Learn to Trade

17 Forex Trading Questions For Beginner Forex Traders In Singapore, Answered!

Posted on by NEO360
Forex-Trading-for-Beginners
11
Apr

Fancy yourself a forex trader? We’re sure you have a lot on your mind. Here are short and sweet answers to 17 of the most common questions about forex trading for beginners that can help you decide whether the FX markets are for you.

 

  1. I don’t know anything about how to trade forex. How do I get started?

     

It’s as easy as opening an account with an online trading platform. Just fill in the form, wait for the verification, and you’re good to go as soon as your account is open. You’ll need to fund your account to get started. Whatever amount you intend to start with, don’t lift a trading finger without first preparing your trading plan.

 

  1. Are there forex trading headquarters just like the stock exchange, and if so, when are the trading hours?

     

The forex market does not have a building or a brick-and-mortar office, although the biggest trading centres are New York, London, Tokyo, Singapore and Hong Kong. Much of forex trading occurs on electronic systems as well as in the over-the-counter (OTC) market where all the licensed brokers, banks and traders are connected.

 

This also means that forex trading takes place 24/7, because there is always a forex market open somewhere in the world, at least from Monday to Friday.

 

  1. What’s the difference between a retail trader and an institutional trader?

     

A retail trader is an individual trader, while an institutional trader is a corporation, a bank or a large fund.

 

  1. Just how risky is forex trading?

     

While all types of trading and investment have their share of risk, forex is considered riskier than most because it involves leveraged trading, which means it’s possible for you to lose more money than you have in your trading account.

 

  1. What’s leveraged trading?

     

Leveraged trading is when you borrow money from your broker to trade currencies. In using leverage, you will only have to pay an upfront security deposit in case you incur any losses. This allows retail traders to earn even from small currency movements, as well as to take bigger market positions on a relatively small amount of capital.

 

  1. Why should I trade forex instead of stocks or commodities?

     

The currency market is the world’s largest and most liquid financial market, with a daily trading volume of USD5.3 trillion. It’s also the only market that operates round the clock. There are more than 170 currencies you can trade in the forex market, which is 12 times bigger than the futures market, and 27 times bigger than the stock or equities market.

 

  1. What are the most popular currencies for FX trading?

     

The seven most popular currency pairs are called “the majors”, and more than 85% of the world’s forex transactions involve them.

 

  •    EUR-USD
  •    USD-JPY
  •    GBP-USD
  •    AUD-USD
  •    NZD-USD
  •    USD-CAD
  •    USD-CHF

     

As part of almost 90% of the world’s trades, the USD is the most traded currency. Apart from the majors, other popular trading currencies include the Mexican Peso (MXN), which is the eighth most traded; and the Chinese Renminbi (CNY), which is the ninth. The popularity of Bitcoin was likewise on the rise in the first half of last year.

 

  1. How do I know which currencies to trade?

     

Just because the majors are the most popular pairs doesn’t necessarily mean that they are the pairs you should be trading. Traders need to do a lot of research and study before trading, and the currencies they should be trading are the ones they are most familiar with or know the most about.

 

  1. What’s a pip?

     

A pipis the basic unit used by forex traders to measure movements when trading currencies. For example, for EUR/USD, 1 pip is 0.0001.

 

  1. What’s a market spread?

     

A spread in the forex market is difference between the bid price and the ask price in a currency pair. This difference is measured in pips and is usually used by brokers to calculate their compensation for a transaction.

 

  1. How do I know when to enter or exit?

     

Figuring out when to enter or exit a trade, is arguably one of the most important skills that you have to master as a forex trader. The decision to enter or exit must be made objectively and free of any emotional influence. You can base your decision on price levels or technical formations which can be read from charts.

 

Your entry and exit can be planned out in advance according to your trading plan or strategy. Generally, it would be best to keep your trades small, and enter your position gradually, or commit your assets a little at a time over a certain period. This way, you can limit your risk, as well as the losses should you choose the wrong entry or exit point.

 

  1. What’s a stop loss and how do I use it?

     

A stop loss is a trade management technique that predetermines when you exit a losing trade, to keep you from losing more money. While losses are inevitable in the course of forex trading, stop losses put you in control of the situation by allowing you to decide what to do when the situation isn’t going your way.

 

You can decide your stop loss point according to the percentage of your account that you’re willing to risk, prevailing market conditions, price volatility, a time limit, or support and resistance levels on charts. If you’re totally new to forex trading, it’s highly advisable to receive expert training and advice on including stop losses in your trading plan.

 

  1. What’s the difference between CFDs and Spot Trading?

     

A CFD, or Contract for Difference, is an agreement wherein every time you close a contract, you will be paid for every pip that the currency you bought has moved in your favour. If the currency doesn’t move in your favour, however, you will be the one to pay.

 

CFDs are so-called because every time you close the position, what you take is the difference between the closing and opening price. That difference will either be added to or deducted from your account. Take note that you never actually own the currency you buy, whether virtually or physically, and that you will never have to deliver the currency you sell.

 

A Spot Trade, on the other hand, involves the actual exchange of currencies, either virtually or physically. This means that if you buy or borrow a currency overnight, you will either pay or receive interest on it.

 

  1. What are binary options and how are they different from forex trading?

     

Binary options are contracts with fixed risks and rewards, where the trader predicts whether an asset (or specifically in forex trading, a currency) will go up or down during a certain time frame. The trader can see, right away, what value their earnings will have if their predictions come true. You get all your money back along with a return if your prediction pans out, and lose all the money you risked if your prediction doesn’t.

 

Both binary options and forex trading can be done online and can be undertaken with small amounts. The difference between them lies in how much profit you can earn in the long run. With binary options, you need to make more correct predictions in order to make significant gains. The transaction costs (spreads on binary options) are prohibitively expensive in the long run.

 

Forex trading, on the other hand, allows you to set your own profit targets and stop loss orders, which means you can still earn profits even if your predictions are mostly incorrect.

 

  1. What is technical analysis?

     

Technical analysis is a method that uses charts as a tool for making informed trading decisions. These charts present information such as volume and price movement, and by analysing this information, forex traders are able to speculate on how strong or weak certain currencies are, and make forecasts on future movements.

 

  1. How do I know my trading plan is working or when to change strategies?

     

As with any plan, results are the only way to gauge your forex trading plan’s effectiveness. However,  these results must be consistent over a significant period. Just because your strategy worked a couple of times, doesn’t make your plan fool-proof or a guarantee of long-term success.

 

  1. Where can I get help to improve my forex trading game?

     

There are a lot of helpful educational materials available online (most of it for free), as well as real-time, up-to-date market information from providers such as Bloomberg or DailyFX. You can find forex trading basics and more advanced advice such as technical analysis techniques, but make sure that the organisation offering the information is reliable, and, if it’s a financial service provider, duly licensed.

 

You can also “practise” with play money using a demo account offered by some trading platforms, and build up your confidence along with your experience before risking real money. But instead of navigating unexplored territory without a guide, or learning through costly trial and error, you would do well to undergo training from professional traders with decades of experience and a proven track record of market successes.

 

At TrackRecord, you will benefit from the experience and expertise of professional traders who can show you how to trade better and profit consistently regardless of prevailing market conditions or your current skill level. Check out our  list of free resources and courses suitable for your needs today.

 

Sources:

https://www.cityindex.com.sg/forex-trading/start-forex-trading/

https://money.stackexchange.com/questions/45576/what-is-the-difference-between-spot-forex-trading-and-cfd-forex-trading

https://www.valuepenguin.sg/basic-guide-forex-trading

https://brokernotes.co/forex-trading-industry-statistics/

https://www.financemagnates.com/binary-options/bloggers/binary-options-vs-forex-trading-understanding-the-difference/

https://www.ig.com/sg/forex/how-to-trade-forex

https://admiralmarkets.com/education/articles/forex-basics/what-are-the-best-currency-pairs-to-trade

https://www.forextraders.com/forex-education/forex-strategy/trade-timing-entry-exit-points/

