Forex traders speculate on price changes in FX pairs like EUR/USD, GBP/USD and USD/JPY.
In each pair there is always a quote currency and a base currency. The base currency is on the left and the quote currency is on the right and what this means is that you are speculating in price movements of the quote currency in the pair against the base currency.
For example, if you decided to trade the GBP/USD pair, you would effectively be trading on the price movements of GBP against the US dollar.
There are a wide variety of global FX pairs available to trade and prices are predominantly determined by large scale interbank trading.
When you trade Forex at Whitley you are speculating on price movements in the underlying market, rather than buying or owning physical currency reserves.
Forex price movement and volatility are influenced by a number of important factors including major political events like general elections, referendums and speeches, economic data releases and central bank decisions like interest rate changes or quantitative easing and can even be impacted by natural disasters.
Global Forex markets are dominated by a handful of big currency pairs and these include predominantly US dollar led pairs such as: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD.
By most estimates these seven Forex pairs account for around 80% of global FX trading volume.
What are 'major' Forex pairs?
Some of the most popular Forex markets in the world have unique aspects and interesting colloquial names. Below is a list of what are often referred to as the FX "majors", the pairs with the highest global trading volume and biggest influence on markets:
EUR/USD - Often referred to informally as the "Eurodollar," EUR/USD is comfortably the world's most heavily traded Forex pair. This FX pair dominates global financial sentiment in large part because it comprises the currencies of the world's biggest economies in the form of the United States and Europe.
USD/JPY - Sometimes called "Gopher," the USD/JPY pair is heavily traded around the world and represents the strength of the US dollar against the Japanese Yen.
GBP/USD - one of the oldest currency pairs in the world, "Cable" is still one of the most popular and reflects the strength of the British pound sterling against the United States dollar.
USD/CHF - The pair that looks least at home in a list of major pairs, the "Swissy" is heavily traded around the world due in part to the Swiss franc's status as a safe haven investment
Which Forex pairs can I trade at Whitley?
You can trade over 60 major and minor FX pairs at Whitley. Below is a small selection of some of our most popular Forex markets.
Cable is one of our most popular Forex markets with a number of trading opportunities over the past few years presented by the market uncertainty around major events like Brexit and the election of Donald Trump.
Because of the strong cultural, business and economic ties between the United States and the United Kingdom as well as the large volume of trade between the countries, GBP/USD is popular with investors on both sides of the Atlantic.
The Eurodollar is by far the most heavily traded currency pair in the world and its high liquidity and relative stability offers traders key trading opportunities.
The EUR/USD pair is much newer than most established Forex trading pairs having only started heavy trading in 2002 when the twelve European member states introduced bank notes and coins as legal tender.
Sometimes referred to as the "Chunnel" in reference to the tunnel between the UK and Europe, GBP/EUR is a key FX pair and reflects the strong economic connection between the United Kingdom and wider Eurozone members.
GBP/EUR has been a particularly interesting currency pair for traders since the 2016 Brexit vote as volatility, uncertainty and negotiations have created trading opportunities in both directions.
The "Aussie," is a commodity driven Forex pair that reflects changes primarily in fluctuating Commodity trading between the US and Australia, in particular mining.
AUD/USD is a "minor" FX pair and does not command the same type of high volume as any of the major FX pairs but can still offer traders plenty of opportunities, especially in times of volatility.
The EUR/CHF currency pair pits two generally stable, safe economies with very strong cultural and economic ties against each other.
The Swiss franc has traditionally been seen as a safe-haven investment in times of volatility and the FX pair is popular among traders for its relative steadiness.
Is Forex trading for me?
Forex trading could be for you if you are looking for a wide range of flexible global trading opportunities with around the clock access to the markets.
When you trade FX at Whitley you can open both long and short positions on major, minor, exotic and emerging currency pairs which cover regions like the US, UK, Europe, Asia and Australasia.
You'll be able to take advantage of high liquidity in the FX market to enjoy tight spreads and, with plenty of volatility in global currency markets, there are plenty of trading opportunities for smart traders.
With over 60 different FX markets to choose from, there are a wide range of Forex markets available for you to trade at Whitley. Deciding on the right market to trade and understanding when and how to enter the market is crucial to ensuring you are able to trade Forex successfully.
You can trade major FX pairs like EUR/USD and GBP/USD with trading account and our experienced Forex traders will help get you started and trading with confidence
Decide on a FX pair that suits your trading style
When you trade at Whitley you'll have a huge selection of global FX pairs to choose from and these markets cover the UK, US, Asia, Australasia and Europe.
In deciding which FX pair to trade, it can help to start with a currency you are familiar with, or perhaps one which you already follow and understand.
Like with any investment, the key to deciding on the right market is to do plenty of research and analysis so that you can identify what type of trading opportunities are available, the current level of volatility and likely direction of market sentiment.
Going long or short - Remember, because you are speculating on market movement and changes in the underlying price of FX markets, you can choose to Buy (go long) or Sell (go short). The direction you decide to trade in will reflect whether you feel bullish or bearish about the future of that market.
Managing your risk
The Forex market is the most liquid market in the world with a huge volume of trading activity. It is crucial when placing your trade that you protect yourself against potential losses, as well as excess volatility. When you trade with Whitley, we offer a number of powerful risk management tools like limit orders, stop losses and Guaranteed Stops to help you manage your risk smartly.
