I am going to write something about Fx trading tournaments. Have you ever heard of it? Well, unlikely, as it is probably a new idea. I am inclined to say that it is indeed an innovative approach to forex training. Carry on further with a short FAQ on Fx Trading Tournaments.

What does it mean?

Fx trading tournament has nothing to do with any of your favorite sports. Fx trading tournament or alternatively Fx championship is an innovative opportunity offered by few forex brokers to forex investors to test their trading skills. Essenially, it is an event where large numbers of forex traders participate in online foreign currency trading at one common forex platform.

How does it work?

I would advise that you must thoroughly go through the rules and regulations of the concerned forex broker although I am narrating few common rules imposed by most of the forex brokers.

• Participation is available only to those who have registered on the website of the forex broker. Few brokers ask you to open a real account. Some brokers may ask you to just register on their website to take part in the fx trading tournament.
• You will be allotted an initial deposit (virtual money) of about $10,000. Initial deposit cannot be topped up under any circumstances.
• Fx trading tournament is held during a specified period that may last from 2 to 4 days.
• No participant is allowed more than one fx trading tournament account.
• Fx trading tournaments are conducted on demo servers of the concerned forex brokers.
• Participants are allowed to make use of all the available tools on the forex platform. They can also employ various types of forex trading strategies.
• Participants with largest balance as on the close of the fx trading tournaments are declared winner based on various criteria. Final decision of the jury is binding upon all the participants.

What are the benefits?

• Most of the forex trading brokers offer demo forex accounts to provide hands-on experience on online forex trading. After having gained sufficient exposure to real-time forex trading on the demo account the next obvious step is to get started with real money. Well, if you are not yet sure to plunge into forex trading then fx trading tournament is an excellent opportunity to further your trading skills.
• Fx trading tournament is like a final examination for those who have just completed their forex education and forex demo accounts.
• As the number of participants is large, it is a real assessment of your trading skills and strategies.
• You don’t lose anything as there are no fees for participating in the fx trading tournaments. All the participants compulsorily trade with a virtual money.
• If you make it to the list of prize-winners, you would earn money by means of cash prize.

Summing Up:

One point of caution – You are not allowed to withdraw your cash prize; the prize amount gets credited to your real forex trading account if you have one or you would be asked to open an account where the prize would be credited as your initial deposit. I would say that although the concept of fx trading tournament looks like a marketing trick but at the same time, there is nothing to lose for the participants.

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Huge amounts of Forex change hands in the global trade and commerce. Besides the international business transactions, forex has also established a firm foothold in the investment portfolio of large number of people. You may wonder how you can invest in forex. Is it like investment in stocks and bonds? Is it suitable to a layman like me? Well, according to me it is neither easy nor difficult. You must give it a try, provided you are willing to learn forex trading.

Let me tell you one astounding feature of forex markets. Rates of international currencies fluctuate tremendously depending upon the country specific factors. To realize the true potential of how the vast scale fluctuation or volatility in the forex rates can help you in reaping huge benefits, you must partake in online forex trading.

Let me first brief you on the Advantages of Forex Trading:

• Liquidity: Global forex trading witnesses a daily turn over of few trillion US dollars.
• Market Availability: Forex trading is a round the clock market place. Forex market wakes up with Sidney, moving around globally as each market comes to life. Tokyo wakes up next, then London and finally US.
• Low Trading Costs: Like all the other markets, forex trading requires an intermediary called as a forex broker. However unlike other markets, the forex trading brokers do not charge any commissions for executing your trade. On the contrary the forex trading brokers make a small profit from bid/ask spread on the currency pair.
• Small Capital and High Leverage: You do not need to deploy huge capital amounts as the exposure or leverage ratios are high of the order of 200:1. Most of the forex brokers allow you to start with a capital as low as 100 USD.

You must keep in mind that in your zeal to make fast buck you may end up loosing enormous money if you have not understood the intricacies of trading forex. I would sincerely suggest that you should start your forex trading education in a step by step approach. With the advent of high speed internet, access to forex trading information has become very easy. You can learn about forex currency trading through online or offline forex trading course. I have listed out few topics as under for your guidance.

• What are the Forex pairs, Forex Symbols and how to read and understand forex quotes?
• What are the Margins, Pips, scalping, and bid/ask spread?
• How does online forex trading take place? What is meant by Forex trading platform? What is the role of forex broker and how to choose a right broker?
• How to manage buy/sell orders? How to keep track of profit, loss and current balance?
• What is a fundamental analysis? What is a technical analysis?
• What is meant by Forex charts, Forex signal, and Forex indicators?
• Tips on how to become a successful forex trader.

