If you are new to the market, we highly recommend opening a Demo trading account, prior to opening a real account and trading.
Unlike other markets, there is always an opportunity for return in the Forex market, regardless of economic conditions or volatility.
To begin, we must first delve into how pricing is structured in the Forex market.
Understanding how pricing works and why it moves is fundamental to trading this market.
As currencies cannot be valued in themselves (it is redundant to say that 1 US dollar is worth 1 US dollar), they are valued against each other. This is why currencies are always traded in pairs.
The first currency listed in a pair, for example - the Euro in EURUSD – is called the base currency. The 2nd pair is referred to as the counter currency or quote currency. Whenever you place a trade, the amount of profit or loss generated from that trade will be denominated in the counter currency. For example, trading the EURUSD, you profits or losses will always be in USD. For the USDCHF, all profit or loss will be in Swiss Francs.
Each transaction entails the simultaneous buying of 1 currency and the selling of another. While this may sound complex, it isn’t. If traveling and you exchange your dollars for the local currency – you are in essence selling your dollars to purchase X amount of the local currency, usually at a rate set by the seller.
Now that we understand that a transaction consists of the simultaneous buying of one currency while selling another, we can explore how pricing is structured. For every currency pair, you will see two figures quotations – the Bid and the Ask.
The Bid for a currency pair is the rate at which you can sell the base currency while purchasing the counter currency.
The Ask is the rate at which you can purchase the base currency while selling the counter currency.
The Spread – is the difference between the Bid and Ask prices.
USD - US Dollar
CHF - Swiss Franc
Bid = 1.05119
Ask = 1.05143
Spread = 2.4 pips or 2 4/10 pips
1 US Dollar = 1.05119 – 1.05143 Swiss Francs
The smallest increment in which a currency trades is referred to as a pip, short for a percentage-in-point. With fractional pip pricing, this just means that an added decimal place is added due to significant liquidity.
To understand how to calculate profit and loss on a given trade or to explore more about Forex trading, please see the Forex trading page of our website.
Trading with Leverage
Unlike other financial markets, retail Forex trading must be accompanied by a significant amount of leverage. The necessity of leverage is due to the tiny increments in which currencies fluctuate. Since chances in pricing can occur in the 1/100 of a cent or centime, it is logical to trade in large amounts in order to be worthy of your time.
Depending on your type of trading account, JFX.com will offer you between 100:1 – 500:1 leverage.
With 100:1 leverage, you will be able to trade in sizes 100x that of your deposit. For example, if you deposit 10k USD, you will able to take a maximum position equal to 1m USD. To be clear, with a 10k USD deposit and 100:1 leverage, you will not be able to take a full position of 1m because your margin will not be sufficient to cover the spread.
For traders looking to deal in trading volumes larger than X, please consult our margin schedule for large transaction tickets.
Trading with leverage does involve significant risk of loss as the mechanism that magnifies your profits with also augment your losses. For this reason, we highly recommending you do not trade with capital you cannot afford to lose and that your familiarize yourself with the market and our trading systems with a demo trading account.
Understanding Market Information
Professional forex traders must take into account both technical and fundamental indicators to produce consistent, risk-adjusted returns. At JFX.com, individual traders, fund managers and even banks speculate in the Forex market using our trading technology.
For those entertaining the idea of entering into the forex market for the first time, again, JFX.com recommends opening a practice trading account. A practice account is valid for 20 days and grants a user full access to live pricing, charts and data - all with the ability to trade virtual money.
JFX.com does not charge commissions but is compensated through the Bid/Ask spread. Unlike other FX brokerage houses or banks, the spread on your practice account matches the conditions based on your virtual deposit. Whether you plan to invest $2000 or $200,000, the practice account will give you an accurate representation of the spreads that will be available to you when you open a live account.
Aside from basic educational content, JFX.com provides free market analysis as well. If you’re looking for economic news related to FX, one can subscribe to Jiffix’s FX Daily and view our trading signals in your “My Jiffix”.
Free charting and an economic calendar are also available.
