The mechanism of FX trading and two types of strategies that generate profit

Do you understand what FX is about and how it works? It takes a little time for someone who is new to foreign exchange to understand FX.

Here we introduce the basic content, mechanism, and characteristics of FX. If you have even a little interest in FX, please take a look and deepen your understanding through actual trading.

FX is Foreign Exchange Margin Trading

FX is an abbreviation for Foreign Exchange.In Japanese, it is called foreign exchange margin trading.You trade foreign currencies and aim for profit from the spread.

You can deposit a certain amount of margin (deposit) with an FX broker and trade with a larger amount than that money.

Choose currency pairs such as USD/JPY, EUR/JPY, or USD/EUR, predict whether your held currency will rise or fall, and use that to generate profits.

In addition, you can also earn profits from interest differences between countries (swap points). Since you can trade at any time with a small amount of capital, it is popular among office workers, housewives, and students.

There are two ways FX makes a profit

FX profits are broadly divided into two: “exchange rate gains” and “swap points.”Which one you obtain depends on your trading style. Let’s look at each one.

Exchange rate gains (kawase-sae-eki)

Exchange rate gains arise when you forecast currency rates“buy low, sell high”to profit from the difference.

For example, you can aim for profit as follows:

【1】When 1 USD = 120 JPY, buy 10,000 USD.

【2】When 1 USD = 121 JPY, sell your dollars.

【3】121 JPY × 10,000 − 120 JPY × 10,000 = 10,000 JPY profit.

This profits from selling yen to buy dollars, and the dollar rising against the yen moves in your favor.

Also, if you sell 10,000 USD when 1 USD = 120 JPY and buy back when 1 USD = 119 JPY, you would similarly earn a profit of 10,000 JPY. This is the profit created by “sell high, buy low.”

Swap points

In addition to exchange rate gains,you can profit from swap points.

Swap points are like interest earned from the interest rate differential between two countries.

By selling a low-interest currency and buying a high-interest currency, you receive swap points equal to that interest rate difference while you hold the currency.

For example, in the following case you can receive swap points.

【1】Sell yen and hold a dollar position.

【2】Interest rate in the yen country is -0.1% (as of Jan 1, 2019)

【3】Interest rate in the yen country is 2.50% (as of Jan 1, 2019)

【4】2.50 - (-0.1) = 2.6% interest rate differential!

The larger the interest rate differential, the higher the swap points. You can earn a certain amount of profit just by holding, without repeatedly trading.

However, if you sell a high-interest currency and buy a low-interest currency, the interest differential becomes negative, so you will have to pay swap points while holding the currency.

FX features and advantages

There are several reasons why FX has become a staple side business for housewives, office workers, and students.

Here, we look at the concrete advantages and features of FX trading.

Leverage

FX has a feature called “leverage,” allowing trades up to 25 times the amount of the deposited margin.

Therefore, you can trade with higher capital efficiency and achieve large profits with a small amount of capital.

Even people with only 10,000 yen can trade with the power of 100,000 yen if leverage is 10x.

Trading 24 hours on weekdays

In stock investing, direct trading is only possible during the domestic market hours from 9:00 to 15:00.

However, with FX, since markets around the world are open somewhere at all times,you can trade 24 hours on weekdays.Therefore,even those who are busy with work or house chores during the day can trade with confidence.

Both buy and sell are possible

FX allows not only buy orders but also sell orders. With only buy orders, you can profit only when the market rises.

However, since you can also place sell orders,you can aim to profit even in a declining market.This widens your trading range and lets you profit at various times.

[Summary] First, open a free account

FX profits come from the difference in exchange rates at the time of trading and the interest rate difference between two currencies. It can be traded 24 hours and leverage trading can increase capital efficiency.

If you want to experience how it feels in practice, start by opening an FX account.

Creating an FX account is free. There are no fees or annual charges. Even if you do not trade, you can start by opening an account to see what it’s like.

【Manet FX】Experts explain in an easy-to-understand way for beginners. They also introduce the popular FX company, so please check it out.

■ Manet FX YouTube channel is now available! ■

If you want to know more about FX,check out the Manet FX YouTube channel!

The videos explain FX more clearly. We will convey the basics of FX so even beginners can start trading.

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