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What is Arbitrage Trading in Forex? How to Arbitrage Forex?

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Have you ever wondered how people profit from selling one commodity in one market when they have bought the same commodity in another? The difference in prices causes most people to benefit. In a real example, avocado could be going for $2 in one market and go for $3 in another. If you buy an avocado in the cheapest market and sell it next, you will have a $1 profit. You can keep doing this over and over again and continue making more profits. This is the pedestrian explanation of arbitrage. Arbitrage is the simultaneous purchase and sale of a commodity or asset due to an imbalance in the prices. Securities, commodities, or currencies are used in most arbitrage cases.

Arbitrage takes advantage of the price differences to make a profit. Since no market is efficient, these differences in prices have to exist. The trade of using such differences and making a profit out of it is arbitrage. Arbitrage exists in two broad types: pure arbitrage; and risk arbitrage. Pure arbitrage is risk-free, whereas risk arbitrage is speculative. This is because it is founded on the presumptions of future events that may or may not actually occur. Arbitrage works best in the forex situation; hence the term ‘forex arbitration.

 

What does arbitrage mean?

In theory, arbitrage represents the possibility of instantaneously buying the asset for a low price, selling it for a higher price, and getting risk-free profit after transaction costs. However, in practical online trading, there are always risks in arbitrage (i.e., execution risk) when traders try to profit from a difference in the asset’s price between markets.

Now, let us see what is arbitrage in trading:

What is arbitrage trading?
Arbitrage trading in forex is the process of purchasing assets in one market and immediately selling them in another market to benefit or profit from the differences in prices. Arbitrage trading’s goal is to exploit the pricing inefficiencies in different markets for the same asset.

You end up with a risk-free profit. Here is a practical example: Company A’s stock is trading at $20 on the New York Stock Exchange (NYSE). The same stock is trading at $20.50 on the Toronto Stock Exchange (TSE). If a trader purchases the stock in the NYSE and sells the stock immediately in the TSE, they will earn $0.5 per share. This is trading in stocks. The immediate need for purchase and selling is based on the fact that prices can change, leading to better profits, no change in the profit margin, or less profit. If the prices adjust and the LSE prices go below your purchasing price in the NYSE, you will end up having a loss.

Currency arbitrage definition

Currency arbitrage represents buying and selling currency pairs from different brokers or different markets to take advantage of the miss-priced rates. Usually, currency arbitrage involves buying a given currency on one market and instantaneously selling it on another. For example, you purchase USD in the spot market and then sell the same in the futures market to make a profit.

Is arbitrage legal?
Arbitrage trading is legal. Arbitrage trading can be very profitable. For example, you can read articles such as ‘latency arbitrage’ trading maybe $3 billion as same as HFT trading problem is over.

Stock market example: ABC Bank is trading for CAD 74.50 on the Toronto Stock Exchange (TSX) and 56.50 on the New York Stock Exchange (NYSE). At the time, the exchange rate of CAD/USD is 0.77, meaning for every CAD 1, you have USD 0.77. Mathematically, it should mean that ABC Bank’s trade in the NYSE equivalent to USD 57.30. This means that you can purchase ABC’s share from the TSX at CAD 74.50 and sell it in the NYSE at 56.50, making CAD 0.8 profit per share. This is because the New York equivalent of CAD 74.50 is USD 57.30

Latency Arbitrage (High-Frequency Trading Arbitrage)
In this example, we have “slow broker” and “fast broker.” Using HFT trading, we can see future price (fast broker) (0.5 seconds faster, for example ), and then we can make a profit using “slow broker.”
Latency arbitrage is a complicated way of trading, and if you want to learn more, you can read the research paper Latency arbitrage in fragmented markets.

Concept of arbitrage in the foreign exchange market

What is arbitrage trading in forex?

You can read more in What is Arbitrage Trading in Forex?

Forex Triangular Arbitrage
Forex triangular arbitrage is a method involving offsetting trades to profit from differences in Forex markets’ prices. It is a more complicated arbitrage strategy than the ones above. Forex triangular Arbitrage involves a pair of currencies, such as EUR/GBP, the Euro, and the British Pound. When trading in these pairs, you buy the first-named currency while selling the second-named currency. In the example above, you will be buying the Euro and selling the British Pound. In triangular arbitrage, a trader converts one currency against another in three banks.
Forex triangular arbitrage example: you have $1,000. You will exchange the money in three banks’ situations based on the currency exchange values. Take these exchange rates for instance: €/ $ = 0.90; €/ £ = 1.25; and $/ £ = 1.5 respectively. You will convert the $1,000 to Euros, giving you €900. Next, you will convert the €900 to Pounds, and you will get £720. Finally, you will convert the £720 back to Dollars. You will end up with $1,080. You will have earned an extra $80 in the process, assuming there are no transaction costs or taxes.

Technological Advancements in Forex Trading and Arbitrage
In an ever-competitive market, technology has been used to ease the means of acquiring an arbitrage. Hundreds of trading companies, boasting of experts and excellent software, meant ease in the day-to-day trading activities. Traders are now able to perform risk-free transactions in a quicker and more agile manner. The arbitrage is still the same, although the strategies used could be different. It is also important to note that each trading software is subject to extra risk, and profitability could change, depending on the software you use. The high number of competitors in the Forex market could mean lower arbitrage. Ensure the software you use is correctly coded to avoid price quote errors and work with an old version of a program. These tiny errors can cause a lot.
Other Forms of Arbitrage:
Other than the triangular and the forex arbitrage in general, there are several other types of arbitrage. The item in question is the one that varies; however, the concept is still the same.
Interest Rate Arbitrage
This is a common form of arbitrage, also referred to as ‘carry trade.’ In this form, an investor sells currency from countries with low-interest rates and then purchases a currency paying higher interest rates. Later, the investor reverses the trade, meaning they sell the high-interest rate currencies and purchase low-interest-rate currencies. They get to pocket the difference. This type of arbitrage is carried over a period of time and therefore involves more risk, majorly due to the variation of currencies and/or interest rates.

