Review: Khwezi Trade is a Top SA Broker
Stop-Loss: Where And How To Place Orders On MT4
Stop-loss in Forex Trading
Stop-loss in trading will help protect your account from risks that will expose you to major losses. We’re going to explain 4 ways you can use stop-loss orders to pretect your account. Putting a stop-loss order on a trade is easy enough, but how does a trader know when and where to put one?
What is stop-loss in Forex Trading?
Stop-loss in trading is an order you request from your broker to reduce the chance of a loss on a trade. This offers you, as the trader, higher financial returns during trading by selling a Security after a certain price is reached for that security.
Before you can understand what a stop loss is, you need to have determined an exit level that you have calculated by using your risk management strategy. Exit strategies typically involve establishing a rationale for exiting a trade and setting prior stop-loss orders to make the exit.
A stop-loss order is a point in the market where your trade will automatically be closed at your pre-determined level / price. It is a “protective order” that closes out a trade at a level when the trade has gone against you.
One key advantage of using a stop–loss order is you do not need to monitor your holdings daily. A disadvantage is that a short-term price fluctuation could activate the stop and trigger an unnecessary closure of the trade.
Where to place stop-loss orders
A stop-loss is placed BELOW your entry point when you are BUYING and ABOVE your entry point when you are SELLING . The simple way to understand the concept of a stop-loss is to think of it as a ‘safety net’. When the market moves against you and the order is running a loss, before the price moves too far away, the stop loss order closes the trade, limiting your downside risk and potentially realising an even bigger loss.
Once the price gets to the level you have placed the stop-loss order at, the trade will automatically be triggered and closed, therefore you will not be in that trade anymore. The definition of a stop-loss is the next available trading level i.e. the next level where the buyers are bidding. Remember there are no guaranteed stop levels. A stop–loss can fail as a loss limitation tool because hitting the stop price triggers a sale but does not guarantee the price at which the sale occurs.
When placing a stop-loss you need to pre-determine and calculate levels so that your risk (monetarily speaking) is correlated with the point you place them at.
How to set a Stop Loss on MT4
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ILLUSTRATION Example ON HOW TO PLACE A STOP-LOSS
For following scenario is a buy order
- Determine your entry point and stop loss level
In this example we have determined that we intend to minimise risk and limit our downside by placing a stop loss order at 1827.15 for our long position.
- Click on New Order in the top tab section
3. Place the number referred to in slide 1 in the highlighted box, labelled Stop Loss
4. A dialogue box should appear to confirm that your trade adjustments have been executed
Hover your cursor over the SL line. This allows you to click and drag to modify, as well as see the monetary risk and pip risk.
Then to modify Stop Loss just double click on order and enter the new level.
Stop-Loss and Strategy
There are several approaches available for establishing exit strategies that can help limit the amount of risk traders take on, while increasing the odds for making profits in volatile markets. By using stop loss orders strategically when trading you can decrease your risk appetite.
Financial markets are highly volatile and risky, so forex traders WILL benefit from conducting their due diligence, before participating in exit strategies or other approaches to trading. Losses can exceed deposited funds.
What types of stop-losses are there?
There are four types of stop-losses, namely the percentage stop, the volatility stop, the chart stop, and the time stop. All of these can be ordered within certain windows to prevent losses, or encourage certain outcomes in your favour.
1. The percentage stop
This strategy works by only risking a maximum of 2%. Traders are able to protect their capital put into trading. In the event of a loss, the amount on a 2% risk will not be as detrimental to the trade capital as a higher percentage trade would. There is a drawback to this strategy though. If market conditions are not taken into account it would not allow your trade enough room within the market to gain movement in your favour.
2. The volatility stop
The volatility stop-loss strategy is an interesting type of a stop-loss order. It’s based on past price movements of a particular currency pair. Which means that you can monitor what happened in the past and make decisions about current trades based on those trends.
3. The chart stop
The chart stop makes use of support and resistance levels. By rendering your trade invalidated once the price breaks above either a support or a resistance level. Making sure to exit a trade as soon as possible after it has been invalidated means less risk to you as the trader.
