Trade FOREX On High Leverage Up to 500: 1

Starting with the US dollar, we’ll break forex pairs into group and help you cut through some of the jargon which you’re sure to come across when you trade.

The US Dollar
As the US dollar (USD) is the world’s reserve currency, forex markets literally revolve around it. In 2019 alone, the mighty dollar was estimated to account for 88% of all forex transactions. This means USD, US economic data and Federal Reserve activity is a key focus for all currency traders.

FX Majors
FX Majors pairs are the most liquid major currencies traded against USD. They include the Euro (EUR), British pound (GBP), Japanese yen (JPY), Swiss franc (CHF), Canadian dollar (CAD), Australian dollar (AUD) and New Zealand dollar (NZD).

Traders often abbreviate these currency pairs:

• EUR/USD (Euro)
• GBP/USD (Cable, Sterling)
• USD/JPY (Yen)
• USD/CHF (Swissy)
• USD/CAD (Loonie, Cad)
• AUD/USD (Aussie)
• NZD/USD (Kiwi)

FX Crosses
As the name implies, a ‘cross’ is a pair of currencies which excludes USD. For example, EUR/GBP is the Euro traded against the British pound and AUD/JPY is the Australian dollar traded against the Japanese yen. They are typically less liquid and more volatile than major pairs, which can open-up more opportunities for a speculator.

Popular crosses include:

• EUR/JPY (Euro yen, Yuppy)
• GBP/JPY (Pound yen, Guppy)
• EUR/GBP (Euro pound, Chunnel)
• AUD/JPY (Aussie yen)
• CAD/JPY (Cad yen)

Exotics
Exotic pairs involve currencies which trade on very low volumes compared with the above. Extreme examples include MYR (Malaysian Ringgit), IDR (Indonesian Rupiah) and LBP (Lebanese Pound). Very few brokers offer them as they are specialist by nature and, being low liquidity markets, the transactional costs would be vast which makes them unsuitable for most traders.

However, ThreeTrader does offer access to more tradable exotic currency pairs such as:

• USD/MXN (Mexican peso)
• USD/ZAR (South African rand)
• USD/TRY (Turkish lira)
• USD/CNH (Chinese yuan)
• USD/SGD (Singapore dollar)

Forex Market Drivers

As currency pairs look at the relative difference of purchasing power between countries, traders can take a big picture, macro view to get a feel for longer-term trends. Whilst there are many factors to consider and outside the scope of this section, here are some basic yet important fundamental drivers for forex traders.

Central Banks
In the developed world, most central banks use interest rates to control levels of inflation. However, forward guidance is also used to steer investors’ expectations of where interest rates may be in future, in hope markets will do the heavy lifting for them. Since the GFC, less orthodox tools such as quantitative easing (QE) have been unleashed, and more recently negative interest rate policies (NIRP) and yield curve control (YCC). Whilst having a deep understanding of these monetary policy tools is not essential for all forex traders, investors are likely to take note as central banks actions can make or break trends which can last months or years.

Interest rates
As we are trading currency pairs, forex traders assess and sometimes try to predict interest rate differentials (the difference between two countries interest rates).

• In simple terms, a higher interest rate tends to attract currency flows into a country and support it (demand). Central banks often raise interest rates if the economy is strengthening.
• Whereas a lower interest rate tends to deter currency flows and weaken a currency. Central banks can lower interest rates if an economy is expected to weaken.

So, an investor could expect a longer-lasting trend to develop if they identify an economy which is becoming stronger with one which is anticipated to become weaker.

Economic Data
The economic calendar is a central tool for many traders and provides a roadmap throughout the month as to when we could expect bouts of volatility (or not). It is these data points which the central banks monitor to decide how strong or weak an economy is and, therefore, determine if they’ll change interest rates and impact currency flows.

• Economic data are the key inputs to financial models, central bank targets etc.
• News / intraday FX traders will trade around key economic data sets. They will look for data to exceed or miss targets; the wider the data lands from expectations, the more volatile a reaction we’d expect to see in price action.
• Other traders could use the calendar as a deterrent to not trade around potentially volatile events.
• Not all data point are of equal importance. Some economic release are leading indicators and provide more volatility, whereas others are coincident or lagging and warrant less attention.

Quotes

The easiest way to think of an FX quote is that it is a ratio of price. If a trader opens a deal ticket and ‘buys’ GBP/USD, they are buying GBP and selling USD. Yet if they ‘sell’ GBP/USD, they are short GBP and long USD.