Fundamental analysis attempts to forecast market movements by studying the fundamental core elements that influence asset values. By using economic data, central bank policy and macro trends – speculators attempt to predict the overall direction of prices. Unlike technical analysis, fundamental analysis focuses on the information that can move markets and not the market itself.
Key fundamental events include but are not limited to: Non Farm Payrolls, Central Bank Decisions, Consumer Price Index (CPI), Producer Price Index (PPI), Durable Goods, Retail Sales and GDP figures.
While fundamental analysis can forecast economic conditions and market directions, it does not greatly assist traders when determining specific entry and exit points. At this point, many traders rely on technical analysis to ascertain if their assumptions are well-founded and suggest a market entry price.
Technical Analysis is the analysis of the market itself and not the information underlying price movements. Price forecasts are based on past market data and pattern recognition.
Technical traders believe fundamental information is reflected in price data and that history repeats itself, regularly. Even the most adamant fundamental trader will look at the chart to gauge past price movements, trends and volatility.
Technical indicators include but are not limited to: Support & Resistance Levels, Moving Averages, Bollinger Bands, Momentum, Stochastics, Relative Strength Indexes and Fibonacci Retracements.
What to take away -
While both fundamental and technical analyses are valuable in their own regard - the proper application of the two together confers more wisdom than the sum of its parts. Fundamental analysis focuses on the future inherent value of an asset based on economic data while technical analysis is concerned with the market itself. As any marketplace is comprised of both, one should look at the market as a whole, assets and speculators.
Hypothetical Trading Example
You believe the Swiss Franc is overvalued against to the US dollar. As the currency pair is structured USDCHF, you decide to go long USDCHF by buying 2 standard lots at 1.0100/1.0102. By placing this trade, you simultaneously bought US Dollars and sold Swiss Francs.
If you are correct in your assumption, a depreciation in the value of the Franc against the dollar will be profitable because you now hold US Dollars (the base currency) against the Swiss Franc (the counter currency).
With 2 standard lots - you purchased 200,000 USD. With 100:1 leverage, the margin deposit on this position is 2,000 USD or equivalent. With 500:1 leverage, your margin deposit is 400 USD or equivalent.
Because you bought the base currency, your transaction was executed at the Ask price of 1.0102. Immediately after placing the trade, you will have a small, unrealized loss due to the spread. With no price movement, you will be down 2 pips because the price to buy the base currency, 1.0102, exceeded the price to sell of 1.0100.
The same trading day and as you anticipated, the Franc loses value against the US dollar. The Bid/Ask is now 1.0180/1.0182. You close your position at 1.0180, offset at the bid rate, because you are now selling the base currency and buying the counter currency to zero out your position.
Remember every transaction is the concurrent buying of one currency against another.
You bought $200,000 when the USDCHF was trading at 1.0100/1.0102 and sold it at 1.0180/1.0182. Buying at the ask price of 1.0102 and selling at the bid of 1.0180 has netted a 78 pip profit.
Recall that the value of a pip is determined by multiplying the pip value against the trade size and that pips are always measured in the counter currency.
$200,000 (trade size) x 0.01 (pip value) = 20 CHF
78 (pips) x 20 CHF = 1560 CHF profit
If your trading account was funded and based in US dollars, your profit of 1560 CHF would be credited to your account as $1532.12 (1560 CHF ÷ 1.0182 CHF/USD).
*Remember leverage can work equally for you as it can against you. Had you held the opposite assumption and sold into the market at 1.0100/1.0102 and bought out at 1.0180/1.0182, your trade would have accrued a loss of 82 pips or 1640 CHF.
The difference between the hypothetical profit and hypothetical loss is due to the 2 pip spread. The market shifted 80 pips – correctly positioned, your return was 80 pips (movement) minus 2 pips (spread) for a 78 pip profit.
Incorrectly positioned, your loss was 80 pips (movement) plus 2 pips (spread) = 82 pip loss.
Realized profit or loss will be automatically converted to the currency your trading account is denominated in.
A Euro-based account will be credited/debited Euros, a USD account in US dollars, etc. JFX.com offers accounts denominated in all major currencies.
For more information about trading with JFX.com, we recommend you read our other How To guides: