Forward Contract Definition

What exactly is a forward contract, and how does it function in the futures market? There are different types of contracts in the financial market, and one of them is forward contracts which often come up in trading. 

We have no doubt that you’ve already heard about forward contracts many times before. However, you might not know what a forward contract means…(We are talking about the exact meaning). 

If this is you, keep on reading as we share all you need to know about forward contracts. 

What Is a Forward Contract? 

A forward contract is an agreement between a buyer and seller. What makes it different from the other types of agreements is that here the buyer promises to acquire an asset for a specific price at a future date. A forward contract may take place at any point in time. 

In simple terms, it’s a derivative contract between two parties to purchase or sell an asset on a future date at a defined price. Forward contracts are customizable, and you can tailor them to fit a particular commodity, quantity, and delivery date. 

Here you can settle these contracts in cash or in delivery. 

These contracts derive their value or price from an underlying asset. So forward contracts are considered derivative contracts. These contracts are over-the-counter (OTC) transactions between the parties. This is because they are neither standardized nor governed by a third-party body. 

Example of a forward contract 

A renowned beverage firm contracts with a coffee producer to ship 20,000 kg of coffee beans in three months. The current cost per kilogram of coffee beans is USD 350/kg. However, the coffee producer worries about the dwindling coffee prices. So they want to guarantee substantial profits from the transaction. Therefore, they enter into a forward contract with the beverage firm to sell 20,000 kilograms of coffee beans in three months at USD 300 per kilogram, regardless of the market price. 

According to the advance contract, the beverage firm will purchase the same quantity of coffee beans from the producer three months later at an agreed-upon price. With this contract, there are three possible outcomes upon the maturity of the contract: 

If the current market price is lower than the contract price, the beverage business could have purchased the same quantity at the market price had it not engaged in a forward contract. In this instance, the coffee producer will gain a better profit.

When the market price is higher than the contract price, the coffee producer may incur a loss. This is because they could have sold the coffee beans at a higher price if they had not signed into the hedging contract.

The market price and contract price are the same. In this instance, no party stands to gain or lose anything.

Features of a forward contract. 

Let’s look at the prominent features of forward contracts that will help you understand them better. 

Customizable: They can be customizable to fit the needs of both parties involved in the contract.( Terms of contract size, asset type, expiration date, quality, etc.) 

Bilateral: Forward contracts are bilateral in nature, thus exposing counterparties to the risk of nonperformance of the obligation by the other party. 

Long and Short Position: In a forward contract, the buyer has a long position, and the seller has the short position.  

Synthetic Assets: In the forward market, people use a mix of underlying assets to contract derivative assets. Synthetic assets are another name for derivative assets. 

Settlement at maturity: With a forward contract, settlements occur upon the delivery of the asset before or on the expiration date. So money or commodity is not exchanged upon entering the agreement but by the maturity date of the agreement.  

Linearity: Forward contracts can lead to gains and losses for the parties due to the changes in prices of the underlying asset that occur with time. 

No down payment: In forward contracts, you don't have to make any down payments as both parties agreed to supply and receive the set commodities at an agreed price at an agreed future date.  

Requirement of a third party: Often, a third-party intermediary is involved in a forward contract which can be a financial institution like a bank. 

Delivery Price: A forward contract has a specified price the buyer and the seller agreed to when they entered the contract – the delivery price. Here, the delivery price remains the same while the forward price may change over time which is the price of the asset at the time they enter the contract. 

Delivery: Asset delivery is made at the date of the maturity of the contract. 

Pros and cons of forward contracts 

Without an argument, forward contracts are one of the most commonly used derivative contracts in the financial market. But as with anything, a forward contract also has its drawbacks as it has its benefits.

Let’s look at them.

Forward Contract Pros:

Forward Contract Cons:

Types of Forward contracts 

Forward contracts are not all the same. There are different types of contracts that vary depending on the terms and maturity date of the contract. Mainly there are 7 types of forward contracts. 

Closed outright

This is the standard forward contract where both parties agree to a specific price at a future date. 

Windrow forward contracts

Offer a range of settlement dates that can aid in exchange rate risk management. 

Flexible contracts

Enable settlement at any given time up to the settlement date. 

Long- Dated contracts

These have a long forward date that can be more than 1 year or even 10 years. Usually, an expiration date of a standard forward contract is up to 12 months. 

Non-Delivery Forwards

No physical delivery of funds for assets. Here the exchanged amount is the difference. 

Fixed date forward contract

The underlying asset is exchanged only at the maturity date of the contract. 

Option Forward Contract

These are similar to flexible forward contracts that permit parties to swap the underlying asset on any date within a particular time frame. 

How are forward contracts used in the world? 

People use Forward contracts across all markets, from exports to foreign exchange, and there are many different applications for forwarding contracts across the globe. However, the reason for all of them to enter into a forward contract is due to hedging or speculation. 

Primarily, you can forward contracts to hedge exposures against unanticipated events and losses. Forward contracts enable both parties to fix the price today for an exchange that happens on a future date. 

With this, companies are able to protect themselves against price fluctuations in the future. But there is always a risk if the price change might not go in your favor. 

Yet, people utilize forward contracts in all markets worldwide as a hedging tool against fluctuations in currency exchange rates and market prices. People also choose forward contracts over other types of contracts when they speculate the future spot price to rise significantly in the future when compared to the forward price today.

Here the process of speculation involves identifying the direction of the market price in the future and obtaining positions on assets based on the future price projection for the best gains. However, this is highly risky, and only the experts who can read the market very well are employed to speculate on the market projection of an asset.

Not many individual investors use these contracts. However, large institutional investors such as investment banks and hedge funds employ them in their transactions all the time. 

In forward contracts, speculating means attempting to get a better price to make a profit from an asset price change. On the other hand, hedging involves trying to reduce the risk or volatility associated with the asset. 

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Currency forward contract 

Currency forward contracts are similar to any forward contract. The only difference here is that you exchange a currency instead of a commodity. In such contracts, you can trade currencies on an agreed date in the future on a foreign exchange market. Here both parties lock the exchange rate at the time they enter the contract as the forward price. So any contract is a hedge against any market fluctuations. 

Many prefer currency forward contracts over exchange-traded currency futures as they offer more customizations to fit the needs of both parties. 

FX forward contract

Similar to currency forward contracts, foreign exchange forward contracts or FX forward contracts are also mutually agreed on contracts where both parties agree to exchange currencies at a future date. 

Here, often there are two different currencies involved and use a forward exchange rate (exchange rate values at the time they entered the contract) that lock in advance. So both parties can evade the risks of unpredictable changes in currency spot prices.

Canceling forward contracts 

In a forward contract, any party can terminate the contract anytime. However, the canceling party will be responsible for paying the difference between the contract rate and the spot pricing of the commodity. 

Forward Contracts and Futures Contracts 

A future contract is an agreement to buy or sell an asset/ commodity of a specific quantity at a specified price at an agreed date in the future. 

Future and forward contracts are both derivative contracts, and both of them assist with hedging risk or speculating. Another similarity is that both contracts derive value from values from underlying assets. However, there is a major difference between futures contracts and forward contracts. 

They are,

However, with forward contracts, only the buyer and the seller are involved in the agreement. 

Forward contract and Spot contracts. 

The spot price is the cost that is currently going on in the market. 
So in the spot market, trading and transactions are much more straightforward, while the forward market involves trading for future contracts. 

To put it another way, this is a sale of properties that takes place directly between the persons involved, often at the moment of receipt or delivery. 

Conclusion 

Forward contracts are a great investment hedging instrument. They may also use them for speculating; however, there are risks that come with forward contracts due to their non-standardized and unregulated nature. There are different types of forward contracts that you can choose from depending on your position, risk appetite, and market situation. So forward contracts without an argument provide many benefits as well as some challenges and drawbacks. 

We hope this article will help you understand forward contracts, their uses, advantages, and disadvantages better, as this is a term that often comes up in trading. 

FAQs 

What are the different types of forward contracts? 

Mainly there are 7 types of forward contracts, which are as follows.

Window forwards 
Long-dated forwards 
Non-deliverable forwards 
Flexible forwards 
Closed outright forwards 
Fixed dates forwards 
Option forwards 

What are the Pros and cons of a forward contract?

There are pros and cons when it comes to forward contracts.

Some of the benefits include 

Customizability
Protection against market volatility
Reduced risks associated with international trading
No requirement for upfront expenses for hedging. 

Some of the main drawbacks of forward contracts are. 

Lack of regularization
The paucity of publicly accessible information regarding market capitalization
Risks with a counterparty

Spinning top Candlestick: How to trade with it? 

Candlesticks and price action plays a huge role in making good trading decisions. When it comes to learning about candlesticks, the spinning top candlestick is one of the most significant candlesticks that tells you a lot about what’s going on in the market. It gives insights into what’s happening to the price in the market right now and what might happen in the future. 

No matter whether you are involved with short-term or long-term trades, knowing about this candle will help you understand the market better. In this article, we share all about the spinning top candlestick and its uses. 

Spinning Top Candlestick pattern

What Is a Spinning Top Candlestick?  

Candlestick charts are a vital part of the technical analysis that helps traders to anticipate the price movements within the market. Their visual representation gives a complete overview of how the price has moved over a given period.

This type of chart consists of many different candlesticks, and one of them is the spinning top candlestick. 

A spinning top candlestick is a candlestick formation that provides information on uncertainty about the future price direction of a selected asset. Most of the time, this leads to a price trend reversal of the asset in question. 

The indecision in the market with neither buyers nor sellers having the upper hand is depicted by the small body of the candlestick. 

Moreover, these are most commonly seen when the market is facing an uptrend or a downtrend. In addition, there is a small possibility that a spinning top candle will form in the middle of a trend, showing further consolidation.

The backdoor information that this formation provides can be crucial for traders to predict the market's future price movements. 

When read with the other candlesticks of the chart, the spinning top candle provides solid information about the price movement in the market, which you can use to make your trading decisions. 

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3 Components of Spinning Top Candlestick: 

3 Components of Spinning Top Candlestick image via Forex scalpers
3 Components of Spinning Top Candlestick image via Forex scalpers

A spinning top candlestick consists of three main components. Each of the components provides vital information about the future price movement. So understanding them is the first step toward understanding how to read the spinning top candlestick in a chart. 

