Better FX wealth management starts with knowledge. IMS FX is dedicated to providing investment education in emerging financial markets, to help investors enhance their trading skills and deepen their understanding of wealth management, thus promoting sustainable development of financial markets. We provide multiple education materials including basic courses and educational videos to meet your different needs. Start your FX learning journey at IMS FX !
Foreign exchange (FX) is a market. More accurately, it is a currency trading market where the products that are sold or bought are national currencies of all the countries. For instance, in the FX market, you can buy Canadian dollars with US dollars, or sell Euros to buy Japanese yen. It is one of the largest and most rapidly developing markets in the world, with a daily trading volume higher than US$5 trillion, 100 times higher than that of NASDAQ.
In the global FX market, on average US$5 trillion is traded daily. In such a huge market, there are no large investors, national economies are what people invest into, and data and news are shared globally.
The FX market is a global market operating 24 hours a day; hence traders can arrange trading time tailored to their needs and habits, which is way so many office-going people choose FX margin trading. Also, more and more people have started trading foreign exchange during stock market holidays, as it is an effective diversification channel.
You can either go long or short, and whether it is a bull or bear market, you have the opportunity to make profit as the market condition fluctuates.
In the stock market, an investor can use US$1,000 to buy stocks worth US$1,000. With a 1:100 leverage that IMS FX provides, an FX trader has the purchasing power equivalent to US$100,000 for the same US$1,000. Evidently, the power of throwing a sprat to catch a mackerel in the FX market far outweighs anything that is there in the stock market. However, we must acknowledge that leverage is a double-edged sword; it can help you make profits quickly, but it also increases risk easily.
Setting stop-loss and limit-price point helps traders quickly control their losses and retain their profits.
The FX market is a paradise for short-term investors, as a trader can access the market at any time during a day, conclude a trade immediately, and realize profits at any time.
FX trading refers to speculative trading where investors utilize changes in exchange rates between different currency pairs. FX is traded in currency pairs. The price of a currency pair represents the value of a currency relative to another currency, indicating the relative market value for two such currencies at that time. Each currency has an international symbol. Major currencies include:
In international business trading, to convert one currency to another currency, there must be a conversion rate to conclude the trade. This rate is called exchange rate. In the FX market, the exchange rate between one country's currency and another country's currency is indicated in a currency pair, where the base currency comes first and the quoted currency comes second with a "/" between the two. This format represents how many units of quoted currency equal to a unit of base currency. For example, EUR/USD=1.3151 means 1.3151 US dollars is required to buy 1 Euro.
As a newbie, it may seem difficult to understand FX trading quotes. Actually, only two basic points are required, to easily understand quotes.
For instance: USD/JPY (US dollar/Japanese yen) 125.01 where USD is base currency, and 1 US dollar equals to 125.01 Japanese yen. Only base currency is traded, whether for a buy or sell order. When the US dollar is the base currency, if the exchange rate goes up, it means that the US dollar is appreciating and the other currency is depreciating. If the abovementioned USD/JPY rate goes up from 125.01 to 126.01, then a US dollar can be converted to more Japanese yen.
Apart from US dollar, base currency can also be Great Britain pound (GBP), Australia dollar (AUD), Euro (EUR) or other currencies. For example, GBP/USD 1.7352 means 1 Great Britain pound can be converted to 1.7352 US dollars. In this case, increase of exchange rate means depreciation of US dollar since more US dollars are required to buy 1 Great Britain pound.
That is, any increase/decrease in exchange rate refers to an appreciation/depreciation of the base currency.
If a currency pair contains USD, then such a currency pair is called a direct currency pair. Otherwise, currency pairs are referred to as cross-currency pairs. For example, EUR/JPY 127.91 means 1 Euro is equal to 127.92 Japanese yen.
The last digit in the exchange rate price is called a "pip", e.g., 0.01 out of USD/JPY 114.41, and 0.0001 out of EUR/USD 1.2831; it refers to the minimum exchange rate movement.
In FX trading, you can see two-side quotes consisting of price given by buyer (ask) and price given by seller (bid). Ask indicates the price at which you can buy the base currency (while selling non-base currency) and bid indicates the price at which you can sell the base currency (while buying non-base currency). The difference between ask and bid is called spread which traders can use to make profits. For instance, EUR/USD on IMS FX with a spread of 2 pips will be shown as 1.2505/1.2507.
