Libra Coin A Global Currency from Facebook

It was just a matter of time before hyperscalers and their own currencies, cryptocurrencies, joined the business. Under the magnifying glass, dreams of a better future and trade clash.

What if everybody was invited to access the same financial resources in the global economy? Among blockchain advocates, this thinking pushes the visionaries, not just those who choose to follow Libra.

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• Since 31% of the population of the world has to get by without a bank account. Furthermore, if they want to do foreign business, they have to consider even higher costs - the share costs about 7 percent if money has to be sent abroad.
• Nonetheless, 85 of the foreign deals are in the form of currency. And cash has other drawbacks: transporting and storing is difficult, but easy to steal. Around $40 billion annually is lost by US retailers to cash theft.
• As the poor do not have an account, they also pay $ 4 more to exchange cash every month.
• Therefore, digital financial services that are open to all could have a significant impact on the economy, especially in developing countries. The paper predicts $3.7 trillion in additional turnover and the production of 95 million jobs.
• Income capacity could be increased by 20% and extreme poverty could be decreased by 22%.

Also quickly mentioned are the prerequisites for success:

• Sending and receiving money should be easy and possible from anywhere, regardless of income. Libra requires a smartphone or data connection.
• Sending and receiving money, irrespective of income should be simple and possible from anywhere. Libra needs a link to smartphones or data.

Continuity should be maintained. For this a reserve (stablecoin) is created - this is not the case for every cryptocurrency and does not always guarantee unreserved approval.

Many of the cryptocurrencies on the market actually have no underlying assets to sustain them. The effects of Bitcoin are known to almost everyone: the value of these coins fluctuates - more than expected - just as their prices do.Since they should be able to sell a Libra Coin at any time at a value similar to the value of the corresponding reserve, this is intended to instill user faith. This is expected to safeguard Libra against speculation.

Libra users' balance sheets also decide the size of the reserve. For example, if Libra coins are purchased for EUR 100, then the EUR 100 will flow into the reserve fund controlled by the Libra Association. Libra is listed on the stock exchange as well. The exchange of coins - below or above the current value - should be possible for a small fee. How many Libra-Coins are in circulation or how many individuals want them to be sold or owned should be meaningless?

Therefore, Libra needs to resemble current currencies. The cryptocurrency could be secured by highly credit-rated government bonds. However, the inventors, using the strategies of central banks or "currency boards" forgo their own financial policy. And while central banks may print their currency at their own discretion, if enough foreign exchange markets accept the proposal to mint new coins and banknotes, a currency board typically only prints local currencies.

The Blockchain

The Libra blockchain is also a decentralized, programmable database, like other blockchain processes .

There is also a Libra blockchain development protocol, which focuses on developing a financial infrastructure that facilitates innovation, eliminates barriers to entry, and enhances access to financial services. The Libra core will be applied in advance to predict global integration and define possibilities for development in order to move the protocol.

This protocol helps many authorities - known as validators - to maintain a number of models and thus protect each other. Therefore the programming technology needed for this is used by different user accounts, which in turn have been tested by public-key cryptography. You are bound by the maker to do so. Adhere to the user-defined rules specified. The validators execute the transactions and connect with each other. This allows for a database status agreement.

The Language of the Blockchain

The transactions for Libra are based on the programming language "Move" The ability to describe user-defined resource types with semantic control through linear logic is its key feature. This helps to carry out aspects of the Libra protocol, including control of validation and processing of transactions.

In particular, it is used to describe the blockchain processes, such as the currency and membership in the validator network. These structures allow for the development of a governance structure that evolves within the first few days from the lower volatility and prestige of established institutions but can evolve over time into a totally open framework.

On the other hand, "LibraBFT" is a robust and well-organized replication system for state machines that was specifically designed for the blockchain.

It is based on the "Hotstuff" protocol, promoting scientific improvements to "Byzantine 

Fault Tolerance" (BFT) for several decades and maintaining good scalability and security.

Association & Council

The Libra Association is an autonomous association consisting of the validation nodes of the network. There are, first of all, foreign businesses, social partners, and academic institutions. Over time, any organization that operates validation nodes and has enough stakes in Libra will be included in the association.

