What is Forex

trading?
Trust Through Transparency
The Basics of
Forex Quotes
Majors, Crosses
and Exotics

Forex
Speculation:
The Benefits Bulls vs Bears
of Forex
Trading
Foundation
Concepts

Ready, Steady, Forex

The key features every
FX trader needs to know
What is Forex trading? FOREX FACT:
Estimates suggest that the overall
size of the average daily trading
Foreign exchange trading, often volume in the forex market can
range between $3.0 trillion to
$5.0 trillion
referred to as Forex or FX trading,
is used to describe the exchange of The size of the global
FX market is huge!
different currencies between one
party and another. The most well-
known form of FX transaction is
when you visit an exchange bureau
In case you were wondering,
to transfer your domestic money that is as much as
$5,000,000,000,000
into foreign currency.

In doing so, you have

indirectly taken part in The retail trading size
is somewhere between
a forex transaction. $1.0trillion and
$1.5 trillion
 FOREX FACT:
While your intentions of buying the foreign currency might have been to allow you to sample
the local sushi in Tokyo, you have inadvertently weakened your native currency by increasing its
supply in the market, albeit by an insignificant amount.

Besides providing a service for For instance, if a car All these organisations
Speculators your holiday fund, currency manufacturer based in the make thousands of currency
dominate exchanges are required to United States outsources some conversions every day.
help keep the global economy of its parts production to However, it might surprise
turning. As business becomes China, it will need to convert you to hear that conversion
increasingly globalised, the need its dollars into renminbi to pay transactions only make up
Speculators to transact with organisations the supplier. Having built the 5% of the forex market. So,
are estimated across the world means a car using parts from around the what makes up the other
to account
for more
growing reliance on the forex globe, the manufacturer then 95%?
than 90% markets. sells the finished car in mainland
of forex Europe, where it earns euros for The answer is,
transactions the transaction. Forex trading.
It will then need to convert
its revenue in euros back into
90% dollars.

The FX market is an over-the-counter globally decentralised, self-regulated market formed by

international participants. These participants can be recognised in two distinct groups:

FOREX FACT: The Interbank market The Retail market

• C
 entral banks (ECB and the Fed for example) • H
 edge funds are a major contributor to the
regulate money supply and control FX reserves dynamism of FX market by acting as speculators
using leverage
• C
 ommercial banks conduct the bulk of daily
volume and provide liquidity to the markets • B
 rokers act as intermediaries between
The major participants participants
• O
 ther Financial institutions namely investment
in foreign exchange
funds and money managers • Investors trading their own capital to speculate
on developments in the markets
The basics of forex quotes FOREX FACT: Breaking down
the currency
code, the first
two letters
In some respects, the end goal in forex represent the
country, with
is the same as for stocks. Buy low and the third letter
Three letter representing the
sell high. However, when investing currency codes unit of currency.

in stocks, the price movement is

absolute. In general, the price change USD is the
in one stock is independent to that of United States Dollar

another stock.
GBP is
Currency movements don’t work quite the same way.
Great Britain Pound
A currency’s strength or weakness is determined by its
supply and demand much like a stock. However its value
is not independent. The movement in a currency is a
function of its value relative to other currencies. JPY is the
Unless compared to another currency, the value of one unit Japanese Yen
would be meaningless.

Currencies are always quoted in pairs such as below: HUF is the

Hungarian Forint
GBP/USD EUR/USD EUR/GBP
= $1.6550 = $1.3552 = £0.8188
 FOREX FACT:

Trading “Cable”

