What is Forex Trading - Beginners Guide

Every day, the foreign exchange (FOREX) market trades an average of $5.1 trillion, slightly dwarfing the stock market's daily trading average of “only” $212 billion.

Why is forex trading popular and how do people make money from it？

This article aims to answer that and more. We're going to take a look at how Forex trading works and understand the key concepts so anyone interested can get a 30,000-foot view of what's at stake.

Also, we have compiled a list of possibly the best and most popular forex brokers that you can currently choose from based on several reviews and feedback available online.

However, a quick disclaimer:

I understand that as per this 2018 SEC filing, forex trading is not currently permitted in the Philippines.

However, it is not illegal to learn how it works and analyze currency movements.

This post from one of the best-known Forex trainers in the country provides a useful resource for anyone who wants to understand the current state of Forex trading in the Philippines and how it has evolved.

What is Forex and how does it work？

Foreign Exchange or Forex is essentially about exchanging one type of money for another. To get a solid foundation of how it works, let's use a popular scenario where converting one local currency to another is essential: traveling to another country.

Key Conditions by FOREX

As simple as the main concept seems, however, some things can still learn as they progress in the world of currency trading.

Here are some definitions to get you started:

• PIP - Also known as “percentage in point”, used to measure exchange rate movements. It is the unit used to determine if you made a profit or lost money on a trade. A single pip unit equals 0.0001. “I made 20 pips on my trade yesterday” or “EUR/USD has gained 10 pips in the last 8 hours” are some examples of how the term is used in context. A pip has an equivalent currency value that determines your actual profit or loss in monetary terms.

• Currency Pair – You can't exactly make a “trade” without trading something, which is why currencies on Forex are traded in pairs. Some examples of currency pairs are EUR/USD, JPY/USD, AUD/NZD.

The first quoted currency is the 'base' currency, while the second is the 'quoted or counter currency'.

For example, in the EUR/USD pair, the EUR is the base while the USD is the rate/numerator.

• Major Pairs - Refers to currency pairs that have USD as their base or counterparty currency.EUR/USD, USD/CHF are examples.

• Crosses and Exotics – Major currency pairs that do not include the USD. They are known to have higher volatility and higher transaction costs compared to major pairs. AUD/NZD, EUR/CHF, EUR/GBP are examples.

• Exchange Rate - Simply known as “Price”. Shows the price of the base currency with its counter or quote currency. If you see online that the EUR/USD rate is 1.14, it means that buying a single EUR dollar costs 1.14 USD.

• Bid and Ask – The bid is the price at which buyers are willing to buy the currency pair, while the bid is the price at which sellers are willing to sell their currency pair.

• Spread - This is the cost of placing a trade as it is the difference between the bid and ask price of a particular currency pair. If the buy price is 0.99999 while the selling price is 0.99995, it means the spread is 0.00004 (or 0.04 pips). Most if not all forex trading platforms display this information for each pair in advance.

• Leverage – This is the multiplier you are allowed to trade with than your initial trading funds will allow. It is expressed in proportion. For example, you will see retail brokers offering leverage ratios of 10:1, 30:1, 50:1, and even 100:1.

For 10:1 leverage, this means that your Php1000 “have” a value of Php10,000 and can trade that amount. means you lose more as it also multiplies your loss by the same amount.

• Lot - refers to the number/amount of currency used. It is classified into 4 main sizes: Standard, Mini, Micro, and Nano.

• Standard Lot: 100,000 units

• Mini: 10,000 units

• Micro: 1,000 units

• Nano: 100,

The larger the lot, the larger the “change in value” in terms of pips it implies.

For example, if you are trading a standard lot for EUR/USD as the base currency, 1 pip equals 10 USD. If your position earned 5 pips on that particular trade, it means you earned $50.

Under the same conditions but with a smaller mini lot (10,000 units = $1 per pip), your 5 pip win translates into a real dollar win of $5.

• Margins - It is considered a minimum deposit or a guarantee of operation. It is related to leverage (see above) as it ensures that you have the minimum required funds in your account to trade with your chosen leverage position. It is calculated by dividing the lot size by the leverage.

• Volume – refers to the number of lots traded within a specific time frame for a specific currency pair or in the overall market. When used in the context of trading, it refers to the amount of currency bought and sold.

• Slippage - Refers to the difference between the price you expect a pair to be and the actual price it executed at. Market movements and execution speed are some of the main causes of slippage.

• Metatrader 4 / Metatrader 5 - a popular forex trading software platform.