Upper shadow

The upper shadow is the line sticking out at the top end of the body that connects the highest price of the asset within the set time frame with the real body. The tip indicated the highest prices the asset has reached. 

Small real body

The small real body shows the gap between open and closed prices. Often spinning top candles have a very small body. This is because when such a candlestick is formed the open and closed prices are not far from each other. 

Lower shadow

Opposite the upper shadow is the lower shadow which connects the lowest price of the asset with the real body. Here the lowest point of the line denoted the lowest price point. 

Green vs Red Spinning Top Candlestick

Green vs Red Spinning Top Candlestick image via Bybit Learn

The color of a candlestick also provides vital information when it comes to a spinning top. 
If the candle is red, then the candle’s open price is lower than its closed price. In a green spinning top, the closed price is lower than the open price. 

What does A Spinning Top Candlestick mean? 

In simple words, the spinning top candlestick is a good indication of potential price indecision in the market. However, there are so many other details a spinning top candlestick can tell.  Below are some of them.

Important: The spinning top candlestick can behave differently depending on the current trend within the market. Understanding the difference between how the candlestick behaves on an uptrend and a downtrend can give traders valuable information that they can use to make better trade decisions. 

Spinning top in a Bullish Trend(Uptrend) 

In the case of an asset having an uptrend on the market, the total control falls into the bulls. The main reason for this is that the bulls keep raising the prices of the asset. 

In uptrend scenarios like this, the spinning top candlestick shows that there is a possibility of bulls consolidating their position.

In addition, spinning top charts on an uptrend can show the bears' failed attempt at lowering the prices. If the attempt was successful, the candle would be a long red one.

So the two potential outcomes of the spinning top candle in an uptrend are,

Spinning top Candlestick in a Bearish Trend (downtrend) 

In downtrend scenarios of the market, the spinning top candlestick behaves a bit differently. This happens due to bears having complete control as they keep lowering the asset’s price. When this happens, this candlestick chart shows that there is a possibility for bears to consolidate their position.

Furthermore, spinning top charts on an uptrend can show the bulls' failed attempt at raising the prices. Here if the attempts bulls took were successful, the candle will be a long green one.

As with the uptrend, there are two possible situations that can happen when a spinning top candlestick appears in a downtrend.

Important: When the spinning top candlestick forms at the end of a bearish trend, it can signal the end of the current trend or the beginning of a new uptrend. 

If the spinning top candle forms at the end of a bullish trend, then it shows the end of the current trend and movement toward the bearish direction.

Doji vs Spinning Top Candlestick

Doji vs Spinning Top Candlestick
Doji vs Spinning Top image via Life is a File

Another candlestick formation that looks similar to the spinning top is Doji. Both of these are important candle formations and show indecision in the market. In addition, both of these candlesticks come with the ability to depict a potential price reversal of the current trend in the market. 

However, there are a few differences that every trader must know to identify each of the candlesticks separately. 
Let's look at the visual differences between the two. 

Firstly, the Doji formation looks like a cross with long upper and lower shadows and a very short body (line-like body).
 In a Doji, the opening price becomes identical to the closing price, hence the short body. This candle might look like a cross, inverted cross, or a plus sign, depending on the lengths of the upper and lower shadows.

When comparing Doji with a spinning top candlestick, the spinning top has long shadows and a longer candle body.  
The appearance of both Doji and the spinning top candlestick can happen anytime, in any timeframe, to any asset in the market. Both of the candles are neutral when considered alone but can give you a lot of signs when read with their previous and next candles in the chart.  

When there is a higher possibility of a trend reversal, both Doji and spinning top candlesticks will be followed by a strong move in the opposite direction of the current trend. 

Being able to distinguish a Doji formation from a spinning top correctly means that you possess enough knowledge to get the most use of these formations. 

How to trade with spinning top Candles?

The first step in trading with the spinning top candlestick formation is understanding what it tells you about the market. When you have a clear grasp of it, you will be able to easily figure out where it stands and the relation the chart has with the overall market trends.

When there is a formation of the spinning top candlestick in the market, it is wise not to enter trades. You must wait and see how the next candlestick forms. However, it’s always better if you use another signal from a reliable source for confirmation.  

Traders can use technical indicators, fundamental indicators, or oscillators to confirm the price movement direction. Some of the best trading indicators that traders can use for confirmation are,

Pro Tip: Use more than one indicator to get more accurate information about the market. This will help in making the best possible trading decision.

Most expert technical traders tend to wait for the formation of the succeeding candle to confirm the trend reversal. This allows no room for error as the way the market progresses is not going to change. If this confirmation does not exist, the trend reversal is not guaranteed. Therefore uncertainty remains in the market. 

The most important factors to consider when using the spinning top candlestick are,

Pro Tip: The spinning top candlestick formation shows the indecision between buyers and sellers that can directly lead to a price reversal. The spinning top becomes most effective in key price levels of support and resistance, and it is wise to keep an eye out for those levels.

Spinning Top Candles' limitations and overcoming them 

A spinning top candlestick doesn’t lead to a single market outcome every time. Thus it alone isn’t enough to understand the market movement. While it provides an excellent overview of the price direction of an asset in the market, it also comes with a few limitations that can make a trade go sideways.  

Even with its frequent appearance, spinning tops can appear during sideways movements, resulting in price leading nowhere. 

The more you see a spinning top in a pattern, the higher unpredictability of the price movement. The only way to get around this issue is to be selective of what spinning tops you choose to trade with.  

Another drawback of the spinning top candlestick is the higher requirement of confirmations. Among all of the candlestick formations, the spinning top requires the highest level of confirmation. 

Important: Having a solid price movement confirmation method is beneficial to any trader, regardless of the candlestick formation considered. But even with indicators providing you with confirmations, there is no 100% guarantee on the direction of the price movement.

This makes speculating on whether the price will reverse or if it will go in the same direction as the current trend harder than one might think. 

The final limitation that the spinning top candlestick comes with is its long upper and lower shadows. This forces traders to place wider stop-loss orders to protect their finances in case the market moves against their opening positions. 

In addition, this can lead to a less-than-ideal risk-to-reward ratio as the trader will have to take on higher risks to earn a smaller reward.

To bypass this issue, traders will have to seek the help of multiple time frame analyses. So, timing the market as best as you can is the easiest way to bend the risk-to-reward ratio in your favor.

FAQs

What is a spinning top candlestick?

It is a technical analysis tool that helps traders to anticipate the price movements within the market. It also signs potential indecision in the asset.

Is the spinning top candlestick accurate?

Spinning top candlestick is one of the most accurate prediction tools. However, it is wise to use other confirmation signals to verify its results.

What are candlestick charts?

Candlestick charts are technical tools for trade analysis. They display candles on the given chart, which indicates price action.

Conclusion

To be on top of the forex game, you will have to make the most use of all the available tools at your disposal. Since anticipating price movements of the assets play a large role in the success of the trades, the Spinning top candlestick is one of the most important candlestick formations that you should know about. 

With the help of the spinning top candlestick, traders can have a better understanding of the future price movement. Knowing about the potential price indecision of the asset can help traders to decide what their next move is going to be. 
We hope that this article has all the things that you need to know about the spinning top candlestick so you can use it to improve your trading.

ESTR: Euro Short-Term Rate Definition

ESTR- the new Euro benchmark is the ECB European Central Bank published in October 2019. Euro Short-Term Rate or ESRT is a risk-free rate and has completely replaced EONIA since January 2022. The transition has a significant impact on the Euro Zone Economy.

But what is ESTR and why it's important, and how does it affect the Forex market? In this article, we dig deep into the topic.
Before jumping into the definition of ESTR, first, you need to understand benchmark interest rates.

So let's look at what a benchmark interest rate is.

What is a Benchmark Interest rate?

The benchmark interest rate is used to calculate the cost of borrowing money from different sources, markets, and entities. For example, they indicate how much it costs banks to borrow from one another and other sources like insurance funds.

This is also known as the reference rate and benchmark rate. This regularly updated interest rate is published by an independent body. A transparent methodology that is in line with the market trends is used to update the rates in a fair manner. Anyone can access the benchmark rates publicly. 

These rates are used to calculate interest rates of loans, debts, mortgages, bank overdrafts, and deposits. Payments on options, swaps, and forward contracts like complex products are also determined using a benchmark.

A reliable benchmark rate ensures the legal certainty of financial transactions as it lowers the chance for either party involved in the contract to alter an agreed rate in their favor.

This is why organizations, as well as individuals across the world, employ a benchmark rate as a stand-on basis for calculating the interest of financial contracts.

On the other hand, an accurate benchmark rate helps better comprehend how financial markets work and how much money is available in the Eurozone. This helps central banks to assess and monitor the impact of monetary policy decisions and inform on the needed changes in policies.

So there is no question about the importance of a reliable benchmark rate that ensures smooth, transparent, and stable financial markets.

What is ESRT?

What Is ESRT?
ESTR

Currently, there are 3 mostly employed European benchmark rates, and ESRT is one of them.

The Euro Short-Term Rate (ESTR) is meant to indicate the payment banks inside the Eurozone should make to various financial counterparties for overnight funding. This is without providing collateral. Here a financial counterparty can be a bank, investment or pension fund, money market fund, the central bank, and other financial bodies.

So in simple words, it's the euro's overnight interest rate and indicates the average interest rate on loans over the course of a business day.

ESRT was developed by the ECB in 2017 and has been made available as a new benchmark rate since October 2019. The European Central Bank(ECB) sets and distributes the interest rate, which is a fixed rate. 

Why is ESRT so important?

ESRT was developed as part of the European Central Bank's policies to increase the transparency of benchmark indexes. It was created to replace the other mostly used benchmark rates, EONIA (Euro Overnight Index Average) and EURIBOR (Euro Interbank Offered Rate).

EONIA is calculated by taking the average of the interest rates on interbank overnight unsecured lending. Lendings of all the banks in the EU and European Free Trade Association (EFTA) are taken into account here, which is overseen by the ECB.

EURIBOR

EURIBOR is determined by the average interbank unsecured short-term Euro lending interest rate. For this, only a selected panel of European banks participates. The daily reference rate is offered by EMMI,  The European Money Markets Institute.
 
The main differentiation between EONIA and EURIBOR is the maturity of the loans on which they are calculated with. EURIBOR has different interest rates based on maturities on loans that range between one week and 12 months, while EONIA is a single overnight rate.

