What is Forex Trading?

Forex (FX or Foreign Exchange) trading is when you buy and sell foreign currencies on the foreign exchange market with the goal of making a profit.
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Trade Forex with Malfex

The global foreign exchange market is one of the fastest, most liquid and exciting markets. Join thousands of traders who are already trading with Malfex, a multi award-winning Global forex broker, offering over 60+ fx pairs in all the major currencies 24 hours a day, 5 days a week. All major currency pairs include the US dollar (USD) as either the base or counter currency. Majors include pairs like the GBP/USD, EUR/USD, and USD/JPY.

Malfex offers you consistently tight spreads, starting from as low as 0.0 pips. We’ve partnered with leading banking and non-banking financial institutions to ensure a deep liquidity pool, so that you get among the best available market prices and ultra-low latency order execution.

Our mission is to provide seamless forex trading experiences via the latest technology with the Metatrader 5 & CTrader platforms. Control is at your fingertips with the best charting tools for informed decision-making when trading foreign exchange on the global markets.

Our constant focus on excellence since 2005 has won us multiple awards and recognition. Malfex is a 4-time winner of the “Best Trade Execution” award, by the prestigious Investment Trends Report. Along with a dedicated personal account manager to support you 24/5, you can start trading forex with as little as $500 and maximum leverage of up to 500:1.

Start Trading Forex on an Award-Winning Trading Platform

With over 40+ industry awards, Malfex is one of the best regulated Global forex brokers.

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Boost your trading experience with a licensed and fully regulated Global forex broker, with multiple awards to their name.

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Get all the available market prices and tight spreads, with ultra-low latency execution and minimal slippage.

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Leverage

Get competitive leverage of up to 500:1 in over 50 currency pairs and widen your exposure to the global forex markets

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Give your forex trading an edge with robust, feature-rich and easy-to-use Metatrader 5 and MetaTrader 5.

Currency Trading with a Global Forex Broker

5 reasons why Malfex have the best trading platform

  • Global Regulation – Regulation is a major factor in deciding on a trustworthy broker and as a Global forex broker with some of the most stringent regulation, you will receive competitive pricing, segregated client funds as well as fair resolution in the unlikely event of any issue.
  • Tighter Spreads Faster Execution – Consistently Tighter Spreads from 0.0 pips, ultra-fast execution under 40 milliseconds, top-tier liquidity and market leading pricing, 24/5.
  • Advanced Platforms & Technology – Trade among the best trading platforms - MT5 advanced client portal to track your trades and superior VPS solutions for EAs, scalpers and auto-trading.
  • 24/7 Multi-lingual support – Responsive customer support and personal account managers and market updates and support through social media.
  • 15+ Years Trading Experience – Founded in 2005.

Trade Forex with a Global Regulated Forex Broker

Access the forex market with a professional forex trading experience by opening a trading account with Malfex. With advanced charting tools for informed decision-making, fundamental and technical analysis, the support of an experienced team, live streaming of prices and low latency execution.

What is Forex Trading?

Trading forex involves buying one currency and selling another simultaneously. Through careful analysis, traders predict the potential direction of currency prices and attempt to capture gains based on price fluctuations. There is no centralised exchange for forex trading. Rather, it takes place electronically or online, between networks of global computers. The market is open 24 hours a day, 5 days a week.

Keep in mind that timings in some countries, like Australia, the US and UK, shift to/from daylight savings time in October/November and March/April. So, plan your trades accordingly. Market liquidity for currency pairs depends on the forex trading sessions. For instance, the EUR/USD pair shows a lot of movement and liquidity during the confluence of the London and New York sessions. The USD/USD pair shows maximum movement in the Tokyo and London sessions. Once you know when to trade, the next step is to learn the jargon. So, here are some terms and concepts you will come across in the market.

A Brief History of Forex

The exchange of currencies dates back to 600BC when the first official currency was created. Fast forward to today and the forex market has become the largest financial market in the world. The timeline below highlights key moments in the journey of forex.

How Do Forex Markets Work?

Forex is the most popular over-the-counter (OTC) market. In forex, currencies are bought and sold through a network of banks. As there is no exchange, forex trading is decentralised and trading can take place 24 hours per day. There are 4 main trading sessions, namely Sydney, London, New York and Tokyo.