Spot-Future Arbitrage
As it is commonly referred to, the ‘cash and carry’ arbitrage involves choosing or taking positions on the spot and futures markets regarding an asset. The trader purchases a particular asset at a certain price and sells it in the futures market when it is much favorable. The reverse of this can also happen, where the trader sells an asset and buys the same asset in the futures market.
There also is dividend arbitrage, currency arbitrage, fixed-income arbitrage, political arbitrage, regulatory arbitrage, and municipal bond arbitrage. All these forms revolve around the term mentioned. For example, dividend arbitrage is where options are purchased out at an equivalent amount of the underlying stock before the ex-dividend date. They are then exercised, collecting dividends—fixed-income arbitrage profits a trader due to pricing differences in interest rate securities. An investor takes opposing positions in the markets to take advantage of price discrepancies, at the same time limiting the interest rate risks.

Problems and Risks in (Forex) Arbitrage
As earlier noted, an arbitrage exists because of the fluctuation in price differences. It is important to be fast about these differences to achieve the desired profit. However, others also recognize the price differences, and under the laws of supply and demand, the price differences shrink. The overpriced items are made to be cheaper, whereas the under-priced ones have their prices go up. The margin shrinks, and the arbitrage becomes no longer profitable. Your execution speeds are key because they can make a difference in what amount you will be taking home.
Even in the original example involving an avocado, prices fluctuate because of demand and supply laws. When the demand is high, the prices go down, whereas when the supply is too high, the prices go high. This will cause the cheaper-trading markets to sell their avocados at a higher price, while the other market, where they were being sold, will have their prices go down. The arbitrage margins will shrink, causing lower profit margins.
There is also the fact that a ‘negative spread’ can happen. A negative spread is when the seller’s asking price is lower than another buyer’s bid. For example, a bank can quote a particular price for a currency, or a seller can quote a certain price of a product or asset, while another seller or bank quotes a different selling price. Therefore, it applies that the arbitrageur will purchase from the seller and sell the asset to profit. Instead of the trader waiting for a favorable trend in the markets, they encounter one just like that. On the adverse hand, ‘execution risk’ can occur. When the price is quickly corrected, making the trade less profitable means the trader could lose.

Explain the concept of arbitrage in the foreign exchange market
Forex arbitrage between brokers
The arbitrage concept can be represented as the process of simultaneous buying and selling of currencies in two or more foreign exchange markets to make profits by capitalizing on the exchange-rate differentials in various markets.
It is a technique or strategy to place two separate trades at two different brokers and make money by the price discrepancies. The theory is elementary because each broker has its own platform and has a price difference. In other words, we can say that money can be put together by the difference between two currencies while making pairs of that. If the paired money has space to give something, then profit is minimal due to the opportunity window.

Using arbitrage strategy as a forex trader?
A strategy that involves no risk in trading in Forex is called arbitrage. It used to profit without currency exposure being open.
This particular strategy is based on aiming for inefficiencies in pricing at the time they are available.
For example, EUR/GBP, EUR/USD, GBP/USD exchange rates are 0,7231, 1,1837, 1.6388. this is the time when you can buy a Euro mini-lot worth 11,837 dollars. Then trade 10thousand euro for GBP and earn 7,231, sell that and get 11,850, thus making 13 bucks of profit per trade. Short positions for each currency are canceled by long positions when the exposure isn’t open.
The catch is to act fast, as the inefficiencies with pricing are being corrected quickly. To exploit these inefficiencies, you have to have quotes of pricing in real-time, and you have to be able to exploit the opportunity quickly. There are available calculators to get to these changes faster.
There is a special calculator that can be used to calculate these situations. It can be found all over the internet and other tools for making finding these inefficiencies easier. Usually, brokers provide these sorts of calculators, sometimes for free, and it can be on a free trial, but they are available.
However, before going for this sort of profiting, you should practice. Demo accounts are good for that job, as always.

Due to less risk than other forex techniques or strategies, traders normally prefer to make a transaction. When the risk is too high, the trader will obviously hesitate to put money into the trade or business deal.
Forex arbitrage is the process of profitable trading between two dissimilar forex dealers. Forex (Foreign Exchange) is converting one country’s currency to another country’s currency, and ‘arbitrage’ is the term used for increasing profits with a better price difference amongst different country markets. A forex broker is a person who mediates the transactions between two different country persons.
Forex arbitrage involves a currency pair to trade, as one currency is to sell and the other is to purchase. The profits are always in four decimals, such as 0.0001$, and as the profits are so minimal, they are called Pips (Percentage in Points). The PIPs may look small, but they value more. Forex arbitrage software, released by Jason Fielder with Anthony Trister and his squad at forex collision, is used to place the trades.