Why You Should Trade Forex (Pros)

• Highly Liquid

• The sheer number of transactions that take place daily makes the forex market highly liquid. Banks, corporations, individuals all participate in the buying and selling of currencies. This means transactions are completed quickly and conveniently, allowing traders to speculate on the price of the currency.

• Wide range of currency pairs to choose from

• Choose from major, minor, emerging, or exotic pairs. The wide range of currencies to choose from and trade from gives traders a lot of flexibility in terms of investing and diversification.

• You can trade anytime

• The forex market is open 24 hours a day, so anyone from anywhere in the world can trade as they please.

• Going Long or Short

• You can adopt a long-term strategy (buy pairs hoping their value will rise in the future) or go short to take a profit if the value falls.

• Leverage

• This concept in forex allows you to open trades in a much larger position as long as you can pay the “deposit” fee. Margin trading allows you to make big profits with a relatively small capital base. But the opposite is also true, as leverage also amplifies losses and can exceed your deposit.

Why You Shouldn't Trade Forex (Cons)

• High Risk

• Because forex trading is a highly speculative endeavor, the level of risk can be quite high. Apart from that, there are also many rogue forex brokers whose sole aim is to trick people into losing their money and using it for their profit. Because of this, it is important to choose your broker carefully, making sure they are certified and generally have solid trading experience.

• Highly Volatile Market

• While the high volume of forex trading makes it very liquid, it also moves currency pairs exceptionally volatile. Speculating on price movements in either direction can be quite difficult as you will never know when you will make the right trade and when the market will turn against you.

• Locally, the SEC currently (at least for now) considers this an illegal activity.

• In forex trading and stop investing in foreign-registered investment platforms for commodity futures, contracts for difference, indices, binary options and the like.

However, this decision could be overturned in the future once the relevant regulations are in place.

How to Invest in Forex

While the current SEC memo on forex can be daunting, if you are interested in trading ASAP, you can use this time to learn as much as you can and practice on demo accounts.

Expand your knowledge and learn best practices so that once forex trading receives SEC clearance, you'll be more than ready to start investing in forex.

• Learn the basics first

Understand the key concepts of how forex trading works, how you can make and lose money trading, and how to trade efficiently without taking on too much risk. There are many educational materials available on the internet (YouTube has great content that teaches basic and advanced stuff) that are available for free. This is important as it forms the basis of your learning. It will help you understand the markets and the pros and cons of forex trading.

2. Choose a forex broker and use the demo account

All forex brokers in our list below have the following features

• Ability to trade from a web browser

• Mobile application

• MT4 and MT5 support (except eToro)

• Provides educational tools and materials to expand your knowledge

• Some offer a copy trading feature that allows users to emulate the strategies and portfolios of popular traders

Almost all forex brokers offer a demo account for “practice”. Use it and learn as much as you can in terms of using and testing what you've learned.

The lessons you learn from this can prove invaluable once you start trading live. Some brokers offer better educational materials than others, so this could also be a consideration when choosing.

A word of warning: There are many unregulated and legitimate forex brokers out there.

This is one of the main reasons why the SEC has advised the public not to delve into Forex to protect themselves from scams and fraudulent transactions.

When choosing an agent, be sure to do your due diligence and learn as much about them as possible to ensure you are dealing with a company with a proven track record, recognized in their home countries and Germany and regulated are the countries they live in, the ones that are allowed to operate.

3. Set up your own

trading system. Investing your money in something that has the potential to grow or lose quickly can be very emotional.

A business plan/strategy can help a lot in decision-making.

You have a “pre-planned” solution for each position you want to take, akin to a flowchart, ready to guide your decisions through a gauntlet of if this, then these conditions

4. Prepare to trade

Armed with enough information and practice from your demo accounts (hopefully) you can start trading. It all starts with opening a trade ticket for your chosen market where you will see a buy and sell price quote for it.

You can set your position size (leverage) and specify your preferred stop/limit orders that will close a trade immediately once it reaches a certain condition/level.

Monitor your profits and losses in the “Open Positions” section of your chosen platform. When you want to close your position, make the reverse trade to when you opened it.

Best Forex Brokers in the Philippines

trades are processed through forex brokers. They are companies that offer traders access to a platform that allows them to buy and sell currencies.

All brokers mentioned in this list are not regulated by the SEC.

However, all of them have the appropriate regulatory approval (at least one) from their country of origin, and most of the list has multiple regulatory approvals from different countries.

1. eToro

Founded in 2007, this Israeli fintech startup was one of the pioneering online social trading brokers.

Their CopyPortfolio program provides newcomers with a trading strategy framework/template by mimicking the moves and investments of other successful traders. They offer a range of tradable assets including stocks, CFDs, and crypto assets as well as forex.

eToro is considered one of the largest trading platforms in recent years.

