Forex Trading with Crypto — A Beginners Guide in 2020
In this beginner’s guide, we will cover all you need to know to get started trading Forex, the largest and most liquid financial market in the world, using Cryptocurrency as your margin collateral.
Every single day crypto traders are drawn to new markets such as forex trading, mostly due to the perceived ease of making fast profits, however just like any other financial trading, if you are serious about learning to trade Forex with Crypto then you should ensure that you have a good understanding of not only what Forex trading is but also the risks involved.
As per any trading strategy, it is important that if you want to trade Forex, you must first focus on the education side of things before having any expectation of making profits.
The following 2020 beginner’s guide to Forex trading using Crypto offers an updated insight into what Forex trading is and sets the scene for how crypto traders can get started trading forex markets using cryptocurrency such as bitcoin or ethereum as your margin collateral.
Ok, so let’s get started…
In order to begin in the world of Forex trading, you will need to learn a few key Forex terms. Some of the key terms you must learn include:
- PIP: A PIP or pip is short for “percentage in point”. It is the smallest increment of price movement that a currency can make. You may also hear it referred to as point or points.
- Spread: The spread is the underlying pip difference between the bid quote (bid) and the buy quote (offer) price.
- Lot Size: A lot is the smallest available trade size that you can place when trading. In the Forex market, one standard lot (standard position size) equals to 100,000 units of the base currency. So when you buy 1 lot of a forex pair, that means you purchased 100,000 units from the base currency.
- Remember, the “lot” size can differ for different markets, so it is important that you understand the various differences when you are trading on a multi-asset trading platform.
- Margin: This is the minimum collateral (or deposit) that you need to open a position and begin to trade. A “ratio” is used to determine how much margin you need.
- For Example:
Overall Lot Size / Leverage Amount = Margin Required
An example with 2 lots at a leverage of 200:1
200,000 / 200 = $1000 margin is required - Leverage: Traders use leverage to get larger returns from a small investment. Leverage means that you only need to provide part of the funds required to open a position, but this cash deposit is then magnified (or ‘leveraged’) so the profit or loss is based on the total value of the overall position.
- Bid/Ask Price: Every currency pair has two exchange rates or prices — the bid price and the ask price. The bid price is the price buyers are willing to buy, while the ask price is the price sellers are willing to sell.
- “To long”: Also known as “going long”- is the buying of a stock, commodity, or currency with the expectation that it will rise in value.
- “To short”: Also known as “shorting the market” — means to sell the underlying currency in the hope that the price of that currency will go down in the future, which will then allow you to buy the same currency back at a later date but at a much lower price.
Forex trading, also known as FX trading, foreign currency trading or foreign exchange trading, is the process of buying and selling foreign currencies on a global currency market in order to try and make a profit from changes in exchange rates i.e. currency prices.
The forex market is a decentralized, OTC (Over The Counter) marketplace where you can trade currencies at almost any time of the day, making it possible for virtually anyone to take advantage of ever-fluctuating currency prices.
One of the reasons the Forex market is so popular is due to the fact that it is the largest and most liquid financial market in the world turning over an average of $6.595 trillion per day just in 2019 alone.
To offer a comparison, the turnover on a daily basis of the New York Stock Exchange is approximately $28 billion, which is almost 190 times less than on the Forex market. With this in mind, it is important to remember that forex trading is high risk so always ensure you know what you are doing before you begin trading on any platform.
There are a range of reasons why the Forex market is one of the best markets to trade. These reasons include:
- The huge size of the FX market
- Variety of currencies available to trade
- Differing volatility levels
- Low transaction fees
- 24hr trading on weekdays
Did You Know?
By 1913, the number of Forex trading companies rose in London from 3 to 71 within just under a ten year period. At that time, 50% of all Forex transactions were made in Pound Sterling. In 2013, however, the Pound Sterling was the fourth most traded currency, only after the US Dollar, EURO and Japanese Yen.
Foreign exchange traders try to make profits by predicting the value of one currency compared to another currency and they then buy or sell those currencies based on whether they think the price will appreciate (increase) in value or depreciate (decrease) in value.
More specifically, Forex traders buy one currency with the hope that the value will increase and they will make money on the increase and then sell at a higher price.
Every single trade on the Forex market involves the simultaneous buying and selling of two different currencies. In Forex trading, these two currencies are called ‘the currency pairs’.
One of the most common currency pairs in the world is the EUR/USD, otherwise known as the Euro. Currency pairs always include a base currency, which is the currency on the left, and a quote currency, which is the currency on the right.