If you're new to Forex trading, start out with a relatively small trade size that suits the budget you have available, it is crucial that you don't over-leverage your account by trading more than you can afford.
Keeping in touch and exiting the market - As soon as you have opened your Forex trading position and your trade is live, we will monitor your position closely, lock in profits when you reach your profit target or minimise any potential losses should the market move against you.
Deciding on the right FX market to trade
When trading Forex, deciding on the market that suits your trading strategy best is crucial to your long-term success. You should have a good understanding of why prices in your chosen FX pair might fluctuate, the types of events that can drive market movement and how volatile the market is.
Doing background research and analysis will help you to identify key trading opportunities in your chosen market and can help you identify trends and patterns which indicate market sentiment. We Read widely on the latest market analysis and news to help ensure you understand market correlations that could weigh on your chosen FX pair.
Are you Bullish or Bearish on your chosen market?
Because the Forex market has such incredible high trading volume and is one of the world's most liquid markets, there are a wide range of short, medium and long-term opportunities for investors.
Remember, all of your trading decisions should be based on research, market conditions and the wider goals of your trading strategy so always make sure you test your trading ideas rigorously.
Managing your risk intelligently
Understanding how to manage your risk when trading FX is crucial to your success and should form the bedrock of your trading strategy.
Before entering the market, Our research and analysis will have given you an idea of current market sentiment, prevailing trends and likely possible direction for future price action.
No matter how good your research and feel for market trends, it is crucial that you bear in mind that markets are unpredictable and that they can move against you quickly and without warning. When you trade at Whitley we offer you advanced tools to help you manage your risk responsibly so that you can trade with confidence.
Lock in a level of risk you are comfortable with by choosing from a range of effective risk management solutions. Our award-winning platform boasts advanced tools like Stop Losses, Limit Orders and Trailing Stops to help you manage your risk efficiently. This helps protect you against excess volatility should prices shift rapidly.
Monitoring your position and exiting the market
As soon as your Forex position is live you will be subject to changes and shifts in market sentiment so it is important that you monitor price action in your chosen market.
Understanding market correlations
Forex markets are impacted by a number of wide-ranging factors and because currencies form the basis of trade, economic relationships and financial services, there are a number of closely interconnected market correlations between FX prices and other, related markets.
These correlations depend on which particular currency you decide to trade as some economies are modelled on different strengths. For example, the value of the Canadian dollar (CAD) and Australian dollar (AUD) are strongly influenced by commodities prices in these countries as a large percentage of their GDP comes from natural resources and mining. Similarly, the US dollar is particularly sensitive to movements on Wall Street, as the index drives huge growth and revenue.
Understanding market correlations between your chosen currency and other, related markets can help you make better trading decisions. Make sure you do as much research as possible and work to understand how and why changes in other markets could impact your FX trading.
Making the most of support and resistance
One of the most valuable strategies for trading the Forex markets is also one of the simplest; understanding key resistance and support levels in the market you have chosen. Because currencies move in relatively stable increments outside of major events, when they begin to reach historic levels, either to the upside or downside, it can give traders pause for thought.
So what are resistance and support levels and how can they help your Forex trading?
A support level is essentially the downward price at which a currency will pause or stop its decline as demand or trading volume begins to increase again. On the other hand, resistance levels indicate a high price level at which the market begins to believe a currency may be overvalued and it could be a strong indicator of a potential sell-off in the near future.
Both support and resistance levels are useful as part of your overall Forex trading strategy in understanding potential market entry and exit points.
To help you identify key support and resistance levels in your chosen FX market, we have a number of tools for you to use. You can take advantage of our indicators like MACD, RSI and Bollinger Bands, add your own indicators or use our drawing tools to define key market levels you'd like to monitor.
In addition, you may find it useful to set up a customisable Forex Watchlist so that you can track a number of price changes across the FX pairs that most interest you or that could have an impact on your trading strategy. on. Rather, you are trading on price movements within the underlying market.
Risk management is important in any successful long term trading strategy no matter which asset you decide to trade.
Our awarnd-winning trading platforms come with a range of risk management tools to help you manage and fix your risk.
Which tools can I use to manage my risk when trading Forex?
Stop Loss Orders
You can place a Stop Loss directly from the trade ticket in TraderPro. Simply select the option and fill in the price at which you would like your position to be automatically closed out.
If the market moves through your selected price point, your position will be closed out. You won't need to take any action so you can trade with greater peace of mind. Stop Losses give you added protection should market volatility spike and the market moves against you.
Remember Stop Losses protect you from market movement against your position but do not guarantee to protect you against sudden, excessive market volatility and market gapping. Guaranteed Stops, however, can protect your trades against these. So, what are Guaranteed Stops?
Guaranteed Stop Loss Order
A Guaranteed Stop Loss Order is the most powerful risk management tool we offer and is guaranteed to be triggered at the precise level you have specified, irrespective of market gapping or volatility.
Trailing Stops allow you to "track" market movement by a setting price point above or below market value at which you'd like your position to be closed out. Your Trailing stop will then move with the prevailing market trend, allowing you to lock in profits as well as minimise losses should the market move against you.