Out of the two currencies the first As a currency is valued by its

one is known as the base currency relationship with another currency,
while the second currency is known when the value of one goes up, the
as the counter currency or the quote relative value of the other must go
currency. down. This is where the opportunity
to trade currencies arises.
The base currency is always worth
one unit, so in the examples above You might sometimes hear traders The aim for a trader is to buy the
1 pound is worth 1.6542 dollars, use the term “cable” when they currency they think is going to
while 1 euro is worth 1.3547 dollars. get relatively stronger and sell the
are referring to Sterling/Dollar.
This would suggest that the pound currency they think is going to get
is stronger than the euro and sure relatively weaker. It’s your basic
enough, 1 euro would only buy you The term originates from a time trading mantra, ‘buy low, sell high’.
81.88 pence. prior to the age of global satellites
When entering into a trade,
Generally, you will find that the and fibre optic technology, when whether you are buying or selling,
stronger currency is the first quoted the London Stock Exchange and the direction will always relate to
in the pair. the first currency in the pair, known
the New York Stock Exchange were
as the base currency. You will then
connected by using a giant steel be trading the inverse for the quote
cable that spanned the Atlantic. currency.
 FOREX FACT:
For example, if you buy GBP/USD, you will be buying GBP and selling USD.
In this case your expectation is that GBP will become stronger relative to the USD.

Example on a specific day

The big boys dominate
Pair Latest Price % Change Net Change (Last Close) Movement
Ten financial institutions account for
Strong Sterling
GBP/USD $1.6550 +0.46% +$0.0075 $1.6475 nearly 73% of the total trading in the
or weak Dollar
forex market, whether it is trading for
A very slightly themselves or their clients.
EUR/USD $1.3552 -0.05% -$0.0007 $1.3559 weaker Euro or
slightly stronger The most active include:
Dollar

Euro weakness
EUR/GBP £0.8188 -0.47% -£0.0039 £0.8227 or Sterling
strength

Slight Dollar
strength or
USD/JPY 104.33 yen +0.03% +0.03 yen 104.30 yen a slightly
weaker Yen

The table above shows how currencies move and movement can either be through the strength
of one side of the pair or the weakness of the other side of the pair.

Deutsche Bank (17.0%)

Note that Euro/Dollar is trading only slightly lower, Sterling/Dollar is strongly higher and Euro/

Citigroup (7.5%)

Barclays (5.9%)
Sterling is strongly lower. This would suggest that today, sterling is by far the strongest of the

HSBC (6.4%)
UBS (12.5%)
three, with the dollar slightly stronger than the euro.
 FOREX FACT:
Majors, Crosses and Exotics

There are 8 major economies that the global

forex market is most concerned with. The US dollar is king

The US Dollar comprises one

They are: side of 84.9% of ALL daily
forex transactions

The Euro is involved in 39.1%,

the Yen in 19.0% and Sterling
in 12.9%
Canada
UK Eurozone

Japan
USA Switzerland

Australia

New Zealand
 Majors Crosses Exotics
(also known as Minors)

The currencies of the 8 major These are the forex pairs of the major Currency pairs that consist of one of the
economies: US dollar, Euro, Yen, economies that do not include the US major currencies paired with a currency
Sterling, Swiss Franc, Canadian Dollar, dollar. The most popular cross currency of one of the emerging or smaller
Aussie Dollar and New Zealand Dollar pairs are: economies are commonly known as
are also known as the Majors. The exotic currency pairs. Countries in
Majors are currency pairs that are the exotics include: Latin American
based around the US dollar, paired with countries such as Brazil, Argentina
the other major currencies. There are and Chile; Central & Eastern European
subsequently 7 major currency pairs. countries such as Poland, Hungary and
The most widely traded Major pairs are: Turkey; the Scandinavian countries; and
Asian countries such as Hong Kong,
Thailand, India and Singapore; and
South Africa. The more popular exotic
EUR/USD - Euro/Dollar
(accounts for around 27% of pairs are:
all global forex transactions)
EUR/JPY - Euro/Yen USD/TRY - Dollar/Turkish Lira
USD/JPY - Dollar/Yen (c. 13%)
EUR/GBP - Euro/Sterling EUR/TRY - Euro/Turkish Lira
GBP/USD - Sterling/Dollar (c. 12%)

AUD/USD - Aussie/Dollar (c. 6%) EUR/CHF - Euro/Swiss Franc USD/ZAR - Dollar/South African Rand

USD/CHF - Dollar/Swiss Franc (c. 5%) GBP/JPY - Sterling/Yen USD/MXN - Dollar/Mexican Peso

USD/CAD - Dollar/Canadian Dollar (c. 4%) GBP/CHF - Sterling/Swiss Franc USD/SGD - Dollar/Singapore Dollar
Forex Speculation: Debate rages over the origins of the two terms. Ironically,
Bulls vs Bears we can only speculate as to the point of origin for the terms.