These two were the commonly used benchmark rates before ESRT. However, these benchmarks were not able to meet the requirements of the new Benchmark Regulations(BMR) of the EU. The regulations were published in 2016 and became effective in January 2018. The new regulation demands that interbank rates be calculated based on data and not estimates and surveys.

Another intention behind the replacement is to provide a fallback rate in case the private sector couldn't go with EONIA — their own overnight benchmark rate.

Although both EONIA and ESRT are unsecured rates, ESTER is calculated based on representative market data, thus making it BMR compliant. Thus the ESRT became the new benchmark rate for the EU(European Union) and EFTA(European Free Trade Association).

The other reason for switching to ESTR is due to the bank scandals(e.g.- the LIBOR scandal) that had occurred in the past when quote-based interest rates were used as a benchmark.

How does the ESRT interest rate work?

For this, they use the daily transaction information from the 47 biggest Eurozone banks. The data is obtained from money market statistical (MMSR) reports. However, here only transactions over one million euros are considered.

The rate covers the daily financing cost associated with credits during the workday. Every day, the ESTR rate is determined by the transaction chosen on the prior business day. This means the ESTR rate for the 1st of September 2022 will be determined based on the data of the 31st of August 2022.

Firstly the transactions are sorted in ascending order, then the top and bottom 25% are removed. Next, the mean of the remaining 50% is calculated and rounded to 3 decimal places. 

Then the ECB published the rate before 9.00 CET on the next day along with the following details.

Pros and cons of ESRT

What makes ESRT better than the other benchmark rates? Does it have any downsides? Let's look at the pros and cons of this new benchmark rate.

Pros of ESRT

When compared with LIBOR, ESRT is highly transparent. The LIBOR is calculated with regulated and secured data based on surveys. 

ESRT is more straightforward in its calculation as it is based on information. Thus banks will have to send proof of their trades for verification rather than answering a question.

When compared to other benchmark rates, ESTR uses a high number of datasets.

Thus the rate reflects more information on transactions which increases the accuracy and precision of the benchmark rate.

The data used for ESTR is regulated by the Money Market Statistical Reporting Regulations of the EU —  Meaning reduced opportunities for data manipulation, which increases the reliability of the rate.

This ensures financial stability, and the rate always reflects the most accurate money market data. 

47 banks contribute data to calculate ERST, so more transaction data is used in the benchmark rate. This makes ESRT more representative of different market rates.

Cons of ESRT

Although new reference rates in financial systems are not new, there is always a value risk when the rates are being changed over. When compared to EONIA rates, ESTR rates are much lower.


So rates mentioned in agreements are subjected to changes in order to standardize the procedure. With this, many borrowing contracts had to accept the new interest rates, which didn't end in favor of one party of the agreement.

EONIA is published around 19:00 on the same day. However, ESRT gets published around 09:00 on the next day.


The majority of trading/treasury and accounting systems are designed to calculate end-of-day valuation and perform P&L reporting on the same day, which requires the benchmark rate. Thus all the systems should be changed to suit the ESRT publication time, which comes the next day. And this has an impact on the monthly, quarterly, and yearly evaluations.

Difference between ESRT & LIBOR

LIBOR, or London Interbank Offered Rate, is a benchmark rate introduced in 1986. The rate is calculated by taking the average of 35 different benchmark rates.

These rates encompass 5 major currencies —  Euro, the US dollar, the British pound, the Japanese Yen, and the Swiss Franc.

This benchmark is determined very differently from other new benchmark rates, including the Ester, which are often based on transactions.

Data for LIBOR is obtained from a survey where they ask about the interbank money lending rates at a specific time. Then 25% from the top and bottom is trimmed off, and the mean rate of the remaining 50% rates is used to determine the average rate.

LIBRO was globally used as a benchmark rate in ensuring the security of financial contracts. However, the rate started to decline after the scandal in 2011, as some major financial institutes manipulated the rate for their own gain. After this, demand for transaction-based systems, such as ESTR, increased.

What does the transition mean for Forex trading?

Interest rates rule the forex market. Although the central bank's interest rates have the biggest influence on the market, benchmark interest rates also have an impact on Forex.

Benchmark rates are employed across financial markets ranging from deposits, fixed income, credit market products, and more. The rate is a good indicator that showcases the strength of the economy of the Euro Region, which is why the benchmark interest rate is taken into account in the fundamental analysis in trading.

In Forex, economic, political, and social factors have significant weight when evaluating the relative currency value.
Benchmarks are used throughout the economy in the EuroZone. Thus, it's a macroeconomic factor that affects the region's economy significantly.

On the other hand, the Benchmark rate also affects the swap rates in Forex.

Reference rates are important for the determination of Swap rates. Just like LIBOR or Euribor, ESTR also has a swap curve that affects the valuation of interest rate swaps.

Apart from this, the transition to the ESTR curve will also impact the value of interest rate swaps which you need to keep in mind.

FAQs

What is the ESTR interest rate benchmark?

It is the new benchmark rate for calculating the interest of overnight borrowing between banks within the Eurozone. The rate was employed in 2019, replacing the EONIA.

Is ESTR a risk-free rate?

Yes, the ESRT or the euro short-term rate is considered the risk-free rate for the euro Zone.

Is Ester the new euro benchmark?

Yes, on 2nd October 2019, ESRT was published by the ECB for the first time. It was introduced as the alternative euro risk-free rate to replace EONIA, where the ECB gave time till January of 2022 for the financial institutes to make the transition.

Conclusion

A full transition to ESTR from EONIA was demanded by the ECB by January 2022. Although the timeline was tight, the transition was smooth and completed successfully as planned, maintaining financial stability and monetary policy. 

The new benchmark rates were introduced as a backup for EONIA. However, during this short period of time, ESTR became the primary overnight euro unsecured rate, with the high preference shown by the financial industry for ESTR over EONIA.

This is due to the reliability and robust nature it has shown since its launch while accurately representing the market trends in the EuroZone.
 
Today, ESTR is the main euro overnight risk-free rate and will also serve as the fallback rate when the EURIBOR is discontinued (eventually). The use of the ESTR as an alternative to EURIBOR in additional market segments may grow in the future.

What is the alligator indicator, and How to use it for free in 2022?  

The Alligator indicator is one of the top favorite indicators of many traders of all sizes and experience levels. 

You can use it to get a good signal to base your trades on, depending on your trading strategy. But there is a lot that goes into trading with this indicator. There are a few important things that you need to learn, from what is the alligator indicator, how it works to how to use it in forex trading. 

If you are interested in using the Alligator indicator in your forex trading, keep reading to learn everything you need to know about it. 

What is the alligator indicator? 

The Alligator indicator is a technical analysis tool that helps to confirm current price trends and their primary direction. This tool was introduced by the trader Bill Williams who was a pioneer of market psychology and the creator of several other indication tools. 

In addition to trend identification, the Alligator indicator is capable of aiding traders in entering counter-trend moves according to the market condition. 

This indicator uses a smoothed average calculated with a simple moving average to begin the process. Furthermore, there are three moving averages that make up the Jaw, Teeth, and Lips of the Alligator, which are set at five, eight, and 13 periods. We'll talk more about them in a bit. 

The Alligator indicator also builds up trading signals by applying convergence-divergence relationships.  Moreover, the indicator is made up of a combination of moving averages that uses nonlinear dynamics. When done correctly, traders will be able to see accurate results with lips making the fastest turns and Jaw making the slowest turns. 

Pros and Cons

As with anything, the alligator indicator also has some drawbacks in addition to its pros. Having a clear understanding of them can help make the implementation process much easier and allow you to know what to expect. 

Here are some of the pros and cons of the alligator indicator,

Pros 

Cons 

3 balance lines of the alligator indicator 

One of the first things that any trader should do before using the alligator indicator is to identify its three balance lines. These balance lines or moving averages comprise the Alligator's Jaw, teeth, and lips. 

Let's look a bit deeper into each balance and see what they describe. 

Since the meta trader platforms take care of most of the calculations for you, the importance of a precise method of calculating the moving averages in the alligator indicator lowers. By observing these lines, traders can identify the alligator's state and, therefore, the state of the market. 

The Alligator indicator formula 

A lot more goes inside the Alligator indicator than what meets the eye. To gain a better understanding of what the indicator does, first, you will need to understand how the indicator calculates the market movements.  

The formula of the Simple moving average of the indicator is as follows, 

Subsequent values are: 

The calculation of each of the balance lines is as follows, 

Alligator Indicator Formula (Calculation) image via ifcmarkets.com

List of acronyms 

At first glance, this all might seem a bit confusing and hard to understand. But do not worry; the alligator indicator does the calculations and brings results to you as lines of a graph. This is just to help you understand what is happening behind the curtains. 

How to read the alligator indicator? 

Before getting into using the indicator, you must understand and learn how to read the Alligator indicator and its data. Moreover, there are a few things that any trader must do if they are to get the best out of the indicator.  

Look for trends

Using the Alligator indicator when the price of an asset is consolidating is not ideal. Therefore, traders must always look if the price of the asset is moving up or down on the charts. 

If there is a clear movement in the market, traders can then use this indicator to predict the movement of the market more clearly. 

Indicator's numbers 

Numbers that are in the indicator are what give you the information that you need to make better trades. So, it is obvious that you should have a clear understanding of what those numbers are and their meanings.  

Each of the balance lines comes with a default period of its own. For jaws, this is 13, for teeth, it is 8; and for lips, it is 5.  Next on the list are the shifts of each balanced line. This value shows the periods that lines are moving onto. The default values are 8 for jaws, 5 for teeth, and 3 for lips.

Method and application 

Next on the list is the available methods of calculation. This changes how the indication is carried out and changes according to the preferences of the trader. By default, this value is set to smooth. 

In addition, traders also have the freedom to choose from simple, linear weighted, and exponential methods. 

The last thing to pay attention to is where you want to apply for these numbers. This can determine where the application of the inserted values should be placed and take effect. 

Traders have the freedom to choose from close, open, high, low, median, weighted close, and typical close options.

Tip: We highly recommend that you use the default figures just to make sure that you don't make any costly mistakes while using the alligator indicator. 

alligator indicator and how to read?
What is Alligator Indicator? image via scarlurozptrabap.ga

How to use the alligator indicator in forex trading?  