The non-profit organization's job is to synchronize the validation nodes, to further grow the network, and to protect it. The Governance and Coordination areas include:

• The technological development, including a roadmap, inside the open-source community
• The financial security of the reserve and expenditure control for social purposes.

There were a few additional functions in the early years of the Libra Network:

• Win Founding Members Members
• Raise funds from participants and investors through the sale of Libra investment tokens
• Implementation of programmes and principles for incentives
• The distribution of dividends

If the Libra network has grown into a complete blockchain, these functions will no longer apply.

The governing body is the so-called Libra Council, made up of the members of each member of the Council. It is by voting that organizational and political decisions are made.

1. The validation nodes listed have the highest authority in the council. The council transfers much of its administrative powers to the leadership of the club, but retains the right to override delegated decisions - but a two-thirds majority is needed for the most important decisions. What choices would be taken are decided in advance. For subordinate decisions, a simple majority is necessary.
2. Preserving their worth is the key goal of maintaining reserves.
3. The weight in the council of a voting right corresponds to the respective expenditure.
4. To the world, decision making is clear.
5. Financial interest must be available in order to become a member of the council.
6. As already mentioned, the first or primary validation nodes are given by the founding members as well. To act as a node, by purchasing Libra Investment Tokens, a company should spend at least $ 10 million, as this amount is used to award one vote in the council.
7. The association's goal is to make decision-making as effective as possible and to assist its members in the execution of their decisions to the maximum extent possible.

In the course of time, the composition of the Council can and should change. The investment, the position as a verification node, and compliance with the technical regulations decide who is eligible to become a member. The speed of change is decided by the Libra Association Board, as is the development of the network and technological milestones.

Depending on the sum of Libra and their use, the node operators retain a total of 20 percent of the voting rights. Regardless of the Libra shares and the Libra they carry, with a majority of 1 percent of the votes, a single founding member can only be represented on the council. For Validation For nodes that are not charter members and have joined the network through the purchase of Libra, the cap does not apply.

 

The Founders

Stripe, Visa, Mastercard, Pago, Paypal, Marcado, PayU, as well as eBay, Booking Holdings, Facebook, Lyft, Uber Technologies, Farfetch and Iliad, Vodafone Group, but also Bison Anchorage, Coinbase, Trails, Inc., Xapo Holdings Limited and Horowitz, Breakthrough I I Limited and Horowitz is the organizations that work on concluding the statutes and that will become founding members after their completion.

Non-profit, multilateral organisations and academic institutions still exist: Creative Destruction Lab, Kiva, Mercy Corps, World Banking for Women.

Membership

There are two hosting solutions open to businesses that choose to join Libra: self-hosted and cloud service-hosted.

Self-hosted validation nodes are hosted in data centers that this member of the organization runs and manages. At least half a rack should make up the disk room. The association does not expect the space to be used immediately, and further versions of Libra Core are expected to be able to use various servers. The node also requires a high-speed and redundant Internet connection.

In addition, an engineer must take care of the software and be able to secure the validator node, such as maintaining the node's functionality and protection and protecting it from, for example, DDoS attacks, server hosting validator node attacks, and data center attacks.

The association provides organizations involved in running a validation node via a cloud service provider with the tools and documentation to facilitate the deployment. Amazon Web Services' recommended hardware is of the m5.24xlarge instance sort.

On June 18, 2019, the Libra Coins idea was proposed and could become a fact or be tradable at the beginning of 2021.

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What is Automated Trading in Forex?

Have you often been annoyed that you didn't close a position with a small loss while trading, instead of letting it run further into the red (... in the hope that the trade will turn into positive)?

Automated trading manages to keep people out as a factor in trading. Computer programs handle trading, i.e. buying and selling securities that are electronically forwarded to the stock exchange.

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Trade Without Emotions

The computer programs are able to react to changes in the market. Automated trading is also known as algorithmic trading.

There are different degrees of automation that decide which aspects of the order, such as volume, price or timing, the computer can determine itself.

