with minimised spreads. By participating in forex trading through Best-trader's
institutional-level liquidity pool, you can directly connect to the interbank market composed of
25+ top-tier institutions, enjoying institutional-level order depth and highly competitive trading
costs.
Unlike stock and commodity traded in centralised exchanges, currency
pair trading takes place on multiple networks of banks, traders, and brokers globally. Therefore,
it is not limited to any specific trading session, allowing traders to have the opportunity to
trade 24 hours a day, 5 days a week at more flexible times.
The leverage in forex trading determines the utilization of your funds.
Generally, the higher the leverage, the higher the capital efficiency. For example, the value of a
standard EURUSD contract is $100,000. If there is no leverage, you would need to pay the full
amount, so the invested capital would be $100,000. If it is 500 times leverage, you only need to
occupy $200, equivalent to a 500-fold increase in fund utilization. If 100x leverage is applied,
you only need $1,000, and for 200x leverage, you only need $500. However, higher leverage also
means that losses may be correspondingly magnified. We recommend 30-50% exposure during trading.
For example, if your account funds are $1,000, ensure that your invested capital is between $300
and $500, and the remaining funds will serve as a risk buffer to cope with market volatility. If
you are a beginner, we recommend 10-30% exposure. Currently, based on the consideration of risk
and return balance and the requirements of the MiFID II regulatory framework, Best-trader offers a
maximum leverage of 500x.
The pip value in forex trading refers to the smallest price movement in
forex fluctuations. Usually, we say "how many pips it has moved", which corresponds to the pip
value. For the majority of currency pairs, the pip value corresponds to the fourth decimal point,
which is 0.0001. For example, if EURUSD rises from 1.0558 to 1.0559, we say EURUSD has moved one
pip, and typically, for one standard lot of such currency pairs, each one-pip movement results in
a $10 gain. For other of currency pairs, the pip value corresponds to the second decimal point,
such as if USDJPY rises from 149.01 to 149.02, we say USDJPY has moved one pip.
Forex trading is buying one currency in a currency pair while selling
the other. For example, EUR/USD represents buying euros and selling US dollars, while USD/JPY
represents buying the US dollar and selling the Japanese yen. Generally, we buy the currency in a
currency pair that is appreciating and sell the currency that is depreciating. For example, if you
are bullish on the euro and bearish on the US dollar, you can buy EURUSD; but if you are bullish
on the US dollar and bearish on the euro, you can sell EURUSD. The move of a currency pair depends
on many factors, such as monetary policies, economic data, and inflation. Generally, when a
central bank tends to raise interest rates and reduce money supply, the corresponding currency
strengthens. If a country's economic data is positive, markets usually expect rising inflation and
interest rate hikes, thereby driving the currency higher.
To ensure fund safety, it is crucial to choose a reputable and strictly
regulated broker before deciding to engage in trading.
Any eligible client of Best-trader can claim up to a maximum of £85,000 under FCSC rules.