There are a few ways that traders can follow when using the Alligator indicator. These can help traders determine when to trade and when to pull out. They are,  

Let's talk about each of the above trend aspects in more detail.  

This is when the market is not doing anything and awaiting a change. This is very common within the forex market and can happen often. 

The easiest way to identify the absence of a trend is when all three lines of the Alligator indicator are entwined or very close together. This is what traders also call the alligator, being dormant and awaiting a change in market state.  

When there is a movement in the market, that can be due to a formation of a trend. In scenarios like this, the green lip line crosses through the slower ones while the slower ones follow the same direction but spread apart. 

In addition, this signals that the alligator is eating. The more time spent dormant, the hungrier it gets. This exact scenario is when traders can get the most out of the Alligator indicator. 

Identification of the direction of the trend is simple with the help of the balance lines.

Understanding the line movements is one of the easiest ways to get a grasp of the market movements and better speculations. This is also one of the key strengths of the Alligator indicator, and the drawback of it can be successfully reading the opening signals on time.

what is alligator indicator?
How to interpret the Alligator indicator? image via fbs.com

How to use the alligator indicator in Mt4? 

On the Navigator window or the 'Insert' menu under the 'Bill Williams' folder, you will be able to find the Alligator indicator for meta trader 4. 

All you have to do is drag and drop that indicator into your preferred chart. When you drag and drop, you will see a dialogue box with tools to modify the parameters of the indicator. 

We recommend that you keep things default as most of the guides online will focus on the default parameters. 

How to use the alligator indicator in Mt 5?  

Same as with the meta trader 4 version, the process of using the Alligator indicator with the meta trader 5 is the same. 

On the Indicators folder in the navigator menu, you will find the Bill Williams folder, and within it is the indicator that we are looking for. Select the alligator and set the parameters and color schemes (better to leave defaults). 

Combining the Alligator Indicator with Other Trading Tools 

While this indicator is good at what it does, it always has room for improvement. The best way to ensure the maximum quality results is by combining this indicator with other indicators that fulfill unique niches. 

You can also use an indicator of another methodology to check whether the results provided by the Alligator indicator are accurate. Furthermore, using a momentum indicator can help verify the veracity of your trading signals. 

One of the better examples of compatible indicators that work well with the Alligator indicator is the MACD indicator. This can help to filter out signals and confirm buy and sell signals to maintain accuracy. 

FAQs 

What is the Alligator Indicator? 

It is a technical analysis tool that helps traders to confirm current price trends and their primary direction. 

Why use the Alligator indicator? 

The Alligator indicator can help traders to decide the movements in the forex market. This can provide traders with better buy and sell signals resulting in more profitability.

Who invented the Alligator Indicator? 

The Alligator indicator was introduced by the legendary Bill Williams. He is an early pioneer of market psychology and author. He has also created many other analytical tools.

Conclusion 

Although the alligator indicator can be somewhat confusing to absolute beginners in forex trading, intermediate and expert traders can easily use this in their trades to make accurate predictions. You can always combine this with other indicators to improve its effectiveness and confirm your signals. 

However, we advise keeping in mind the drawbacks of the indicator as well, so you are not making your trades solely based on the tool. We hope this article helps you understand how the alligator indicator works and how to use it in your trades. 

10 Benefits of forex trading in 2022 (Free)

The benefits of forex trading are crucial to know before getting into it  — so you are sure that it’s worth your time. Forex Trading is one of the best asset classes to trade today, and many traders of all experience levels have Forex in their portfolio. This includes individuals to large hedge funds as well as leading banks. 
 
Whether you want to become a full-time trader or try it to make some money on the side, Forex trading is a great option for you  —  Only if you put in the work to learn about Forex before going into actual trading. Let’s look at some of the benefits of forex trading to confirm that the hours you have to put into learning forex will never be a waste. 

What is forex trading?  

Forex trading is the process of changing one currency to another to earn profits. These currencies get paired up, and traders trade these forex pairs for an agreed price. 
 
This asset class is so profitable that it has become a market with over $6.6 trillion daily trading volume. Even though Forex comes with significant volatility, when done correctly, the benefits of forex trading outnumber the drawbacks. 
 
The Foreign Exchange market is where currency pair trading takes place and offers a platform to the global trading community. A large number of traders within the market makes the forex market a highly liquid marketplace. 
 
The currency pair of EUR/USD is the most traded forex pair at the moment. In addition to Forex, this marketplace also offers a platform to trade derivatives, futures, options, and swaps. 

10 Benefits of forex trading

There are a large number of benefits to trading forex correctly. Understanding the benefits better can aid new traders in aligning their trading with objectives. 
 
These are some of the most common benefits of trading forex. 

Why Choose Forex over Stock trading  

The direction that you choose to go, may it be Forex or stock, solely depends on what your preferred trading asset is. 
 
While both are great profitable options, the benefits of trading forex exceed that of the stocks. Because of this, most active traders choose Forex over stock as their main trading field. But don’t just take our word for it. Look at the benefits for yourself. 

The direction that you choose to go, may it be Forex or stock, solely depends on what your preferred trading asset is. 
 
While both are great profitable options, the benefits of trading forex exceed that of the stocks. Because of this, most active traders choose Forex over stock as their main trading field. But don’t just take our word for it. Look at the benefits for yourself. 

Top brokers you can start Forex Trading

Choosing a reliable broker is one of the first things you should get right before getting into forex trading. With the correct broker, you will have a much easier time making a profit with Forex. As we mentioned earlier, having a good broker by your side is one of the biggest benefits of trading forex. 
 
When choosing a broker, one must pay attention to many aspects. These can include regulatory status, fees, spreads, leverage, and the support provided. Let's take a look at some of the best choices when it comes to reliable forex brokers. 

Icon FX 

Icon FX Logo - Icon FX Online Forex Broker

When talking about reliable and regulated brokers, Icon FX is a broker you can’t afford to miss. They offer impressive spreads starting from 0.0pips and leverage that goes up to 500:1. 
 
The broker is regulated by the ASIC and is also a registrant of St. Vincent & the Grenadines. 
 
With Icon FX, traders can expect market analysis, social trading, free trading tools, demo accounts, fast execution speeds, and great transparency on fees. 
 
In addition, you don't need to invest a minimum deposit to start trading here. Traders will access thousands of assets in five asset classes, including 50 forex pairs. Another one of the benefits of trading with Icon FX is the 24/5 multilingual customer support and the availability of great educational content. 

eToro 

EToro-–-The-Best-Broker-For-Beginners

Whether you are a beginner or a veteran trader, eToro is a great place to make your trades. Traders that use eToro can enjoy 1:30 leverage, 0% commissions, and spreads starting from 0.1 for a minimum deposit of $200. eToro is also highly regulated and offers great trading platforms to suit the needs of traders.  
 
Where eToro shines is the copy trading feature that it allows its traders to use. With this feature, traders can duplicate trades from other professional traders to increase their chances of success. 

XM 

As one of the biggest forex brokers in the world, XM offers its services to over 5 000 000 clients from all around the world. The traders who use XM as their broker get access to over 1000 tradable assets, 25 secure payment, and withdrawal methods, and solid trading platforms. 
 
XM requires a minimum deposit of $5 and offers up to 888:1 leverage and low spreads starting from 0.0pips. As with any other regulated and reliable broker, XM also offers solid customer service and good educational material. XM is also a great choice to perform your trading transactions with. 

You can read our top forex brokers' articles to find out about the best forex traders in 2022. Although these articles have our unbiased opinion on each broker, we advise you to do your own research as well before making your decision.

FAQs 

What are the benefits of trading forex? 

Among many other benefits, Forex offers a flexible, liquid, volatile, and profitable market to trade on. Low costs and high leverage make Forex a great choice for beginners as well. 

What is the best platform to do forex trading? 

Icon FX and eToro are both great options for both experts and beginners. They both offer great features and low fees, are highly regulated and offer social trading features. 

Is Forex better than stocks? 

While there isn't a definitive answer, the choice depends on personal preference. However, Forex certainly has a few advantages going towards it.

Conclusion  

When talking about the benefits of trading forex, there is a lot and what we have listed here are only a few of them. As one of the most flexible and liquid financial markets in the world, Forex offers a platform where traders can freely and easily perform trades and make profits.  

Since now you have a better understanding of the benefits of trading forex and the brokers to go with, you have a much easier time on your forex journey. 

Use what you can from this article on top of your research to make the best decision that can help navigate your career in the right direction. 

Forex Day Trading – Free Beginner’s Guide 2022

Forex day trading is one of the most popular trading strategies among new and expert traders alike.  
 
Day trades are a great way to make faster returns. However, many beginner-level traders find it intimidating, and it should be as there are many things that you need to learn and practice before betting on real money in the market.
 
From strategy and market knowledge to emotions, there is a lot that goes into making a successful forex day trader. If you enter the day trading scene without any of this, there is a high chance for you to lose all of your money.
 
So how to start forex day trading? Where to start learning when you are on the self-learning route?
 
In this guide, we share it all. 

What is forex day trading? 

Forex day trading, also known as intra-day trading, is the practice of opening and closing forex trades within the same day. This method is also popular inside the stock and index market spaces and allows traders to make small but frequent profits constantly.
 
With forex day trading, traders can capitalize on the small market movements by trading once or multiple times a day.  
 
The art of forex day trading requires the trader to dedicate their time and focus toward understanding the minor changes in the forex market.
 
With the information at hand, traders then have to make quick decisions and execute several traders in a single day to stay competitive within the market. This makes forex day trading not suitable for traders that engage in trading as a side hustle.
 
The high liquidity of forex makes it a great option for day traders to take part. As with any other trading method, what you need the most is market knowledge.
 
When done correctly, forex day trading can be a trading method that can be very profitable depending on the work that you put in.

Forex day trading basics  

The first thing you should do when it comes to forex day trading is to understand how it works and the basics of it. Here the basics of day trading do not differ much from the traditional trading method.
 
As you should know by now, there is no set path to take to achieve success within the forex field. So the best thing to have with you is forex knowledge. With enough knowledge, you can adapt to various changes and strategies that you might see fit.

When it comes to forex day trading, the commissions and fees for keeping overnight positions, as in other approaches, do not show up here. These are called swaps, and you don't have to worry about them in intra-day trading.  
 
