What is Forex?

Forex, short for Foreign Exchange, refers to the exchange of one country’s currency for another. It is the largest and most liquid financial market in the world, with a daily trading volume of approximately $7.5 trillion, according to the Bank for International Settlements (BIS).

How the Forex Market Operates

The Forex market operates 24 hours a day, five days a week. Trading begins with the Sydney session and ends with the closing of the New York session on Friday night.

Key Features of Forex

• World’s Largest Financial Market: The Forex market offers unparalleled trading opportunities due to its massive size and global reach.

• Most Liquid Market: High liquidity ensures efficient trading and tight spreads.

• Trade 24/5: The market operates nearly all week, enabling continuous trading across global time zones.

• Trading with Spot Prices: Prices reflect real-time exchange rates for immediate trades.

• Leverage: Traders can use borrowed capital to magnify potential returns.

• Two-Way Trading: Profit from both rising (long) and falling (short) markets.

• Various Order Types: Tools like stop-loss, take-profit, and pending orders help manage trades effectively.

• Trade from Anywhere: Forex trading platforms allow access from desktops, laptops, and mobile devices, ensuring flexibility.

Q: What Instruments Can Be Traded in the Forex Market with Duhani Capital?

Duhani Capital offers a wide range of trading instruments, including:

• Currency Pairs

• Precious Metals

• Stocks

• Stock Indices

• Cryptocurrencies

• Commodities

Currency Pairs

Currency pairs are classified into three categories:

• Major Currency Pairs:

  • Involve the currencies of the world's largest economies.

  • Have the highest trading volume and deep liquidity.

• Minor Currency Pairs:

  • Slightly lower trading volume than majors but still have sufficient liquidity.

• Exotic Currency Pairs:

  • Include currencies from developing or emerging economies.

Commodities

Commodities are economic goods subject to trade, such as raw materials, essential resources, and agricultural or mining products.

• Precious Metals: Trade gold and silver.

• Energy-Based Instruments: Includes oil and natural gas.

• Agricultural Commodities: Trade instruments like cocoa and coffee.

Commodity prices fluctuate based on economic conditions, making them attractive assets in financial markets.

Stock Indices

Stock indices reflect the collective price of grouped stocks in a stock exchange. These groupings may be based on sectors or stock sizes.

• Monitor market trends and identify investment opportunities.

• Trade popular indices such as NAS100, S&P500, and others.

Stocks

Duhani Capital provides access to a wide range of stocks from international stock markets. Trade stocks of major global companies, including:

• Tesla (TSLA)

• Apple (AAPL)

• Amazon (AMZN)

• NVIDIA (NVDA)

• Google (GOOGL)

• Microsoft (MSFT)

• Facebook (META)

• Alibaba (BABA)

Duhani Capital offers trading on approximately 40 stocks.

Cryptocurrencies

The cryptocurrency market began with Bitcoin in 2008 and has since expanded to thousands of digital assets. The total market capitalization exceeds $3.5 trillion, with a daily trading volume of over $150 billion.

Duhani Capital supports trading on 40+ popular cryptocurrencies, including:

• Bitcoin (BTC)

• Ethereum (ETH)

• Ripple (XRP)

• Dogecoin (DOGE)

With Duhani Capital, traders can access a wide variety of instruments to diversify their portfolios and capitalize on market opportunities in global financial markets.

Forex Trading Basics

Q: What is a Currency Pair?

In the Forex market, currencies are always quoted in pairs, and trading is conducted through these pairs. A currency pair represents the value of one currency against another.

How Currency Pairs Are Displayed

Currency pairs can be expressed using two methods:

1. European Method

• The value of the foreign currency is expressed in terms of the domestic currency.

• Also referred to as a direct quotation.

• Example (if the US dollar is the domestic currency):

  • EUR/USD → 1 € = 1.0360 $

2. American Method

• The value of the domestic currency is expressed in terms of the foreign currency.

• Also referred to as an indirect quotation.

• Example:

  • USD/EUR → 1 $ = 0.7350 €

Components of a Currency Pair

Base (Primary) Currency

• The first currency in the pair.

• Example: In EUR/USD, the euro (EUR) is the base currency.

Quote (Counter) Currency

• The second currency in the pair.

• Example: In EUR/USD, the US dollar (USD) is the quote currency.

How Profits or Losses Are Calculated

• Profits or losses in trades involving currency pairs are calculated in the quote currency.

Examples:

• In EUR/USD, profits or losses are calculated in USD.

• In USD/EUR, profits or losses are calculated in EUR.

Q: What is a Lot in Forex?

In the Forex market, a lot refers to the position size or trade volume. Lot sizes determine the amount of the base currency being traded.

Types of Lots

• Standard Lot:

  • 1 lot = 100,000 units of the base currency.

• Mini Lot:

  • 1 mini lot = 10,000 units of the base currency.

  • Represented as 0.1.

• Micro Lot:

  • 1 micro lot = 1,000 units of the base currency.

  • Represented as 0.01.

Examples for Currency Pairs

• A 1 lot long position on EUR/USD means:

  • Buying 100,000 euros.

  • Selling US dollars in return.

• A 0.1 lot position (mini lot) on EUR/USD means:

  • Buying 10,000 euros.