Of course, even automated trading is no guarantee of eternal profits, but the approach of leaving out people's emotions and psychological behavioral patterns offer enormous opportunities.

Definition of Automated Trading

What does automated trading mean?

In automated trading, a distinction is made between institutional investors and private investors.

Foreign exchange or forex trading, in which two currencies are compared with one another, is mainly operated by banks or credit institutions. Forex is the only market that is open 24 hours a day. It is characterized by low fees, rapid execution, and high liquidity.

Investors speculate on the price movements that international currencies are subject to, always betting on a currency pair and assuming whether it will rise or fall. This happens directly between the market participants.

Automated trading in various asset classes

Only since 2008 has it been possible for private investors to trade on the stock exchange using automated trading systems, i.e. to buy and sell. Since then, the exchanges have switched from traditional to automated trading.

Private investors can have their own trading robot developed in order to then trade with CFDs (Contract for Difference). This is seen by experts as an important step because, before automated trading, the risk for investors was significantly higher.

The stock and stock exchange prices used in CFDs match those of real stock exchange trading but are not listed. Thus, no real values ​​are acquired by the investor, which means that the legal regulations differ.

Monitoring takes place here, but no regulation. The market in which trading takes place is the OTC, the over-the-counter market.

In doing so, you usually estimate the price movements and evaluate their differences. So the investor tries to achieve a short-term profit through speculation. The funds are usually secured on the real stock markets in order to maintain liquidity, whereby security, a so-called margin, is deposited. 

The futures trading is suitable for private and institutional investors and introduced a form of futures is traded on the exchange. Here a binding contract is concluded between two parties, whereby a seller undertakes to deliver goods in the future and the buyer to accept them.

There are financial futures contracts, and commodity futures contracts, the commodity futures.

 

What advantages does automated trading offer?

Automated trading is traded via a computer, but the computer itself cannot think or decide. That is why it is only the executive element for the things that it receives from an Expert Advisor.

Such an Expert Advisor, i.e. a fully or semi-automatic trading system contains the knowledge of a large number of stock market experts in its programming.

Many thousands of different processes are stored here, which can react in real-time. This happens in a split second while the Expert Advisor continues to analyze. A human cannot do this.

 

High speed

Automated trading, therefore, offers the possibility of being able to place trades with great speed.

In addition, the amount of essential information that is tracked and processed by the computer is much higher than with human intervention. This also lowers the cost of the transactions made.

The trading computers are able to operate 7 days a week, 24 hours a day. In this way, the investor can always stay “on the ball” when trading, which he would not be able to do without the help of the trading robot.

There is no delay in receiving and entering changes as the computer reacts in real-time.

 

Trading without emotions

The human factor cannot be completely left out in automated trading, because the programs that are used in automated trading have also been installed by human hands and are put into operation and monitored by them.

People are able to turn a program on or off when they don't like what it is doing - a dangerous factor as it can lead to losses which are then blamed on the program.

However, the lack of emotion in a computer program is the greatest advantage of these trading platforms, because the computer prefers logical calculations to intuition, even if this is sometimes missing.

The machine thinks but does not have the human mind. It works according to the parameters entered and, in contrast, is significantly faster than humans.

The greed, which in the past drove private investors to great risks and in some cases led to high losses, has disappeared with the emotionless machines. However, if you are looking for advice and only feel that you are in good hands when someone adds understanding and intuition, you should prefer a semi-automatic trading variant.

Thus, trading on a trading platform by means of automation has its great advantages, but naturally also involves risks.

 

Strict risk and money management

Strict risk and money management are required to be successful. Money Management is designed to explore the correct position size for its own commitment, so the right investment.

Risk management, however, is concerned with minimizing the risk for the entire portfolio. So it is calculated when a market exit would be favorable.

The risk management secures the profits achieved by paying attention to the sell signals for the individual shares at the right time. Put simply, “stops” are set that send out sell signals. There are absolute stops that lie at a defined lowest value.

Trailing stops take a relative share value into account, so that the current value e.g. B. is reduced by a few percent or the stock value is used that was current a few days before.