The most popular forex market type is the spot forex market. In forex, spot trades involve the exchange of currency pairs electronically using an online trading platform. Other market types include the forward forex market and futures forex market.

What is a Base and Quote Currency?

Currencies are denoted in 3lettered ISO codes. Examples of how major currencies are denoted are USD (US dollar), USD (United States dollar), EUR (Euro), JPY (yen) and GPB (British Pound).

In foreign currency trading, currencies are quoted in pairs. When you see a currency pair, the first currency is called the base currency and the second currency is the quote currency or counter currency. For instance, say the EUR/USD is trading at 1.1086. This means to buy 1 unit of Euro, you will need $1.1086 United State dollars.

What Moves the Forex Market?

There are a number of factors that have an impact on the forex market. They can split into two categories; market participants and macroeconomic factors.

Market Participants

Super Banks: As it is decentralised, it is the world’s largest banks that determine the exchange rate. Global banks such as Barclays, HSBC, Citi, JPMorgan and Deutsche Bank are among the biggest traders of forex.

International Companies: Large global corporations are involved in the foreign exchange market for the purpose of doing business. If an United States-based company is selling products in the United States they will have to trade USD to USD in order to return their income back home.

Retail Traders: Refers to individuals who trade their own money in order to make a profit. Easier access to the forex market through online brokers and advanced trading platforms has resulted in retail traders accounting for a growing proportion of the forex market.

Economic & Macroeconomic Factors

Central Banks: Macroeconomic statistics such as inflation have a significant impact on forex markets. Governments and central banks such as the Federal Reserve meet on a regular basis to evaluate the status of their respective economies, set interest rates and monetary policy – all of which have a direct impact on forex markets.

Capital Markets: The prices of stock, bond and commodity futures also have an influence on foreign exchange markets.

International Trade: Figures relating to the trade numbers of a country have an impact on the value of currency. Trade deficits and surpluses will be reflected by price movements in the forex market.

Politics: This is particularly the case around key political events such as elections and results in high levels of volatility in the forex market. This is evident by historical events such as Brexit in the United Kingdom and numerous presidential election campaigns in the United States.

How does Forex Trading work?

Forex trading involves simultaneously buying and selling two currencies. For example, if you are buying the EUR/JPY, it means you’re buying EUR by selling JPY and if you’re selling the pair, you’re buying JPY by selling EUR.

Advancements in technology now allow investors to access the foreign exchange market via online brokers. This is done using forex trading platforms such as Metatrader 5 and CTrader. Read more on How Do I Trade Forex?

The rise in online trading has paved the way for using CFD trading. These are leveraged products which allow traders to open a position with an initial investments that is only a fraction of the value of the full trade.

An Example of Leverage CFD Trading

Suppose you want to trade CFDs, where the underlying asset is the USD/USD currency pair, also known as the “Aussie.” Let us suppose that the USD/USD pair is trading at:

Bid/Ask Spread

Now, “bid” is the selling price. This is what you sell the asset at. The higher of the two is the “ask price” or buy price; the rate at which you buy the asset. The difference between these two prices is the “spread.” This is your cost of trading. Depending on how liquid your asset is and your choice of broker, the spread can be tight or wide. For instance, a broker can source quotes from a large pool of liquidity providers to offer you the tightest bid/ask spreads.

You decide to buy USD 20,000 worth of USD because you think that the USD/USD price will rise in the future. Your account leverage is set to 100:1. This means that you need to deposit 1% of the total position value into your margin account.

Now, in the next hour, if the price moves to 0.6880/0.6882, you have a winning trade. You could close your position by selling at the current price of USD 0.6880.

In this case, the price moved in your favour. But, had the price declined instead, moving against your prediction, you could have made a loss. If that loss resulted in your account equity falling below margin requirements, your broker may issue a margin call.

Notice how a small difference in price can offer opportunities to trade? This small difference is known as “pip” or “percentage in point.” In the forex market, like in the above example, it is used to denote the smallest price increment in the price of a currency. For assets like the USD/USD, which include the US Dollar, a pip is represented up to the 4th decimal place. But, in case of pairs that include the Japanese Yen, like the USD/JPY, the quote is usually up to 3 decimal places.