Forex Symbols: There are seven most active currencies on the forex trading markets, besides number of other currencies that are traded sporadically.

1. US Dollar – USD
2. European currency – EURO
3. Japanese Yen – JPY
4. British Sterling Pound – GBP
5. Swiss Franc – CHF
6. Australian Dollar – AUD
7. Canadian Dollar – CAD

Forex Pairs: The term Forex pair may sound intriguing to those of you who are used to stock trading. Why forex in pairs? Well, even in stock trading, indirectly you are trading a pair. When you buy a stock, you are selling your money and vice versa. Similarly when you are trading forex you are buying once currency and selling the other currency. EURO/USD, USD/JPY, GBP/USD and USD/CHF are the most traded forex pairs that churn out the bulk of the daily trillion dollars turn over in global forex trading.

On any forex trading platform, you will find that almost half of the screen is occupied by flashing figures of forex quotes. Dealing rates is the alternate term often prescribed for forex quotes. Prima-Facie you may feel that it is very easy to read forex quotes. However if you are a novice, you may land up with a buy trade instead of a desired sell trade. I would suggest that you must thoroughly understand how the forex rates are quoted on the forex trading platforms.

Let us study an example of USD/JPY. There are essentially two aspects. The first aspect relates to the exchange rate and the second aspect relates to the forex quote as appearing on the screen of forex trading broker.

• The forex quote USD/JPY = 108.09 is in reality the exchange rate. Here in this quote, the first currency USD is termed as the base currency and the second currency JPY is termed as the quote currency. Thus for buying one unit of the base currency you have to pay 108.09 units of quote currency.
• If you see the forex quote for USD/JPY on the online forex trading software, you will find two separate quotes. USD/JPY Sell =108.07 and USD/JPY Buy=108.10. Offline forex trading brokers will quote USD/JPY = 108.10/108.07. The first price is the bid price and the second price is the ask price. Does it not sound confusing? Well, it is, but till the time you get used to the system. Here is where the concept of bid/ask spread comes into picture.

In the present example, as a part of forex trading, if you wish to buy USD/JPY pair, you will buy at the bid price 108.10. However if you want to sell USD/JPY pair, you will sell at the ask price 108.07. In reality the forex trading broker has sold you USD/JPY pair at 108.10 and bought it at 108.07. The small difference of 0.03 (3 pips) called as bid/ask spread is the profit for the broker who does not levy any additional fees or commissions on the trades executed for you.

What is meant by Pips?

• Well, I would say that Pip is nothing but a fancy name for ‘Point’. Technically speaking, Pip is the smallest increment or decline in the value of the exchange rate. In a much simpler way, you can understand Pip as the last decimal point of any exchange rate. Pip is the acronym for Percentage in Point.
• An illustration of EURO/USD exchange rate of 1.5582 will make the things much better. In this exchange rate the next incremental value would be 1.5583 and the next decline value would be 1.5581. Mathematically the difference is 0.0001 and in forex jargon it is said that the exchange rate has increased or decreased by 1 Pip.
• You must be aware that rates of most of the currency pairs are expressed up to four decimal points except USD/JPY where it is expressed in two decimal points.
• Let us delve further into Pips by considering a fictitious buy/sell trade of EURO/USD. You are expecting that the value of EURO would appreciate in relation to USD. You have decided to buy EURO/USD. Your buy trade is executed at 1.5582. Your speculation turns in your favor and after some time EURO/USD appreciates to 1.5600. You make up your mind to lock the profit and sell EURO/USD. Your sell trade is executed at 1.5599. The difference between buy and sell values is equal to 0.0017. You have gained a profit of 17 Pips. What exactly is 17 Pips in USD terms? Well, we will see it in the next topic.

How to Calculate Pip Values?

• Depending upon the forex pair and the lot size, the value of Pip would change.
• In EURO/USD 1 Pip amounts to 0.0001 and for a standard lot size of 100,000, the effective Pip value works out = 0.0001 x 100,000 = 10 USD. Likewise for a mini lot of 10,000 Pip value is 1 USD. The principle applied to other forex pairs is same but the calculations differ. Quote currency or second currency of the forex pair decides the Pip value in USD terms. For EURO/USD and GBP/USD, the quote currency is USD which makes the calculations simpler. Value of 1 Pip is 10 USD for a standard lot size of 100,000 as mentioned above. For USD/JPY pair, the quote currency is Japanese yen or JPY. Here the value of pip in USD terms is calculated by dividing the Pips by the exchange rate.