As you now know, you Popular folklore suggests that the term The term bull is believed to have followed
bear originated first. Derived from a shortly after, widely thought to be a link
can buy (also known as group known as bear skin jobbers back from bull-and-bear baiting. In contrast
during the American fur-trading industry, with a bear market, a bull market refers
going “long”) or sell (also who would sell their bear skins before to a market that is in an upward trend. A
even shooting the unsuspecting bears, bull therefore, is someone who believes
known as going “short”) these speculators were coined as ‘bears’. prices are rising and is inclined to buy.
Speculating share prices would fall, they
any currency pair. It is would sell shares they didn’t actually own Bulls and bears lock horns and paws

in order to buy them back at a lower (sincere apologies for the pun) every day.
very common to describe price later on. Immoral some might say, As we now know when one currency rises,

but clever nonetheless. As a result, a bear another must fall. This leads us nicely
someone who is speculating market has come to mean a market that onto the benefits of trading forex.

is in a downward trend, and a bear to

the price will go up as an be someone who believes that prices are
falling, so is inclined to sell.
fx bull while those who

speculate the price will go

down are called fx bears.

A Forex strategy in practise:

After devising your strategy and doing your analysis, a trading opportunity has been identified on USD/
CAD. You speculate that the US dollar will fall against the Canadian dollar, so decide to sell USD and buy
CAD. However, you don’t have any US dollars to sell, so you borrow them from the market. You can borrow
any currency at any time and this gives you the opportunity to trade any instrument available on the Hantec
Markets MT4 platform as long as you have sufficient free margin in your account.

You borrow US$1000, and then sell them to the market, buying CAD in the process. The exchange rate at
the time for USD/CAD is C$0.9000. You now own C$900 in the hope they will grow in strength against the
US dollar.

One month later, the exchange rate has fallen to C$0.8500. After you sold, the US dollar has weakened
against the Canadian dollar. You are now sitting on a profit from the trade. You decide to close the trade
by selling your CAD and buying back USD.

C$900 ÷ 0.8500 = US$1,058.82

The same CAD$900 when converted back to USD is now worth US$1,058.82. You return the US$1000 you
borrowed leaving you with a $58.82 profit. No need to worry about the calculations and conversions as
they are done automatically by the MT4 platform. It will even convert your profit back into your account
currency if this is different to the currency you earned the profit in. (Furthermore, with the use of leverage
(to be explained later), this small profit could have been significantly higher).
The Benefits of So we have looked at some of the specifics of forex, but now
Forex Trading it is time to look at some of the benefits of forex trading.

Trade in any direction Round the clock trading

One of the key advantages of trading in the forex market As the sequel to Oliver Stone’s Wall Street suggests, ‘money
as opposed to many other financial markets is the ability never sleeps’ and neither does the FX market. Open 24
to buy, but more importantly sell. With FX there is no hours a day, the forex market truly is global. With the
restriction on going short (selling). This allows you to take 3 major sessions – Asia, European and North American
advantage of both bullish and bearish trends. – overlapping, the market is open from 22:00GMT on a
Sunday evening through to 22:00GMT on Friday evening.

North
Europe
America
Asia
 FOREX FACT: FOREX FACT:

Trading is open The UK is the dominant

24 hours a day FX trading centre

There are NO market hours This means you can trade The UK generates just over a
in foreign exchange. whenever suits you, third (34.1%) of global forex
although it is important to transactions.
You can trade foreign
remember that currencies
exchange 24 hours a day. With the United States
will be more liquid when
The market is open across generating 16.6%, that
their domestic markets are
six days in the week - from means that over half of
open and also during market
Monday morning in Asia global forex transaction
overlaps when more players
through to Friday evening are active in the markets. come from just two countries.
in New York.