• Founded: 2007

• Headquarters: They have offices in the US, UK, Australia, and Europe

• Regulated by: CySEC, FCA, ASIC

• Minimum deposit: $200

• Trading platforms: Proprietary web, mobile apps

• Trading options Deposit and withdrawal: Bank wire transfers, Bank transfers, Visa, MasterCard, NETELLER, PayPal, Yandex, Webmoney UK, Skrill, etc.,

• Fixed Spread: YES

• Mobile Trading: iOS, Android

• Leverage: 30:1

Pros:

• CopyPortfolio program is useful for the novice Investors

• Hassle-free account opening

• Wide range of assets to trade (not just forex)

Cons:

• Relatively high fees for forex trading

• Withdrawals of funds are slower compared to others

2. FXTM

Headquarters in Limassol, Cyprus, ForexTime – also known as FXTM – was put into operation in 2011.

They have grown globally over the years and have multiple headquarters in countries such as Germany, China, Turkey, South Korea, France, Spain, Italy, and many more.

• Established: 2011

• Headquarters: FXTM Tower, 35 Lamprou Konstantara, Kato Polemidia, 4156, Limassol, Cyprus

• Regulated by: CySEC, FCA, FSCA, IFSC, FSC Withdrawal Options: Credit Card, E-Wallets, Bank Transfer, Crypto

• Fixed Spread: NO

• Mobile Trading: iOS, Android

• Leverage: Up to 1:30 for EU (except professional) / Up to 1:1000 for non-EU

Pros:

• Low minimum deposit

• Tight spreads

• Compatibility with MetaTrader 4 platforms and MetaTrader 5

• Easy withdrawals

Cons:

• Low maximum order size

• No native Mac desktop app compatibility

3. AvaTrade

AvaTrade sets itself apart from the competition by having a financial firm behind it and a user-centric approach to its forex trading business. They also offer a wide range of CFD instruments such as stocks, bonds, cryptocurrencies, ETFs, trading commodities, and indices.

AvaTrade boasts over 20,000 customers worldwide completing an average of 2 million transactions/trades per month. Its monthly trading volume exceeds USD 60 billion.

• Founded: 2006

• Headquarters: Dublin, Ireland

• Regulated by: ASIC (Australia), IIROC (Canada), FSP (Africa), FSA (Japan)

• Minimum Deposit: $100,

• Leverage: 30:1,

• Mobile Apps, Meta Trader 4, Zulu Trade, Mirror Trader

• Deposit and Withdrawal Options: Credit Card, E-Wallets, Wire Transfer, Crypto

• Fixed Spread: YES

• Mobile Trading: iOS, Android

Pros:

• New Member Bonus

• Your AvaTrade platform is robust and easy to use and available for both mobile and desktop devices

• Low trading fees

• Lots of tools and training material

Cons:

• Inactivity fee

• Administration fee

4. XM

XM was founded in 2009 by Trading Point Holding, its parent company. Like the first two companies on our list, they are global FX and CFD brokers.

They have more than 2.5 million customers in 196 countries worldwide. In total, XM has processed more than 1.4 billion transactions since its inception.

• Established: 2009

• Headquarters: Belize City, Offices in Belize/Cyprus

• Regulated by: ASIC (Australia), IIROC (Canada), FSP (South Africa), FSA (Japan)

• Minimum Deposit: $100,

• Leverage: Varies by account Type

• Trading Platforms: XM Web Trader, Mobile Apps, Meta Trader 4 and 5

• Deposit and Withdrawal Options: Credit Card, E-Wallets, Bank Transfer, Cryptocurrencies

• Fixed Spread: NO

• Mobile Trading: iOS, Android

Pros:

• Tight Spreads

• Excellent educational tools

• Low CFDs and withdrawal fees

• Easy account opening at

Cons:

• Higher spreads on micro and standard accounts

• Inactivity fee

5. IG

One of the oldest companies on this list, IG was founded in the UK in 1974 and is currently one of the largest CFD brokers in the world.

It is publicly listed on the London Stock Exchange and has 10 regulatory approvals from different countries around the world.