https://www.babypips.com/learn/forex/stop-loss-whats-that

https://www.investopedia.com/terms/t/technicalanalysis.asp

https://vantagepointtrading.com/5-step-plan-forex-trading-success/

https://www.oanda.com/forex-trading/learn/getting-started/pips

https://www.investopedia.com/ask/answers/06/pipexplained.asp

https://www.financemagnates.com/executives/insights/what-is-a-spread-and-why-does-it-matter/

https://www.babypips.com/learn/forex/news-and-market-data

Learn to Trade

Start the Year Right with an Effective Trading Plan

Posted on by TrackRecord Trading
16
Jan

Success rarely comes by accident, if at all. Any successful undertaking is a planned undertaking. Traders of all skill levels, especially beginners learning to invest, need to remember that planning is the only way you can make sure that you have everything you need for success, and that conditions are as ideal as possible.

While there will always be factors outside your control, a well-laid plan maximises your chances of achieving the desired outcome. It also makes it easier for you to make adjustments, as necessary, as the plan is put into action, whether you engage in online trading in Singapore or any other form of investment trading.

As the start of a new year is an ideal time for planning, here are some pointers for preparing your trading plan.

  1. Be honest with yourself. If you are new to trading—someone who has just taken up forex trading for beginners, perhaps—ask yourself whether you have sufficiently mastered the trading skills you need, and have the confidence to trade. Regardless if you are risk averse, or are willing to take chances and accept the consequences,  you have to plan to accommodate your risk appetite.
  1. Know your goals. Set feasible trading objectives for yourself to reach every week, month and by the end of the year. Express these objectives in terms of profit targets and risk/reward ratios either as percentages or dollar-amounts. Your plan should include a schedule for regular assessments of these goals.
  1. Write your own plan. You have your own individuality as a trader with your own trading style, and only you know what you want to achieve as an investment trader. Following a pre-made plan by someone who doesn’t know you or your preferences lessens the chances of achieving your personal trading goals.

Details in your plan may include:

  • Tools
  • Concept
  • Objective
  • Rationale
  • Chosen markets
  • Time frame
  • Monitoring frequency
  • Potential problems
  1. Determine suitable market conditions. Define ideal market situations that would suit your chosen forex trading strategies or trading approach. Know how you’ll identify trends and ranges, as well as where the transition points are.  Also decide on the best time of day for you to trade: ideally it should be a period of time during the day when you can be free of interference and interruptions.
  1. Study the market. Look for indicators that suggest that the market is likely to be on the up and up, or on its way down. You’ll be better able to prepare once you’ve identified potential trends, and be assured of trading based on research and data rather than gut-feel.
  1. Know when to quit. Include rules in your plan for knowing when to exit, which seasoned traders say is more important than knowing when to enter. Determine your stop loss and your profit target and resolve to stick to them, making sure you don’t go beyond the percentage of your portfolio that you planned to risk.
  1. Decide when you want to enter. Set conditions that will make it easy for you to trade at a moment’s notice, but make sure they are conditions that aren’t purely subjective, and that there aren’t too many of them. Set too many conditions to be met and you may end up never trading at all.
  1. Determine your evaluation parameters. Know how you’re going to assess your trading performance before you actually start trading by knowing how many trades you’re going to base your performance on. This can be more effective than assessing after a certain period of time because the number of trades placed within a time frame can vary between traders.

As a plan is only as good as its execution, here are some pointers for carrying out your trading plan in the coming year.

  1. Stick to the plan. A plan is there precisely to keep you from making knee-jerk reactions to the inevitable changes in the market. But while this plan should be conscientiously followed, you should be able to evaluate its effectiveness after the market closes.
  1. Clear your mind for every trading day. As you go about executing your plan, ask yourself whether you are mentally and emotionally prepared to make sound trading decisions. Trading while distracted, under pressure or during periods of extreme emotional stress is likely to cause you to make costly mistakes.
  1. Follow a daily, pre-trading routine. Some traders make it a habit to never place the day’s first trade without performing certain activities such as reviewing their trading plans, determining their support and resistance zones, or checking out major news updates. You should also follow up on orders that have been executed or what took place during overnight sessions.
  1. Keep an eye on the main markets. As you manage your open trades, make sure you monitor prices and any developments around major markets such as Singapore, Hong Kong, Japan, the US, Europe, the UK and Australia.
  1. Keep your records straight. Make sure you keep a record of all your trades, both the winners and losers. This way, you can keep track of the why’s and how’s and study them later on, allowing you to re-apply winning strategies and to avoid making the same mistakes.

