How Does Forex Trading Work?

The forex or foreign exchange market is different to global stock markets as it is open 24 hours a day, 5 days a week. Though the local stock market is more familiar to most people, the foreign exchange market is the largest, most liquid and actively traded market in the world. Combined with extended opening hours vs local stock markets, this means there are almost endless opportunities in the forex market.

What is Hedging in Forex?

Hedging is a hot topic for newcomers to the forex market and if used correctly, can be a great way of mitigating your risk and improving consistency. So what is forex hedging? Well, hedging refers to opening up an offsetting position in the market to temporarily cover an existing position that has either gone against you or may turn against you. This could be on the same currency pair, or on another highly correlated pair.

What is Swap in Forex?

A forex swap is a daily interest charge that is either billed or credited to you at the start of each new trading day if you are holding positions from the day before. Swap charges can add up over time, affecting the profitability of your positions, so it’s important you understand how they work and factor them into your decision-making when planning your attack on the market.

How to Start Forex Trading?

The foreign exchange or forex market is the largest and most liquid market in the world, with trillions of dollars changing hands each and every day. Before starting out on your forex trading journey, it’s important to get a little background on the knowledge on the market and how it all works.

What is Leverage in Forex?

Leverage is an integral tool in every forex trader’s arsenal. Traders are attracted to the forex market due to its inherently low volatility and the ability to magnify that volatility as necessary using leverage. Leverage is trading with borrowed capital, allowing a trader with a relatively small account balance to open up much larger positions than they would otherwise be able to. For example, using leverage, a trader with just $1000 USD of capital could open up a $10 000 USD position and potentially generate 10 times as much profit if the market moves in their favour. As the forex market generally moves less than 1% per day, leverage is essential to generating significant trading results.

What is Margin in Forex?

Margin is the collateral you deposit with your broker in order to open up leveraged positions. The amount of margin in your account and the amount of leverage your broker offers will determine how much your broker will lend to you and the size of positions you can open. It’s important to understand that margin is not a cost or fee, once you close your leveraged trading position, your margin is returned to you, adjusted for any profits or losses, and can be freely withdrawn. This margin deposit just ensures you have enough capital reserved to cover your losses if your leveraged trade moves against you. As the forex market isn’t very volatile, margin trading is essentially the only way you can turn a reasonable profit, so it’s important to understand how margin works before diving into your trading journey.

Account Currency – USD vs ZAR vs GBP

Arguably the most asked question; should I trade in USD vs ZAR vs GBP? What are the benefits, pros, cons and minimum trading volume? Are Forex brokers with ZAR accounts a safer option when it comes to trading currency? BlackStone Futures offers South African Rand (R/ZAR), United States Dollar ($/USD), and Great British Pound (£/GBP) as account base currencies. These offer a wide range of trading assets; Forex. Stocks, Commodities, Indices. Brokers with ZAR account types offer you the same asset class as USD and GBP.

The Bid-Ask Spread

In simple terms, the bid price indicates at what price "people" are willing to buy at, the ask at which price "people" are willing to sell at. People can refer to your broker, in the instance of a dealing desk, or institutions, banks, traders etc. - if your order goes directly to market, such as an ECN account. Price moves as bid and ask pending orders get filled.

Swap, Overnight Rollover Interest

Getting into too much detail based on these terms can be a headache when trying to grasp a deep understanding of the "why" factor. The important aspect is understanding what it is and when it is imposed (earned or paid). Your broker will specify the rate that is paid or earned on an open position. It will be indicated on a full contract size and then adjusted to your position size accordingly.

Margin and Leverage

The Margin requirement is set out by your broker to maintain an open position. Based on the margin, your broker then offers you leverage where they front the difference in order to open any given position. Leverage is a double-edged sword. Yes, you can open bigger volume sizes but it may also put your account at higher risk. The term is called "over-leveraging" as it's commonly referred to.

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