• Established: 1974

• Head Office: UK

• Regulated By: FCA, BaFin, FINMA, CFTC, ASIC, FMA, MAS, FSA, FSCA, DFSA

• Minimum Deposit: None

• Leverage: 30:1

• Trading Platforms: XM Web Trader, Mobile Apps, Meta Trader 4 and 5

• Deposit and withdrawal options: Credit card, e-wallets, bank transfer, cryptocurrencies

• Fixed spread: NO

• Mobile trading: iOS, Android

Pros:

• No fee for withdrawal and deposit

• Heavily regulated (several countries)

• Low withdrawal and CFD fees

• Excellent implementation of the trading platform

Cons:

• Inactivity fee (applies only after 2 years of inactivity)

• Account verification is longer than average (more than 3 business days)

6. Alpari International

Alpari International is based in Mauritius under its parent company, Affinity Limited. They offer over 60 currency pairs and crosses and have their copy trading program.

The wide range of trading accounts (Micro, Standard, ECN, and Pro) offers a variety of commission-free trading, copy trading, different leverage amounts, and institutional spreads.

• Established: 1998

• Headquarters: Mauritius

• Regulated By: FSC

• Minimum Deposit: $5,

• Leverage: 1000:1 (ECN)

• Trading Platforms: Meta Trader 4 & 5, Mobile App

• Deposit & Withdrawal Options: Card Credit Cards, Ewallets, Bank

• Transfer, Cryptocurrencies

• Fixed spread: NO

• Mobile trading: iOS, Android

Pros:

• Wide range of trading accounts, some offering commission-free trading

• Leverage of 1000:1

• Access to Alpari's proprietary copy trading program

Cons :

• Lack of educational and research tools compared to others

7. FX Pro

FX Pro was founded in 2006 and is based in the UK. Since its inception, the company has processed more than 250 million transactions.

It currently operates in 173 countries with more than 870,000 customers. In 2017, Global Brands Magazine voted them the most trusted forex brand in the UK.

• Established: 2006

• Headquarters: UK

• Regulated by: CySEC, DFSA, FCA, FSCA, SCB

• Minimum Deposit: $100

• Leverage: 500:1

• Trading Platforms: cTrader, MT4, MT5, Proprietary Web

• Deposit and Withdrawal Options: Credit Card , e-wallets, bank transfer, crypto

• Fixed spread: YES

• Mobile trading: iOS, Android

Pros:

• Transparent and competitive prices

• Tight spreads

• Fast and easy registration

• MT4 compatibility and ECN

Cons:

• Relatively high Fees

• Teaching materials could be improved

8. Hot Forex

HotForex is a CFD and Forex broker owned by the HF Markets Group company. It was founded in 2010 and has quickly become one of the top names in forex trading.

They currently have 49 currency pairs and offer 3 types of trading accounts to choose from. They have several regulatory approvals from different countries.

• Established: 2010

• Headquarters: Cyprus

• Regulated by: CySEC, DFSA, FCA, FSA, FSCA

• Minimum Deposit: $5,

• Leverage: 1000:1

• Trading Platforms: cTrader, MT4, MT5, Proprietary Web

• Deposit and Withdrawal: Credit Card, e-wallets, bank transfers, cryptocurrencies

• Fixed margin: NO

• Mobile trading: iOS, Android

Pros:

• Competitive margin

• Commission-free trading available

• Meta Trader support and offers many tools (including AutoChartist)

Cons:

• The range of products to trade is limited compared to others

9. FXCM

This UK-based company was founded in 1999 and was acquired by ODL Group (also UK based) in 2010 to quickly become one of the largest forex brokers in the world.

They are known for their excellent implementation when it comes to their trading platform and social trading copies, as well as above-average customer service.

• Established: 2010

• Headquarters: Cyprus

• Regulated by: CySEC, DFSA, FCA, FSA, FSCA

• Minimum Deposit: $50,

• Leverage: 1000:1

• Trading Platforms: cTrader, MT4, MT5, Proprietary Web

• Deposit and Withdrawal: Credit Card, e-wallets, bank transfers, cryptocurrencies

• Fixed spread: NO

• Mobile trading: iOS, Android

Pros:

• Copy/social sharing platforms

• Low minimum deposit

Cons:

• Limited range of tradable products

10. CMC Markets

Established in 1989, CMC Markets is one of the oldest companies on this list. It has a large catalog of products that goes beyond Forex and serves more than 50,000 clients worldwide.

Known for their beginner-friendly approach, they offer free live accounts along with tons of free educational materials and competitive spreads.

• Founded: 1989

• Headquarters: London

• Regulated By: ASIC, FCA

• Minimum Deposit: None

• Leverage: 500:1

• Trading Platforms: cTrader, MT4, MT5, Proprietary Web

• Deposit and Withdrawal Options: Credit Card Credit, Ewallets, Bank T Transfer, Crypto

• Fixed margin: NO

• Mobile trading: iOS, Android

Pros:

• Low margin offer for all account types

• Can be a good choice for beginners

Cons:

• Lacks a social/copy trading feature