Example: AUD/USD is quoted at 0.6950

• AUD/USD
• Base currency / quoted currency
• $1 AUD / How many USD can 1 AUD buy
• $1 AUD buys $0.6950 USD
  • 1 / 0.6950 = 1.4389
  • US $1.4389 buys AU $1.00

If AUD/USD rises to 0.7500:

• The Australian dollar is rising relative to USD, or USD is weakening relative to AUD.
• This means one can purchase more USD with their AUD than previously.

If AUD/USD falls to 0.6500:

• The Australian dollar is weakening relative to USD, or USD is strengthening relative to AUD.
• This means one can purchase fewer USD with their AUD than previously.

In the majority of cases, non-JPY FX quotes will display four of five decimals. However JPY pairs display at least two or three decimals.

The Pip

When looking at a forex quotation, you should notice that the numbers are generally smaller than, say, commodities or indices. As currency quotations are much lower than other markets, traders are generally speculating on the fluctuation of the pip, as opposed to ‘handles’ or round numbers as seen on indices. For example, the Nasdaq 100 CFD (USTECH) could trade around $9,000 whilst EUR/USD trades around 1.13.

The word ‘pip’ is an acronym for “percentage in points” and is worth 0.1% of the currency quoted.

• It is an important number to understand as you’ll likely be using it to calculate trade cost, sizes, entry and exit points.
• 10,000 pips is worth 1 unit of currency in most cases.
• On yen pairs, 100 pips is worth one unit of currency.
• In most cases a pip is the fourth decimal, whilst on JPY pairs a pip is the second decimal.

EUR/USD is quoted as 1.1135
The pip is the fourth decimal, which in this case is ‘5’. To calculate pips as whole numbers, we multiply by 10,000 for pairs not traded in the yen.

• If prices are to rise to 1.1145 then we can say EUR/USD has risen 10 pips
  • (1.1145 – 1.1135) x 10,000 = 10

• If prices fall to 1.1125 then we can say EUR/USD has fallen 10 pips
  • (1.1125 – 1.1135) x 10,000 = -10

USD/JPY is quoted at 107.52
For yen pairs, the ‘pip’ is the second decimal. To calculate pips for the yen, we multiply them by 100.

• If USD/JPY rises to 107.92, we can say the market has risen 40 pips
  • (107.92 – 107.52) x 100 = 40

• If prices fall to 107.22, we can say the market has fallen 30 pips
  • (107.22 – 107.52) x 100 = -30

 

Contracts and Lots

A full contract (also called a ‘lot’) is equivalent to 100,000 units of base currency. If a volume of ‘1’ is traded in MT4, it means you have one full lot (or contract) of 100,000 units of base currency.

• Mini and micro lots can also be traded by selecting a volume of 0.1 for 10,000 or 0.01 for 1,000 units of base currency.
• To trade 153,000 units of base currency, a trader would input a volume of 1.53 contracts into the MT4 deal ticket.

Margin
Similar to collateral, margin is the amount of money required to be deposited into a trading account to open a trade, which is usually a fraction of underlying market cost.

Long example: Buying GBP/USD
A trader buys 1 contract of GBP/USD (one contracts equals 100,000 GBP) at $1.2650.

• If GBP/USD rises to $1.2800 (+150 pips) the trader could exit for a profit around $1,500
  • (# contracts x contract size) x (exit price – entry)
  • (1 x 100,000) x (1.2800 – 1.2650) = $1,500

• If the price falls to 1.2600 the trader could exit for a loss around -$500
  • (# contracts x contract) x (exit price – entry)
  • (1 x 100,000) x ($1.2600 – $1.2650)

• At 400:1 leverage, just 0.25% of margin ($316.25) is required to open the trade
  • (# contracts x contract size x price) / leverage
  • (1 x 100,000 x 1.2650) / 400

 

Short example: Selling USD/JPY
A trader sells 5 contracts of USD/JPY (one contracts equals 100,000 USD) at ¥107.25.

