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Although demo accounts attempt to replicate real-time market scenarios, they are based on simulated market environment. As such, there are key differences that distinguish it from a live account; including but not limited to, the lack of dependence on real-time market liquidity, delay or difference in pricing and spread. The operational capabilities when executing orders in a demo environment may result in atypically expedited transactions, lack of rejected orders, and/or the absence of slippage. Additionally, updates to demo account may not coincide with those of live accounts.
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Basic Concepts



What Is Forex?

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.

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.

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 increased in value by about 10.5% relative to the U.S. dollar during this time.

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).


Why Trade Forex?

Online forex trading has become very popular in the past decade because it offers traders several unique advantages. Learn more of its advantages by comparing equities which is one of the most common financial products.

Experience and knowledge in trading and analyzing stocks can easily be transferred to the forex market. Many of the economic indicators familiar to equity traders, such as payroll data and interest rates, affect the currency markets. Also, many technical traders would find the forex market to be particularly attractive, since currencies respond well to many of the common technical indicators, such as MACD, RSI, and Candlestick charting.

Forex vs. Stocks Advantages
Advantage Forex Market Stock Market
Trade Around the Clock Yes Limited
Low Trading Cost Yes Relatively higher
Unlimited Short-selling Yes No
Market Liquidity High Low
Market Information Easily Available Yes
(focusing on 6 major currencies)
Partially yes
(too many stocks to choose from; some vital information is proprietary or private)

Forex Never Sleeps

Trading goes on all around the world during different countries’ business hours. Trader can trade major currencies at any time, 24 hours per day. With the ability to trade around the clock, currency traders have the advantage of customizing their own trading schedule; they can usually get in or out of the market at any time without waiting for an opening bell or encountering a market gap. While trading stocks after usual market hours is possible, very often that possibility is negated by a lack of order flow or a drastic widening of the bid-ask spread.

Account Type Rakuten FX Trading Station§
Commission 0 commission Low & fixed commission
Spread Tight & fixed Spread Raw spreads
  Account Details Account Details

Low Trading Cost

No expensive exchange fees or custody fees are associated with most forex accounts. At Rakuten Securities HK, there are two types of account for selection that both charge very low trading cost:

Go Long or Short

Unlike the equity market, there are no limitations on short selling in the forex currency market, no matter which way the market is moving. If you think a currency will go up, buy it. If you think it will fall, sell it. This means there is no such thing as a bear market in forex - you can make (or lose) money any time.

Unmatched Market Liquidity

Forex market size is huge as $4 trillion a day. Its size, plus the fact that most trading concentrated in only a few currencies, makes it available to a lot of traders without any constraint on trade size, time or getting in and out the market.

Information Accessibility

Forex traders may only focus six major currencies to research. Virtually all of the news that bears on the forex market is in publicly disseminated reports from governments or research institutions, and released to everybody at the same time.

Information about stocks is abundant, but so are the stocks. Finding a trade opportunity in the equities markets may mean sifting through data on thousands of stocks. Additionally, the vital information that moves equity markets, such as revenues and profits, is proprietary and private.


Basic Concepts

Learning to trade in a new market is like learning to speak a new language. It's easier when you have a good vocabulary and understand some basic ideas and concepts. So let's start with the basics of forex trading

Currency Symbols

3-letter symbols are commonly used to denote currencies such as USD for the US dollar and EUR for the Euro.

CURRENCY SYMBOL CURRENCY SYMBOL
US dollar USD Canadian Dollar CAD
European Euro EUR Australian Dollar AUD
British Pound GBP New Zealand Dollar NZD
Japanese Yen JPY Norwegian Krone NOK
Swiss Franc CHF Hong Kong Dollar HKD
Chinese Yuan CNH Mexican Peso MXN
Swedish Krona SEK Turkish Lira TRY
South African Rand ZAR Singaporean Dollar SGD

Currency Pairs

Currencies are quoted in pairs, such as EUR/USD or USD/JPY. The first listed currency is known as the base currency, while the second is called the counter or quote currency. The base currency is the "basis" for the buy or the sell.

Example: If you BUY or "GO LONG ON" EUR/USD you buy Euros (and simultaneously sell dollars). You would do so in expectation that the euro will appreciate (go up) relative to the US dollar. On the other hand if you thought that there were reasons that demand for dollars would rise compared to the Euro you would SELL or 'SHORT" EUR/USD (selling Euros for dollars).