How to arbitrage forex?
Forex Arbitrage is a strategy used for making money due to the inefficiency in the two currencies. This is done very fast because when the inefficiency is correct, then there is no opportunity to trade-off makes a profit. Real-time currency rates are significant for this because international market prices change in minutes and even seconds.
The most popular trades used in Forex Arbitrage are two currency trades. Now the trader will trade with two different brokers, each with its own pricing spreads. You can make a profit from each transaction by keeping in mind the difference between each broker’s prices for the same currencies in a single quote while keeping an understanding of the currency exchange rate of the two currencies. The exchange rate of the currencies has a smaller ratio than the prices, well also checked by the fluctuation of the currency rates.

Arbitrage Calculator
There are many techniques used to speed up profits, but the simplest way to do it is with the Forex Arbitrage calculator’s help. The only problem is that they are costly, so be sure that the calculator is working properly before purchasing. The best way to save your money on a Forex Arbitrage calculator is to learn techniques from experienced traders.

The idea behind a Forex Arbitrage calculator is the same, but it only automates transactions from different brokers trading in different pairs. Some big investors have their own advisory board for huge transactions, but normally two brokers with a single Forex fair. With this software, you can keep track of 5 brokers’ pricing feeds along with each currency arbs they are working on.

Forex Arbitrage normally calculated costs from $2000 to $3000, but it also depends on the software’s quality. If it is a high-end product, then the price will be more than the standard edition. As advised earlier, before purchasing a calculator, it is better to check the demo version to give you an idea of what to expect.
Let’s take an example of how it works theoretically with three related currencies paired by the formula.
AAA/BBB x CCC/AAA = CCC/BBB
BBB = USD (US Dollar)
AAA = EUR (Euro)
CCC = GBP (Pound Sterling)

You can make profits from purchasing US Dollars and spend it but buying Euros, then once again buying Pounds Sterling by spending US Dollars and at the end by selling CCC with the pair of Euro; by making all this process a small amount of profit will be earned. You can also increase the profit by trading higher amounts for different brokers with a margin of prices.
You will probably have noticed that this technique is simple in theory but sophisticated in application. If you have patience and have complex software that can formulate huge amounts and exchange rates, then you have a little opportunity to make money because there are so many traders extracting similar information. Forex Arbitrage only supports your income, but it can not run your expenses.


Conclusion
Markets are dynamic, and they change every second. A trader can potentially lose or gain from any change in the markets. Executing arbitrage measures can be potentially profitable, but in certain situations, it can lead to losses. The advancement in technology has made it easier for traders to generate profits in Forex trading circles. However, caution should be exercised since the increasing number of players in the markets makes the arbitrage margins fluctuate. Such fluctuation can lead to losses exceeding the amounts deposited. Therefore, traders must check the news, prices, research, analysis, and other information about general market trends. However, they should stay away from investment advice as it may be clouded or wrong.

How to Calculate Lot Size in Forex? – Lot size calculator

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How to Determine Forex Position Size

For a foreign exchange (forex) trader, the trade size or position size decides the profit he makes more than the exit and entry points while day trading forex. Even if the trader has the best forex trading strategy, he takes too little risk or too much risk if the trade size is very small or huge. Traders should avoid taking too much risk since they will lose all their money. Some tips on how the trader should Determine Position Size are provided.

Lot size in forex trading

What is lot size in currency trading?

What is a lot in forex? Lot in forex represents the measure of position size of each trade.  A micro-lot consists of 1000 units of currency, a mini-lot 10.000 units, and a standard lot has 100,000 units. The risk of the forex trader can be divided into account risk and trade risk. All these factors are considered to determine the right position size, irrespective of the market conditions, trading strategy, or the setup.

Now let us define a standard lot.

What is the standard lot size in forex?

The standard forex size lot is 100,000 units of currency. Usually, brokers represent forex lot size with currency units. For example, 5 lots are 500 000 currency units.

In this video, we will see lot size forex trading example:


How to calculate lot size in forex?
Forex lot size can be calculated using input values such as account balance, risk percentage, and stop loss. In the first step, the trader needs to define a risk percentage for trade and then define stop loss and a dollar per pip. A trader needs to determine lot size (number of units) for currency pair in the last step.

Determine the risk limit for each trade

To calculate risk percentage for trade using account balance, traders can define risk in dollars per position trade.

Most traders consider specifying the dollar amount or percentage limit risked on each trade as the most crucial step in determining the forex position’s size. Lot size forex calculation is simply because professional and experienced traders will usually risk a maximum of 1% of their account in trade; usually, the amount is lower. While the other trading variables may change depending on the trade, most traders will keep the percentage they risk on the trade constantly, though the amount risked for the trade may be reduced if it exceeds the 1 percent limit.
Calculate risk percentage - forex lot size formula
(Max risk per trade position should be 1%-2%)

Determine forex size position using  dollar per pip:

To calculate forex size position based on dollars per pip, traders need to divide the risk per dollar by several pips.

A pip is an abbreviation for price interest point or the percentage in point, which is the lowest unit for which the currency price will change. When currency pairs are considered, the pip is 0.0001 or one-hundredth of a percent. However, if the currency pair includes the Japanese yen, the pip is one percentage point or 0.01. Some brokers show prices with an additional decimal place, and this fifth decimal place is called a pipette. In the case of the Japanese yen, the third place is the pipette. m The Pip risk for each trade is calculated as the difference between the point where the stop-loss order is placed and the entry point.

calculate dollar per pip. Forex lot size formula

A stop-loss will close a trade when it is losing a specified amount. Traders use this to ensure that their loss does not exceed the account’s risk. The stop-loss level also depends on the pip risk for a specific trade. The volatility and strategy are some factors that determine pip risk. Though traders would like to ensure that their stop loss is as close to the entry point as possible, keeping it too close may end the trade before the expected forex rate movement occurs.