Such a trailing stop thus accompanies the share during a price increase and secures its profits. Volatile trailing stops work similarly, but they also take into account the intensity of fluctuations in the market, the volatility. This describes the intensity with which a share exhibits deviations in one or the other direction of its price development.

The trailing stop for this variant is applied after calculating the volatility below it. In the case of a normal trailing stop, a stock that is subject to strong fluctuations would send out a sell signal, and a short time later would give a buy signal if there was a positive fluctuation.

Money management, which has been used in futures trading since the late 1980s, requires a trading system that has a positive expected value. The optimal use when trading on a trading platform is determined by money management.

That is why a low-risk behavior is preferred in money management in order to avoid a loss or even bankruptcy of a trader while trading. The optimum is always different depending on the system used and must therefore be recalculated for each system.

Disadvantages of Auto Trading

What are the disadvantages of automated trading?

The apparent knowledge advantage of automated programs is also, a disadvantage, because they lack human understanding, which means that they have no flexibility whatsoever.

That is why a new investor should first test automated trading with virtual money, since even a trading robot cannot do without market concepts, the determination of chart patterns, and knowledge of the best trading currency.

Nothing for those new to the stock market

Spontaneous profits from short positions cannot be obtained due to a lack of configuration. It is also speculated that automated trading will help fuel negative price fluctuations automatically.

Those who value advice and expert information should use a trading robot that is managed by a trader, as a lack of advice and expertise can sometimes also be a disadvantage.

Above all, every trader should be aware that there can be no trading system with a guaranteed profit!

 

Trading platforms for traders

Choosing the right trading platform

When choosing the right trading platform, the investor should note that the program should offer opportunities for personal development. It must be possible to develop and program individual trading strategies.

Investors who are not familiar with programming up to now should also be taken into account. Common programming languages ​​are C # and EasyLanguage.

Numerous trading systems in automatic and semi-automatic form is offered, which offers the right thing for beginners and experts. If you want to trade forex as well as futures or CFDs, you should choose a provider that covers all points.

Attention must also be paid to real-time trading. Every platform acts at different speeds - the faster, the better, the more real. Because exchange rate fluctuations happen within seconds and quick decisions decide about profit and loss. A reliable and fast platform is therefore essential.

Forex trading platforms

In real sense, platforms that are suitable for Forex trading are packages with software. These provide the investor with all possibilities to conduct foreign exchange transactions, place orders, and trade in real-time.

This is usually done through your own internet connection. A good forex trading platform should meet the needs of the respective user and ideally, be available free of charge.

The multitude of different user requirements is covered by a wide variety of platforms. Each offers different possibilities. There are simple platforms that use simple interfaces or, as an exact counterpart, those that are heavily animated or offer complex analysis tools.

The individual needs and preferences naturally also determine the selection of the trading platform, purely from the point of view, but more important are the existing options for stock exchange trading.

There are no basic criteria for selection, but there are some clues that the actor can use as a guide. The forex trading platform should be easy to use and provide a reliable service that rarely shows failure.

Real-time prices are important because this is the only way to ensure reliable trading with the best possible conditions. That is why it must be possible to record and cancel orders quickly. The account management functions should be comprehensive and quick to use for this purpose.

A good forex platform makes a market analysis, whether technical or fundamental, easier for the user. The Forex broker preferred by the investor should offer him the trading platform or at least offer support.

 

Trading platforms for CFD

The first impression counts - even with a platform for CFD trading. When the user comes to such a platform, he must have the feeling that he can quickly gain an overview there. Of course, a first impression is not enough. Before choosing the right trading platform for you, you should consider some criteria.

When choosing the right platform for CFD trading, as with forex trading, good operation of the platform or trading software is paramount. But it is also crucial which features and tools are available for trading with the respective platform. The types of orders offered should be checked in advance.

Some software is chargeable, others do not incur any costs. Usually, the CFD broker provides them free of charge. Furthermore, the investor should find out whether stop orders are supported by the trading platform and whether these are guaranteed.