2.2% 2.5% 3.0% 4.1% 4.2% 6.0% 6.0% 6.1% 16.6% 34.1%
Minimal transaction costs

Trading forex comes with minimal costs which

makes forex as an investment even more accessible. To check out Hantec

Markets’ spreads:
The MT4 platform does not cost anything to setup

or run, so the main cost of trading is the spread - the Click here

difference between the buy price and the sell price.

You will always be able to see the spread on your

trading system and with no other hidden charges,

the cost of trading is extremely transparent.

Access to leverage
and unrivalled liquidity
Trading in the most liquid market in the world
is without a doubt a benefit as it makes entering
and exiting trades much easier, especially when it It is important to remember though that leverage
comes to the major currencies (see earlier) which are is a double-edged sword. Make sure you read our
also the most liquid.
guide to the most common mistakes made
As a direct consequence of the vast liquidity, you can by forex traders to learn more.
magnify the size of the positions you can hold up to 200:1
using leverage available from Hantec. This means that an
account with just $1,000 can have the buying power of up to
$200,000 in the market.

No conflict of interest
At Hantec Markets, unlike many brokers who operate
a market maker model, there is no conflict of interest
between us and our clients. Hantec Markets is not
Hantec Markets’ culture is one of Trust Through licensed to run a dealing desk and as a true No
Transparency, and we are committed to building Dealing Desk (NDD), Straight Through Processing
long standing client relationships. (STP) broker, your orders are streamed straight
to our liquidity providers via our bridge
software and are executed completely
anonymously in the market. There is no
dealing desk that knows of your ‘stop-
loss’ and ‘take profit’ levels. This
removes dealer intervention and
the risk of price manipulation.
Foundation concepts

Having now covered the

basics of forex, it is now

time to learn some of the Pips

foundation concepts that Price interest point or percentage in point - are the smallest price
change an exchange rate can move. For most pairs (excluding those
every trader must know that include the Japanese Yen) this is the equivalent to 1/100 of one
per cent, or one basis point.
before getting started. This is illustrated in the table below.

Pair 1 Pip is equal to Price Last close Net Change Number of Pips
GBP/USD 0.0001 $1.6550 $1.6625 +$0.0075 Up 75 pips

EUR/USD 0.0001 $1.3552 $1.3559 -$0.0007 Down 7 pips

EUR/GBP 0.0001 £0.8188 £1.8227 -£0.0039 Down 39 pips

USD/JPY 0.01 104.33 yen 104.30 yen +0.03 yen Up 3 pips

N.B.: Yen pairs are all quoted to 3 decimal places, therefore one pip is represented by the 2nd decimal place. This is due to the relative value of the yen against other currencies
as it has historically been valued in double and triple digits. As movements are much larger, it makes sense not to quote it in too many decimals.
Spread

You will notice on the trading platform, that each currency pair appears with two prices that are slightly different
from each other. One is the bid (sell) price, the other is the offer, or ask (buy), price. The difference between the bid
and offer prices is known as the spread. The spread is the cost to you for trading. Hantec Markets is an STP broker
and the spread is our sole source of income.

Forex Trading You hold US dollars and want to buy $1 which will cost you $1.3636.
in practise
However once you have bought your $1, you change your mind and decide
that you want to change it back to dollars again. The price and spread happen
to be exactly the same, but when you sell your $1 you only get back $1.3634.

You have not incurred the cost of any commission fees, but through the
The impact of course of the round trade you have lost $0.0002. This 2 pip loss is due to the
the spread spread.

The price at which you enter the trade will depend on the direction of your trade. If you are buying the pair
(remember this means buying the base and selling the quote currency) you will enter the trade at the offer price.
If you are selling the currency pair, you will enter at the bid price.
The bid and offer prices shown on the platform are the best The fractional pip is shown on the MT4 Platform spread
available prices at any given moment. Due to the underlying quote below.
features of the forex markets, the spread is variable, but will
typically remain within a range of a few pips (see below)

Taking the EUR/USD in the example above, you buy at the asking
price of $1.36926. You then sit back and watch the position.
Half an hour later the price of EUR/USD has risen to a bid/ask of
$1.36999/$1.37016.