Conclusion

You may wonder in what way Pip value is so important in forex trading? Well, in forex currency trading, Pip is the backbone for calculating your profit or loss. During your forex trading training you should concentrate on calculation of profit and loss from forex trading. We will learn calculation of profit and loss from forex trading separately with few examples.

Basically there are two straightforward rules for calculating your profit and loss from forex trading:

1. Rule No.1: Whenever the quote currency (second currency) is USD, you can calculate the profit and loss in USD terms by multiplying the number of Pips with 10 USD if the lot size is a standard lot of 100,000. Similarly in case of mini lot of 10,000, the profit and loss from forex trading can be calculated by multiplying the number of Pips with 1 USD.
2. Rule No.2: In case of quote currency other than USD, the profit and loss will be calculated by dividing the number of pips with the exchange rate and then multiplying the result with lot size.

Let us discuss few factual examples on how to calculate profit and loss from forex trading. I have illustrated three examples – one example with USD as the quote currency and two examples with JPY as the quote currency. For simplicity only Long trades (Trades where you buy first and then sell) are considered. The lot size is assumed as standard lot of 100,000 and lot quantity is taken as 1 Lot.

Calculation of Profit and Loss for EURO/USD Trade:

• Buy trade executed at 1.5555 and sell trade executed at 1.5560.
• Profit/Loss = 1.5560 – 1.5555 = 0.0005 OR 5 Pips.
• Since the quote currency (second currency) is USD, profit and loss in USD terms = 0.0005 x 100,000 = 50 USD ALTERNATIVELY profit and loss = 5 Pips x 10 USD =50 USD
• If you are a trader from EURO zone and you wish to calculate your profit and loss in EURO terms then you need to apply basic math. Divide your USD profit and loss by the exchange rate i.e. 1.5560. It works out to 50/1.5560 = 32.13 EURO. This point has been explained just for the academic interest as all the forex trading brokers display your profit and loss in USD terms.

Calculation of Profit and Loss for USD/CHF Trade:

• Buy trade executed at 1.0473 and sell trade executed at 1.0488.
• Profit/Loss = 1.0473 – 1.0488 = 0.0015 OR 15 Pips.
• Since the quote currency (second currency) is CHF (other than USD), profit and loss in USD terms = 0.0015/1.0488 x 100,000 = 143.02 USD.

Calculation of Profit and Loss for USD/JPY Trade:

• Buy trade executed at 108.09 and sell trade executed at 108.30.
• Profit/Loss = 108.30 – 108.09 = 0.21 OR 21 Pips.
• Since the quote currency (second currency) is JPY (other than USD), profit and loss in USD terms = 0.21/108.3 x 100,000 = 193.91 USD.

Wrapping up

Well-timed locking of your profit and booking of your loss in foreign currency trading is the most important trait for being a successful forex trader. Hence the knowledge of how to calculate profit and loss from forex trading plays a very important role in flourishing the online forex trading business.

Like stock trading and commodities trading, there are different types of orders in forex currency trading. Proper understanding of types of orders lays the foundation stone for achieving success in forex trading.

If you start online forex trading without an insight into how, when and what types of orders should be placed with your forex trading broker or on the forex trading platform, your entire profit and loss and the balance sheet of online forex trading business can go red.

Orders are basically categorized under two parameters – price and duration:

Orders with Price Variable:

1. Market Orders: This is the most basic and simplest type of order. The order is executed at the current market price. In this order you buy or sell immediately at the best available price. If you are trading through online forex trading software with your high speed broadband internet connection then the order is executed almost instantly.
2. Limit Orders: In limit order you can specify the limit price – upper limit for buy order and lower limit for sell order. Limit order is used by the forex traders for entering a new position or exiting the open position.
3. Stop or Stop-Loss Orders: Stop order is akin to limit order but stop order is used for entry or exit at a price that is pre-determined as per support and resistance levels on the technical chart. Stop orders are essentially used as an effective tool to curtail the losses or for protecting the profit (trailing stop loss). Stop orders are favorites for forex traders who trade aggressively based on the break out on the chart.
4. OCO – Order Cancels Other: In OCO order you place two orders simultaneously. One order is placed above the current price and the other order is placed below the current market price. As soon one order gets executed the other order is cancelled.

Orders with Duration Variable:

1. GTC – Good Till Cancelled: GTC orders can be placed with limit orders or stop orders. The order remains in the forex trading system till it is cancelled by the trader. It is the responsibility of the trader to cancel this order as per his judgment.
2. GTD – Good Till the Day/Date OR GFD – Good for the Day: Unlike GTC orders, GTD orders would remain in the system only till the end of the day.

