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Basic Concepts

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).

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 1.1699 shows how much one euro (EUR) is worth in us dollars (USD). Therefore, 1 EUR = 1.1699 USD

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

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
0.7 pips which is 0.00007 USD.

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. An example on the left, the spread is 0.7. 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 price quotation change and counting profit or loss in Forex market. In Rakuten Securities HK, most currency pairs are quoted to five decimal places, the fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count “pips”. For Japanese Yen-related currency pairs, prices are quoted to 3 decimal places, whereas the second spot after the decimal point (a cent of yen) is what one watches to count “pips”. Every point that place moves is 1 pip of movement.

Example
EUR/USD rises from 1.16997 to 1.17007, the EUR/USD has risen 1 pips.

USD/JPY drops from 110.200 to 110.145, the USD/JPY has dropped 5.5 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

 

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

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

 

Free Education Resources to Learn FX Trading
Regular Seminar Schedule Trading Insight (Chinese only)
Platform Training or Demo Open an account

Register a Rakuten FX Trading Platform Demo

*Required Fields

I acknowledge that Rakuten Securities HK may contact me by phone, mobile messenger or e-mail with information on Rakuten Securities HK's products, services, promotional offers and trading education, and assist me in using the forex online trading platform.

# The total accumulated number of accounts opened with Rakuten Securities was 8 million, as of 20 June 2022. Please click here for details.
^ Rakuten Securities was ranked as the world’s fourth largest retail forex broker by volume in Q3 2020 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.
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 Group, 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.
Information Security on Internet: To protect your privacy, do not access your trading account via public or shared computer or save your password locally in any computer or mobile device after logging in. Rakuten Securities HK will never ask you to send any of your personal information such as account number and password to us directly via e-mails.
(*)Company Registration ID (in Japan): Kanto Local Finance Bureau (Financial Instruments Firms) No.195

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