• If USD/JPY falls to ¥106.50 (-75 pips) the trader could exit for a profit around $3,500
  • (# contracts x contract size) x (entry – exit price)
  • (5 x 100,000) x (106.50 – 107.25) = ¥375k ($3,500)

• If the price rises to ¥107.70 the trader could exit for a loss around -$2,100
  • (# contracts x contract) x (entry – exit price)
  • (5 x 100,000) x ($1.2600 – $1.2650) = -¥225k ($2,100)

• At 400:1 leverage, just 0.25% of margin ($316.25) is required to open the trade
  • (# contracts x contract size x price) / leverage
  • (1 x 100,000 x 107.25) / 400 = ¥134.01k ($316.25)

 

Costs Associated With Forex

Spread:
The spread is a nominal transaction cost to enter a trade and is simply the difference between the bid and the ask price. The spread is variable but can be as little as 0 pips on a Pro account or from 1 pip on a standard account.

The amount of liquidity available dictates how tight the spread is, so typically one would expect spreads to be tighter during active trading sessions such as New York or London. However, spreads are also sensitive around economic news releases. If traders are waiting for an important release such as Nonfarm payroll or a Fed meeting, liquidity dries up and spreads can get wider until liquidity returns after the release.

Bid and ask prices are visible in several locations within MT4, such as the “Market Watch” window and deal ticket.

Long (bullish) trades:

• Enter at the ‘ask’ price (what the seller is asking for)
• Exit at the ‘bid’ price (for both take profit or stop loss orders)

Short (bearish) trades:

• Enter short at the ‘bid’ price
• Exit at the ‘ask’ price (for both take profit or stop loss orders)

Swaps:
Swaps are holding cost or rebate on open trades, calculated daily and derived from the relevant interbank differentials. Swaps can be either a positive (debit) or negative (credit) to your trade’s daily profit and loss, depending on whether you are long or short and what the interest rates are for the currency pair.

You can view swap charges within MT4’s “Market Watch” window by selecting a currency, right mouse clicking and selecting “Specification”.

Commission (Pro Account):
Commissions are very low at $3.5 per full contract traded ($7 to enter and exit a trade).

24hr Trading
Unlike equity markets, FX markets trade the full 24 hours a day, 5 days a week. This allows traders to fit their markets around their lifestyle, and not the other way around.

For example, traders in Australasia who work full time during the day, could opt to intraday trade the UK or early US session at night. Or traders in Europe or US who work full time during the day could opt to set end of day (EOD) orders at night.

Forex Markets are Highly Liquid
With so much liquidity for FX traders, it makes it much easier to get into and out of a market at a favourable price and with tight spreads.

FX Pairs Are Less Prone To Gaps
As FX markets are so liquid, it makes them less vulnerable to large gaps. Sure, a host of bad economic data or rise in geopolitical events can trigger currencies to gap but, generally, they are much smaller and easier to manage as there is so much liquidity available. Also keep I mind that FX markets are closed over the weekend, so the Monday open can produce gaps. But again, historically speaking they’re significantly smaller in percentage terms to say equity markets falling after an earnings miss.

Mitigate Currency Risk
In this instance, we are referring to the impact a currency exchange rate may have on an open trade if you hold a CFD denominated in a currency other than your trading account currency. For example, if your account is in USD but are trading the FTSE 100 CFD (UK100), you are essentially trading British pounds from a USD account. Therefor the fluctuation of GBP/USD could impact your profit and loss in real terms when it comes to close the trade, for better or worse.

However, a way around this is to hedge the position with GBP/USD.

Example: Long FTSE 100 with USD Trading Account

• An investor buys 1 contract of the FTSE 100 CFD (UK100) at £6,150.
• Their trading account is in USD.
• This leaves them exposed to currency risk of the GBP/USD
  • Assuming the FTSE 100 stays still, if GBP/USD falls in value then technically the investor has lost money when it comes to close out their FTSE trade.
  • If GBP/USD rises in value and FTSE remains at the same level, the investor has effectively gained on the back of a stronger British pound when they decide to close the trade.

To help mitigate this risk, an investor could have shorted 0.06 lots of GBP/USD (£6,000 GBP). This way the fluctuations of the exchange rate do not interfere with the profit or loss of the FTSE trade.

Up to 500:1 Leverage
ThreeTrader provides generous levels of leverage of up to 400:1 to keep margin requirements low.

Lightening Quick Execution
We pride ourselves on our fast execution service, which is paramount to a traders success if trading intraday or using expert advisors.

Competitive spreads
Access raw spreads from top tier liquidity providers with our Pro Account, or spreads from just 1-pip from out Standard Account.

Tier 1 liquidity
We could not offer such tight spreads and fast execution without access to tier-one liquidity providers.

60 Forex pairs
Access all classic majors and crosses alongside exotics, for a truly global reach.

EA friendly
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No dealing desk intervention
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