What Is The Mechanism of Forex? An easy-to-Understand Free Forex Charts With Indicators?

If you start trading without understanding the mechanism of Free Forex Charts With Indicators and Forex Trading well, you will put your precious money at risk. If this is your first time, you may not understand it at first, but let’s take the time to understand Forex’s mechanism fully.

FX is an abbreviation for “Foreign Exchange” and is also called “Foreign Exchange Margin Trading” in India. It is a relatively new financial product that buys or sells foreign currency and trades to profit between the buying price and the selling price.

In Forex, the exchange of two currencies is the basis of trading. For example, if you want to trade “US dollar, you will exchange the US currency with understanding Free Forex Charts With Indicators “US dollar” for the Indian currency. 

A pair of the currencies of these two countries is called a “currency pair”. In the case of “US dollar” and exchange, the currency pair will be “US dollar.

Forex is a transaction that makes a profit by taking advantage of the constantly changing exchange rate characteristics, but the exchange rate is determined by supply and demand. 

For example, in the case of the “US dollar”, if the demand to buy dollars is high, the dollar will strengthen, the money will depreciate, and conversely, the supply to selling dollars. 

If there is a lot of demand), the dollar will weaken, and the will strengthen. You can profit by buying when the exchange rate is low and selling when the exchange rate is high.

In Forex, there are two ways to make a profit. The first is to make a profit by the difference between the bid price and the asking price of the currency pair. This is called capital gains. 

The second is to obtain swap points derived from the interest rate differentials of currency pair countries. This is called income gain. Income gain is like receiving dividends on stock trading. It’s primary content, but let’s firmly understand how each can be profitable.

Foreign exchange gain

Now let’s take a closer look at how to make a profit by using exchange rate fluctuations. The exchange rate is the price of the currency. As mentioned earlier, the exchange rate fluctuates in real-time, and you can make a profit by buying when it is cheap and selling when it is high.

However, in Forex trading, you can aim for profit regardless of the price movements of the strong and the weak currency. If you are a person who has experience in stock trading, if you are told that you can aim for profits with both high stocks and low stocks, you have a chance to earn profits if you buy when supplies are standard, but if you buy when stores are high, you will lose the price. Do you think it is likely?

In Forex, when the price is high, you can aim for profit by “selling” instead of buying. In general, profits are generated by “selling what you bought cheaply at a high price”, but in the world of Forex, it is possible to make transactions starting from selling, such as “buying back a currency sold at a high price at a low price”. 

For example, in the case of a US dollar transaction, if you sell when 1 dollar = 75 rupees and buy back when 1 dollar = 90, you can get a profit of 10 per dollar. If you are trading 10,000 dollars, you will receive a gain of 100,000 INR.

Swap point

Now let’s talk more about swap points.

Swap points are the profits generated by the interest rate differential between two currencies, such as stock dividends and deposit interest rates. Swap points, also known as interest rate differential adjustments, are generally available by selling low-interest-rate coins such as the Japanese yen and buying currencies from high-interest rate countries like Turkey, Mexico and South Africa.

In addition, unless the position (currency held) is cancelled, it will continuously accumulate in the trading account, so many investors use FX for long-term investment to acquire swap points.

In addition, since swap points differ depending on the Forex company, choosing a Forex company that offers high receiving swap points is one of the big points when opening a Forex account.

Our “Minna no FX” offers high-level swap points not only for popular high-interest-rate currencies but also for significant currencies so that you can earn swaps every day.

Conversely, if you buy a country’s currency with a low-interest rate and sell the money of a nation with a high interest rate, you will be required to pay swap points for the interest rate difference. Also, swap points fluctuate daily; you can understand this while understanding Free Forex Charts With Indicators.

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FX risk

There are four main risks in Forex trading. By knowing the risks rather than trading without knowing them, you may be able to deal with them without hassle in case of emergency, so be aware of them.

(1) Forex fluctuation risk in

In Free Forex Charts With Indicators and Forex trading, you can profit if the market moves as expected, but if the market fluctuates contrary to expectations, a foreign exchange loss will occur.

(2) Interest rate fluctuation risk If

the interest rate differential between the target currency pair countries narrows, leading to a decline in swap points and a decline in the market price.

(3) Slippage risk When the

market price changes suddenly, there is a risk of contracting at a rate that is far from the desired price. This is called slippage. Slippage can occur in emerging market currencies that are relatively illiquid (low volume traded). 

However, with “Minna no FX”, you can set the allowable gap price range in advance using the slippage setting function so that you can rest assured.

(4) Leverage risk

Leverage brings high fund efficiency to investors and can be expected to generate large profits, but the higher the power, the higher the risk, so it is necessary to pay close attention to funding management when trading.

Mechanism to prevent the spread of loss

If you do not take the first step in trading with only the risk of loss in mind, you will not be able to make a profit forever. Make sure you understand the risks so that you can take a calm response in case of emergency, and at the same time, acquire a mechanism to prevent the risk of loss from increasing.

In Forex, to protect your assets, there is a mechanism called “loss cut” that forcibly terminates transactions so that losses exceeding the margin will not occur due to sudden fluctuations in the market price. 

This mechanism forces automatic settlement when the loss of the holding position reaches a certain level. The loss cut rule differs for each Forex company, and in “Minna no FX”, it is enforced when the margin maintenance rate is 100% or less.

For example, suppose you deposit 1 million in your Forex account and buy and hold 100,000 US dollars when 1 dollar = 100 INR.

The required margin at this time is 400,000 INR (= 100 INR x 100,000 ÷ 25).

The margin maintenance rate is 250% (= deposit (net assets) 1 million INR÷ required margin 400,000 INR 100). The forced loss cut occurs when the margin maintenance rate drops to 100%, so at this point, there is still a margin of 150%. 

After that, if the unrealized loss increases, the net assets will decrease, and the margin maintenance rate will decrease accordingly. Then, when the margin maintenance rate falls below 100%, the loss cut will be executed, and the position will automatically settle.

Did you understand the mechanism by which profit and loss are generated in Forex trading, the types of risk, and the mechanism to prevent the spread of loss? 

Not limited to Forex, when you start investing, it is essential to understand the mechanism of financial products you trade. We hope that the explanations here will help you build your assets.