How to calculate stop loss in pips?

To calculate stop loss in pips and convert in dollars, traders need in the first step to find the difference (absolute value) between the entry price level and stop-loss price level. In the next step, traders need to multiply Pips at risk, Pip value, and position size to calculate risk in dollars. For example, if a trader buys EURUSD at 1.2 and the stop-loss level is 1.195, then the stop loss value is 50 pips (1.2-1.195=0.005=50 pips). Then, 50 Pips at risk X $1 per Pip X 1 mini lot position size = 50 x 1 x 1= $50.

Pips at risk= 50 pips

Pip value= for EURUSD is $1 for 1 mini lot

Position size = 1 mini lot

Pips at risk X Pip value X position size = 50 x 1 x 1= $50


Determine forex lot size position

In a currency pair that is being traded, the second currency is called the quote currency. If the trading account is funded with the quote currency, the pip values for various lot sizes are fixed at 0.0001 of the lot size. Usually, the forex trading account is funded in US dollars. So if the quote currency is not the dollar, the pip value will be multiplied by the exchange rate for the quote currency against the US dollar.
forex lot size based on dollar per pip

What information do we need to make a forex position size calculator formula?

Let us repeat all steps once time more:

Account Currency: USD
Account Balance: $5000 for example
Risk Percentage: 1% for example
Stop loss: 200 pips, for example
Currency: EURUSD

How to find a lot of size in trading? In the first step, we need to calculate risk in dollars, then calculated dollars per pip, and in the last step, calculate the number of units.

Step 1: Calculate risk in dollars.
Calculate Risk percentage from account balance: 1% for $5000 is : $5000/100=$50.
$50 is 1% of $5000.

Step 2: Calculate dollars per pip

(USD 50)/(200 pips) = USD 0.25/pip

Step 3: Calculate the number of units
USD 0.25 per pip * 10 000 = 2,500 units of EUR/USD

For 5 digits brokers, we use 10 000 as a multiplicator.

2.5 micro lots or 0.25 mini lots is the final answer. Technically, it is 2 micro lots because most brokers do not allow trading less than micro-lots.

In the end, here, you can use the Position Size Calculator.

In MT4, calculate lot size using a lot size calculator. If you know your risk, you can calculate lot size using the calculator below:

Lot size calculator

The lot size forex calculator is represented below. You can use to calculate forex lot position size:

The risk you can define either using % or either using risk in dollars.

What Time is the Forex Market Most Active? – Forex Session Times

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Best Forex Trading Hours

The foreign exchange (forex) market spread and the profit a forex trader makes depends on when he chooses to trade. Hence forex traders, especially those who are new to forex trading, would like to find the Best Forex Trading Hours. Experts claim that the optimal time for trading forex is when the market activity is highest, since the difference between the bid and ask prices, the trading spreads will reduce to the lowest level. During this period, the forex brokers make less money, and the forex traders can profit for themselves. But is this true only in theory?

The largest forex exchanges in the world are Tokyo, London, Sydney, and New York exchange. Forex traders need to remember when the working hours of these exchanges and when more than one exchange is open. If the multiple exchanges are open, the trading volume increases, adding to the volatility and increase of the currency prices. Forex traders can benefit from these factors. Though investors usually do not like volatile markets, high volatility results in more opportunities to profit in forex.

What time is the forex market most active?

The most active trading hours are from 8 a.m. EST to 12 a.m. EST when both the New York and London forex markets are open. At this time, forex liquidity and volatility will likely be high because the US dollar market share is around 88% by the value of turnover. However, important market news can change the market activity period, and the price of a currency pair can dramatically go up or down at that moment.

During Sydney and Tokyo, forex sessions forex trading volumes are lower since these are smaller markets.

 

Forex trading sessions in EST and GMT

Forex sessions can be divided into four major trading sessions: the Sydney session, the Tokyo session, the London session, and the New York session. A trading session is a period of time when market participants actively trade. However, many traders divide forex sessions into Asian, London, and US sessions.

forex sessions GMT

Forex trading sessions GMT (spring and winter time)

There are 15 independent exchanges worldwide, which are open every week from Monday till Friday. However, these 4 markets are the most liquid and most important. Let us see now forex session time for EST:

forex sessions EST

Forex trading sessions EST (spring and winter time)

Sydney trading session

What time does the Sydney session open?

Sydney forex session opens at 22 GMT (springtime) or 21 GMT (winter time). Sydney forex session opens at 18 EST (springtime) or 17 EST (winter time).

Now let us see when does Sydney markets close:

What time does the Sydney session close?

Sydney forex session closes at 7 GMT (springtime) or 6 GMT (winter time). Sydney forex session closes at 3 EST (springtime) or 2 EST (winter time).

So to sum up:

Sydney session time is from 22-7 GMT during spring or 21-6 GMT during winter. Sydney session time is from 18-3 EST during spring or 17-2 EST during winter.

Tokyo trading session

What time does the Tokyo session open?

Tokyo forex session opens at 23 GMT or 19 EST.

What time does the Tokyo session close?

Tokyo forex session closes at 8 GMT or 4 EST.

Tokyo session time is from 23-8 GMT or 19-4 EST.