Details in your records may include:

  • Targets
  • Entry and exit prices
  • Profit or loss
  • Position size
  • Time of trade and trade duration
  • Stop loss and take profit levels
  • Reasons for making the trade
  • Emotions while making the trade
  1. Keep a daily journal. On top of taking note of the day’s gains and losses, take a moment at the end of every trading day to record what led to each loss or gain. These notes will be invaluable references when the time comes for you to plan again. For those engaged in fx trading in Singapore, you might also tweak your watchlist of currency pairs, for example, to prepare for the next day’s trades.

Both new and experienced traders stand to benefit from expert guidance when preparing and executing their trading plans. TrackRecord Asia has successfully guided junior and retail traders, hedge fund and investment bank professionals, non-finance professionals and other traders of every skill level, showing them how trading with a structured framework can lead to more profitable and consistent trading.

Leverage the expertise of professional traders who have a proven track record in investment banking and hedge fund management when you prepare your trading plan and get the trading edge you need for the year ahead.

Want to dramatically improve your trading results? TrackRecord regularly runs trading courses and workshops for all levels of traders. Submit your contact details to be informed of our next event!

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Sources:

https://www.investopedia.com/articles/trading/04/042104.asp

https://www.thinkmarkets.com/en/learn-to-trade/intermediate/how-to-create-a-trading-plan/

https://pepperstone.com/en/client-resources/how-to-develop-a-trading-plan

https://www.dbs.com.sg/treasures/investments/online-trading/online-equity-trading

https://tradingsim.com/blog/trading-plan/

Learn to Trade

‘Tis the Season for Trading in Singapore

Posted on by TrackRecord Trading
forex trading singapore
14
Dec

It’s the most wonderful time of the year! But are there such times for investment trading, particularly when investing in Singapore?

As its name suggests, seasonality is a regular periodic fluctuation in an area of business according to a certain season. As we work on our developing our trading strategies towards becoming better at trading in Singapore, let’s take a look at how seasonality affects trading and how you, as an informed and conscientious trader, should act accordingly.

What is Seasonality?

Seasonality, by definition, is when data changes predictably every calendar year. This is different from cyclicality, which can last shorter or longer than a year. Also, in order to be considered ‘seasonal’, a trend has to repeat consistently: recessions, which can last from a year-and-a-half to two years, do not count as seasons.

Seasonality can either mean a holiday like Christmas, an actual season like spring or summer, or an event like elections, long weekends, or the opening of the school year or graduation.

Risk.net says that seasonality affects all commodity futures markets to some extent. The effect of seasonality on business can readily be seen in terms of sales or supply and demand, but might take a little more effort to recognise when it comes to investment trading.

An investor, for example, might base his decision to buy or sell his securities in a certain company because of a spike in revenue—without considering the season behind the reason for the spike.

Some investors in the stock market look to seasonality to help them make trading decisions, arguing that if historical data shows recurring results, then you should be able to duplicate those results successfully.

For instance, a company that manufactures air conditioners will see a jump in revenue during the summer, which is also when companies involved in travel and tourism usually enjoy increased profits. For the Christmas season, it will be the time for consumer goods and retail sector to rejoice.

What are some Seasonal Trends?

Other seasonal trading trends include the so-called ‘January Effect’, which gives traders an idea of the market’s performance for the rest of the year. The End of Quarter Effect, on the other hand, is the time of year when portfolio managers get the urge to ‘end on a high note’. This is done through aggressive bidding on shares that they already own to boost stock values for the time being.

The End of Quarter Effect is also quite similar to what happens in the market at the end of the year itself, AKA the Year-End Effect.

There is also a type of seasonality that refers to a period before a season, called the Pre-Holiday effect. This is when stock prices go up on the last trading day prior to the actual holiday: this year for Christmas, for instance, would be on December 22nd.