Source: MT4 Hantec Markets platform

The spread is the difference between the rate that you can buy
and the rate you can sell. You buy the asking price and you
You decide to take the profit that has built up, so you sell
sell the bid price. In the previous example for Euro/Dollar the
the position. The price you get is the bid price which is now
spread is $1.38044 to $1.38062, which is a 1.8 pip spread.
$1.36999. You have therefore made a profit of:
At Hantec we quote to the 5th decimal place. This last decimal $1.36999 - $1.36926 = 7.3 pips
place is known as a fractional pip (or sometimes known as a These movements may sound small, and they are, but when you
pipette) allowing you to see an even more precise price for the start using leverage, moves become magnified creating trading
pair. opportunities from the smallest of currency movements.
Calculating the Pip value

You may find that many If this currency differs to your

explanations to determine Contract size / Pip size account’s currency, simply find
pip values are unnecessarily = Pip value for quote currency the exchange rate between your
complicated. The easiest way (second currency in the pair) account’s currency and the quote
to calculate their value is: currency of the traded pair.

You open a 1 lot position in USD/CHF and your account is denominated in GBP.
Forex Trading 100,000 (1 lot) / 0.0001 = CHF10
in practise
As your account is denominated in GBP, find the price for GBP/CHF and convert
the amount.
CHF 10 / 1.4200 (GBP/CHF market rate) = GBP 7.04
So, each pip movement in USD/CHF will equate to £7.04.
Point of note: Remember pips for cross-JPY pairs are quoted to only two
decimal places (0.01 represents 1 pip).
 A ‘lot’ is a standard unit of measurement in forex trading.
Lots (Generally speaking) 1 lot = 100,000 of the base currency.

For example, if you open a long position of one lot of EUR/USD for
the ask price of 1.4000, you are purchasing 100,000 Euro while, selling
140,000 USD.

Lots

A standard contract (one Lot) where USD is the counter currency,

one pip (i.e. 0.0001) will equal to: 100,000 x 0.0001 = $10 per pip

When trading on your MT4 platform, this will be the standard

contract size you are trading. You can also trade in mini and micro lots.

1 lot = standard lot = 100,000 of currency

0.1 lot = mini lot = 10,000 of currency
0.01 lot = micro lot = 1,000 of currency
 Forex Trading
Leverage in practise

Mentioned earlier, leverage

is expressed as a ratio and
correlates the size of the actual

1 2
investment to the amount of
How much leverage?
margin required by the broker to How much margin?
open and maintain the position.
If the base currency of the currency pair you Required margin when trading a different base
It allows you to open a position want to trade is the same as that of your currency than that of your account currency:
account currency, then the required margin is
without putting up the full face Contract size / Leverage = Amount in base
calculated as follows:
currency
value of the transaction.
Contract size / Leverage = Amount in base
currency THEN translate the base currency into your
account currency
A leverage of 100:1 (1% margin You have a GBP denominated account and
requirement) means that in order to open want to trade 1 lot of GBP/USD with 200:1 You have a GBP denominated account and want
leverage your required margin is calculated as to trade 1 lot of EUR/USD with 100:1 leverage:
a position with a face value of $100,000,
you would need only $1000 for margin. If follows: 100,000 / 100 = 1,000 EUR
you increased the leverage to 200:1 (0.5% 100,000 / 200 = 500 GBP Then, convert EUR to GBP using the EURGBP
margin requirement) you would need exchange rate: EUR/GBP @ 0.8400
You require free margin of £500 in your
only $500 to open and maintain the same account to open that particular position. 1,000 EUR x 0.8400 = 840 GBP
position.
However, if the base currency does not equal You therefore require free margin of £840 in
The leverage you decide to use will your account currency, there is an extra your account to open that particular position.
step you will need to take. You will need to
impact the risk you expose yourself to.
translate the base currency into your account This time you require £840 to open a 1 lot
The more leverage, the higher the risk. currency using the exchange rate for that position because the traded currency pair was
When opening an account you can choose currency pair. worth less.
the leverage you wish to trade with. You
Learning and understanding the relationship
needn’t worry about having to calculate between these three elements is an integral
the margin required to open positions, the part of the knowledge that will form the
platform will automatically do this for you. foundation of your forex trading.
 Let’s have an example that shows how this all fits together.