London trading session

What time does the London session open?

London forex session opens at 7 GMT (springtime) or 8 GMT (winter time). London forex session opens at 3EST (springtime) or 4EST (winter time).

What time does the London session close?

London forex session closes at 16 GMT (springtime) or 17 GMT (winter time). London forex session closes at 12 EST (springtime) or 13 EST (winter time).

To sum up:

London session time is from 7-16 GMT during spring or 8-17 GMT during winter. London session time is from 3-12 EST during spring or 4-13 EST during winter.

New York trading session

What time does the New York session open?

New York forex session opens at 12 GMT (springtime) or 13 GMT (winter time). London forex session opens at 8 EST (springtime) or 9 EST (winter time).

What time does the New York session close?

New York forex session closes at 21 GMT (springtime) or 22 GMT (winter time). London forex session closes at 17 EST (springtime) or 18 EST (winter time).

To sum up:

New York session time is from 12-21 GMT during spring or 13-22 GMT during winter. The New York session time is from 8-17 EST during spring or 9-18 EST during winter.

 

What time is the Asian trading session

Asian session forex time is a trading session between 23 and 8 GMT or 19 and 4 EST. Asian session overlaps with Tokyo forex session, and in Japanese time this session occurs from 9 to 18 JST.

See major forex market hours – forex trading session times Table:

Time Zone
forex.in.rs		EST SpringEST WinterGMT SpringGMT Winter
Sydney Open18172221
Sydney close3276
Tokyo Open19192323
Tokyo close4488
London Open3478
London close12131617
New York Open891213
New York Close17182122

Best Times for trading in Forex

The Most Profitable Trading Hours in the Forex Market are usually in periods of high volatility for trend trading strategies, such as periods when European and USA market trading sessions overlap.

eur usd forex time - eur usd opening hours sessions cycle

For most forex traders, the best time to trade is the four-hour period when both the London and New York exchanges are open from 8 am till 12 noon (EST). More than half the forex trades take place at these exchanges. On the other hand, around 18 (EST), most of the trading occurs at the Sydney, Singapore exchanges, which have a far lower trading volume. The expected trading volume assumes that there will be no news affecting the forex market. If there is a military or political crisis, there may be an increase in trading volume, volatility even during the timings when the market is usually slow, so forex traders can profit.

Many traders who are new to foreign exchange (forex) trading spend a lot of time researching. Unlike the stock markets, which are open only during business hours, the forex market is open all the time, so that many first-time traders will work long hours. However, this can use up the trader’s savings and also leave the trader mentally drained. Hence the trader should understand the timings of the forex markets worldwide, activity and plan their schedule accordingly to get the best results working reasonable hours. The Best Times to Trade the Forex Markets are discussed below.

Unlike stock markets, the forex market worldwide is linked and is open from Sunday 5 pm EST to Friday at 5 pm. If two or more of the four major forex markets are open, the trading volumes will increase, and the currency pairs are more likely to fluctuate. If only one market is open, the spread for the currency pairs is limited to 30 pips. However, when two or more markets are open, the forex spread may be more than 70 pips, especially when major news related to the economy is released.

Research about Best Times for trading forex by Dailyfx.com
Experts from Dailyfx.com have analyzed over twelve million trades conducted by a large foreign exchange(forex) trader to find trends. It was noticed that the profit or loss of these traders depended largely on the day’s time. Most of these traders are called Range traders since their profit depends on market conditions to a large extent. The strategies for range trading involve buying low and selling high. Many traders make a loss because they are choosing the wrong time for trading. Hence many traders would like to find out When is the Best Time of Day to Trade Forex? So that they can plan their schedule accordingly and make a profit.

when is the best timet to trade forex
Dailyfx research by David Rodriguez – You can see those periods of strong trader performance line up with low-volatility trading hours.
https://www.dailyfx.com/forex/technical/article/special_report/2011/12/12/When_is_the_Best_Time_of_Day_to_Trade_Forex.html

Thousands of forex trades were analyzed to find trends in the forex traders’ profits for five of the most popular currency pairs. While there are some daily fluctuations are observed, it is found that the trends are fairly stable. It is found that the traders are most likely to make a profit when forex/currency rates are less volatile. This is usually during the Asian, late US, or early European forex market trading sessions. While the range trading strategy is effective when the forex rate fluctuates less, the trader will lose more volatility.

The Best forex session to trade

After a lot of research, experts have noticed that for making a profit, European currencies should be traded during the period when major markets are closed, using a strategy for range trading. This corresponds to trading between 23 to 8 GMT (19 – 4 EST). Hence the trade filters should be set accordingly. The same strategy is not effective when the Euro currencies are volatile during peak trading hours. Making a profit Range trading in Asia-Pacific currencies is more difficult since the periods when currency rates are highly volatile and less volatile are less clearly defined than European currencies.

The best arbitrage opportunity is evidenced on Fridays (learn more about arbitrage in our article)when selling USD and buying EUR at 00:00 and selling EUR and buying USD at 03:00 the same day.

Overlaps in timings for forex markets

Since the price range in forex markets is higher when more than one market is open, there are more opportunities.

How news affects the forex market

Major news can increase the trade volumes during a period when few traders are active. If the news is drastically different from what was predicted, the currency value can fluctuate greatly in a few seconds. New economy-related information affects currency rates worldwide; however, only a few news types are relevant for forex traders. This news is interesting rate-related policy decisions, trade deficits, consumer consumption and confidence, CPI data, central bank meetings, GDP data, Unemployment rates, and retail trade-related information.