The software should fit the individual private investor and guarantee to trade in real-time. It also has to be a stable platform with only minimal downtime. 

But the service also needs to be checked. Can you establish contact beyond the internet in an emergency? And is there a reference person? If there is a contact person for emergencies, they should be available around the clock.

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Bullish and Bearish Markets

The words bull and bear, when it comes to the stock market, come up a lot. Bullish or bearish markets are listed again and again in reports. Of course, to be effective in forex trading, one must be familiar with market conditions. This often requires the right actions (trading) of a bull and a bear market.

With that in mind, this guide discusses what the difference in the stock market is between the bull and the bear and how you can profitably invest your capital by using the stages to your benefit. Two of the most relevant forex words are bullish and bearish. There are other words, however, that you certainly should know before you get into currency trading.

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Bull & Bear Description

For increasing or declining values, the bull and the bear are metaphorical. Since the bull strikes from the bottom up with his horns, he is the emblem of rising prices. One speaks of a bullish market in this sense, often called a bull market. Often referred to as bulls are investors expect prices to increase.

The bear is the opposite. Anyone anticipating prices to fall is called a bear. In its paws from top to bottom, the bear strikes and thus reflects dropping prices. Also known as a bear market is a bearish market. About the entire economy, the terms bull and bear are often used but may also describe markets, regions, or areas such as individual raw materials.

When rates rise or fall for a long period, we talk of a bull or bear market. In such processes, however, it is common for price developments to be subject repeatedly to smaller counter-movements, the so-called corrections. These stages are, however, considerably lower than the actual market pattern.

The accelerated period of the bull market is often reflected especially, i.e. when prices are that more strongly than average. One talks of a rally in such a situation. An extended period of sharply rising prices, called a prolonged period of falling price crashes, would boom.

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Forex Trading

Meanwhile, for currency trading, there is always a special case, as currencies are still exchanged as pairs. For instance, if the EUR/USD currency pair has a bearish trend, this means that the euro depreciates against the US dollar. This goes hand in hand with the US dollar rising, so there is a bullish trend here. In comparison to other financial items, foreign exchange patterns can also occur in both directions, depending on which currency is the base currency and which is the quote currency.

Incidentally, the Bull and Bear symbols stand near major stock exchanges as statues and are well-known tourist attractions. In Frankfurt, on the forecourt, the Bull and the Bear face each other. In the financial district of Manhattan, the world-famous "Charging Bull" by Arturo di Modica can also be found. Furthermore, in Amsterdam and Shanghai, bulls by the same artist were also set up.

Phase Recognition / Technical Analysis

To find out whether it is a bullish or bearish pattern, technical analysis may be used. For market participants to be able to make the correct trading choices, this is very critical. Also, beginners can discover these currency rate patterns and draw from them the right conclusions.

You can take advantage of both points. It is not only possible to make money from rising prices on the stock market, but also to benefit from a bearish period. For currency exchange, this often applies.

In the table, different time intervals can be shown. You are looking at a very long-term period if you want to notice a pattern. Various periods are beneficial here, depending on which trading version you use. If you want to invest your money in the long term, i.e. over days or weeks, you are looking at a period that is correspondingly longer than if you use shorter trading periods. The last few hours are appropriate in such a situation.

For the long term, if a market is going up, it's a bullish price, so you should go long. You can go "short" accordingly with a bearish price . . In the meantime the corrections that occur will make a trader question whether the pattern is sufficiently stable. It is very hard to break a current long-term pattern, however. Of course, however, the corrections can escalate and lead to a reversal of the trend. In the opposite direction of the trend, you can also trade and take advantage of the corrections.

Analytical Means

You have to deal with the technical examination to be able to understand the course of the course correctly if you have not already done so. Trends can be more readily detected and assumptions made about future trends thanks to the tools of technical analysis. Well-known supports, for example, include:

• The Moving Averages

• The Relative Strength Index (RSI)

• The Bollinger Bands

There are hundreds, also known as technical indicators, of these methods. You must familiarize yourself with how and indicator you intend to use functions before using them.

