Notice: Due to the Coronavirus situation and market sentiment, please be alert of the forex market fluctuation before deciding your next move on trading. For Rakuten FX clients, the variable spread is temporarily effective due to unusual market volatility. [Important] Uncertain situation in Turkish Lira (TRY) has led to excessively low liquidity and extremely wide spread on its related currency pairs. Their price update might stop at any time. We will stop accepting new open position and only accept close position, effective immediately until further notice. We strongly recommend you to pay special attention to relevant positions you are holding currently as well as funds in your trading accounts to avoid any unexpected liquidation.

What is Forex? | Rakuten Securities HK

What is forex trading? It refers to the trading in the foreign exchange market. Forex traders tend to purchase currencies that are undervalued and sell currencies that are overvalued so as to earn capital gain.

Basic concept of what is Forex

Short for Foreign Exchange, Forex is a decentralized market where anyone can speculate currencies around the world. It is known to be the most liquid market in the world with a daily trading volume that goes over $5 trillion. Different economies deal in different currencies.

When you travel to another country, you are required to use the currency prevalent in that country. So if you have travelled abroad, you have most likely dealt in foreign exchange already. This exchange of one currency into another can lead to considerable profits and losses when done on a large scale. This is why it has become popular for speculation and has evolved as a market of its own. So to answer the question, “What is forex?” it is the speculation of currencies.

Pairing currencies

Every time you want to make a trade-in forex, you will require to pair one currency with another. Online trading platforms provide the currency pairs in which you can trade. Trading in forex requires you to bet one currency against the other by speculating if a currency would rise or drop in value against the other. For example, if you bet the Chinese yuan against the US dollar, keeping in mind that the Chinese yuan would drop in value, then you can open a sell position for the Chinese yuan against the US dollar. If the Chinese currency, however, starts to rise in value, then you will start losing so you would want to get out of the trade.

The most popular currency pair in the world is the Euro and the US dollar. If you trade in EUR/USD, then the first currency which is Euro is the base and you will see the value of that currency as compared to the second one. In a EUR/UD pair, you will see how much a Euro is worth in US dollars. There are two values mentioned for every pair. One is the buy and the other is the sell value.

What is Forex used for organization?

Organizations use Forex to hedge funds

Companies who usually operate in multiple international markets trade in Forex to hedge funds and reduce losses caused by the change in currency value in the markets that they deal in. If a certain currency goes stronger or reduces in value, it can greatly affect the profits of a company which operates out of that country or plan to sell products in that market. For example, a product is manufactured in the US market for $100 and will be sold in the European market for 120 euro at a time when the US dollar and Euro are in parity meaning it costs $1 to buy 1 euro. The total profit will be $20.

But the US dollar gets stronger and by the time the product is actually sold in the European market, it costs $0.90 to buy 1 euro. This means that the overall profits earned from the sale of the product will reduce as a result of the dollar getting stronger. Even though the product will still be sold at 120 euro, the profits will reduce since the value of the product in dollars will be $108. The profit, as a result, is of $8 only.

If the company traded in the currency pair when it was in parity, then it could profit from buying the US dollars and these profits can hedge the losses incurred from the sale of the products in the European market.

What is Forex used for banking?

Banking institutions

Banks trade in forex on behalf of their clients and also use forex for speculation through their trading desks.

What is Forex used for investment managers?

Investment managers

Just like organizations operating in international markets, investment managers also trade in forex to hedge funds.

What is Forex used for individual investors?

Individual investors

Even though individual investors are still relatively low, more traders are beginning to speculate in forex for profits.


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What Is Forex

Forex / FX is a commonly used abbreviation for “foreign exchange”. It typically describes trading in the foreign exchange market, especially by investors and speculators. “Buy Low and Sell High” means a forex trader purchases currencies that are undervalued and sells currencies that are overvalued; just as stock trader purchases stock that is undervalued and sells stock that is overvalued.

 

This is similar to stock trading. Stock traders buy a stock if they its price will rise, and vice versa. Forex traders employ this same pattern- to buy a currency pair if its exchange rate will rise and to sell a currency pair if its exchange rate will fall.