Some say the Pre-Holiday trend is caused by the general optimism in the air during a holiday season, and that the reduced market activity during these times of year also lowers overall market liquidity, which in turn affects stock prices.

Others say that Holiday trends in general are caused simply because everyone participating in the market expects the holiday at hand to affect market performance, and in acting accordingly, they effectually cause their own expectations to come to pass.

With forex trading in Singapore, seasonality can be observed during certain months in both currencies such as the USD and JPY, and commodity currencies such as AUD and CAD.

Seasonality as a Deciding Factor

So should you let seasonality affect your trading decisions? There are seasoned traders out there who advise against it. While history may repeat itself, it’s not a 100% fool-proof guarantee that the results you gained last year will be repeated this year or even the next.

Making seasonality the sole basis for your trading decisions is insufficient for justifying your trading and investment strategy. A Christmas rally, for instance, might be based mainly on the prevailing emotions of market players at the time (and as any savvy trader or investor will tell you, making trading or investment decisions based on emotions is a no-no).

It is also quite likely that investing based on seasonality will not be in sync with your personal risk appetite. You would do well to note that investment decisions based on seasonality comes with more risk, as well as its share of capital gains tax and transactions costs.

If a trader has a thorough understanding of how seasonality works, only then should he even consider it as a deciding factor in his trading decisions. Even then, this knowledge of seasonality only gives such a trader a slight advantage, at best.

Seasonality might appeal to those with a short-term outlook who are after quick gains before selling their shares and planning their next steps. For traders looking for long-term, consistent gains, they would do better to focus on an asset’s performance over longer periods of time instead of the changes brought about by the seasons.

Tread Carefully With Seasonality

Traders who do choose to factor seasonality into their strategies would do better to zoom in on seasonality per industry, instead of an entire market. For instance, if you invest in a particular company, consider how seasonal trends affect the products and services of that company and its competitors.

Take note, however, that the more industries you consider, the more variables come into play, and the effectiveness of seasonality as a deciding factor will drop. It is therefore better to focus on the seasonality of one industry at a time.

If you invest in a mutual fund or an exchange-traded fund or ETF, try to pinpoint the periods during the year in which the sector shows its strongest performance. Taking a close look at seasonal trends might also help those who are learning how to trade forex.

The difference between seasonality and ‘timing the market’ is another point an informed trader ought to bear in mind. Taking the current season into consideration is one thing; focusing on a short-term patterns to determine market highs and lows is quite another. Some experts believe that ‘timing the market’ is practically impossible.

Knowledge of a season’s effect on the market can inform your trading decisions, but it shouldn’t be the be-all and end-all of your investment strategy. When all’s said and done, seasonality isn’t a single, ‘guiding star’ for deciding trades to be used by traders, particularly those who are just starting out. Seasonality is just one of several other factors that you should consider when planning out your trades.

Learn techniques and strategies to help you become a more profitable and more consistent trader at TrackRecord Asia. Founded by professional traders, TrackRecord Asia puts you in touch with mentors and trainers with proven track records in investment banks and hedge funds, who will show you how to use a structured framework to form an effective investment process.

Achieve the level of trading performance you aspire to with TrackRecord. Get one month’s FREE subscription to our CIO’s Week Ahead Update and Traders’ Risk Call for updates and insights to give you the trading edge you need, today.

Sources:

https://www.investopedia.com/terms/s/seasonality.asp
http://www.blog.sanasecurities.com/seasonal-stocks-impact-seasonality-stock-prices/
https://finance.zacks.com/seasonal-stock-market-trends-5830.html
https://www.motifinvesting.com/blog/investing-based-seasonal-trends
https://learn.tradimo.com/advanced-stock-trading/how-seasonsa-holidays-affect-stocks
http://www.cbc.ca/news/business/taxes/playing-seasonal-investment-trends-to-your-advantage-1.1285947
https://www.investopedia.com/ask/answers/030415/how-does-seasonality-affect-financial-services-sector.asp
https://www.investopedia.com/articles/investing/101315/company-analysis-how-think-about-seasonality-trends.asp
https://www.ig.com/sg/trading-opportunities/2017/09/05/seasonal-trends-in-the-forex-market-39690