This continuous evaluation of price movements and resultant profit/loss happens daily. Accordingly, it leads to a net return (positive/negative) on your initial margin. In case your initial margin is lower, the broker will issue a margin call. If you fail to deposit the money, the contract will be closed at the current market price. This process is known as “marking to market.”

If the price of XAUUSD To You could Gain or Lose for a Long Position Resulting in a Return of the Initial Margin

Rises by 10%

0.75603/0.75606

USD 1374.6

1000%

Declines by 10%

0.61857/0.61859

USD -1374.6

-500%

Forex Quotes/ Exchange Rates

Currencies are traded in pairs, like the Euro/US Dollar (EUR/USD) or United States Dollar/US Dollar (USD/USD). Currencies are denoted in 3-lettered ISO codes, such as EUR (Euro), GBP (Great British Pound) and USD (US Dollar). When you see a currency quote, the first currency is called the base currency and the second currency is the quote currency or counter currency. For instance, say the EUR/USD is trading at 1.1086. This means to buy 1 unit of Euro, you will need $1.1086. USD

The higher price $1.1087 is the ask rate, while $1.1086 is the bid rate. The bid price is the maximum price a buyer is willing to pay for the currency. Ask price is the minimum price a seller is willing to accept for the same currency. These rates fluctuate constantly, depending on supply and demand, market sentiment and external events.

Spread

The difference between these two rates is known as the spread. This includes the broker’s charges. The spread depends on your choice of currency pair and the forex broker. Licensed forex brokers who provide ECN (Electronic Communications Network) pricing can source price quotes from multiple liquidity providers in the market. This means they can offer the tightest spreads.

Pip

Pip is an acronym for Point in Percentage. It represents the smallest amount of change in the rate of a currency pair and is a standardised unit. For a US Dollar based currency pair, like the USD/USD, one pip is $0.0001. However, for some currencies, like the Japanese Yen (JPY), it is denoted as $0.001.

Pip value fluctuations have an effect on trading gains. For example, if you decide to buy €10,000 and the EUR/USD pair is trading at 1.1086, the price you will have to pay will be $(10,000×1.1086) or $11,086.

If the exchange rate for this pair sees a 5-pip increase, which means the EUR/USD is now trading at 1.1091, then to buy €10,000, you will have to pay $11,091.

Majors, Minors and Exotics

Not all currency pairs are traded in large volumes. The US Dollar, being the world’s reserve currency, is definitely traded the most; although, over the years, its dominance has waned somewhat. Based on how frequently they are traded, currency pairs are segregated into major, minor and exotic categories.

Majors

Major currency pairs have the tightest spreads.

They are:

EUR/USD

Euro/US Dollar

GBP/USD

British Pound/US Dollar

USD/JPY

US Dollar/Japanese Yen

USD/CHF

US Dollar/Swiss Franc 

CAD/USD

Canadian Dollar/US Dollar

USD/USD

United States Dollar/US Dollar

NZD/USD

New Zealand Dollar/US Dollar

Minors

Then comes a category of minor currency pairs, otherwise known as cross-currency pairs. They are called so because they do not include the US Dollar. So, to convert one into the other, the US Dollar will need to act as a mediating currency.

A few of the minor pairs are:

EUR/GBP

Euro/British Pound

EUR/AED

Euro/United States Dollar

CHF/JPY

Swiss Franc/Japanese Yen

GBP/JPY

British Pound/Japanese Yen

GBP/CAD

British Pound/Canadian Dollar.

Exotics

Exotics can include a major currency with an emerging market currency. Trading in exotics is considered risky, since they tend to have low liquidity, wider spreads and political instabilities in these countries can make these currencies volatile.

Some examples are:

EUR/TRY

Euro/Turkish Lira

USD/HKD

US Dollar/Hong Kong Dollar

USD/MXN

United States Dollar/Mexican Peso

In the brackets are the common nicknames for these currency pairs.

Going Long or Going Short

When you assume a long position in a currency pair, you buy a currency in the hopes that its price will rise (appreciate) in the future. This means you wish to buy the base currency and sell the quote currency, since you expect the base currency to appreciate with respect to the quote currency.