Conclusion

Forex traders should consider the overlap in market timings, economic news while deciding their trading schedule so that they have enough time to rest and other activities. Reading science research papers about this topic, there is no 100% rule about the best trading time for the forex market but based on Dailyfx research, the most profitable hours are low volatility hours.

How to Become a Forex Trader?

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A lot of people think about education and license as the most important things in any business. However, trading is a business where knowledge and license do not mean a lot of fortune.  Testing, analysis, and patience are the most important things in trading.

A forex trader, aka a currency trader or a foreign exchange trader, is an individual that indulges in buy/sell of currencies on a forex exchange platform. Financial institutions or banks appoint the forex trader to help them manage the cross-country transactions to ensure more profitability. Apart from this professional appointment, some forex traders have opted for exchanging currency as a bread-earning occupation.

How to Become a Forex Trader?

To become a forex trader, you need to start reading books related to currency exchange, technical analysis, and fundamental analysis. In the next step, you need to practice on a demo account (virtual account), learn to make decisions, and create bad and good trading positions. Finally, when you see profit gains in the demo account, open a forex trading account, make the first deposit, and become a forex trader.

How long does it take to learn forex?
The average trader needs around 5 years to learn forex trading and develop a personal trading strategy. However, in few months, traders can very fast learn the trading process, basic technical analysis skills, and fundamental analysis. The trading strategy improvement, market behavior knowledge, and experience can be built only over a long time.

How do I become a currency trader?

  • Step 1: Start reading trading books.

Please see our advice in our article Can Forex Trading be Self Taught? Please try to read the most important trading book “Technical Analysis” by John Murphy.

In this book, you can see that forex trading can be self-taught; traders can read books and practice trading as same as any other skill. Trading is not brain surgery, but it is based on analysis, testing, patience.

  • Step 2: Try to understand risk.

Anybody with a small amount of money and patience may turn into a Forex trader. It would help if you had time and skill to turn into a profitable or successful trader. As a new forex trader, you should focus on restricting losses and spotting trade setups with positive risks. In the face of the ease of getting into the Forex trade, there are some measures you should take. Hurried entry into Forex business may lead to losses very quickly. Let’s find out how to become a Forex trader. Read everything about an absolute and maximum drawdown in the portfolio.

Then try to read our article Can You Make a Living Trading Forex and see the risk table.

How much trading capital you need?

Forex traders would not require a big capital for trading because they can trade on margin. An ordinary Forex broker needs a minimum of $100 to activate an account to start trading. The golden rule to become a Forex trader is to start with at least $500 to activate the mini account. However, this number may sound a bit higher for beginners, but that will let you work like a safeguard in loss cases. If you are not looking for risk, the big amount will ensure you are not forced to exit the trade.

Why $500 is the minimum amount. If you trade micro-lots and risk $5 per position (50 pips on 1 micro lot position size), it is a 1% risk for your portfolio. 1%-2% risk is the maximum risk for new traders (and good traders as well).

What qualifications do you need to be a forex trader?
You do not need qualifications to manage your own money. In corporate finance, you need to have a license (learn about FINRA certificate). So, do you need a license to trade forex – No, if you trade your own money or PAMM or MAMM accounts. If you work in the company as a trader – some companies will ask you to have a license.
So when you ask yourself, How do I become a forex trader – start trading and read trading books. To manage your money, you do not need qualifications.

Using the Demo Account

The Forex trade demo account works on fictitious money. It is connected to the live market. Trades may be located in actual time and can represent what could be a true loss. Before you spend on his line, you will require some basics practices. A demo account can give you this trading practice without any pressure of being right all the time.

How to practice forex trading with fictitious money?

Before you start practicing, you will need to learn a few Forex trading strategies and advice from trading books. As a Forex trader, you may require to develop trading ideas. However, in the beginning, it may help you to get some directions from professionals, and it is important to read as much as you can. Forex trading may be very discouraging in the initial days. That’s why you may need some guidance and advice from an expert Forex trader.

Starting the actual trade

To become a forex trader, you need to open a forex trading account at a regulated forex broker. After practicing on a demo account and reading forex books, you need to deposit at least $1000 and start trading. However, if you have the experience, you can find a job in some trading prop company and start professionally trading.

There are various ways and methods to become a forex trader.

The first step remains to be choosing a particular way through which you can trade currency. Primarily, there are three ways to trade currencies stated below.

  • On an exchange governed by the Commodity Futures Trading Commission
  • On an exchange governed by the U.S. Securities and Exchange Commission (SEC)
  • On over the counter market (unregulated, off-exchange market)

For trading currencies, an individual needs to have a brokerage trading account.

If you already have a U.S stock broking account, you might have the privilege to trade forex on the same. While in some cases, you may have to fill an online currency-trading application.

You may have to deposit a certain amount in your forex account for trading in forex, but it varies from broker to broker. Though the more deposit you would keep in your account, the more flexibility you would get in terms of the broker’s risk assessment.

After opening the account, you can trade your preferred currencies, but note that they are traded in pairs. It works on the formula of price rise in one currency leading to downgrading in another.

As a beginner, you are advised to trade only in popular currencies like the U.S dollar or British pound (GBP), not to face liquidity challenges. As a beginner, you should trade forex on listed and regulated exchanges to avoid consequences on your new journey.

