BUSINESS - FOREX What is it? What is it?So, you decided to make money on Forex. We learned what it is, registered on the site and feel free to call yourself a “trader”.
Now, the next step will be learning, in other words, we will teach you to play on the forex market. There is nothing complicated, you just need to read everything carefully.
So here we go. First, let's define the forex market. What is there to buy? And what do they sell?
The main commodity on the forex exchange is currency. Yes, the most common currency: rubles, euros, dollars, etc. How to trade currency?
First, you need to have a little money in your account, five dollars will suffice, you don’t need much there.
Now we proceed to the trade itself. So, you have five dollars in your account, or 150 rubles. For these 150 rubles you buy five dollars. And wait. The market shows prices for all currencies, and if you saw there that the dollar starts to grow, for example, by 3 rubles, then you can safely sell it.
Everything, you sold the dollars and now you have again rubles on the account, only 165 of them already. 150 rubles is what you bought dollars for and what you received by selling them. And the remaining 15 rubles - this is your profit.
Yes, a bit, but for starters, not very bad. After all, if you buy not five dollars, but 500, then your profit will be 1,500 rubles already! And this is already very good, but in order to earn such money you need to learn how to play forex and once again, learn how to play forex!
That's all the brief information on how to make money on forex. There is nothing difficult, just need a little practice.
Over the past year, FOREX from an unknown and inaccessible curiosity has gradually become a product of almost mass consumption. The threshold for entering the market has dropped so low that you can trade with $ 10 (but not the fact that you earn. - Ed.). Over the past year, competition between dealing centers has tightened considerably. According to broker companies, the number of participants in this market has almost doubled. The players themselves have also become more, but it is not possible to estimate their number. The figure of 50-60 thousand people, voiced by experts, the experts themselves do not really believe. "EI" tried to figure out what is the secret of the popularity of FOREX.
World EldoradoThe international over-the-counter foreign exchange market FOREX (with the English Foreign Currency Exchange Market) has appeared relatively recently. It happened in early 1970, after the leading countries of the world refused to rigidly fix the exchange rate against the dollar, and let the currencies float free. According to the Bank for International Settlements, over the past 10 years, the daily turnover in Forex has increased from 600 billion to 2 trillion. dollars and continues to grow, exceeding the size of all other world markets and industries. For comparison, the daily trading volume of the entire global securities market is only $ 300 billion, and the currency futures market is $ 40 billion. The rapid development of FOREX is explained by the unlimited opportunities to make a profit from currency buying / selling operations in this market. Trading on FOREX provides 60-90% of the profits of the world's largest investment banks. The attractiveness of FOREX is explained by the over-liquidity (at any time of the day, each of the merchants can buy or sell the necessary amount of currency) and the availability of this market is a round-the-clock trading mode. The structure of Forex is very complex, and yet its many participants can be divided into several main groups. The first and most influential of them is commercial banks. The world's 10 largest investment banks account for about 60-70% of world forex turnover. In addition to speculative trading, commercial banks carry out conversion operations for their clients. The most conservative category of traders is central banks. They are non-profit institutions and enter the market in order to maintain the national currency. In a separate group, there are companies engaged in foreign trade operations that buy or sell currency in order to hedge the possible risks associated with changes in exchange rates. The function of an intermediary between buyers and sellers is performed by brokerage companies. They also provide access to the market for private investors - the most numerous, but least influencing exchange rate, category of traders.