Margin trading means an investor opens a margin account with his/her broker as the collateral, and performs FX trades whose value is magnified due to leverage. Profits and losses are included in the margin account.
For example, if you deposit US$5,000 in a margin account, in case of a 1:100 leverage (the maximum leverage offered by IMS FX for FX trading is 1:500), you can buy any foreign currency valued at US$500,000, because you are only required to provide 1% of the purchase price as collateral in the margin account. In other words, you gain a purchasing power of US$500,000.
Investors often encounter funds shortfall when making trades. In this scenario, margin trading provides an opportunity for investors to make larger trades with less funds with the help of leverage, to enhance their purchasing power.
Although the IMS FX FX trading platform calculates profits and losses for traders automatically, we hope that each FX investor can understand the basic principles for profits and loss calculation in FX trading. Refer to the following example for details.
When Great Britain Pound/US Dollar (GBP/USD) quote is 1.5937/1.5941, you can buy 1 Great Britain Pound with 1.5941 US dollars or buy 1.5937 US Dollars by selling 1 Great Britain Pound. Suppose you believe that the GBP will appreciate against the USD, and you want to buy GBP (while selling USD), and wait for an increase in the exchange rate, then to buy GBP100,000 using US$159,410 (100,000 x 1.5941), you only need US$1,594.10 in your margin account, with a margin leverage of 1:100.
If the GBP/USD increases to 1.5992/1.5956, to realize your profits you can sell the GBP100,000 at the price of 1.5992, earning US$159,920. Previously, you bought GBP100,000 with US$159,410. In this way, you made a profit of US$510 (US$159,920 - US$159,410 = US$510).
If you are a newcomer to FX investment, all you need to do is to choose the two currencies for your FX trade, and then choose the trading amount ([Trading Amount]). Next, you need to deposit funds as collateral ([Margin]). In most cases, the margin is only a small part of the total trading amount, e.g., 1% (1:100).
For more information or further online training, register at our website (without any cost), and we will guide you to complete the entire process step by step.
The answer is simple: Like any other market, the way to make profits is to buy at a low price and sell at a high price. What you need to do is to make money by using fluctuation of relative values of different currencies. In the FX market, the relative value of each currency changes every day, and what you need to do is to make profits by using such changes.
It should be noted that for FX trading in the FX market: The daily fluctuation amplitude in the FX market is 100 times higher than actual fluctuation (e.g., 1%). Generally, the highest leverage ratio IMS FX provides is 1:500. It can be seen from calculation that if the exchange rate for a currency pair has increased 0.6% in the last hour, you will make profits equaling to 60% of the original investment. This is possible within a trading day or even several minutes.
Most importantly, except for your margin deposit, you bear no risk for any other loss! The possible profits are not limited, but the largest potential loss is only limited to the original investment.
In addition, you can choose your own currency pair and trading amount by considering market trends to make profits. Take US dollar and Japanese yen as an example, an increase or decrease in their exchange rate does not matter, as you can either buy US dollars and sell Japanese yen, or buy Japanese yen and sell US dollars. Furthermore, FX trades (buy or sell) in the FX market do not require that you must own or hold currencies.
It may be a little difficult for a newcomer to understand how to make profits through FX. The following example will help you understand better. Suppose you expect the exchange rate of Euro/US dollar to go up and you have US$2,000 in your account (IMS FX standard account), then you can buy €150,000 at the rate of 1.2750, i.e., 150,000*1.2750 = US$191,250.
he above operation is possible because of margin, which enables you to make a trade whose value is equal to 100 times of your actual funds (in this case, the permitted highest trading amount is US$2000 * 100 = US$200,000).
After some time, if the exchange rate has increased, and if you sell €150,000 at the rate of 1.2850, then you will get 150,000* 1.2850 = US$192,750!