For trading in currencies, a forex trader has to pay a charge called the forex spread. The charge is that a middleman/broker levies on a forex buyer and seller to manage the trade.

Before you really start Forex trading and earn money in Forex trade, you should be capable of profitable trade in your demo trading. The track record of profitable earning should be of a couple of weeks, a minimum of three months, though a period of six months is the best.

Look, if you are on the right track.

After the practice of a few months, a little bit of training, some education about Forex trade, and becoming a consistently profitable trader, it is time to enter the world of live Forex trading. You will find that it is a little bit different than the demo trading. However, if you continue to like the practice you did to become a profitable trader in your demo account trading, you will find success in Forex trading.

Things to Be Aware of as a Forex Trader

Forex traders can get excited and overwhelmed with the hefty profits in currency trades, but it’s not all rosy. If you can win a big trade with a small amount, you can also lose a big amount when faced with downward consequences and trading situations. Just like your unlimited profits, you lose unlimited, too.

Forex trading comes with complications and complexities, one of which is a lack of uniformity in placing and trading quotes. As an equity trader, you buy a stock in your local currency as it’s listed on your country’s stock market; here, you do not have to worry about the currency converter. But when you are a forex trader, the trading is done in currency pairs, as discussed above. Some trades are quoted against the American dollar, while some against the Japanese yen. The lack of standardization and regulations makes it difficult for traders to ease and simplify trading forex.

As a forex trader, you have to be aware of the fraud spanning your hard-earned money when trading currencies. It doesn’t matter whether you opt for a regulated forex exchange or an over-the-counter market; anyone can take advantage of your greed. Thus, you must avoid getting into ‘Get Rich Schemes.’ There is nothing in this world that you can get without working for it. So, invest your brain when you invest your money in the forex market.

Bonus Tip

As a beginner, you may be worried about losing your money in the forex market, but you can get a smooth time understanding the entire process with practice forex trading accounts. All you have to do is search for a broker that provides such facilities; one of such is FOREX.com.

Using such a practice account, you can experience trading currencies without spending your own money. When you finally feel confident enough to trade in the real market, go for it. It’s a boon for individuals wanting to dive into this field without facing any severe consequences. All the best!

How to be a professional forex trader?
If you have funds above $100 000, you can start living as a professional trader. Then you can quit your job and live from the profit of your trades. This is my personal opinion.

Trading cannot always be profitable. No financial markets, including the forex market, are sure shot accurately. But as they say, try and try and you will win. Here winning means being a little more accurate forex trader than you already are.

What is an Accurate forex trader?

An accurate forex trader implies a trader’s possibility to have as high as the possible trading ratio as the number of correct predictions to the total number of input trades when the risk-reward relationship is immutable. Humans tend to find solutions to their problems, which has been true in forex trading. With the best practices, a forex trader can increase the chances of profit and reduce losses. These tactics are as simple as being aware, disciplined, and prepared for the forex market. Implementing constant awareness in trading can, for sure, lead to better accuracy forex trading. Traders need to learn to analyze mistakes if they want to improve accuracy.

How can forex traders improve accuracy?

For example, a trader creates a strategy to buy and sell some forex pair using some rules. Trader risks $10 and tries to reach $10 target. When the trader tested strategy, his winning ratio was 49%, for example (risk: reward is 1:1). Using a trading history plan or some machine learning algorithm, a trader can create a better model, change rules, add the rules. Just one filter (new trading rule, for example, to buy only above EMA200 or SMA10, etc.) can improve accuracy, and now it is 52%. This is a huge improvement, and now strategy can be profitable.

Tips How to Become an Accurate Forex Trader:

1. Take It Easy and Create Low Expectation

Things, even in ordinary life, get ruined if you make impulsive decisions. The same thing applies to forex trading. Be easy when trading in forex.

The forex market is highly leveraged as much as the typical leverage scenario looks like 50:1 or 100:1. It means if you have $1 in your forex trading account (it is just a hypothetical example), you will get to trade forex worth $100. That is insane. In some cases, the leverage is as much as 200:1. The profit using leverage is gigantic, but it also comes with the downside risk of being wiped out from the forex market within seconds if the trade goes in the opposite direction.

Forex trading is different from stock market trading. In forex trading, after getting done with the questionnaire on trading goals, if you have a debit card and an identification card, you can have margin trading, unlike the stock market as in the stock market, you need to have real money in your trading account. Thus, it’s easier for more people to trade in the forex market.

Easy access often makes novice traders enter the market hoping that they would make easy and quick money. The attraction here can be compared to a lottery ticket that people buy as their financial remedies. Most lottery buyers feel that they will win the lottery and get rich in a few days. But what they forget is that only one in a hundred million has the odd chance to win the lottery.

The same thing happens when new traders enter the market. They forget that the forex market is not a lottery; it would require more than just a chance. There has to be enough knowledge, skills, and patience to win profitable trades, which doesn’t come by just gambling.

Thus, the best practice you can opt for while starting the forex trading is to go in easy. It would help if you had a limit on how much you should trade initially. In addition to that, never trade without a stop loss. Stick to your reward-to-risk ratio and how much you can afford to lose in a day. If you abide by your own rules and apply your skills, eventually, you would earn well. But never trade as if you are gambling – this is the bottom line for being an accurate forex trader.

2. Be Prepared for Your Trade

One has to be prepared in life for the endeavors that he/she is aiming for. So, to be an accurate forex trader, you are advised to be fully prepared before you begin trading. No one wants to be an average trader. In forex, average trading means being one of the 2/3 forex traders who lose money. Many times forex traders even lose their capital money, which results in high debts. Also, average forex traders tend to give up trading within four months. No one wants either of these, correct?