How does Forex work?Private investors (hereinafter referred to as traders) gained access to the global currency market in 1986, when margin trading was used for the first time. In this case, to make a transaction, it is enough to deposit a small percentage of the total amount of the contract, the so-called margin or insurance deposit, into the account of the brokerage company. The broker, in turn, provides the trader with a “leverage”, due to which the initial deposit amount, increasing tens or even hundreds of times, becomes sufficient for conducting trades on FOREX. For example, with a loan leverage of 1: 100 and a margin of $ 10,000, it is possible to conduct transactions with a turnover of up to $ 1 million. In other words, with margin trading, the investor’s own capital is only 1-3% of the amount of its operations. The effect of leverage makes trading high-risk. On the one hand, it allows you to extract a huge profit, but on the other - it can lead to no less losses. When making transactions, the client’s losses cannot exceed the initial size of its deposit (or a predetermined part of it). When the margin drops to an insufficient level for conducting transactions, trading stops automatically, and the broker issues a requirement for the trader to replenish the account (English margin call). As with any stock exchange, Forex trading makes a profit thanks to the constant change in exchange rates. At first glance, the strategy of "success" is extremely simple here: buy cheaper - sell more expensive (game to increase), or sell more expensive - buy cheaper (game to go). However, to predict the further movement of the price of money is extremely difficult. Exchange rates are a very delicate matter, subject to the influence of numerous factors: economic, political, environmental, etc. In addition, to a large extent, the trend of a currency is determined by the expectations of market participants. And this is a question of the psychology of the masses. Nevertheless, it is still possible to learn how to predict the further course movement. For this, there is a whole science consisting of two main parts: a fundamental analysis that studies the influence of macroeconomic, political, and other factors on a course, or, to put it simply, news; and technical analysis - studying price charts for previous periods of time. The latter often includes probabilistic analysis, which involves forecasting courses using probability theory and mathematical statistics. Unlike "fundamentalists", "technicians" proceed from the fact that any factor affecting the price is previously taken into account and reflected in its schedule. Therefore, from their point of view, the influence of news on the further movement of the course remains secondary. At first glance, technical analysis may seem like fortune telling on the coffee grounds. What relation to the exchange rate can have some kind of abstract "moving averages" or "Elliott waves"? It may seem strange that, despite such an important macroeconomic factor as a decline in GDP growth rates, the exchange rate, instead of starting to decline, suddenly begins to creep up, as one of the technical indicators showed. This happens because, among the market participants, nonetheless, it is not fundamentalists that prevail, but Chartists and mathematicians. Technical analysis works, since most market participants are guided by this tool when making decisions. However, among professional players there is a slightly different explanation: “if after publication of a decrease in GDP, the course starts to creep upwards, then market makers either know something that is not reflected in the public news, or play on the nerves of traders so that they panic and then develop the market in the right side "
The course of the young merchantSo, before embarking on trade, it is necessary to master the wisdom of the methods of forecasting exchange rates. Today, almost every dealing center offers a variety of trading courses ranging from $ 200 and up. For educational purposes, so-called demo accounts have been created, where you can practice for free before going on to work with real money. True, the psychology of the trader when working with virtual and real money is very different, so the demo account gives only a very rough idea of the real trading. In principle, those who want to experience all the "charms" of trading, but still do not have enough experience, can use the services of mini-forex. Today you can open a mini account with only $ 10. Of course, you won’t earn money on the “top ten,” even it is unlikely to cover costs, for example, on the Internet. It is rather an opportunity to learn in a "combat situation". One of the experienced traders, who devoted the best years of his youth to this business, shared his experience with EI: “You need to go to the market with substantial amounts. We counted with colleagues the level of the deposit, giving us a high percentage of market survival for at least a couple of years. This is $ 23.8 thousand when trading with a leverage of 1: 100 and the sum of all open positions is no more than $ 300 thousand. ”