While the risks of trades increase with the price fluctuations that happen sharply throughout the day, the overnight risks stay the same. The best way to counter this is by implementing a good forex day trading strategy that can help minimize the risk that a trader might face while making trades.
 
Since day traders do not take the overnight price change factor into much consideration, it is wise to use a strategy that can negate any losses.
 
The forex day trading community forms up a large portion of the entire forex space. This directly implies that day traders account for an integral part of the daily trade volume, thus increasing the liquidity of the forex market.
  
When you have the basics of forex day trading in your grasp, then you can move on to the next step of the process. On the same note, let's take a look at what can affect the behavior of the intra-day market.

Factors that affect the behavior of the intra-day market  

Forex day traders have to take part in many trades within a day to keep earning profits. Because of this, traders have to pay a lot of attention to potential causes that can affect the price movement on a given day.
 
Due to the short time frame, that day traders have to take action, it is vital to make the best trading decisions to help the success potential of the trade.  
 
Many factors can affect the state of the forex market moving up or down. Some of them are, 

What do you need for forex day trading?  

You can enter and exit a large financial market like forex as you wish. To start forex day trading on the right foot, you will need some factors to aid you.

You must first try to understand what you want before stepping into the market. They are,

A good understanding of the dynamics of the market in day trading

To become a stable forex day trader, you will have to have a solid grasp of the market and its nature. This will allow the trader to see the marketplace from a different point of view and understand what they can benefit from.
 
Moreover, traders can easily identify and monitor technical and fundamental indicators to gain insight into the forex market.

Disciplined and well-thought-out approach for forex day trading.

As in any part of life, being disciplined and thoughtful can help you go a long way in forex as well. If you approach forex trading without any discipline, it would be like a gambling activity.
 
To ensure long-term success, make sure to be disciplined and follow a working strategy. Traders must also have a keen eye to monitor asset prices to take decisive actions to be competitive.
 
Being a disciplined trader will allow you to steer clear of emotionally charged trade actions and be a better trader.

A forex day trading strategy that matches your preferences

Rather than making wild and impulsive trades, taking action according to a forex trading strategy will yield better results. Trading strategies can allow you to avoid difficult market situations and stay on top of the game.
 
There are a large number of strategies available for choosing, and it's up to you to select the one that matches your preferences. We will talk more about forex day trading strategies in a bit.

A reliable broker that suits the day trading style

Forex brokers are who provide traders with the platform on which they make their trades. With the correct broker, you will gain access to many great forex trading tools. These can help you in a great way to aid your trading career.

Important: When you are selecting a broker, make sure that they are regulated, offer competitive fees, and have access to the tools that you need. Since the platform brokers offer are where you will be spending most of your time, you need to think long and hard before selecting one.

How to start forex day trading?  

Since you know most of the basics of forex day trading, you might want to start day trading yourself. If this is you, we have prepared a step-by-step guide for you to get started with forex day trading.

1st step - Choose the method of forex day trading.

The first thing that you should focus on when starting day trading is deciding on an asset class to trade. The most widely used asset class for day trading is Derivatives. Since there is no need to own the underlying asset, opening and closing trades become much easier. This fast trade time makes derivatives a top choice for forex day traders.  

2nd step - Create a plan for day trading

Understanding your expectations of forex trading are the first step in creating a plan for you to follow. Set realistic and achievable goals depending on your needs and plan.

When entering and exiting the market, do fundamental analysis, which follows market news and trends, or technical analysis, which uses analytical information on charts and patterns, or a mix of both.

3rd step - Managing forex day trading risks

Since the forex market success comes by overcoming lots of risks, it's better to have a risk management strategy by your side. With dedicated measures to prevent the worst-case scenario, traders can minimize the potential risks of forex day trading.

4th step - Begin your forex day trading career.

Once you have all the necessities and have done all the preparation steps, now all that you have to do is trade. Since we are talking about forex day trading, it is wise if you open both long and short positions. Then record your earnings and expenditures to gauge your performance.

Pro Tip: Forex is a heavy subject that has a steep learning curve, so always learn what you can about forex to make better traders.  

FAQs 

Is forex day trading profitable?

Forex day trading becomes profitable the more time you put into it since it involves making multiple trades a day.

What is the best asset class for forex day trading?

Derivatives are the most commonly traded asset in day trading. The lack of the need to own the underlying asset makes derivative trades much easier.

What is the best strategy for forex day trading?

Trend trading is the most widely used trading strategy here. Speculating the direction of an asset can improve the chances of success.

Conclusion  

Forex day trading allows active traders to make good profits by opening and closing multiple trades on a single day. When done correctly, this method of trading can prove very beneficial to the traders and allow large profits.
 
But forex day trading requires traders to be more dedicated and allocate most of the day to it. Since you are spending most of your precious time on this trading method, you must leave no room for errors.
 
We have here in this article what you need and how to start forex day trading on your own. By following what's in here, you also can become a forex day trader in no time.

Is Forex Legit? Forex trading Real or Scam (2022)

Many people have the question, is forex legit or a scam? When considering the high potential for returns of forex, you can't blame them for having doubts about Forex trading.
 
The forex market is as legit as it gets and it trades foreign currencies. However, there are risks, and making continuous profits can be extremely difficult if you don't have the right knowledge and enough experience. On top of all, there are many scammers out there that you need to be aware of. 
 
In this article, we dig deep into the topic to show how forex trading works and why it's legit and the forex scams that you need to avoid. 

How does Forex Trading work?

As one of the biggest financial markets in the world, the Forex market provides traders with ample opportunities to make profitable trades. While there are a good number of opportunities available, to be a good forex trader, first, you need to understand how it works. 
 
Forex is a trading method that involves an exchange of two foreign currencies. The two currencies selected are traded on a quoted exchange rate, not in an absolute value or price in the forex market. The quoted rate here is relative to the other currency which is selected. 
 
Because of this, forex trading takes place as a pair of currencies and there are many currency pairs that you can choose from. USD, EUR, JPY, GBP, and CHF are the currencies that make up the major forex pairs. Within them, the EUR/USD pair is the most traded, with more than 20% of all forex trades under their name. 
 
Same as forex traders, large companies, financial institutes, and hedge funds also take part in forex trading. But unlike retail traders who use trading platforms, large-scale companies and traders tend to use their relationship banks to make their forex transactions. 
 
Forex trading might seem simple on paper, but when you look deep into the topic, you will see there is much more that doesn’t meet the eye.
 
One of the first things new traders seem to face when stepping into the forex field is wondering if is forex legit. To answer that, first, you need to understand who is involved in forex and whether they are regulated or not. 

Who is involved in forex?  

The forex market is among the biggest financial markets in the world. Thus, there are a large number of parties that operate in the forex market. Understanding each party and their role in the forex market can help you make better trade decisions. Let’s take a look at the participants of the forex market. 

Commercial and Investment Banks 

Investment and commercial banks play a major role in the forex market. These banks create forex markets with a range of forex pairs with the help of professional traders that they employ. They also aid the trading process and make trades on a proprietary basis for profit. 
 
Hiring sales staff to aid clients with their forex transactions is also something that commercial and investment banks tend to do. This helps to ensure customer satisfaction and the quality of service at the highest level possible.

Central Banks 

Central banks of the country also play a large role in defining the state of the forex market. The interest rate policies and open market policies of central banks have a heavy influence on the currency rates of the forex market. 
 
They also take actions to stabilize the market while increasing the competitiveness of the economy of their country. Currency interventions like appreciating or depreciating a currency are also handled by the central bank. Most of these strategies help bring down inflation and act as an indicator for forex traders to make trades. 

Investment Managers and Hedge Funds 

After the banks, Investment Managers and Hedge Funds are the other most important players in the forex market. Furthermore, they aim to make profits by investing in a variety of financial instruments, including foreign currencies and assets. 
 
Investment managers mostly tend to trade currencies for large accounts, endowments, and foundations. When going into global markets, they will have to buy and sell currencies to trade foreign securities. They also make currencies to trade foreign securities, and some hedge funds make speculative forex trades as their main objective. 

Multinational Corporations 

International companies that tend to use forex transactions for commercial purposes fall into this category. Moreover, while paying for goods and services with forex currencies, they convert export proceeds to their local currency. 
 
Risks associated with foreign currency translations are a common occurrence. To tackle this, companies trade forex to hedge this risk. This tactic also adds a level of security to offshore investments carried out by the same company. 

Individual traders 

When compared with other players, the amount traded by individual retail traders is very low in the forex market. But in recent times, forex trading has seen an increase in popularity within the individual trader community. 
 
While large-scale firms use banks and the futures market, retail traders use online forex brokers to access the forex market. Most of the forex trades that individual retail traders take part in happen speculatively. 

Online forex brokers 

Online forex brokers are the financial intermediaries that allow individual forex traders to perform their trades. These enable their clients to open trade by buying a forex pair and closing the trade by selling the pair. 
 
Most forex brokers offer various types of trading platforms to their clients so that they can have a much easier time in their trading activities. There are many forex brokers available in the market currently, and each comes with its benefits and drawbacks. 

How is the Forex Market Regulated? 

How is the Forex Market Regulated? 

The best way to identify if forex is legit is by checking the regulation status of the forex market.
 
Even though forex is one of the biggest financial markets in existence, it also is one of the most unregulated financial markets. The main reason for this is the lack of an international regulatory organization or agency that oversees the interbank forex process. 
 
However, being predominately unregulated doesn’t necessarily mean that forex is a scam. The unregulated nature can even be beneficial for traders allowing them to use strategies that are not allowed in regulated environments. 

So, how is forex regulated?

Most of the forex regulators turn towards regulating online forex brokers since the interbank market remains unregulated. Forex regulators typically check the legitimacy of the forex brokers within their county and give them their approval. 
 
If a forex broker has regulatory assurance from major financial regulators and has a good service record for years, that is a reliable forex broker.
 
Brokers can receive regulations from official financial agencies with strong jurisdictions under their belt. When a forex broker gets regulated by one or many authoritative financial agencies, traders will have the benefit of enjoying regulatory protection from fraud brokers.
 
Let’s see some of the major forex broker regulators of some of the countries. 

United States 

United Kingdom 

Switzerland 

Japan 

Canada 

Australia 

European Union 

Forex Scams 

In the field of forex trading, the chances of traders running into forex scams are getting high with each passing day. There are many types of scams available that can hurt the traders' finances. In the quest to figure out whether forex is legit, understanding the scams can help a lot. So you can spot a scam right away.
 