Therefore, by buying at a low exchange rate and selling at a high exchange rate, the difference US$192,750-US$191,250 = US$1,500 is your profit! The exchange rate increased by only 0.8%, but the profits you have made equal to 75% of the original funds in your account. The other way to make profits through FX is using the decrease in Euro/US dollar exchange rate. Assume that you have opened a live account where you have deposited US$200; you can set the highest and lowest limit price for EUR/USD chart, and then sell €15,000 (0.15 lot) when the quote reaches the highest limit price, e.g., EUR/USD 1.2850 (bid), getting US$19,275 (15,000 Euros x 1.2850).
Although the funds in your account are denominated in US dollars, you can sell Euros through an automatic lending system. That is, a bank lends you €15,000 without interest, and then you can sell these €15,000 through a sell order. By using leverage, the actual deposit is 1% of the sold amount, i.e., 15,000/100 = €150. In this way, the amount calculated at an exchange rate of 1.2850 is US$192.75, which you need to deposit in your account as margin. In this case, the highest margin amount is US$200.
Then, when the price goes down to the lowest limit price, you can decide to buy €15,000 at the price of 1.2750 (ask), equivalent to US$19,125. The €15,000 you have bought will be deducted from your account to repay the bank loan, and the difference will be retained in your account.
Therefore, due to decrease exchange rate, you have earned sell/buy difference (i.e., US$19,275-US$19,125 = US$150). You have made US$150 (equivalent to 75% of the original US$200) in a day due to the decrease in exchange rate by 0.8% (from 1.2850 to 1.2750).
The brokerage company collects a commission in the form of buy/sell difference (spread). In this case, the commission is US$3 (EUR/USD spread is 0.0002 or 2 pips).
In the above example, since the spread has no significant effect in calculating the change percentage of the exchange rate, the spread was not considered. The calculation method is similar for IMS FX standard account and premium account. The only difference lies in account currency. From the above two trade, it can be seen that you can make 150% profits (75%+75). In real practice, with proper fund management, the actual profits may be much higher than those shown in the example. However, risk management also plays an important role in trading.
In FX trading, an investor may have his/her funds doubled, but also faces the risk of losing future profits or even the original funds. Deviation from the expected average profit determines the risk that an investor faces in the financial market.
Deviation may either produce high profit or huge loss. Financial risk management does not always lead to successful trading, but actually plays an important role. Each currency trade is at risk, but we can lower potential loss with general risk management methods.
Risk management methods are applicable when an investor sells or buys a position. The commonly used risk management method is to reduce loss by stop-loss order. Stop-loss is the price at which a trader exits from the market to avoid adverse conditions. It is better to set a stop-loss price when opening a position, in order to avoid additional loss.
A trader sets a percentage of expected loss prior to trading. If the price goes adversely and reaches the set level, the position will be automatically closed to stop the loss.
If the price trend is favorable to a trader, the stop-loss point will be changed as per the percentage set by the trader. If the price trend changes and reaches such a point, the trader will exit from the market, possibly with partial profits (up to the time when the price changes).
A trader closes his/her positions after getting profits.
If the market cannot provide profits meeting expected percentage within a certain period, the position will be closed.
To become a master in FX trading requires an understanding of the basic operation of the FX market, and learning how to create orders, clear positions and test proposals. You can make trades in Analogy mode with a demo account, which functions similar to a live account, only it doesn’t have real funds. The limitation of using a demo account is that customers cannot accurately estimate benefits of their FX trades as the currencies are virtual. Customers can also understand technical performance of the trading platform by raining on FX trading.
Operating a demo account successfully does not necessarily mean that you will be successful in operating a live account. To learn the skills required to operate the FX market, a customer must enter the real market where there are real-time changes, and learn to use stop-loss and stop-profit. Unlike with a demo account, a customer is often affected by his/her emotions when operating a live account. We believe it is easy to manage emotions in the early period. Therefore, we suggest our customers train by managing a small amount of funds, which has lower risk. You can learn how to use real funds and live account by opening an IMS FX standard account. After you are confident in your trading skills, you can upgrade the account to a premium account.
Fundamental analysis means research on core elements affecting a country's economy and currency exchange rate, with the aim to predict exchange rate changes and market trends within an economic cycle, by analyzing a range of economic indicators, policies and events. Fundamental data can tell use the current market condition, and more importantly, help us predict future market development.