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Retail forex trading surges definition

retail forex trading surges definition

In forex trading, a "percentage in point," or "pip," is how traders refer to the movement of the currency pairing being traded. It's a small. Forex trading expanded quickly among retail investors as online trading made it possible for average people to trade currency for profit. Forex is a decentralized global market where all the world's currencies are traded against each other, and traders make a profit or loss from the currencies'. SPORTS BETTING LINES LAS VEGAS CASINO

Firstly a currency futures contract gives you the right to buy or sell a fixed amount of currency, at a fixed price at a specified future date. Secondly, a currency option gives you the right but not the obligation to buy or sell a currency futures contract at a fixed strike price and fixed future date. If you fear the exchange rate of a currency will fall in future, you can buy a put option that gives you the right to sell.

However, if you fear it will rise you can buy a call option that gives you the right to buy without any obligation. Options are derivative contracts and can be used to hedge risk and for speculation. If retail forex trading were regulated across Africa, it would necessitate the need for exchanges in Africa to start offering currency derivatives. Traders can lose more than their capital Negative Balance Protection means that you can't lose the money borrowed to you by your broker.

You can only lose your initial margin contribution, should a trade go against your favour. When your margin falls below the maintenance margin level, a margin call is triggered by the broker. This means you have a leverage of The loss is greater than your initial deposit. You need to carry out adequate research to determine if a broker is trustworthy or not.

Slower order execution due to latency problems Latency refers to any delay between when you place an order and its execution time. There is an inverse relationship between latency and execution time. When there is low latency, orders are executed speedily and vice versa. Latency is determined by how far the signal has to travel to execute orders.

Light travels in a vacuum at about , miles per second. Thus, those with servers located close to the liquidity providers execute orders faster than those far away. Most forex brokers don't have their servers located in African countries. This means that the signals have to travel from a far distance, causing slower order execution.

Latency causes the order and execution price to be different. You may often see a lot of re-quoting when you try to place an order. If these brokers were regulated, they would open offices in Africa and bring in their important computer servers thus reducing latency issues. Inadequate Customer Service and Complaint Resolution Since most brokers don't have physical offices in Africa, clients are forced to take their complaints online. You have to reach out to their foreign numbers which can be hard to connect to.

The difference in the time zones limits how often you can contact your broker since their lines are opened only during working hours. Online brokers make use of bots to reply to your inquiries and complaints. These answers may not suit your questions; making you lose funds while waiting for a proper reply. Emails aren't replied to on time. It's hard for you to get a prompt response while faced with trading challenges that require immediate attention.

Few retail platforms factored in the possibility of such a huge move in one currency on a single day. Many retail investors who had bet that the euro or yen would move higher against the Swiss franc had taken out a form of insurance called a stop-loss order, which should have limited losses if the Swiss franc moved against them by more than a few basis points.

Instead, when the franc soared in the largest single currency move since , there was no liquidity and no buyers to execute trades at stop-loss points, and client accounts went into free fall. FXCM, the No. FXCM was not alone. Neither bank confirmed the losses. For its part, FXCM forgave 90 percent of client losses. Most retail brokers have forgiven clients with negative account balances.

How is it possible that so many retail brokers, with sophisticated risk management systems, could lose so much? The damage was much smaller at principal brokers. Toronto-based Courtney Gibson, head of trading and quantitative analytics at Oanda Corp. Oanda has also invested heavily in technology so that its risk management is more robust, Gibson says. Because Oanda uses the principal approach, it was able to settle client trades internally, offsetting a sell order against an outstanding buy, rather than turning all trades over to third parties to be settled.

As a result it had to go to the forex market relatively few times, he says. While it lost money, losses were minor compared to those of other firms. It also forgave clients with negative account balances. Gibson says the number of new clients surged 50 percent in January, with most fleeing other firms.

Clients at other firms were not so lucky. Saxo was among the banks raising collateral requirements.

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There are lots of islands! These islands represent the different trading venues in the FX market. The rise of electronic trading in FX resulted in an explosion of trading platforms and electronic execution venues. However, with the rise of venues such as electronic communication networks ECNs , application programming interfaces APIs , and API aggregators, the distinction among these traditional segments has started to blur together and become less clear.