4. The time stop
Placing a time-based stop-loss order is especially useful when a trade isn’t going in any particular direction. It’s also used when you want to exit the market around certain times, like on a Friday evening. Leaving the market during the night takes away the risk that a trade may turn against you. It’s a suitable strategy for traders who prefer to make short-term trades and who exit their positions overnight or over weekends.
Some important things to keep in mind when putting in stop-loss orders
Firstly, avoid trading with very tight stop-loss orders as there is not much room allowed for volatility. Likewise, don’t place a stop-loss order on instruments with a very widespread as high volatility poses the risk of greater loss. Be flexible with the number of pips risked during the trade, but also be sure to place your stop-loss in such a way that your trade will be invalidated in a certain situation.
Finally, avoid placing a stop-loss order directly on a support or resistance line by only trading within a certain zone to ensure you stay away from the line where the price does not count in your favor.
While a stop-loss should not be regarded as a means to treat your trades as a gamble from which you can withdraw when the game isn’t playing out in your favor, it still is a valuable method used by traders that can be greatly beneficial once you get the hang of it.
How To Short Forex By Selling Currencies Like The Pound
Short Forex: Selling Currency Explained
Short selling currency in forex trading involves taking positions under the pretence of bearish sentiment. Short selling forex means to sell high then buy low and is often used by traders to hedge currency exposure or simply to profit from the forecasted analysis.
This article explores the basics of short-selling forex, using the GBP/EUR currency pair as an example to explain the steps involved. It will also cover suitable risk management as short selling comes with a high risk. Trading cfds with this approach must be cautioned as these are complex instruments and can stop you out rapidly due to leverage when market volatility is high.
What do short-selling currencies involve?
In the forex market, transactions are handled differently to stocks which means the process of short selling a currency pair is very different. Firstly, a currency pair involves a base currency and quote currency as seen in the image below.
How to short forex: GBP/EUR short selling example
Taking a short position in forex involves understanding currency pairs, trading system functionality and risk management.
First, each currency quote is provided as a ‘two-sided transaction’. This means that if you are selling the GBP/EUR currency pair, you are not only selling Pounds; but you are buying Euros. Because of this, no ‘borrowing,’ needs to take place to enable the short sale.
The base currency is the first currency listed in a currency pair. In the example above, this is the British Pound. The base currency is also the ‘transaction currency,’ which is what you are selling or buying in the trade.
The quote currency is the second currency in a currency pair. In short selling forex, this is the Euro. The quote currency is what you are using to buy the base currency.
Want to sell the GBP/EUR?
Just click on the side of the quote that says ‘Sell.’ After you have sold, to close the position, you would want to ‘Buy,’ the same amount (if you end up buying at a lower price than where it was sold, you would end up with a profit). You could also choose to close a partial portion of your trade.
As an example, let’s assume we initiated a short position for 1 contract and sold GBP/EUR when the price was at 1.29.
If the price has moved lower, the trader could realise a profit on the trade. But let’s assume for a moment that our trader expected further declines and did not want to close the entire position. Rather, they wanted to close half of the position to cover the initial cost, while still retaining the ability to stay in the trade.
The trader that is short 1 contract GBP/EUR can then manually enter in 0.5, then click on the ‘Close’ button to begin the trade closing process – offsetting half of the short position that was previously held.
Our trader, at that point, would have realised the price difference on half of the trade from their 1.29 entry price to the lower price they were able to close on. The remainder of the trade would continue in the market until the trader decided to buy another 0.5 contracts in GBP/EUR to ‘offset,’ the rest of the position.
How to manage the risk of short selling currencies
Short-selling forex carries a high risk as there is no maximum loss on a trade. Losses are unlimited, as forex values can theoretically increase to infinity. On a long (buy) trade, the value of a currency can never fall below zero which provides a maximum loss level.
Cfds are complex instruments and traders are exposed to losing money rapidly due to leverage. You must decide beforehand whether you can afford the risk of losing your money. Also consider whether you understand what going short entails.
Managing risk on accounts was a trait we discovered with successful traders. Fortunately, there are ways to mitigate this short-selling risk.
5 Ways To Mitigate Short Selling Risks:
- Position size
- Implement stop losses.
- Monitor key levels of support and resistance for entry/exit points.