You have a different set of these tools, depending on which forex broker or which trading program you use. You should not believe the technical indicators blindly, however. Basing your trading decisions on multiple bases is often important.

In addition to the indicators, it is possible to see recurrent trends in price growth. These are known as patterns of chart or formations of the chart and occur in the form of formations of trend confirmation and formations of a trend reversal:

Trend confirmation information	Trend reversal formations
Flags	Shoulder-head-shoulder formation (SKS)
pennant	Rounding top/bottom
Descending, ascending, symmetrical triangles	Double top/bottom
	V formations

 

Table: In the summary, trend symbols

There are only a few examples of trends in the chart to help with research. As you can see, to correctly identify the patterns, an in-depth examination of the topic of technical analysis is required. You can only make lucrative trading choices then.

It is best to assess whether you can correctly interpret the charts and extract profitable trade from them in a demo account. Knowing bullish and bearish patterns is the first step - the next steps on the road to becoming a good trader are patience and practice.

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What is it Pip, Lot and Leverage?

When one is not familiar with the most relevant words in forex trading, participation in the foreign exchange market is difficult. The trader experiences pips, lots, and leverage in every forex exchange. These important words are influences that have a huge influence on the improvement of your trading account. That is why our guide describes what they are all about in-depth.

The foreign exchange market is often subject to constant exchange rate fluctuations, even though the fluctuations are not as strong as in other markets. The changes are very slight, so the majority of currency pairs after the decimal point are given at four digits. 

 

What is Pip?

 

A pip denotes the smallest change that a currency rate produces, so the change in the fourth decimal place is typically represented. The number of pips is the critical measure in which a trade's benefit or loss is seen.

 

For most currency pairs, a pip is equal to one-hundredth of one percent of a one-ten thousandth. The USD/JPY rate is a special case here since only two decimal places are normally seen at the rate. The second decimal position is referred to by a pip and thus corresponds to one-hundredth of the currency.

 

To benefit from even smaller price movements, many brokers now offer a further breakdown of the currency rate down to the 5th decimal place. The fifth decimal place is often called a pipette in this case.

 

The representation of how the currency is traded also differs from one pip. In half-pip steps, development is rarely measured. A pip's value depends on the currencies underlying it and can therefore vary widely.

 

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In practice, The Pip

 

Let's look at an example to better understand and calculate a pip:

 

The rate of EUR / USD is 1,1655. For one euro on the foreign exchange market, you get 1,1655 US dollars. This would be 1.1656 (+0.0001) in the case of a rising euro and 1.1654 (-0.0001) in the case of a falling euro if the price changes by one pip.

 

The value of a pip refers to the base currency and a simple formula can be used to calculate:

As a decimal number, pip/ currency rate = one pip value

 

Therefore the value of a pip from the EUR/USD=1.1655 example is:

 

0.01 / 1.1655 = Euro 0.0000858

0.02          

If you look at the currency pair USD/JPY now it behaves as follows:

 

USD / JPY = 111.59 = 111.59

 

In this currency pair, the change of one pip corresponds to ± 0.01, so either the price increases to 111.60 or it drops to 111.58. This pip's value is calculated accordingly:

 

0.01 / 111.59 = 0.000089614 US dollars or conversion: 0.000076888 euros or conversion:

0.000076888 euros.

You don't see a particularly large absolute difference if you compare the two values of the pips from our examples.

 

Euros 0.0000858 and Euros 0.00007688.

 

There is, however, an 11.5 percent difference in values, which indicates that pip values vary greatly depending on the underlying currencies. Because the absolute values of a pip are so small and profits are generated by the usual short-term trades in the one to low double-digit range, it is advisable to trade large amounts.

 

What is Lot?

 

A lot reflects a standardized volume of a financial commodity offered for purchase or exchange in the financial markets. The number of units of currency exchanged in the foreign exchange market is often referred to as lots.