When you assume a short position in a currency pair, you sell the base currency, expecting it to depreciate (decline in price) in the future, allowing you to buy it at a later date but at a lower price.

Lot Sizes

When you decide on your position size, a term you will hear is “lot.” Lots are standardised position sizes for currencies. The forex market gives you the flexibility to trade according to your means and risk profile. The standard size for a lot is 100,000 units of the base currency. There also are mini and micro lot sizes that contain 10,000 and 1,000 units of the base currency, respectively.

What is Liquidity in Forex Trading?

Liquidity in the forex market refers to the ability of a currency to be bought or sold on demand. When you trade in major currency pairs, there are a lot of buyers and sellers in the market. This means that there is always likely to be an opposite player for every position you take. You can buy or sell large amounts of these currencies without causing any significant difference to the exchange rate.

Liquidity fluctuates during trading sessions. You are likely to see significant activity during the overlapping of the New York and London sessions. Depending on your style of trading, you could benefit from choosing specific trading sessions. For instance, short term traders prefer the US or London sessions, when large price breakouts and percentile movements tend to occur. The Tokyo session is often range-bound, which might not be the best for them.

Liquid markets, such as forex, tend to fluctuate by smaller increments, since high liquidity means less volatility. However, high volatility can occur due to significant external events.

The Concept of Leverage in Forex Trading

Leverage in forex trading is a useful financial tool. It allows traders to gain greater exposure to market movements than they could otherwise afford. So, this means a trader can enter a position worth $100,000 with just $1,000 in their account, with a 100:1 leverage ratio.

The leverage amount is provided by the forex broker. Consider it as a loan, which can help you to increase your gains with little price increments. However, also remember that leverage magnifies your losses too, if prices move in the wrong direction. This is why, it is important to put in place robust risk management strategies while trading.

When you decide to trade, you need to open a margin account with a regulated broker. Here, you will need to deposit an initial margin amount that is required to keep your leveraged positions running.

This is also called deposit margin. When the amount drops below the minimum level, your broker will issue a margin call. This means that you need to deposit funds to keep your positions open. Otherwise, the broker may close your positions.

A 50:1 leverage ratio means a minimum margin requirement of 1/50 or 2% of the total trade value from you. Similarly, a 100:1 leverage ratio means that you need to deposit at least 1% of the total value of your trade in your margin account.

Technical and Fundamental Analysis

Using guesswork to predict the direction of price movement is not the best idea. Experienced traders carefully conduct market analysis, in order to determine the direction in which currency rates are likely to move. Two major approaches are used here: fundamental analysis and technical analysis. For more in-depth fundamental and technical analysis plus trading education, please visit our Traders Hub blog.

Fundamental Analysis

Currency values fluctuate according to a nation’s perceived economic health. Fundamental analysis is the study of all factors that impact a country’s economy and is also representative of its future trends. When investors perceive a particular economy as being more rewarding than others, demand for the domestic currency increases, driving up its price. Fundamental traders look out for these indicators to gauge the economic health of a country.

Monetary Policy: The interest rates decided by a country’s central bank directly impact the domestic currency. When the interest rate increases, currency value tends to appreciate and vice versa.

Inflation Rate: Central banks are responsible for keeping inflation in check and promoting employment. To do so, they have various tools available, including the nation’s monetary policy, market interventions and quantitative easing.

Balance of Trade: The balance between a country’s exports and imports can impact currency values.

GDP Growth: The overall health of an economy is denoted by its GDP growth. Currency values tend to appreciate with a favourable GDP growth rate.

There are several other economic indicators, like employment rate, retail sales, manufacturing index and housing market data, that impact the forex market. To keep track of the economic releases, traders use an economic calendar. This is because significant volatility tends to ensue on the days that important reports are released. Based on whether the actual figures meet or beat market consensus, currency prices can go up or down.

Technical Analysis

Technical analysis is based on the principle that the markets tend to repeat their historical price trends. To discover these trends, traders rely on technical indicators and forex chart analysis. Technical indicators are actually statistical formulae that can provide important information about the market. They are categorised into:

Trend: Such as Simple Average, Trend lines, Moving Average Convergence Divergence (MACD)

Volume: Such as On Balance Volume (OBV), Chaikin Money Flow

Momentum: Such as Stochastic Oscillators, Relative Strength Index (RSI)

Volatility: Such as Average True Range (ATR), Volatility Index (VIX)

Forex trading platforms like Metatrader 5 and MetaTrader 5 come with pre-installed technical indicators, allowing you to analyse the ongoing trends and any chances of price reversals. Based on these indicators, you can create forex trading strategies.