Lot Sizes for Commodities, Stocks, and Indices

Other assets, such as commodities, stocks, and indices, have different lot sizes. Traders can find the specific lot sizes for each instrument directly in the MT5 platform's details section.

Examples

• Gold (XAU/USD):

  • 1 lot = 100 ounces.

  • Example: A 1 lot short position on gold means selling 100 ounces of gold and buying US dollars.

• Silver (XAG/USD):

  • 1 lot = 5,000 ounces.

• S&P 500 Index (SP500):

  • 1 lot = 1 contract.

Importance of Lot Sizes

• Determines position volume.

• Larger position volumes increase both potential profit and risk.

• Profit or Loss Calculation:

  • Volume: Calculated in the base currency of the pair.

  • Profit or Loss: Calculated in the quote currency.

Understanding lot sizes is crucial for managing risk and position sizing effectively in Forex and other financial markets.

Q: What is Leverage?

Leverage allows traders to control a trading volume multiple of their initial margin by using a leverage ratio. It is commonly used in Forex trading and acts as a form of credit provided by the brokerage.

How Leverage Works

• Enables traders to open high-volume trades with relatively low initial capital.

• Example:

  • With a 1:100 leverage ratio, a trader with a $1,000 deposit can open a trade worth $100,000.

  • The trader’s profit or loss is calculated based on $100,000, not the initial $1,000 margin.

Leverage Ratios

• Varies depending on regulations and brokers.

• Brokers may offer different leverage ratios for various account types and instruments.

  • Example: Higher leverage for currency pairs compared to commodities or stocks.

Key Points to Remember About Leverage

• Increases Profit Potential: Trading larger volumes than the initial deposit.

• Increases Risk: Amplifies potential losses.

• Risk Management:

  • Proper use of stop-loss and take-profit levels.

Q: What is a Pending Order?

Pending orders are instructions to execute trades at a future price level different from the current market price.

Types of Orders in Forex

Market Orders

• Executed immediately at the best available price.

  • Buy Order: When expecting the price to increase.

  • Sell Order: When expecting the price to decrease.

Pending Orders

• Executed only when the market reaches a specified price.

• Buy Limit: Opens a long position below the current market price.

• Sell Stop: Opens a short position below the current market price.

• Buy Stop: Opens a long position above the current market price.

• Sell Limit: Opens a short position above the current market price.

Pending orders provide flexibility and automation, enabling traders to execute trades at specific levels aligned with their strategies.

Q: What is Stop Loss and Take Profit?

Take Profit (TP)

• Definition: Closes a position when it reaches the targeted profit level.

• Placement:

  • Long position: TP is placed above market price.

  • Short position: TP is placed below market price.

Stop Loss (SL)

• Definition: Closes a position when it reaches the maximum allowable loss.

• Placement:

  • Long position: SL is placed below market price.

  • Short position: SL is placed above market price.

Setting SL and TP Levels

• Based on financial goals.

• Using support and resistance levels.

• Important Note:

  • Execution price may vary due to market volatility.

  • SL and TP trigger orders but do not guarantee exact outcomes.

Proper use of SL and TP orders is essential for risk management and disciplined trading.

Understanding Key Forex Trading Concepts

1. What is Swap in Forex Trading?

Swap, also known as rollover interest, is the fee charged or earned for holding a trading position overnight. It is the difference in interest rates between the two currencies in a trading pair. Swaps can be either positive (credited to your account) or negative (debited from your account) depending on the interest rate differential.

Example: If you are trading EUR/USD and the interest rate on the euro is higher than the interest rate on the U.S. dollar, you may earn a positive swap when holding a buy position overnight. Conversely, a negative swap occurs when holding a sell position.

2. What is Spread in Forex Trading?

Spread is the difference between the bid price (buy) and the ask price (sell) of a currency pair. It represents the broker's profit and is measured in pips.

Types of Spread:

• Fixed Spread: Remains constant regardless of market conditions.

• Variable Spread: Fluctuates based on market volatility and liquidity.

Example: If EUR/USD has a bid price of 1.1000 and an ask price of 1.1002, the spread is 2 pips.

3. What is a Pip in Forex Trading?

A pip (percentage in point) is the smallest price movement in the forex market. For most currency pairs, a pip is the fourth decimal place (0.0001). However, for pairs involving the Japanese yen (JPY), a pip is the second decimal place (0.01).

Example: If the EUR/USD price moves from 1.1000 to 1.1005, the price has increased by 5 pips.

4. What is Margin in Forex Trading?

Margin is the amount of capital required to open and maintain a trading position. It acts as collateral to ensure that traders can cover potential losses.

Types of Margin:

• Used Margin: The portion of your capital locked in open trades.

• Free Margin: The remaining balance available for new trades.

• Margin Level: The ratio of equity to used margin, expressed as a percentage.

• Margin Call: A notification when margin level falls below a required threshold, prompting traders to add funds or close positions.

Example: If you have a $1,000 account balance and open a position requiring $100 margin, your margin level will be calculated as (Equity / Used Margin) × 100.

Understanding these concepts is essential for forex traders to manage their risks effectively and make informed trading decisions.