 

 

Example
Imagine a situation where the U.S. dollar is expected to weaken in value relative to the euro. A forex trader in this situation will sell dollars and buy euros. If the euro strengthens, the purchasing power to buy dollars has now increased. The trader can now buy back more dollars than they had to begin with, making a profit.

 

Exchange Rate

Exchange rate is the relative value of different currencies which are determined by a decentralized foreign exchange marketplace. Unlike other markets, there is no centralized depository or exchange where transactions are conducted. Instead, these transactions are conducted by several market participants in several locations. It is rare that any two currencies will be identical to one another in value, and it’s also rare that any two currencies will maintain the same relative value for more than a short period of time. In forex, the exchange rate between two currencies constantly changes.

 

 

Example
In November 2015, one euro was worth about $1.05. By April 2016, one euro was worth about $1.16. The euro increa-sed in value by about 10.5% relative to the U.S. dollar during this time.

 

EUR/USD Exchange Rate

 

A currency’s value fluctuates as its supply and demand fluctuates.

  • An increase in supply or a decrease in demand for a currency can cause the value of that currency to fall.
  • A decrease in the supply or an increase in demand for a currency can cause the value of that currency to rise.

A big benefit to forex trading is that you can buy or sell any currency pair, at any time subject to available liquidity. So if you think the Eurozone is going to break apart, you can sell the euro and buy the dollar (sell EUR/USD). If you think the price of gold is going to go up, based on historical correlation patterns you can buy the Australian dollar and sell the U.S. dollar (buy AUD/USD).

 

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^ Rakuten Securities was ranked as the world’s fifth largest retail forex broker by volume in August 2017 from Finance Magnates.
Ŧ Only available for clients who hold a Rakuten FX account.
¤ Fixed spreads are offered in Rakuten FX account during at least 95% of the time of the monthly core-time trading period (8am to 2am HKT of every trading day). However it is not guaranteed and it shall not apply to the extreme markets circumstances, include but not limit to low liquidity, high volatility, news events and public holidays. During extreme markets circumstances, spreads may widen beyond the offered spreads. Please always refer to the trading platforms for the most updated spreads.
ɞ Order execution rate is calculated based on the AS Streaming and Streaming trading orders in 10k or less order size with lower than 1 pip slippage setting in which were executed during the period between Jan 1 to Nov 1, 2017.
§ Rakuten Securities HK offers Trading Station platform through its partner FXCM.
※ Commission is charged per trade side on both open trade(s) and close trade(s). All commission fees may be subject to change from time to time without prior notice. Please always refer to the most updated Schedule of Standard Fees and Charges.
ʊ MARKETSPEED FX platform is the winner of “Online Forex Trading Platform” by Good Design Award in 2012.

To safeguard your trading account(s), you are highly recommended to set a strong password and change it regularly.

When executing customers’ trades, Rakuten Securities HK can be compensated in several ways, which include, but are not limited to: charging fixed lot-based commissions at the open and close of a trade, adding a markup to the spreads, acting as a counterparty in the transactions. As a result, Rakuten Securities HK’s interests may be in conflict with yours.

Rakuten Securities Hong Kong Limited (“Rakuten Securities HK” SFC CE Number: AIM232) is a wholly owned subsidiary of Rakuten Securities, Inc. (*) Rakuten Securities, Inc., one of the major online brokers in Japan, founded in 1999, is a subsidiary of Rakuten, Inc. (TOKYO: 4755).
The risk of loss in leveraged foreign exchange trading can be substantial. You may not be suitable as you may sustain losses in excess of your initial margin funds. Leverage can work against you. Placing contingent orders, such as “stop-loss” or “stop-limit” orders, will not necessarily limit losses to the intended amounts. Market conditions may make it impossible to execute such orders. You may be called upon at short notice to deposit additional margin funds. If the required funds are not provided within the prescribed time, your position may be liquidated. You will remain liable for any resulting deficit in your account. You should therefore carefully consider whether such trading is suitable in light of your own financial position and investment objectives. Do not speculate with capital that you cannot afford to lose. If you decide to trade products offered by Rakuten Securities HK, you must read and understand the information and disclosure provided by Rakuten Securities HK. Rakuten Securities HK may provide general commentary which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. Rakuten Securities HK and Rakuten Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on Rakuten Securities HK’s website prior to taking further action.
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