We are considering offering a trading signal service.  Signals would be on the four currency pairs used in ExperCharts4FX.  The trading results we’ve had so far are very promising.  We’ll provide more details in the near future.

If you’d like to get updates with this trading signal service, please fill in this form to get on our mailing list:

How does Forex Leverage work?

A friend has been trading forex recently and the topic of leverage came up.  The Commodity Futures Commission (CFTC) ruled in October 2010 that the maximum leverage available to U.S. Residents is 50:1.  My friend and I both use interactive brokers, which offers leverage of 40:1 but he didn’t think he was getting 40:1 leverage.

How does leverage work?

Currencies are quoted in pairs.  The first currency is what you are buying or selling.  The second currency is what you are buying and selling the first currency with. Here’s a few examples:

GBPUSD  means you are buying or selling the British Pound and you are paying for them with US Dollars

EURUSD means are you buying or selling Euros and paying for them with US Dollars

How about an example?

If the exchange rate for the GBPUSD is quoted at 1.5000 then every British Pound costs $1.50 US Dollars.  If your account has US Dollars in it, you have to do a little math:

Cash in Account  x  40  = Cash available for margin  / exchange rate = Amount of Foreign Currency you can buy.

If you have a $10,000 Forex account, at 40:1 leverage, you could trade $400,000 USD of currencies.  If you wanted to purchase GBP and the exchange rate is 1.5000, you could buy $400,000 / 1.5 = 266,667 GBP

A short cut is to take the leverage and divide it by the exchange rate.  For example, for 40:1 leverage and trading the EURUSD at a 1.3000 exchange rate:

40 / 1.3 = 30.76

Your $10,000 account could purchase just over 300,000 Euros.

Check your broker to see what leverage they offer and now you can calculate know how much of any currency you can trade with.

Euro and US Dollar

How does forex-trading work?

The forex market is about trading different currencies against each other. The currencies we trade at ExperSignal are:

AUD Australian Dollar

CHF Swiss Franc

EUR Eurozone Euro

GBP Great British Pound

USD United States Dollar

Currencies are always traded in pairs. You exchange one currency for another. The currency pairs we trade at ExperSignal are all considered “Major Currency Pairs”

AUD/USD

EUR/USD

GBP/USD

USD/CHF

What does the exchange rate between two currencies mean?

The exchange rate is the relative value of one currency to another. Think of the first currency listed as what you want to buy and the second currency as what you are buying it with. The rate is how much will it cost in terms of the second currency to buy the first. For example, if the rate for the EUR/USD is quoted at 1.30, you have to pay $1.30 US to buy one Euro.

Where is forex traded?

Forex is not traded on an exchange, so there are no exchange fees. Forex is considered “over the counter” or the “interbank” market. There are many participants in the forex market including central banks, private banks, companies, individuals, investors and traders.

When is the forex market open?

Forex is traded 24-hours per day during the business week. The opening session is in Asia and the last session in on Friday in the United States. The market opens on Sunday night about 21:00 GMT and closes on Friday around 21:00 GMT. Here’s a nice Forex Market Time Converter to help you find the local time to you when the forex markets are open and closed.

How liquid is the Forex market?

One estimate of forex trading volume suggests that 90% of forex volume comes from speculators. This means it is very easy to get buy or sell orders filled. Large volume of traders also narrows the bid/ask spread. The best times to trade forex are when two markets are open. This happens during the Asia PM session and the European AM session, and during the European PM session and the United States AM session.

How does liquidity help me?

The more participants there are in a market, the closer together the bid and ask prices are. You buy currencies on the ask and sell at the bid. The difference between the bid and ask is called slippage. You have to overcome this amount just to break even on your trades. The smaller this is, the easier it is to get to break even. On very active pairs like the EUR/USD, slippage can be as little as 1/2 of a pip.

What’s a pip?

A pip is the minimum amount of movement in the exchange rate of a currency. For the EUR/USD this is $0.0001. For example, 1.3000 to 1.3001 is one pip of movement. Most brokers these days quote fractional pips. You may see the EUR/USD quoted as 1.30005/1.30017. This represents a 1.2 pip bid/ask spread. This is a good overview of how pips work.

In conclusion

The forex market is the largest and most liquid market in the world. Because the market is open 24-hours per day during the business week, traders can trade at times that are convenient to them. (Remember the best times are when two markets are open). At ExperSignal, we trade only four Major Currency Pairs to ensure you have enough market liquidity to have good bid/ask spreads and enough buyers and sellers to take the other side of your trades.

We will publish more articles about forex, trading and how ExperCharts can help you be a better forex trader.