Summing Up

Most of the forex trading accounts offer you different types of orders with minor variation in terminology. Take full advantage of various types of orders available on the forex trading software. Placing right orders at right time paves the way for an opportune entry and exit from your forex trade. If your entry and exit are not well-timed it may happen that your positive Pips could turn into negative Pips. Moreover it is also quite likely that your wrong order could result into huge losses in few seconds. Keep in mind that ultimately the precise entry and exit points make or break your Pips balance Sheet.

• For example if your forex trading broker asks you to pay 1% margin, then you have to pay 1000$ for buying or selling 1 standard lot size of 100,000 units of any forex pair. Alternatively to put in plain words, you are getting a trading exposure multiple of 100 times on your initial margin.
• All the future markets of stocks, indices and commodities work on leverage or margin. Margin percentage depends upon the market segment, exchange and the broker.
• Forex currency trading markets offer the highest leverage or impose lowest margin requirements. This is the most important advantage of global forex trading business.
• Most of you must be aware about the magic of compounding. Same holds true for margin trading in forex. Let us see an example on what wonders can margin trading or leverage create.

Your analysis and conviction dictates you that EURO will appreciate to a level of 1.5600. In anticipation you buy 1000 EURO/USD at 1.5550. As a matter of fact you have bought 1000 EURO by paying 1555 USD. Your trade turns in your favor and the exchange rate goes up to 1.5600. Immediately you sell 1000 EURO/USD at 1.5600. You have sold your 1000 EURO in exchange for 1560 USD. Let us work out the profit under two different scenarios.

• Without leverage: Profit = 1000 x (1.5600 – 1.5550) = 5 USD. Your return on investment (ROI) is 0.5%.
• With leverage: Let us presume that your forex trading broker has given you a leverage of 100:1 Now with the same investment of 1000$, you are in a position to buy 100,000 EURO/USD. Profit = 100,000 x (1.5600 – 1.5550) = 500 USD. Your ROI is 50%.

Don’t you think that magic of leverage creates wonders? Well, it does, but let me caution you that there are dark sides as well. Suppose if the trade went against you and EURO/USD fell to 1.5500. You will land up with a loss of 5$ without leverage but the loss would be 500$ with leverage. Do you realize the actual implications? You have ended up with a loss of 50% of your capital in just one trade.

Summing Up

• Risk management is an extremely important function in forex trading.
• Risk management and surveillance systems followed by forex trading brokers and forex trading company are different. In case your forex trading position is making huge losses, you may be called upon to jack up your margins. It may happen that in the event of acute volatile market conditions your loss making position would be squared off automatically by the forex trading system.

Once you have finished your forex trading training the next step is to open a forex trading account with a forex trading broker. With wide spread awareness of advantages of trading forex, the markets have witnessed a huge influx of investors like you and me who are eager to grab their share of pie from forex currency trading. In order to cater to the growing demand, the forex markets are flooded with ever increasing number of forex trading brokers. Choosing a right forex trading broker is though not a very daunting task but it does require some basic research on the various parameters. I have discussed few important factors to guide you through selecting a right forex trading broker.

Online or Offline: First of all make up your mind about the suitability of online or offline forex trading. Most of the points discussed here are applicable to both online and offline forex currency trading. However If you intend to do offline forex trading then you may not bother much about forex trading software and demo account. Make sure that sufficient support services for offline forex trading are in place at the end of the forex trading broker.

Forex Trading Software: This is the backbone for online forex currency trading. Ensure that the forex trading platform is state of the art. Look out for the following important feature.

1. IT infrastructure and user friendly features.
2. Real time quotes, multiple windows, types of orders, number of currency pairs and speed of execution of orders.
3. Charting, technical analysis and other analytical tools.
4. Research and Analysis: There are ample value add on services like tips on entry and exit points, forex indicators, real time access to fundamental and technical research reports and global news broadcasts. Find out are there any extras for these services?

Demo Account: Most of the forex trading brokers offer you a free practice account or a demo account for at least 30 days. However if it is not offered then insist upon it. Demo account enables you to get an in-depth idea about forex trading platform.

Account Related: Read and understand all the paper work before signing any documents. Find out (1) What is the minimum balance requirement (2) What is the margin and leverage and (3) Whether the back office is fully online. Nowadays you can start with as low as 250$ account and leverage ratio as high as 200:1.

Trading costs: There is only once cost – Bid/Ask spread. Pips charged by the forex brokers vary from 2 to 5 Pips, lower the better. Ensure that there are no other hidden costs and charges.

Customer Support and Reputation: I will not deliberate much on this factor as it can be ascertained only after the experience. However you can take the reviews from friends or internet bloggers community.

