FX Currency Trading Systems

Introduction

The Foreign Exchange market is the largest financial market globally with a daily trading volume of over $4trillion. With its high liquidity and the ability to trade 24-hours a day, the online FX market has grown significantly and technology used in the FX currency trading systems has adapted to allow retail traders access to interbank pricing, which was once the preserve of only the largest financial institutions. It is an “over-the-counter” (OTC) market, which means that there is no central exchange or clearing house where orders are matched. The Inter-bank Market is the level at which banks trade with each other. This market is not directly accessible to retail traders. Retail traders can access the FX market through online forex brokers. Typically brokers will either have a single-bank relationship, whereby they receive liquidity from one bank, or have a multi-bank relationship whereby the broker receives liquidity from a number of banks.

Market Hours

The forex market trades as long as there are banks open in one of the major financial centers of the world. This is from the beginning of Monday morning in Sydney until the afternoon of Friday in New York. In terms of GMT, the trading week occurs from Sunday night until Friday night, so 5 days a week, 24 hours per day.

Recent Trend of Online FX Market

Technological advancement in FX currency trading systems has been a huge catalyst behind the growth of forex trading at retail level. Online forex trading became available to retail clients by connecting the market makers to platforms, resulting in the ability to trade on the world’s largest financial market from your PC or laptop. Retail clients can trade directly with the biggest banks in the world, with excellent pricing and quick execution of orders. The retail trader, through platform such as the Synergy FX MetaTrader 4 platform, has the same access to charting, technical analysis and indicators that the banks do.

What is a spread?

When trading currency, there are two prices for each currency pair, a "bid" (or sell) price and an "ask" (or buy) price. The bid price is the rate at which traders sell to the FX or forex broker, and the ask price is the rate at which traders buy from the broker.

Bid/Ask

As an example, a price is quoted EUR/USD 1.2881/1.2884 as in the above picture. The bid is 1.2881 and the ask is 1.2884. Traders sell at 1.2881, and buy at 1.2884. The difference between the bid and ask price is known as the spread. If a trader buys at 1.2884 and then sells immediately, there is a 3-pip loss incurred. The trader will need to wait for the market to move 3 pips in favour of his/her position in order to break even. If the market moves 4 points in your favour, then the trade is in profit. The spread is where forex brokers generate their income. Synergy FX receives prices from banks and then applies a small “mark-up” either side of the bid and ask prices. As we receive pricing from a wide range of banks, the spreads we receive are very tight and so even with our mark-up applied, the prices that are quoted on our platform are still tight. Some forex firms will also apply a commission on top of their spread, or even a monthly fee to maintain their account. Synergy FX does not charge any of these.

Pips and Points

A "pip" is one ten-thousandth of a point - or the fourth decimal place.
A “point” is the fifth decimal point, and there are 10 points in a pip.

Currency pairs are shown as their 3 letter codes, and the base currency refers to the first currency quoted. So for EURUSD, Euro is the base currency and USD is known as the counter currency. The value of the base currency is always 1, and the price being quoted is for the second currency pair listed. Let’s use EUR/USD as an example. A price quote of 1.4280 means €1.00 EUR (EUR being the first currency listed in the pair) can be purchased for $1.4280 USD. If a trader purchases a standard contract at this price they would purchase €100,000 EUR in exchange for $142,800 USD. If the price appreciated to 1.4364, the €100,000 EUR is now worth more US Dollars – $143,640 - realising a profit of $840 on the trade.

Price Drivers

Changing demand and supply of a currency is the biggest reason why a currency appreciates or depreciates in value. The vast majority of currency transactions made each day are made for speculative purposes, whereby banks and financial institutions buy and sell huge quantities to generate profit. Cross-border repatriations made by corporations do have an impact on pricing, although price action is mainly driven by the banks. They base their trading decisions by taking into consideration technical and fundamental analysis, taking in a broad view of economic factors as well as charting through the use of indicators.

EURUSD is the most commonly traded currency pair, followed by USDJPY and GBPUSD respectively.