How to choose a dealing centerNow in Ukraine there are several dozen dealing centers. Conventionally, they can be divided into two groups: banks dealing centers and ordinary companies. Unfortunately, the legal field in which they operate has not yet been clearly defined. Therefore, the service schemes, as well as the procedure for taxation in these companies vary greatly. As a rule, in order to conclude a service contract, the client must transfer a certain amount of money to the dealer's account. And when removing the profit - to pay income tax. In banks, its rate is 13%. And in companies operating on the basis of a betting license, according to the current legislation, it is twice as high - 26%. However, dealers are trying to use legislative gaps for the benefit of their customers: as practice shows, when working both through the company and through individual banks, taxation costs can be avoided. However, the main problem arising from the lack of proper regulation of this market still remains unsolved. This is a high risk of losing your money at all. In the event of a sudden bankruptcy or re-registration of a company, it is almost impossible to prove through the court that it owes you a deposit. The most reliable in legal terms are dealing centers of banks. “Banks have a solid capital, they definitely will not go bankrupt and will not disappear anywhere,” says Vladislav Stelmakh, head of arbitration operations at Brokbusinessbank. True, third-party experts point out that dealing centers of banks are often separate legal entities, from which, if necessary, you can quickly dissociate. The dealing center provides access to the market and sets quotes (that is, the purchase and sale price of a particular currency) at which the trader performs all of their transactions. A few years ago, you had to pay a commission for each transaction. Now, due to tougher competition, most companies have refused to charge a commission (although many companies still continue to charge a fee for the so-called overnight deals). Dealers claim that they, like ordinary exchange offices, earn exclusively on a spread (the difference in buying and selling rates), which, as a rule, does not exceed 5 points. If you believe this, then the dealing center is interested in increasing the number of transactions and building up the client base. The latter is possible only under the condition that clients will work more or less successfully. Such logic assumes that the dealing center is profitable when the client works in profit. However, in practice, everything looks a little different. “If the dealing company incurs losses from the transaction, then the investor has obligations to it in the amount of this loss, which is covered from the security deposit. If the operation is profitable, then the dealer has obligations to the investor in the amount of this profit, ”says Victor Uzun, director of DC Maxima Trade Index. Theoretically, a dealing center can insure itself against possible losses by blocking the client’s currency position at another bank or a brokerage company, and win with it. However, there are a lot of legislative and technical restrictions that do not allow dealers to quickly manage the currency position. Most trades made by traders do not extend beyond a particular company or bank. Obviously, in this “scenario” the profit of a trader is equivalent to the losses of a dealing center. Seasoned traders can tell a lot of examples when they were separated from the winnings only by the dealer’s delay in obtaining quotes, an unfair spread or an unexpected failure in the program. Now companies guarantee fair quotes and spread, accurate execution of orders, full automation of trade. However, theoretically, no one is insured against such “surprises”. Fortunately, it is not often necessary to resort to manipulation of dealing centers: as practice shows, most traders lose without their “help”. Due to this, the dealing business model is extremely simple: if only two out of 10 traders win, their profits are paid from the deposits of eight losers. The remaining amount is the dealer's income.
Game, work, lifeDespite all sorts of obstacles: the complexity of the market itself, the shortcomings of service in dealing centers, of course, that people continue to come to FOREX. They are not embarrassed by even the ugly statistics, according to which only 8% of traders in the foreign exchange market work in profit. Obviously, the attractiveness of FOREX is due to something more than just a desire to get rich. To understand this, it is enough to attend a free trading seminar - a powerful tool for attracting new fighters. At least at that three-hour act, where the author of this article was able to visit, they did not promise golden mountains and did not tell tales about the exploits of Soros. You can list a few basic ideas that tried to impress the audience of the seminar using very clever rhetorical techniques.
Let's look at a real-life example of how Forex / Forex works.
In the figure we see a graph of the price change of the currency pair USDJPY (US dollar to Japanese yen). The axis below reflects the time, the axis on the right shows the price.
For example, you decided to buy 0.1 lot - 10,000 US dollars on December 12 at 12:00. This is the time to open a position. The current market price (quote) of the USDJPY currency pair at this time is 116.95 / 116.97. For us, this means that in order to purchase 10,000 US dollars, we need 1,169,700 yen (10,000 times 116.97).
To complete this transaction, we only need to have $ 100 on our ForexPrivate trading account, because standard leverage is 1: 100. Those. On the account you need to have a hundred times less money than the size of the transaction. Thus, having bought 10,000 dollars, we sold 1,169,700 yen. The figure is indicated by an arrow with the number 1.
After a while, you decided to take profits, i.e. sell 10,000 US dollars and buy yen. For example, you made it on December 15 at 12:00. This is a position closing time. In the figure indicated by an arrow with the number 2.
At the moment, the pair USDJPY quotation 118.00 / 118.02. You sell US dollars and get 1180000 Japanese yen for them. Those. You bought $ 10,000 cheaper and sold them more expensive.