Your analysis for GBP/USD suggests a bullish outlook on

the pair. You believe that GBP will rise in value against the USD.
Following your strategy, you identify an opportunity to place a trade.

You buy 1 lot of GBP/USD at $1.5350 with 100:1

leverage. To open and maintain the position you need
$1,535 or £1,000 for the margin requirement.

Your profit:
$10 per pip x 25 pips = $250 profit
The market moves in your favour and you gain 25 pips.
You decide to close out the position whilst in profit.
Your closing price is $1.5375.

For this particular trade the pip value is:

$0.0001 x $100,000 = $10 per pip
Rollover Rates

The rollover (also commonly referred to as the swap cost) is the

interest paid or earned for holding a position open overnight. Much like the margin amounts,
your MT4 platform will
Due to interest rate differentials, there is a charge for maintaining
automatically calculate this for
open positions between the close of one business day and the
you, but it is always good to
open of the next. Each individual currency will have an interest
know the formula:
rate which will change on a weekly basis. As currencies
come in pairs, each pair will have two interest rates attached. Rollover value X pip value
X Number of lots X number
If the interest rate of the currency you bought outweighs
of swap days
that of the interest rate of the currency you sold, you will
earn rollover. If the opposite is the case and the interest rate = Swap amount in quote
of the currency that you have bought is less than the interest Currency of the pair
rate of the currency you have sold, you will pay a rollover.
You would then need to
This can affect the profit and loss on the trades you make. convert the amount in the base
currency into the currency you
You can find the current rollover/swap rates on Hantec Markets’ website:
www.hantecfx.com/content/forex-conditions wish to display it in.
 Forex Trading Most banks across the globe are closed on Saturdays and Sundays, so
Terms there is no rollover on the weekend, but most still apply interest for the two days.
To account for this, the forex market accumulates 3 days worth of interest on a
Wednesday. This is because the rollover is always calculated 2 business days in advance.
This is known as “Wednesday Rollover”.This makes a typical Wednesday rollover three
times the amount on Tuesday.
N.B. There is no rollover on public holidays, but an extra day’s worth of rollover usually
Wednesday Rollover occurs 2 business days before the holiday.

Forex Check out our example of rollover in practise.

Example
You buy 1 lot of GBP/USD with an account currency of EUR.

You hold the position overnight and therefore

see the following rollover:

-0.026 x $10(USD) x 1 x 1 = -$0.26

The Impact of Not only that, the rollover was on a Wednesday evening:
Rollover
(Remember that on Wednesdays swap days are counted
as 3 rather than 1 to take the weekend into consideration.)

-$0.26 x 3 = -$0.78

We then convert the amount into the currency of choice:

(Assuming the rate of EUR/USD is $ 1.3720)

0.78 / 1.3720 = -€0.57

Now Let’s Move Forward “Experience is the
name everyone gives
to their mistakes”
It’s now time to ditch the textbooks and take a hands-on
– Oscar Wilde
approach.

If you haven’t already registered for our MetaTrader4 demo,

you can do this by opening a demo account here. Starting
with $10,000 demo funds, you have the opportunity to trade in
a real-time environment and test your trading strategies before
committing real money.

Sign up for a free 30 day demo account here and get started today.

But wait, before you go gallivanting off into the unknown, heed
the obligatory motivational quote and make sure you read our
common mistakes e-book.

We wish you good luck in your trading.

 Trust Through Transparency

Hantec House, 12-14 Wilfred Street, London SW1E 6PL

T: +44 (0) 20 7036 0888
F: +44 (0) 20 7036 0899
E: info@hantecfx.com
W: hantecfx.com

Risk Warning:

Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion
and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors,
including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make
additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to
enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion
and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds
should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice.

Hantec Markets is a trading name of Hantec Markets Limited who is authorised & regulated by the Financial Conduct Authority (FCA) in the UK - FRN 502635