These platforms also allow you to use a combination of both fundamental and technical analysis. While fundamental analysis, through financial news alerts, allows traders to gauge the interest rate and inflation outlook for both currencies in a pair, technical indicators and charts provide insight into trends and ranges within the price history. Chart patterns can provide clues regarding how prices might move within the patterns and where they are likely to go after a break-out.

How to Trade Forex

Take a look at these 4 steps to start trading Forex:

Step 1 | Educate yourself

Learn all you can about the market. Understand how forex trading can benefit you and ascertain what time you can dedicate to it. Learn how to decipher market fundamentals and how to study charts.

Step 2 | We are regulated broker Malfex Investment from FSA

A regulated or licensed broker will provide a certain level of protection and provide you the necessary tools to trade efficiently. Open an Malfex demo account and access our educational materials and you can practice strategies in live market pricing, without risking capital.

Step 3 | Open a Margin Account

Decide on your risk/reward profile. How much of your capital can you afford to lose while trading? Based on that, choose your leverage. When you are a beginner, it is a good idea to start low.

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Step 4 | Choose Your Trading Platform

Global licensed brokers offer some of the best forex technologies. Your long-term trading success will depend on swift trade execution, minimum slippage, fund security and efficient technical analysis. Choose a platform like MT5 that offers all these, while also allowing you to trade on mobile devices.

Forex Trading - FAQs

The main difference between the two is that Forex is limited to currencies while Contracts for Difference (CFDs) cover a broader range of asset classes. This includes Shares, Indices and Commodities.

Find our more about the Similarities and Differences Between Forex and CFDs.

This depends on a number of factors including the currency you wish to trade, any time constraints and trading strategies. It is important to note that the forex market is most active when major trading sessions overlap.

Algorithmic trading is trading based on an algorithm or set of computer programs that include a specific set of rules to execute market orders such as stop-loss orders. Expert Advisors (EAs) and copy trading software such as AutoTrade are examples of algorithmic trading.

International and local financial regulatory bodies and agencies, including  the United States Securities and Investments Commission (FSA) set prudential standards, regulations and guiding principles for the effective and sound supervision of the financial industry and the forex market to ensure investor protection and successful development of the securities market. A forex broker must comply with all set standards under the jurisdictions it is registered or licensed and must undergo regular audits.

Forex Rates and Currency values fluctuate according to a nation’s perceived economic health. The main factors representing a country’s or union’s economy are:

• Monetary Policy / Foreign Exchange Policy / Interest Rate

• Inflation Rate / Inflation Rate Differential / Gross Domestic Product (GDP) Growth

• Sovereign Debt Risks / Net Foreign Liabilities / Quantitative Easing

• Oil Prices / Commodity Prices / Bond Yields

• Unemployment Rate / Housing Market Data / Manufacturing Index

• Balance of Trade / Market Intervention / Consumer Confidence Index

• Geostrategic Turbulence / Geopolitical Instability / Natural Disasters

The fundamental differences between the forex market and the stock market are that in foreign exchange, traders buy and sell single or multiple currencies, aiming to seize any of the countless occasions of the topmost liquidity and high volatility the forex market offers. The stock market is the meeting point of investors trading stocks (shareholder equity) of publicly traded companies, mostly as short-term, mid-term investments and portfolio diversification. Stock trading requires more capital and in-depth technical analysis. Trading stocks is considered carrying reduced risks and being less volatile than forex trading, mainly due to an economy’s slower and indirect effect on a company’s performance.

Trading forex requires less capital than other investments. Having a proper plan and sticking to it is essential for maintaining discipline and implementing good real-time risk management strategies even with a minimum of A$100. Set your financial targets and open a Demo Account or Live Account with a broker who offers robust education, support and soundness. Learn, sharpen your trading skills and design your trading strategies for a more prudential trading experience.

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