Price Quote

Forex is quoted in pairs, how much one unit of the base (first listed) currency is worth in counter/ quote (second listed) currency.

Example: The EUR/USD at 1.4022 shows how much one euro (EUR) is worth in us dollars (USD). Therefore, 1 EUR = 1.4022 USD

Lot Size

A lot is the smallest trade size available. Rakuten Securities HK accounts have a lot size of 1K (1,000) units of currency. Account holders can however place trades of different sizes, so long as they are in increments of 1K units like, 2K, 3K, 15K, 112K etc.


Example: Spread of EUR/USD is
0.9 pips which is 0.00009 EUR.

Spreads

Just like in all markets, there are two prices- buy and sell, for every currency pair. The difference between the buy price and sell price is the spread, or the cost of the trade. On a Rakuten Securities HK 1K lot size USD-denominated account, a pip on the EUR/USD currency pair is worth US$0.1.

Pip

A pip is the unit used for counting profit or loss. Most currency pairs are quoted to four decimal places, except Japanese yen pairs. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count "pips". Every point that place moves is 1 pip of movement.

Example: EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.

Leverage and Margin

At Rakuten Securities HK, leverage of 20:1 allows you to trade with $1,000 in the market by setting aside only $50 as a security deposit. All trades are executed using borrowed money. This allows you to take advantage of leverage. This means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account. On the other hand, leverage can significantly increase your losses. Trading foreign exchange with any level of leverage may not be suitable for all investors.

The specific amount that you are required to put aside to hold a position is referred to as your margin requirement. Margin can be thought of as a good faith deposit required to maintain open positions. This is not a fee or a transaction cost, it is simply a portion of your account equity set aside and allocated as a margin deposit.
Rakuten FX Margin Trading Station Margin

In short, the leverage ratio is determined by the % of margin requirement as you use margin to create leverage.

Rollover Interest

Traders holding positions for more than one day will receive or pay the interest difference between the two currencies in the pair they are trading. Though daily interest is tiny, leverage* can make this interest significant.
Rakuten FX Rollover Trading Station Rollover

* Without proper risk management, this high degree of leverage can lead to large losses as well as gains.



Margin

Forex Trading Margins

Rakuten Securities HK offers leveraged* currency trading with the leverage level at 5% per lot (20:1 leveraging, the maximum allowed by the SFC regulations).

Requirements for leverage may be changed from time to time at the sole discretion of Rakuten Securities HK, based on volume traded and market conditions.

  • Minimum Initial Margin Level – 5%
    In order to open a new position, available account equity must exceed initial margin level requirement. The initial margin level requirement is 5% of open positions value.

  • Minimum Maintenance Margin Level – 3%
    When the equity of an account falls below the maintenance margin level requirements, Rakuten Securities HK has the right at its discretion to close open positions until account equity exceeds the maintenance margin level requirement. The maintenance margin level requirement is 3% of open positions value.

  • Minimum Liquidation Margin Level – 2%
    When the equity of an account falls below the liquidation margin level requirement, Rakuten Securities HK will automatically close all open positions in the account. The liquidation margin level is 2% of open positions value.

Minimum Initial Margin Level 5% of Open position value
Minimum Maintenance Margin Level 3% of Open position value
Minimum Liquidation Margin Level 2% of Open position value
Rakuten FX Margin Trading Station Margin

Rollover

Rollover Interest on Forex Positions

Rollover is the interest paid or earned for holding an open position overnight. Each currency has an interest rate associated with it, and may vary on a day-to-day basis. Forex is traded in pairs, every trade involves not only two different currencies, but their two different interest rates. In short, rollover is calculated based on the interest rate differential between the two currencies.

Most banks across the globe are closed on Saturdays and Sundays, so there is no rollover on these days, but most banks still apply interest for those two days. To account for that, the forex market books three days of rollover on Wednesdays. Likewise, there is no rollover on holidays, but an extra day's worth of rollover two business days before the holiday. Typically, holiday rollover happens if any of the currencies traded has a major holiday.

Rollover can add a significant extra cost or profit to your trade.

Timing of Rollover

The schedule of rollover credit or debit is different for Rakuten FX and Trading Station platforms, please click the corresponding link for details:

Rakuten FX Schedule  Trading Station Schedule



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