 

The trader certainly has the chance to trade in the selection of regular lots for all Forex brokers. Providers with greater bandwidth often allow mini or micro-batches to be traded. This standardizes the amounts as follows:

 

• Standard lot: the base currency is 100,000 units

• Mini lot: 10,000 Base Currency units

• Micro lot: 1,000 Base Currency units

 

Of course, if you open a position, you can trade many lots. To acquire 500,000 units of a currency, for example, buy five standard lots. If you want to trade smaller positions to take less risk, make sure the mini or micro lots are offered as a trading volume by the broker.

 Now let us get back to our examples. We determine the change in the value of the position per pip if we multiply the lot size by the value of the pip:

• The value of one pip of the currency pair EUR / USD is EUR 0.00008588.

• We assume that a standard lot is traded: 100,000 units

• Euros 000 x 0.0000858 = Euros 8.58

 

When the price increases or falls by one pip, this value indicates which value the position gains or loses. You can of course, easily convert this amount into US dollars if you have your trading account in US dollars:

 EUR 8.58 x US$ 1.1655 / EUR = 10 US dollars.

This result is not unexpected, since, for the EUR/USD currency pair, we have 100,000 times the change in a pip that corresponds to exactly 0.0001 US dollars. Accordingly, a one pip change in the EUR/USD the exchange rate with a trading volume of two standard lots results in a change of 20 US dollars in position value.

 

Who Pays for the Whole Thing?

You may think you need enormous trading capital to trade many 100,000 units of currency if you have not heard of leverage or the 'leverage effect'. However here, with what is known as leverage, the broker helps out. You just need a small amount in the trading account to open up a position from several lots.

 

This amount is required by the broker as the so-called margin, the security deposit. It is just a few percent per transaction of the real trading volume. You can be given different leverage depending on which broker you want. In the forex market, leverage usually ranges from 20: 1 to 400: 1.

 

The leverage benefits from the margin that is needed and vice versa. For instance, if the broker offers a 100:1 leverage, this means that for a trade you just have to have 1% of the trade amount as protection on the trading account. If you buy a lot of EUR/USD, for 116,550 US dollars, you get 100,000 euros. However, you only need 1 percent of the capital for this, which is $ 1,165.5.This helps private individuals on the Forex market to trade profitably.

 

A position is automatically closed by the broker if the price progress moves in the opposite direction of the position before the deposit amount is used up so that the investor does not lose more than what is available in the trading account. A so-called margin call is also called by the broker, which gives the trader the chance to improve his protection so that the position can be kept open.

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What's Spread in Forex Trading?

In the world of forex trading, spread is one of the most used words. The concept's meaning is very simple. In a currency pair, we have two rates. One is the bid rate and the other is the rate of request. The difference between the bid (selling price) and the ask (buying price) is the spread. 

Brokers need to make money out of their offerings from a market viewpoint. 

• By selling a currency to the traders for more than they pay to purchase it the brokers make money.
• When traders buy a currency for less than they paid for the selling, brokers earn money. 
• This distinction is known as spread.

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What Does Spread Mean?

 

The spread is measured in pips, a small unit of the price movement of a currency pair. This corresponds to 0.0001 (fourth decimal point of the offer price). This applies to most of the major pairs, while Japanese Yen pairs a second decimal point as Pip have (0.01).

Most of the time, currency pairs in exchange have no commission. So spreads are the only expense that traders must bear. There is no commission paid by most forex brokers. 

Hence by increasing the spread, they make money. The size of the spread depends on many variabls, such as market volatility, form of broker, currency pair, etc.

 

What does the Spread Depends on?

 

The spread indicator is usually displayed on a graph in the form of a curve that shows the direction of the spread between the rates of "Ask" and "Bid" This can assist traders to visualize a currency pair's spread over time. There are tight spreads in the most fluid pairs, while exotic pairs have broad spreads.

Simply put, the spread depends on the liquidity of the market of a specific financial instrument. The larger a specific currency pair's turnover, the lower the spread. For instance, the most heavily traded pair is the EUR / USD pair. The EUR/USD pair spread is therefore the lowest of all the other pairs. 

Other main pairs such as USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CAD etc. are then available. With exotic pairs, the spread is many times larger because of the low liquidity in exotic pairs compared to the main pairs.