Calculation of profit on Forex / Forex on this transaction: 11,80000 - 1,169,700 = 10,300 Japanese yen. Since the accounting of transactions on trading accounts is conducted in US dollars, we calculate how much it will be in dollars.
10300 divide by 118.00 (closing price of the transaction) we get 87.29 US dollars. This is the profit. MetaTrader performs all these calculations automatically.
Please note that a currency pair can be any other, the time when you open and close a position is determined only by you yourself (it can be several minutes or several months, there are no restrictions). General principles apply to all financial instruments (currency pairs).
Many readers expect something like a comparative table from me, where I will list brokers with their strengths and weaknesses, and where I will recommend, who you can trade with, who you should not contact. Forced to upset them - you have to make the choice yourself.
Organizations exist for one reason: to help people do things that everyone would not be able to do alone.
Most carefully should be checked the correctness of judgments that seem to us obvious.
Any investment has a whole range of risks. I emphasize - any. Whether you place money in Sberbank, or in a brokerage firm, or lend to a neighbor, there is always a risk that you will not receive the promised interest, profit, and in general you may lose some or all of the money. It is a fact. The level, or probability of risks in the above cases, of course, is different. Nevertheless, Russian citizens, perhaps, like no one else in the world, are well aware that the degree of risk is not determined by the presence of a European-quality repair at the office and a multitude of certificates on the walls, and even by the fact that the financial structure belongs to the state. All is well, all is well. As soon as it starts to storm, first of all, the deposits of small investors, that is ours with you, go "under the knife". What, then, determines the risks? Many factors. Among them, in my opinion, the most important are the following:
1. The main objectives of the company
2. Organization (mechanism) of achieving the goal
3. Management of the company, what determines its successful and long-term operation
4. The presence of sufficient own funds of the company to resist various force majeure circumstances
Everything else, in my opinion (the duration of existence, a large building in the center of Moscow under the office, courteous staff) is not so significant. (By the way, any enterprise, like all organisms, has periods of youth, maturity, old age, and eventually die. So, in modern business, the average lifetime of an enterprise is from 3 to 5 years. This is confirmed by statistics for developed countries. So, if the company declares that it has been working successfully for 5 years already - the end is near).
The Forex market stands apart from other markets primarily because it is over-the-counter. Why this happened - I don’t know, apparently because it appeared relatively recently, about 20 years ago, and banks became its participants. By virtue of the development of communications and automation, banks began to trade "directly", without needing special organizations - exchanges. With the further development of progress, such a need not only did not arise, but also decreased. Having been born, this market immediately became global, and in no country was it possible to restrict, “settle” it by law. Therefore, such a dislike and disregard for this market by many “classical” financiers. Nevertheless, for a number of European and North American banks for many years speculative operations on Forex have been the main source of income, while the number of personnel working in other markets is constantly decreasing.
Here is the second important fact - the FOREX market is not regulated, despite many intricate problems and risks in addition to the risk associated with market price movements. These problems revolve around trust, honesty in operations, risk management, transparency and marketing of forex brokers. But first we must understand that, unlike highly regulated exchange markets, forex brokerage firms cannot be assigned to any particular stock exchange by the nature of the problems and risks. Brokers can be divided into four broad categories according to distinctive features and characteristics that make this market far from a monolithic industry.
1. Market operators. This group includes large commercial banks that are regulated in accordance with bank regulations and laws and offer the highest level of reliability. However, trading with such banks requires accounts of substantial size, as with large and multinational firms, leaving them beyond the reach of a private investor. The minimum lot is about 1 000 000 US dollars. Today there are no such structures in Russia (in any case, they are not visible on the Reuter information systems board).
2. MARKET - MAKERS. These are financial firms that provide for smaller brokerage firms and offer speculative trading opportunities for individual traders with a trading capital of more than $ 50,000 or so. These companies are relatively small, but offer lower trade costs and usually have a stronger financial base and honesty. But again, the minimum account size for $ 50,000 leaves them beyond the reach of most day traders. These are some Russian banks.