Regulatory: Forex market is not regularized. Safeguarding the interests of the investors is the done by the statutory financial authority of the respective countries. In USA, the forex trading brokers registered with CFTC and NFA should be preferred.

Take a look at our Forex Broker Reviews and Comparisons.

1. Market Availability: Forex trading is available 24 hours a day starting from Sydney and moving around globally to Japan, Europe and ending with US. Stock markets around the world are open for a limited duration of about 5 to 6 hours a day.
2. Trading Costs: Trading in stock markets involves transactions charges, duties and taxes levied by the brokers, exchange and statutory authorities. There are no such charges or taxes in forex currency trading markets. Forex trading brokers include their fees or charges in the form of bid/ask spread which varies from 2 to 5 pips depending upon the broker and the currency pair.
3. Liquidity: Forex markets witness a daily turn over of trillions of dollars in the global forex trading. With such huge liquidity your trade gets executed in the fastest possible time and at the best rate. In stock markets you may be handicapped due to non availability of buyer or seller at your time and price.
4. Capital Outlay and Profitability: Due to low margins and high leverage ratio you will need maximum 2000$ to buy 100,000 units of EURO/USD pair. Whereas for buying shares worth 100,000, you will have to pay 100,000$ upfront to your broker. Due to lower margin requirement, it is possible to generate higher profits with small amount of investments in trading forex.
5. Price Manipulation: Stock markets world over are prone to rampant price rigging, cartelization and other scams as the markets are highly localized. Global forex currency trading markets offer a fair play field with millions of international participants. Chances of any price manipulation by a company, broker, and other financial institution are remote.
6. Market Regulation: Stock markets are basically exchange traded markets and are highly regulated globally by the respective governments. Majority of the forex currency trading markets are OTC (over the counter markets) and hence there are no centralized regulating agencies. You should make sure that you are trading with a forex trading broker who is registered with the respective country’s financial regulating authority so that in case of a dispute you can seek justice.
7. Portfolio Monitoring: Even if you have a diversified portfolio of only blue chip companies, it is very difficult to monitor individual company’s financial standing on a regular basis. Unlike stocks, forex trading is highly concentrated with just 7 or 8 forex currency pairs constituting the bulk of the trades.

Conclusion

Despite the profit potential of forex trading higher than stock trading, the risk factors involved are also greater. Stock trading involves lesser risk compared to forex trading. Make sure that if your risk taking appetite is higher then only you should venture out in the online global forex trading business.

1. Don’t Misuse Low margin and high leverage facility

Never try to over leverage than your capacity. First of all determine the spare cash that you can afford to loose. You may call it as risk capital. You should never risk your life long savings that you can not afford to loose. Even though the high leverage facility is an important advantage but there are dark sides that need not be explained. Forex trading on borrowed money is the worst mistake that small time forex traders and investors make.

2. Never Jump on the Bandwagon without Proper Forex Trading Training

If you are entering the forex markets without any forex trading training then please don’t do it. Even if you have gathered sufficient knowledge on how the forex currency trading markets work, make it a point that forex trading education is a continuing process.

3. Do Your Own Fundamental Research and Technical Analysis

You should be aware about day to day fundamental factors that contribute to the ups and downs in the forex currency rates. Remain updated on economic calendars and various data releases on inflation, GDP, CPI, trade balances, other monetary policy matters and geopolitical events. Technical analysis of the price and volume charts is the best tool to spot identifiable forex trading patterns. Most of the forex traders rely on exact entry and exit points based on the break outs, supports and resistances levels for a potential profitable trade. Don’t stick to only technical analysis. Be flexible and use a right blend of fundamental and technical analysis.

4. Don’t Bank On Future Predictions

Nobody can predict futures. You should always distrust anybody who claims to do so especially those who promise fat returns every day. In forex trading there is nothing like fast buck or get rich quick scheme. You may rely on forex indicators, trading signals and experienced professional’s advice but only after understanding the risk reward ratio.

5. Never Follow a Gambler’s Fallacy

You must be clear in your mind that forex trading is not a game of luck like gambling. If you try to follow a gambler’s psychology, initially you may succeed with few winning trades but ultimately you may fail miserably.

6. Don’t Fall Prey to Your Emotions

You must educate yourself on how to control your emotions. Determine your profit targets from a particular trade well in advance. Take the profits as fast as possible without stretching it beyond your targets. You must have conviction on your analysis but at the same time never get trapped in a loosing position because of sentiments like how can my analysis go wrong? Develop and maintain a disciplined trading style based on your temperament, family obligations and personality.