In this example, the Euro is the base currency and the USD is the quote currency. Other currency pairs include GBP/JPY or the AUD/USD. In both of these cases, the GBP or the AUD is the base currency and the quote currency is the JPY or the USD.
Currency pairs can be broken down into 3 primary categories, although there are variations to this list, which we will delve into more depth in a more detailed article.
These categories include:
- Major currency pairs
- Minor currency pairs
- Exotic currency pairs
Major currency pairs makeup to 75% of all Forex trades and thus are the widest traded currencies in Forex trading. As they are the most liquid currency pairs of the Forex market, they also have the most volume of buyers and sellers which means that they often have the tightest buy and ask spreads.
Major currencies will always include the US dollar, although that may be as a base or quote currency.
The 4 Major Forex currency trading pairs include:
- The euro vs the US dollar: EUR/USD (Euro)
- The US dollar vs the Japanese yen: USD/JPY (Yen)
- The British pound sterling vs the US dollar: GBP/USD (Pound)
- The US dollar vs the Swiss franc: USD/CHF (Swiss Franc)
Minor currency pairs, also known as cross currency pairs, are currencies that do not include the USD in either a base currency or quote currency capacity.
Examples of non-USD minor currency pairs include:
- Euro minors: EUR/CHF, EUR/GBP, EUR/AUD
- Yen minors: EUR/JPY, GBP/JPY, AUD/JPY
- Pound minors: GBP/AUD, GBP/NZD, GBP/CAD
Exotic currency pairs are the least traded in the Forex market and thus, they are the least liquid of all currency pairs available to Forex traders. This lack of liquidity, otherwise known as “thinness of the order” can result in a lot of choppy price action, so exotic pairs are well-known for their volatility.
Whilst most exotic currency pairs are able to easily support the majority of retail orders, the lack of volume can create space between the Bid and Ask price, leading to wider spreads for Forex traders.
A few examples of exotic currency pairs include:
- Thai Baht
- South African Rand
- Brazilian Real
- New Turkish Lira
- Zimbabwe dollar
- Chilean Peso
Commodity currency pairs are currencies from economies that depend heavily on commodity export activities to fuel economic growth.
Prime examples of countries with leading commodity currencies include Australia, New Zealand, and Canada. Australia and New Zealand are strongly dependent on natural resources and the Canadian economy is strongly dependent on its energy exports.
You may also notice that these three countries are also sometimes referred to as the “comdolls” or “commodity dollars”.
Examples of primary commodity pairs include:
Whilst there are a handful of commodity currencies, the takeaway point is that it is crucial that you understand the related commodity sectors if you want to trade commodity currencies.
Trading Forex or any complex financial markets can seem daunting at first, especially to beginner traders. By using chart indicators and well-known trading tools can help to make the trading process a lot simpler.
Forex traders use several different types of price charts that help them to understand historic and future trading activity data. These trading charts help them to understand what is happening in the markets. They also provide experienced traders with clues as to what might happen next.
The three main Forex charts include:
We will provide a breakdown of each of these Forex price charts as well as how to read them in another blog post, but for now, it is important to remember that forex trading involves the same three price charts that you would use for any other types of financial trading.
You can access charts to help with Forex trading within the TradeConnect multi-asset trading platform.
Whilst many people have experience trading Forex with fiat on a number of different platforms, here at TradeConnect, we offer our crypto traders the opportunity to trade Forex, as well as any of our 60 financial assets, with cryptocurrencies such as bitcoin or ethereum.
What makes TradeConnect different from other crypto margin trading platforms is that we are a multi-asset trading platform built on the blockchain.
TradeConnect also uses a transparent central limit order book which ensures real-time price discovery without any adversarial interference from the platform.
In comparison to other multi-asset margin trading platforms, TradeConnect has plenty of benefits to offer our traders:
- Global trading on a single platform
- Over 60 financial assets
- Up to 500 x leverage
- Institutional grade liquidity
- High-speed order execution
- Lowest transparent fees
- Secure & trusted — $100M insurance
- Keep your profits in crypto
- 24/7 multilingual customer service
- Earn daily and monthly rewards
In terms of Forex trading, on TradeConnect you can trade a wide range of major, minor, and exotic currency pairs as well as commodity pairs which can be found on the Quote tab of the platform.
To get started with Forex trading using bitcoin or ethereum as your margin currency, all you need to do is:
- Download the TradeConnect appfrom the App Store
- Create an account — takes 30 seconds and is quick and easy
- Deposit bitcoin or ethereum to start trading
- Select the Forex currencies you want to trade
- Open a position to begin trading
That’s it.
Originally published at https://medium.com on August 28, 2020.