The best way to avoid these consequences is to make yourself educated with forex trading and try trading on a practice forex account.

You have to read as much as you can and keep yourself updated with the current news and learn the forex market’s technicalities. You can do these by reading financial newspapers, watching educational videos, or going through research papers. You may have to invest time, but that would be the best trade you would take in your life.

As stated above, you can also start to learn trading through a practice forex trading account. Most of the U.S. forex brokerage houses provide these accounts without charging fees. So, could you make the most of it? Take a pen and paper and make a note of your trades and your mistakes. Trade journaling is useful. It will help you keep track of your trading directions. Your initial trades would not be profitable, but that’s totally fine, as that is how it is supposed to be when you are learning. And that’s the reason that you should do it on a practice account, so you do not lose real money.

3. Be a Disciplined Trader

The foremost thing to be an accurate forex trader is to be disciplined. You must decide your losing capacity, place stop loss according, and not deviate from it at any cost. Also, do all these things before you start your trade. Even if you think you can gain more profit, don’t trade as greed is a poisonous thing, and you may end up losing more than what you have won till now. Stick to your trading plan, as without a trading plan, trading is just mere gambling. You can’t expect to win if you can’t follow your own rules.

4. Don’t Fall for Scam Traps.

This doesn’t seem that major of standard practice, but it is very crucial. In greed, we tend to do things we won’t do otherwise. There are people out there to take advantage of your greed by selling you “guaranteed results” and “get your money doubled” kind of schemes.

Thus, choose only a credible broker; cheap can actually cost you a lot more in the case of forex trading. You can also check the credibility or the status of a broker from the National Futures Association (NFA) in the United States. If your potential broker is not on the record list, it is a big red flag. Remember, in the end, as much as you educate yourself and as much time you invest in forex trading, the more accurate forex trader you will become with the passing time.

Final thoughts

The Forex market offers you the scope to trade round the clock. Additionally, the capital to start trading is significantly low. You can decide how much money you want to trade.

Now, you can learn how to begin trading in the Forex market with these easy tips, and you’re well on the way to having a successful Forex trading business.

How to Place a Trade on Forex

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Making Your First Forex Trade – step by step forex trading guide

Step 1: Open an account at a forex broker. Set up a demo or live account.
Step 2: Download Metatrader (or any other trading software). Install on the computer or your phone.

Using the Trading Platform

The first step while trading in forex for the first time is to log in to the forex account on the trading platform selected

Opening the chart

A currency pair should be chosen, and the chart should be opened. The trader should also choose a timeframe, with the time frame for D – daily, used since it represents candlesticks on the chart.

Adding indicators and plan the trade
Some technical indicators are added to the chart to help with decision making. Typically traders are adding the MACD and two hundred exponential moving average (EMA) indicators. For testing, let us assume (for example) if the 200 EMA is above the line, the forex rate will continue to rise, and if it is above the line, the rate will increase (this is a hypothesis).
moving average indicator in mt4

MACD indicator we can set like this:
macd indicator in mt4

The MACD is also monitored to confirm the trend; we can see the GREEN UPSIDE direction of the MACD indicator below:

eurusd daily chart EMA200

This is a long-term bullish signal.


Place the order

Trade idea :
BUY EURUSD for 1.094 because the price is above EMA 200 and MACD shows the bullish direction (green line)

After the trend is confirmed, the order will be placed. A stable, rising trend is noticed. Since the trader is making the trade for the first time, it is better to place a smaller order for 10000 currency units, and this is called a mini-lot. I am making 5 lots position below on my live account :
new order is made on eurusd daily chart

The setting takes profit and stop-loss levels.

Stop loss is 1.086 because it is the last swing, previous resistance, and new support.
Target is 1.2 – round number and strong resistance in the last 365 days.

Though specifying the take-profit and stop-loss levels are optional, traders should take this step. Based on their experience, traders have found that they can profit if they specify a stop-loss on the last swing (in this case, it is above 1.086). This ensures that even if the trader cannot predict the forex trend accurately more than half the time, he will still make some profit. If the stop loss level is specified, the trader’s losses will be reduced if the forex rates do not move in the expected direction. If the take profit level is specified, the forex trader exits the market, making a profit, when the market starts moving uptrend. It is usually advisable to set the levels when making the trade since the fluctuating forex rates make decision making difficult. Target is 1.2, but I plan to change this target level based on market condition.

Confirming the order

The trader can then submit his order and wait for a confirmation, which includes a ticket number. The forex broker will require the ticket number to resolve any trade-related problem, including an execution-related error by the broker. If there is an error, the trader will have to contact the forex broker, who will rectify the error and refund the money.

Waiting period

After the forex trade order is placed, there is usually a waiting period before the order is executed. Some traders will switch off the trading screen instead of worrying about looking at the forex rate fluctuation. Instead of worrying about a specific trade, it is advisable to think long term. After 4 months, the target is reached, and I am closing the trade.
EURUSD trade reach target 1.2

Profit is more than 900 pips (around 5x$9.000= $45.000).

Completing the trade

The trade will be completed if the forex rates reach the take profit or stop-loss levels. Some trades cause a loss to the trader, and they should limit the risk they take. In our case, profit is positive. Trade will be automatically closed when the price reaches the 1.2 level.

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