3. Small brokers. These are small brokerage firms that cater to individuals who wish to risk a small capital, from hundreds to several thousand dollars, only to test the ground, as well as their luck or trading skills. These small brokerage firms often work with a dealer or market maker from the second group to clear their clients' orders. This is where the risks of operations begin. Due to the large minimum account sizes that a market maker requires from these brokers, it may be that the local broker will pool funds from all accounts of his clients into one account from the market maker in the name of the brokerage firm. With such a scheme of work, the trader calls the dealer of the brokerage firm to get a quote to enter or exit a position, and the dealer, in turn, to call the quote, calls the market maker. If the quotation is suitable for the trader, he / she will instruct the dealer to enter a new position or exit from an existing position, which the dealer will reflect with appropriate regulation of the client account. At the same time, however, and this is a critical moment, the dealer will make the appropriate transaction on their own account with the market maker. So in theory, if a client’s market request or transaction is successful, the client will make a profit (gross profit from trading minus spreads and commissions) and the brokerage firm will also receive corresponding profit from his own deal with his market maker, which is equal to the net profit will pay the client plus their own commission and possibly a small spread. The loser in this transaction is the market maker who put the spread in his pocket, but lost the gross profit from the transaction received by the brokerage firm. Keep in mind that some brokerage firms give a customer a wider spread than the one they receive from the market maker (about twice as large), and this is a source of profit in addition to their commission, although they will never open it to customers. Of course, if the client request is unsuccessful, the brokerage firm will deduct the gross loss from the client’s account and pay the market maker the net loss after withdrawing its own brokerage payments and commissions. One way or another, a brokerage firm receives a commission and a small spread regardless of anything, a winning deal from a client or unprofitable; at least so supposed in principle.
4. Kitchens. This group is undoubtedly the most common in the territory of the former USSR. Their creators assume that most clients lose. That is, the income of the “kitchen” is made up of customer losses. And the scheme works fine until someone starts to constantly win. Then the “kitchen” closes with the remnants of clients' money in order to appear under a different name in a couple of months. This is how their typical layout works. They offer to “train” you free of charge and teach them skills of error-free trading, which will easily make you an incredible profit in a short period of time (they strongly assure that 5% per month is actually guaranteed), but only if you open an account with them for a few one thousand dollars. Their course of study is usually taught in a few hours by small or inexperienced traders or even by people who have never traded on their own. Sometimes for this, clients are provided with Forex “simulators” programs, in which anyone starts to “do” 1000% per week. In general, the material constituting such courses is water-filled explanations of some technical analysis tools (head-with-shoulders formations, double peaks, trend lines, etc.) that can be found in any decent technical analysis book. Their coverage of fundamental analysis, if it is affected at all, is a superficial overview of some economic indicators and data, regular information on which even seasoned traders and economists may have difficulty with interpretation and actions. Again, such information can be found with much greater depth of explanation in many well-written books on the subject. At the end of the training, they will assign you the title of “currency trader - winner”, and it does not matter that even many well-known traders with many years of experience in large financial institutions cannot continuously produce 5% per month without the need to take big risks. The vast majority of these students get into losing trades from the very beginning, and after each loss they may feel that they have gained a valuable lesson that will make their technology more robust, and their next trade will definitely benefit. Some of these students quickly lose their deposit and drop out, while the more persistent “add” funds to their accounts in order to get another chance and win. They eventually lose all their money and leave with a taste of blood in the mouth and bruises on the body, as well as in a bank account. This is actually a feast time for such firms, as this is their bread and butter. They make the lion's share of the profits from losses on such transactions, and not at all from the spreads or commissions that they charge for transactions.
So, the Forex market has practically no legislative regulation in any country, and in most countries it is equated with the organization of games. It follows that the Forex broker does not need any licenses and certificates. This is a common legal entity. Some brokers present certificates for “organizing a financial game on the Internet.” Linden. There are no such certificates. You can get a certificate for a particular table with a roulette, or a slot machine, but this is not the case.
There is a lot in common between the third and second group of companies, often the company applies both approaches to work. Risking boredom, I will give an even deeper explanation of the functioning mechanism of type 3 and 4 brokers.