In general, trading venues are where different market participants can come together and trade with each other. The island runs a marketplace that facilities trades between market participants. Some even provide anonymous trading where you can submit orders without revealing your identity to the other traders.

All without revealing the identity of either buyer or seller. As you can see, there is not one single island where ALL trading takes place. And prices that traders buy and sell are unique to each island. Each currency pair will have its own price, liquidity, and trading volume depending on the venue. FX trading occurs in many different places all at once. Islands differ in size. The size represents the amount of trading volume that occurs on an island. Different boats trade on different islands.

Depending on the island, only certain boats are allowed. For example, there are boats that are so rich, that they actually own their very own island! If a boat owns an island, no other large boats banks are allowed. Only special, smaller boats clients of the bank are allowed. Which is fine by most of the large boats, since they also own their very own exclusive island anyway.

Another example, the two big islands in the middle, only the biggest boats are allowed to trade there. The people who trade on these big boats are called dealers. So on these islands, dealers trade with each other in large quantities. The interdealer segment of the FX market is where trades occur between FX dealers, as opposed to between dealers and their end customers, such as exporters and importers, asset managers, hedge funds, and even some retail forex brokers.

In the past, only the biggest of boats were allowed on these big islands. This is because large boats preferred to only trade with other large boats. They deemed smaller boats as too risky to trade with. This is how the medium boats are able to access these big islands and trade with the other large boats. In exchange for the privilege to trade in its name, the large boat typically charges the medium boat a fee based on the volume of trades done.

Basically, the clear distinction that separated the interdealer market and the rest of the market in the past has now become blurred. Trades occur electronically or via voice. Usually with a markup. A retail forex broker is one of the tiny boats. Of course, since some retail forex brokers are larger than others, their boats also come in different sizes. There are large retail forex brokers. And there are smaller ones. A PB is an entity that is willing to represent the retail forex broker in all its trading transactions that occur in the lake and settle the trades in its name.

But large boats are picky. They do not meet the rigid standards and are not able to secure a prime broker relationship, which prevents them from being able to trade with others in the FX market. Prime of Prime PoP refers to a firm that has an account with a Prime Broker PB that offers its services to other market participants such as forex brokers.

The PoP allows the smaller retail broker to trade through it. So if a retail forex broker is one of the tiny boats more like rowboats and kayaks , where do you, the retail forex trader, fit in this picture? If other ships already deem them too risky to trade with them directly without some sort of chaperone PB or PoP , why would they want to deal with individual retail forex traders? A retail forex trader is NOT a boat Your retail forex broker is a boat. But… YOU are in an aquarium on their boat.

Your broker creates its own market for you to trade in. You trade with, and ONLY with, your forex broker. When you enter an order, it is your broker who takes it. As a retail forex trader, when you enter an order to buy or sell a currency pair, the forex broker IS the counterparty to this trade. Think of it like a simulation. But in the end, you are not trading with other traders…. It is taking the opposite side of ALL your trades.

An execution venue is just a fancy word where orders are placed and executed. No money is leaving the broker. It is only when it needs to hedge trades that real money is used by the broker. But these hedging trades made by the broker, not you. This topic will be discussed more in a future lesson. Nor do you trade with other traders. Not even with other traders who use the same forex broker as you. For example, if you and another trader use the same broker, you both will NEVER trade with each other, both of you will always only trade with the broker.

You are not in the same aquarium with the other trader. Retail traders do not have access to the FX market. They only trade with their retail FX broker. In the institutional market, retail forex brokers are referred to as retail aggregators. No such restrictions existed prior to , when these rules came into effect. These limits, which came into effect in , vary between and just , depending on the asset class.

ESMA's major currency pairs comprise any two of the following currencies: the US dollar, the euro, the Japanese yen, the pound sterling, the Canadian dollar or the Swiss franc. These measures remain in place to this day. Japan[ edit ] In Japan, the Financial Services Agency FSA restricted leverage available to retail traders across foreign exchange transactions as early as Maximum leverage was capped at in August , and was subsequently reduced to in August

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