Below are some of the most common forex scams that take place in the forex market. 

Forex Broker scams  

Scams that forex brokers pull off are the most devastating of them all. Brokers can do personal data scams, price manipulations, unsegregated accounts, fake leverage, promotions, rewards, and bonuses. To avoid this scam, choose a highly regulated forex broker with a good reputation.

Forex Advisors and managed account scams 

Beware of expert advisors and forex account managers. These can easily siphon your forex account and bring an end to your trading career. So make sure to do research and background checks on advisors and account managers to check their credibility before hiring them. 

Front-running 

This type of scam occurs when a broker places an order from their own account, knowing a client is going to be placing a big order. 

Spoofing 

These happen when a trader tries to create the impression of interest in the position by manipulating the market by placing a large order the trader doesn't plan to execute. 

Signal selling scams  

Some traders and firms promise to suggest the most favorable time to trade by identifying buy or sell signals for a price and don’t deliver as promised or to the level as they promise.

Forex bot scams. 

False promises about automating the trading procedure with the use of a forex trading program. 

How to spot a forex scam? 

Most of the time, forex trading scams offer the most unimaginably profitable deals. They promise massive gains in a short period of time with super high leverages and rewards with little risk.
 
If you ever come across a deal like this, do thorough research as there is a high chance that it is a scam. 
 
Also, always take steps to ensure your financial stability and security. If a forex broker or any related party is not regulated, it is not a good idea to invest your money there. In addition, keep in mind to never allow other people to have access to your money. 

How to choose a legit broker?

Your forex broker plays a huge role in your trading activities. Finding a legit broker is a must.
 
Legit brokers are, most of the time, highly regulated and highly rated. Checking whether a broker has regulations or not is the best way to identify a trustworthy forex broker.
 
If you ever come across a broker with great deals, fees, and features that are not regulated, stay away from it. 

Even regulated brokers can cause you issues at times because not all regulators offer the same level of financial security. The regulators change from one country to another, and so with them their rules. So to assure protection for your money, find a forex broker that has the right regulatory requirements.
 
The good news is there are a lot of properly regulated brokers out there like IconFX that you can select to do your traders with.

Warning:  When selecting a broker, always be sure to do thorough research on your own.

FAQs 

Is forex legit? 

Yes. Forex trading is a legitimate way of trading that takes place in the biggest financial market in the world. 

Is forex a scam?

While some scammers are doing illegal activities within the forex market, forex trading itself is not a scam. Trading with a regulated broker is as safe as any other way of trading. 

Can forex brokers' steal money from traders? 

While brokers stealing funds from traders is a possibility, you won’t have to worry about it if you choose a regulated broker.

Conclusion 

Since the day of its inception, people have always questioned, is forex legit?
 
To give you a short answer to this, yes, forex is a legitimate way of trading that involves foreign currencies. Trading with a secure and regulated broker can help traders to reach their goals much more easily. 
 
But we can't say for certain that you won't face any risks. In addition to the market volatility risk, traders also have the potential to face forex scams that are there to trick traders into bad situations. 
 
So our advice is to educate yourself about the security, regulations, and scams that are available within the forex market. That way, you will be able to understand the answer to the age-old question, is forex legit? 
 

What is Forex Trading? Free Beginner Guide for 2022

Forex trading is a huge topic in the trading world and among the people. Many are intrigued by the high returns forex delivers and see it as a great way to make money easily. 
 
Whether you like to try forex trading to earn some extra cash on the side or to become a professional forex trader, there is a lot that you should learn.
 
As one of the biggest trading markets in the world, Forex has its upside and downside, and knowing it all only makes you better prepared for your trading journey ahead. 
 
Let's look at what Forex is and how the forex market works. After reading this, you will know exactly how everything works when it comes to Forex. 

What is Forex? 

The act of trading foreign currency pairs between traders for an agreed price is what forex trading is all about. Forex is also the largest financial market in the world and offers trading opportunities for over 10 million traders and counting. 
 
Forex might seem like a simple method of trading on paper. But when you start to look deeper, you will begin to understand how complex it can get.
 
For any beginners trying to learn the art of Forex, research is the key.
 
Let's begin with the types of available forex markets. 

Types of Forex Markets 

When it comes to the forex market, there are a few ways that traders can follow their traders. If you are a beginner who is learning forex trading, you should know about all the available trading modes for you.  

Spot Market 

This is where immediate exchange between traders takes place at the current exchange rate. The trades that happen on the spot market require quick payments and need immediate currency delivery or exchange within 48 hours. The currency transactions on spot trades occur two days following the contract date. 
 
Spot traders don’t face the risk of sudden increases or decreases in the price of the forex pair, which can lead to issues in trades. If you are a trader who aims to complete rapid trades in quick succession, the spot market might suit you. 

Forward Market 

In the forward market, the two parties involved in the trade set a specific date and time for the transaction to take place. Because of this, no money transfers take place when the trade is initiated.
 
The forward rates are also similar to the rates within the spot market, and the only difference is the delayed delivery. 
 
Besides the currency swap point, the forward market also allows traders to customize the delivery period to suit their needs. With the help of the forward market, importers and exporters can avoid issues that occur due to rate fluctuations. 

Future Market 

Future contracts are an alternative version of the forward contract, which is traded publicly on a futures exchange.
 
Similar to forwarding contracts, futures contracts also specify the price and date to exchange an asset, with the biggest difference being the fixed contract size and maturity date. 
 
To take part in a future market, traders will have to pay an initial margin into a collateral account to create a future position.
 
Most of the time, future trades undergo competitive trading and require an organized exchange to take place. 

Swap Market 

The allowance of two streams of cash into two different currencies is the idea behind the swap market.
 
These types of trades allow traders to purchase or sell the same currency for forwarding delivery. This forwarding delivery then follows a simultaneous sale or purchase of spot currency. 

There are two main types of swaps available in the swap market. They are

Options Market 

Forex options are contracts that allow buyers the right but not the obligation to buy or sell a specific currency at a certain rate before or on a specified date.
 
On the options market, traders are allowed a call option, which enables traders to buy the underlying asset, while a put option allows the sale of it. 
 
The term exercising the options is common in the options market, and it refers to the buying and selling of the underlying asset through the option.
 
In contrast, exercising the option is not an obligation for the options traders. 

Forex trading terms that are important to know  

When you are traversing the forex market as a new trader, you are sure to come across a few words that might seem odd and new to you.
 
Understanding the lingo and the jargon within the forex market is an important aspect when it comes to learning forex trading. Let’s take a look at the most commonly used words in the forex market. 

Base currency 

In the forex market, the currencies are traded in pairs to make the transactions much easier.
 
Within this pair, the base currency is the one that is first listed in the pair. This refers to the currency that you are buying when you trade a forex currency pair. The value of the base currency is always 1 by default.

Quote Currency 

Within the forex currency pair, the quote currency is the one that is listed second. It is the currency that you are selling when you trade a forex currency pair.
 
The value of the quote currency is measured according to the base currency.  For example, if the EUR/USD pair is trading at 1.02, the value of the quote currency (USD in this case) is 1.02 USD. 

Spread 

The spread in Forex refers to the difference between the asking price and the bid price of a certain forex currency pair.
 
Moreover, to find the spread of any forex pair, all you have to do is subtract the bid price from the asking price. In other words, the value of the spread is the cost of trading. 

Leverage 

Leverage is a way provided by forex brokers to traders, allowing them to trade in a bigger volume than they normally would.
 
It is kind of like a loan from the broker, which increases the capital of the trader. However, leverage is a double-edged sword as the buildup of large debt on a weak capital can lead to collapse. 

Margin  

The margin on the forex market is the amount of money that a forex trader needs to invest in maintaining the position and trade. This acts more like a security deposit than a transaction cost which the broker while trade is going on. 

Pip 

A pip in Forex is the unit that is used for the measurement to show the change in value between a pair of currencies. For instance, on the EUR/USD pair, if the value rises from 1.02 to 1.03, the pip, or the change in value between the pair, is 0.01. 

Currency Pairs in Forex 

Within the forex market, there is a large number of foreign currencies available. Most of the national currencies are eligible for trade in the forex market.
 
Furthermore, to keep things organized and simple to understand, these pairs are split into four categories.
 
They are, 

What is Forex Trading?

Forex is a trading method that pairs up two foreign currencies and proceeds trading from there on. Due to this pair-up, when you buy one currency, you automatically sell the other currency simultaneously.
 
Here the traders speculate on the market movement of the forex pairs to make potentially profitable trades. 
 
To make a forex trade, first, you must have a currency pair. If you are a new trader, it is recommended that you start with one of the major pairs due to their high liquidity.
 
Then analyze the market by doing research and analysis with the help of the tools offered by the forex broker you choose. Also, pay attention to trading signals, trends, new market developments, and news as they can help decide the market direction. 
 
Buy positions are for when you believe the base currency value will rise compared to the quote currency value. In contrast, sell positions are when you believe that the base currency will fall compared to the quote currency.

Trading Tip: Since you are a beginner in forex trading use demo accounts to your advantage before making any actual trades. They will help you grasp the basics of the Forex by practice. 

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Pros and cons of Forex Trading 

Like all other things, forex trading also has drawbacks mixed with its benefits. New traders must understand both pros and cons when starting forex trading. 

Pros 

Cons 

What is a Forex Broker?  

It is very hard for individual retail traders to make trades in the forex market on the OTC method. This is where forex brokers come in.
 
Further, forex brokers are financial service companies that allow traders access to the forex markets with their trading platforms. 
 
There are a large number of forex brokers that provide services to traders, and each of them comes with its benefits and drawbacks. Most of the brokers also provide great customer support, educational content, and assistive tools in addition to trading features.

Beginner tip: When choosing a forex broker go for a beginner-friendly exchange to start your career so you will be able to navigate the platform easier and do trades more comfortably. We have reviewed some beginner-friendly brokers that you might want to check out.

FAQs 

Is forex trading hard? 

Understanding the basics and simple strategies in the forex field is not that difficult. But if you want to become an advanced trader, you will find that Forex is a pretty complex subject. 

Is forex trading profitable? 

For the average retail trader, becoming rich off of forex trading alone will take quite some time. But for large-scale traders with deep pockets, Forex can be very profitable. 