 

-News in Business

The volatility of markets can affect forex spreads. For instance, when important company news is released, currency pairs can experience wild price movements. Spreads are also affected at this point in time.

Keep an eye on the forex news calendar if you want to avoid a situation in which spreads go too far. It will help you stay aware of the spreads and tackle them. Similarly high volatility is being introduced to the market by US non-farm payroll results. Hence, at this point, traders can remain neutral to minimize risk. Unexpected messages or information, however are difficult to manage.

 

- Trading Volume

 

Currencies of high volume typically have low spreads, such as: B. Pairs of USDs. These pairs have high liquidity, but on economic news, they also run the risk of spreads widening.

 

-Trading Sessions

During major market sessions, such as Sydney, New York and London, spreads are likely to remain low especially when the London and New York sessions overlap or when the session ends in London. Spreads are often affected by the general demand for currencies and their availability. A currency's high demand contributes to tight spreads.

 

- Value of the Model of a Broker

 

Often the spread depends on the business model of a broker.

• Typically, market makers offer fixed spreads.
• The spread may be variable or set in the STP model.
• We just have business spread in the ECN model.

 These broker models all have their own benefits and drawbacks.

 

In Forex, What Types of Spreads are there?

 

The spread is fixable or variable. How do indices typically have spreads that are fixed? For forex pairs, the spread is variable. So the spread also increases as the bid and ask rates change.

 

1-Fixed Spread

The spreads are set by the brokers and do not change regardless of market conditions. The possibility of loss of liquidity lies with the broker. The brokers, however, retain a high spread on this form.

Set spreads are sold by market makers or trading desk brokers. Such brokers purchase large positions from liquidity providers and then sell small portions of those positions to retailers. The brokers are simply operating as a counterparty to the company of their customers. With the aid of a trading counter, forex brokers are able to set their spreads and monitor the prices shown to their customers.

 

2. Variable Spread

 

For this sort of spread, the spread comes from the market and its services are often paid by the broker. In this case, the broker is not at risk of disrupting liquidity. With the exception of unpredictable market swings, traders typically enjoy tight spreads.

Variable spreads are sold by non-trading desk brokers. These brokers get their currency pair price quotes from several liquidity providers, and without the involvement of a trading desk, these brokers move the prices straight to the traders. This implies that, depending on the overall volatility of the market and the supply and demand of currencies, they have little influence over the spreads and the spreads increase or decrease. 

Comparison of Fixed and Variable Spreads

Here are some of the pros and cons of these two styles of spreads:

Fixed Spread	Variable Spread
Can have requotes	There is no risk of requotes
The transaction costs are predictable	Transaction costs are not always predictable
The capital requirement is low	The capital requirement is relatively high.
Suitable for beginners	Suitable for advanced traders
The volatile market has no influence on the spread	The spread can widen in times of high volatility

How are Spreads Measured in Forex Trading?

Within the price offer, the spread is determined based on the last large number of ask and bid prices. The last big numbers are 9 and 4. (138,792-138,847)

If you are trading through CFD or a spread betting account, you will need to pre-pay the spread. This is similar to traders paying commissions while selling stock CFDs. On both entering and leaving a trade, traders are paid. For traders, tighter spreads are really cheap.

The bid price for the GBP / JPY pair, for example, is 138,792, while the selling price is 138,847. You get 0.055 if you deduct 138,847 from 138,792.

The foundation of the spread is the final large number of price quotes; the spread is therefore 5.5 pips.

 

What is the Margin-to-Spread Ratio?

If forex spreads expand drastically, you can run the risk of getting a margin call, and positions are immediately liquidated in the worst case scenario. However, only if the account value falls below the 100 percent margin requirement can a margin call occur. All of your positions will be automatically closed if the account falls below the 50 percent requirement.

Summary

The forex spread is the difference between a forex pair's selling price and the bid price. Normally, it is calculated in pips. It is important for traders to understand what variables influence the variance in spreads. Major currencies have a large amount of trading; their spreads are narrow as a consequence, whereas exotic pairs with little liquidity are popular.

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