Do I need big capital to start trading Forex? 

No. You do not need to invest a large amount of money in starting Forex. 

Conclusion 

Forex is a trading asset class that keeps rising in popularity. It allows traders to choose and trade pairs of currencies to make a profit in a highly liquid market, increasing the potential for profits. 
 
Before diving head first into the forex market, new traders must first understand the basics of the trade. In this article, we cover the most common and starter knowledge necessary to start trading Forex. 
 
When you feel like you have enough knowledge, create a demo account and test your skill in real-world scenarios to see if you got what it takes to make profitable trades. In our opinion that is the best way, you can get the perfect start for your forex trading career. 

Top 10 Best forex brokers for beginners in 2022

Finding the best forex brokers for beginners is one of the crucial steps in starting your forex trading journey. Just as much as your knowledge and trading experience, the broker you are using contributes to your success rate.
 
Your forex broker is your main point of entry into the foreign exchange market. But why can't you just use any forex broker?
 
This is because different brokers are suited for traders with different knowledge levels — although this is not directly mentioned. So if you are starting out with a forex broker with many advanced tools and features, you might get overwhelmed easily. 
 
In this article, we review some of the best forex brokers for beginners to help you find the best broker for your situation. 

What is a forex broker? 

Forex brokers are companies that dedicate their services to providing a platform where traders can buy and sell foreign currencies. Moreover, they offer a platform with various benefits that traders can use to maximize the profits that they earn by forex trading. 
 
The people who mostly use forex brokers tend to be retail currency traders or investors for large institutional clients. Furthermore, most of the forex transactions happen with the currency pairs made up of currencies from the nations under the G10. So, most forex brokers focus more on these G10 currencies while allowing traders to trade other currencies as well. 
 
Anyone interested in forex trading can open a trading account under any broker that they prefer.
 
Each forex broker comes with different minimum deposits, fees, benefits, and drawbacks that the trader should weigh before making a decision. In addition, forex brokers make money by implementing additional charges and through the bid-ask spread of a currency pair. 

Here is a list of our top 13 recommended forex brokers if you are not a beginner.  

Why do you need a forex broker? 

While it is true that you can do forex trading without a broker, making trades with a broker can be much easier and more profitable. Traders can expect a wide range of benefits when engaging in forex trading with the help of a forex broker. 
 
Brokers provide traders with many features like high leverage, demo accounts, social trading, analytical tools, and graphs. Traders then can use these features to make better trades according to the trading signals provided by the broker. With the help of forex brokers, you will also have an insight into the highly volatile forex market. 

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On most brokers, you can also opt into trading with other assets rather than forex. If you are a trader that is not limited to forex, some brokers can help you with what you need. By using a beginner-friendly forex broker, you will have to face fewer risks, can earn more, and make better decisions.

Top 10 Best forex brokers for beginners 

Icon FX – Best overall forex broker 

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When it comes to regulated, profitable, and beginner-friendly brokers, Icon FX has no real competition. High liquidity, fast transaction execution, and an easy-to-use platform are what you get when you start trading with Icon FX. The great thing about Icon FX is its beginner-friendly nature which allows old as well as new traders to trade with ease. 
 
With Icon FX, you can trade instruments from five asset classes, including over 50 forex pairs. In addition, you can expect up to 500:1 leverage with no minimum deposit requirements. Low fees and 0.0 spreads on major pairs are also a signature of the broker. 
 
What makes Icon FX one of the best forex brokers for beginners is the social trading and the availability of a large knowledge section. Furthermore, a good 24/5 multilingual support and features aid traders to make Icon FX a popular choice among newer traders. 

Pros 

  • No minimum deposits 
  • Spreads starting at 0.0pip 
  • High leverage of 500:1

Cons 

  • No options to trade ETF or options 
  • Fairly new broker 

IG Markets – Best forex broker for beginner CFD traders 

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As one of the highest-regulated forex brokers in the world, you can do no wrong with IG markets. Also, IG is a market maker that uses its high liquidity to meet the client's trade orders. With IG markets, Traders also can trade up to 17 000 tradable assets, including over 90 forex pairs. 
 
Furthermore, with IG Markets, you can expect 0.6pip spreads on MT4 and L2 trading platforms. To start an account with IG, you will need to deposit a minimum of $250. When it comes to beginners, IG dedicates an entire education section named IG Academy, which is also accessible via mobile devices. 

Pros

  • Best-in-class web trading platform 
  • Great educational materials 
  • Highly regulated 

Cons 

  • High threshold of entry 
  • High forex fees 
  • Only offer the MT4 platform 

Pepperstone – Best forex broker for global trades 

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This is an Australian broker who is widely known for the wide range of trading options on a global scale. Pepperstone was introduced as a solution to issues like high commissions, delayed execution of orders, and high spreads. Also, with Pepperstone, traders can trade CFDs on Forex, Index, Stocks, Currency Indices, Commodities, and ETFs. 

With a minimum deposit of $250, traders also can experience a low spread starting at 0.0pips and high leverage of 400:1 with no commissions. Instead of the percentage-based commissions, Pepperstone charges $3 per traded lot. 

Pros 

  • Very fast border execution 
  • Relatively low fees 
  • No fees for inactivity 

Cons 

  • High minimum deposit 
  • Limited demo accounts 
  • No news and only a few analytical materials are available 

eToro – Best forex broker with social trading for beginners

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Social trading features and the simplicity eToro offers make it one of the best forex brokers for beginners. New traders can use this broker to copy the trades of more experienced traders and stand a chance to increase the profits that they earn. 
 
With 0% commissions, low spreads starting from 0.1pips, and a minimum deposit of $50, eToro is also a prime choice for beginners. Furthermore, great 24/7 customer service and education sections are available here to make it much easier for traders who are easily in their forex journey. 

Pros 

  • Availability of great social trading features 
  • Possibilities of passive investing 
  • Has regulation passed by independent monitors 

Cons 

  • MT4/MT5 is not available in Europe 
  • Instances of technical failures in order execution 
  • No access to ECN systems 

Saxo Bank – Best forex broker for seasoned traders 

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You are not going to stay a beginner trader forever. There will be a time when you realize that you need to move on to a more advanced broker. Saxo bank broker is a great option for this transfer. In addition, it offers a lot more advanced features to traders who know what they are doing. 

Beginner traders can also use Saxo bank to experience spreads starting from 0.7 and leverage up to 30:1. Here trades will have to deposit $2000 as their initial deposit to start trading with Saxo Bank. This highly regulated broker has also received many awards for the quality of the service that they provide. 

Pros 

  • Over 40 000 tradable assets 
  • Reliable and regulated 
  • Availability of ready-to-use long-term portfolios 

Cons 

  • High minimum deposit 
  • No online chat support is available 
  • No access to the MT4 and MT5 terminals 

AvaTrade – Best forex broker for beginners outside of the US 

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With over 200 000 registered users and more than 2 million monthly transactions, AvaTrade is one of the most reliable and trusted brokers in the world. With over 1260 tradable assets at your disposal, this market maker also allows for spread-only accounts. 

You can start trading here with 0.9pip spreads on over 55 forex pairs with a minimum deposit of $100. Moreover, what makes AvaTrade a good option for beginners is the availability of a wide variety of social trading features.

Pros 

  • No restrictions on trading and scalping 
  • Availability of social trading features 
  • Wide range of trading instruments and trading platforms 

Cons 

  • Not the most user-friendly interface 
  • Customer service s below average 

CMC Markets – Broker with the widest range of offerings 

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The range of tradable assets with CMC Markets is pretty impressive. The broker offers 9500 financial trading instruments, also including over 330 forex currency pairs. In addition, this broker is famous in the field for offering profitable trading conditions and providing high-level protection of investments to its traders. 

CMC Markets charges no minimum deposit or commissions and provides you with spreads starting at 0.7pips. Further, good customers and a great educational section make CMC Markets one of the best forex brokers for beginners. 

Pros 

  • Wide range of assets to trade 
  • Great security and highly regulated 
  • High leverage 

Cons 

  • A new account is needed for each category of trading asset 
  • Withdrawal and deposits are limited to bank transfers and Visa cards or MasterCard. 

Capital.com - Great forex education and an innovative educational app 

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Learning as much as possible about forex is the best way to make educated trades and maximize profits. With Capital.com, traders also have the freedom to learn as they trade with access to a wide range of educational materials, including courses, articles, and even an app, ranking Capital.com top of the list of best forex brokers for beginners. 

A minimum deposit of $20 is necessary to access the services of Capital.com, and it also offers floating spreads to clients. Additionally, a large number of tradable instruments and high leverage with instances of even 1000:1 are available to traders. 

Pros 

  • The fast and optimized registration process 
  • Funds are held on segregated accounts 
  • A large number of trading instruments and educational material 

Cons 

  • High stock and CFD fees 
  • Smaller account currencies are unavailable 
  • Does not offer investment program for clients 

PocketOption – Innovative broker with flexible and beginner-friendly services 

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Launched in 2017 with a team of IT experts and professional traders, PocketOption is also one of the highest-rated forex brokers for beginners at the moment. In addition, PocketOption offers over 100 global trading assets for over 95 countries worldwide. 

With a minimum deposit of $50, you can experience spreads starting from 0.0 with a leverage of 1:1. Moreover, PocketOption places a heavy emphasis on high-quality customer service and financial innovations, making it a great broker for starters. 

Pros 

  • Availability of social trading features 
  • Availability of affiliate and bonus reward programs 
  • Comes with its own telegram bot 

Cons 

  • Minimum withdrawals of $10 
  • Withdrawal can take a long time 

RoboForex – Best trading platform for beginners 

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RoboForex is a forex broker that provides services for over a 3.5million worldwide users with 36 forex pairs. As one of the leading software providers in the financial markets, the quality of offered RoboForex platforms is also at the highest level. 
 
This highly regulated broker also offers spreads starting at 0.0pips and leverages up to 2000:1 just for a minimum deposit of $10. The quality of services that RoboForex provides enabled the broker to be named the best forex broker in 2022. Great client support with low fees and a good trading platform also makes RoboForex one of the best forex brokers for beginners and experienced trades alike. 

Pros 

  • Instant withdrawal of funds 
  • Tights spreads 
  • High leverage and highest affiliate payments 

Cons 

  • A smaller number of tradable currency pairs 
  • Lack of crypto tools in the R Trader platform

What is the best forex broker for beginners? 

Selecting just one broker is impossible as the needs of traders vary from one to another. So when deciding on the best forex brokers for beginners, traders will have to consider many factors. They can be,

Any of the above factors can change the experience you get with a broker.

Important: Although these are our genuine thoughts about each broker, we advise you to do thorough research on your own before making your decision. 

FAQs

What is the best forex broker for beginners? 

Icon FX, eToro, and PocketOption are some of the best brokers for beginners. Easy access to trading, demo accounts, and social trading make them better than other brokers for new traders. 

What is the best forex broker in 2022? 

According to Traders Union, RoboForex is the best broker in 2022. In addition, RoboForex has over 3.5 million users in over 169 countries. 

What is the best currency pair to trade for a beginner? 

EUR/USD is the best currency pair for beginners to trade. The high liquidity is the main reason behind the EUR/USD pair being the best and most profitable pair.

Final Thoughts

An online forex broker can assist you in getting started as a forex trader. Apart from the services and currency pairs they offer, security, minimum deposit, and the broker's reputation are a few of the areas that you must consider when selecting a broker. You also need to pay attention to whether they accept users from your country and how the broker is regulated in its local jurisdictions. The final decision should be made based on your requirements and trading strategy and how much the broker can fulfill your requirements.

How to become a successful forex trader in 2022? 

All it takes for someone to become a successful forex trader is to have a little money to invest and some patience.
 
However, not many reach the status of a successful trader’ and end up losing their money. So how to become a profitable forex trader in 2022?
 
Forex offers many exciting opportunities to earn great rewards, but it also comes with many risks. This is why you need a favorable risk and reward setup.
 
But this is only a part of becoming a successful trader. There are many factors that contribute to the making of a profitable trader in Forex. 
 
The Forex market is a complicated subject, and you can’t learn everything overnight. Becoming a forex trader is a long process that could take months and will demand a lot of hard work.
 
If you are someone who is interested in trying your luck with forex, here's our step-by-step guide that will help you start trading on the right foot. 
 

What is a forex trader? 


Traders are the people who place orders on the financial markets independently or on behalf of a financial institute. These traders can buy and sell assets such as forex, equities, stocks, commodities, and bonds.
 
In this case, we are focusing on traders who make Forex their main trading asset. 
 
As with any other trader, becoming a forex trader can be done under institutes or individually. When going independent, traders will have to use their accounts and finances to give them a chance to earn profit.
 
Online trading platforms are the most common place where these kinds of trades take place, mostly in an OTC manner. Most of the time, these online trading platforms offer leverages to the trader giving them a chance to increase their profits at a higher risk. 
 
On the other hand, traders working with financial institutes place trades on behalf of their clients by spending the institute's funds.
 
In scenarios like this, traders do not gain profits based on the trades but from the salary paid by the financial institutions that they are working for. This enables these types of traders to take high-risk traders as they don’t have to worry about losing their funds. 

What does a forex trader do? 


As mentioned above, forex traders buy and sell forex pairs independently or under a financial institution. They build up various strategies depending on the market status, trends, profiting method, and trading style and follow them to maximize their profits. These strategies vary from trader to trader, and using a forex trading strategy is necessary to become a successful forex trader.
 
Building and using forex trading strategies are very important to all successful forex traders. These will help you to get the most out of the trades that you are engaged in.
 
The duties of a forex trader also include doing research and analysis on any given forex currency pair. Traders must also focus on finding situations in which the forex trader has the highest chance of returning a profit.
 
This will allow you to become a forex trader that has more winning trades than losing ones. 
 
Traders who perform under financial institutions have a different outlook on the market.
 
Since they are not using their funds to perform trades, they can trade the way the client asks them to. These types of forex traders get paid depending on their position in the institutes. There are three types of institute-based forex traders.
 
They are, 

How to Become a Forex Trader? | 5 Steps to follow 


With the help of the internet and online brokers, anyone who is interested can work towards becoming a forex trader.
 
Even though this is true, traders must first understand that forex trading is a field with high risk. So, to avoid getting into any issues, you will have to be prepared.
 
Here are a few steps anyone can follow to become a forex trader. 

Step 1 - Educate yourself 

Having a good understanding of what the forex market is and how it functions is the first step to becoming a forex trader. This can be easily done by educating yourself about all things necessary about Forex.  

As with many other fields, forex trading is an activity that becomes much easier with the more knowledge you have.
 
Learning about Forex has become much easier with the internet and the educational sources available on it. Traders can refer to countless number of articles, blogs, e-books, and courses to sharpen their forex knowledge. Learn everything about forex trading, brokers, currency pairs, and platforms to get an edge over the other traders. 
 
Important- Here, you need to learn about how to perform a fundamental and technical analysis along with other basics.

Step 2 - Get your trading capital ready

Traders do not need to invest a large amount of money as the capital when starting forex trading.
 
The capital, most of the time, is the funds that you need to keep in your account for opening a position. The amount of money that you invest changes relative to the margin available.
 
For instance, a 1% margin on a $100,000 position will require you to put $1000 as the capital. 

One thing that you should keep in mind is that the lower the deposit, the higher the impact on losses for your trading account.
 
To lessen the effect of losses, having a solid deposit as capital is needed. Leverage also plays a large part in forex trading and the investing amount of funds. 

Step3 - Find a broker  

The next step to becoming a forex trader is to find a broker that is both reliable and profitable. Forex brokers are where most of the Trading takes place, and there are a lot of brokers to choose from. Each trader comes with various benefits and drawbacks, and you should do thorough research to select the ideal one. 
 
A lot of things go into the selection process of a solid forex broker. Traders should pay attention to things like leverage, minimum deposit, demo account availability, risk management, spread, and fees to find a broker that is compatible with them. 

Step 4- Choose your trading strategy  

Finding a forex trading strategy is equally as important as selecting a forex broker. The trading strategy that you implement will dictate the way you trade and the profits that you earn.
 
Furthermore, traders have the freedom to choose from a large pool of strategies, and it's up to the trader to decide what suits them best. 
 
The used trading strategy can change due to multiple factors. The length of the trade, the number of trading opportunities, and the risk-to-reward ratio are some of the deciding factors here. These strategies can also be built upon news-based events, trends, and fundamental or technical analysis.
 
A good forex trading strategy can help the trader to get better results, stay focused on a goal, and also will help to measure their performance.
 
It's better to select a simple and profitable strategy and leave the complex strategies for the later stages of your career. Do thorough testing of the selected strategy using demo accounts before implementing it. Under the correct circumstances, a good trading strategy can help you become a forex trader who is successful. 

Step 5 -  Start Trading 

When the previous stages are done, all that’s left for you to do is trade.
 
Now, you should have a broker, a forex trading strategy, the necessary knowledge, and the capital needed to perform a trade. If you are unsure about at least a single factor, work on it before starting to trade. 
 
Do fundamental and technical analysis on the market and keep an eye out for new trends and news. When the right opportunity comes, enter a trade with a clear goal in mind.
 
This is where the forex trading strategy that you’ve selected comes into play. Here the exit point of the trade depends on the strategy that you chose.  
 
Since the forex market is the largest and the most liquid financial market, you can stand to have a higher chance of earning a profit.

Tips to become a Forex trader 

Tips to become a Forex trader

Keep up to date with the market. 

Being informed about all the latest developments in the forex market is something that all good traders do. Since most of the market movements occur related to central bank announcements, news, events, and trends, keeping up with them can prove invaluable. 
 
This falls in line with fundamental analysis rather than technical analysis. With this, traders will be able to place more profitable trades and jump on trends before other traders. Remember -having an edge over the competition can make or break your forex trading career. 

Understand that you can't win all the trades. 

Winning every trade as a forex trader is a feat that is almost impossible to do. Even the most successful traders are not winning every trade that they open. What defines a successful trader in the forex field is by having more profits exceeding losses at the end. 
 
So, if even the most successful traders can fail, don’t worry if you lose some on the way. Patience and persistence play a large part in forex trading, and the ones who remain in the market will have more experience. In addition, you can always learn from your mistakes and become a forex trader that plays for the long run. 

Keep expectations at an achievable level. 

A lot of traders go into forex trading with unrealistic expectations thinking that this is the easiest way to make a fortune. Coming into trading with a mindset like this can severely affect the way that you do trading. 
 
There are some cases where the opposite can be true as well. Having very low expectations can force the trader to miss out on profitable opportunities. So, make sure to keep expectations on a realistic level and avoid the mindset that Forex can make you rich in just a few trades. 

Avoid overtrading 

Overtrading can affect your trading experience negatively. This tip can correlate with the previous one as unrealistic expectation plays a big part in overtrading. Traders who want to get rich as soon as they possibly can are the ones that fall victim to overtrading. 
 
Trading with too much volume and Trading too frequently can lead to overtrading and risk the financial stability of the trader. Outside of forex scalping, trading too frequently is not advised to people who are aiming to become forex traders.
 

Use stops losses and takes profits. 

Setting up a stop loss regardless of the using strategy is a smart thing any trader can do. The practice of setting a predetermined closing price of your trades so that they close automatically is what this does. 
 
Take profits to act the same way but close the trade when it reaches a certain level of profit. Both of these are great ways to prevent any unwanted fund leaks, especially if you are a trader who is unable to pay attention to the forex market at all times. 

Conclusion 

 
The FX market offers you opportunities round the clock to make money with a minimal initial investment. However, it requires good education, and great discipline and patience are essential to make profitable trades in the long run.
 
Even if you are an absolute beginner, there are many free and paid resources out there, including our blog, which you can use to learn the basics. Also, there is a wide range of tools available so that you can improve your trades without having to analyze everything by yourself.
 
Since now you know how to become a successful forex trader, we hope you will follow these steps and have a better chance of becoming a successful trader.

FAQs

Can I get rich by becoming a forex trader? 

Yes, but not overnight. Making a substantial profit with forex trading can take a long time. 

Do I need large capital to become a forex trader? 

A large fund is not necessary to become a forex trader. Often a trader can open a position with a 1% margin of the trade. 

What is the best way a beginner can learn about forex trading? 

Self-study is the easiest and cheapest way to learn about forex trading. There are a lot of educational sources available in the form of articles, video tutorials, and courses.