- Stay up to date with the latest economic news and events for potential downside risk.
- Employ price alerts on trades is a good way to stay informed when you’re away from your platform.
Short selling forex is preferred for down trending markets, however careful consideration is required before trading as it brings extra risk even with a bearish outlook. It has been utilised by large institutions/traders as hedges, or by traders looking to trade descending markets.
What is going long?
Going long is the term used when a trader buys a currency pair with the expectation that it will rise in value. They then hope to sell the pair at a higher price so they can make a profit. It is the opposite of short selling. When a trader goes long on a currency pair, they are speculating that the value of the base currency will increase relative to the quote currency. For example, if a trader buys EUR/USD, they are going long on euros and shorting dollars. They believe that as the euro strengthens, the trade will make a profit.
Risk management is essential for proper application, and the methods mentioned in this article should be given the utmost consideration as adverse movements in price can be detrimental.
Looking to short forex?
Khwezi offers you the perfect opportunity to do just that! If you understand how cfds work and whether you are ready to start trading, then you can trade cfds with this provider. Khwezi is a FSCA regulated broker and authorised ODP.
With our easy-to-use Metatrader 5 trading platform, you can look to go short on any currency pair you like and benefit from our tight spreads and superior customer support. So why wait? Sign up today and start shorting forex like a pro!
Further reading:
Forex Trading Strategies You Should Know
Why Forex Trading Strategies are Essential to Success
Forex trading strategies are essential to becoming a successful forex trader.
You need to have a clear idea of what you want to achieve. You must have an idea of possible market moves, and the actions you want to take. The important thing is to develop a forex trading strategy that will make you feel comfortable with the trading process.
Developing a successful forex trading strategy like this will always be a trial-and-error process that will take a lot of patience and time.
You have to understand what you are doing and why you are doing it. The easiest way to test your strategy is with a demo account. A demo account allows you to test without the risk of losing any money.
When you have established your trading strategy and switched to a live account, you can move on to these important steps:
- Stick to your trading plan.
- Remember to keep your emotions in check.
- Only trade when you are in the right state of mind and you feel it’s the right time to trade.
- Set up a stop-loss for every single trade to avoid major losses and protect your capital.
- Do not trade higher risk to make up for losses.
- Try to have fewer trades, but more profitable trades.
- Always remember that every good trader has losses occasionally.
Technology allows us to trade from anywhere, any place at any time so traders are blessed with strong growth potential, and their lifestyle certainly offers a lot of enjoyment. We can help you achieve the financial freedom you are thriving for, so why not start today?
With that said, what is the best Forex trading strategy for you?
When it comes to Forex Trading, it is important to know all about eliminating the losing trades by cutting losses quickly and achieving more winning ones. This is proven to be a fact, thanks to successful trading strategies in the past.
It happens very often that traders only rely on trading strategies once they feel it is absolutely necessary or they use untested strategies that do not deliver results. When this is your attitude about trading, you are setting yourself up for possible failure.
We know it’s hard finding the perfect strategy, so the only solution is to try out the leading strategies and see if they actually work for you as a trader.
4 Forex Trading Strategies Commonly Used by Successful Forex Traders
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Position Trading
This is a long-term trading strategy where you hold your trades for weeks or even months. The time-frames you’ll trade on are usually Daily or Weekly. With position trading, you might use technical analysis to better time your entries.
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Swing Trading
When you swing trade, it means that you are trading on a medium-term strategy and you only hold trades for days or a few weeks. The timeframes that you will trade on are usually 1-hour or 4-hour. A swing trader’s only concern is to capture “a single move”.
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Day Trading
If you are a day trader, it means you are trading on a short-term strategy called “day trading”. You will only hold your trade for a few minutes or hours. This is similar to swing trading, but with a different time frame. The timeframes you will trade on are usually 5-min to 15-min.
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Scalping
Scalping is a very short-term strategy; with this strategy, you will hold trades for only a few minutes or seconds. If this is your preferred trading strategy, your only concern should be with what the market is doing right now and how you can use it to your advantage.
The main tool you’ll use to trade, as a scalper, is order flow; which allows you to quickly buy and sell in the market. It is only once you understand the different trading strategies that an informed decision can be made as to which will suit your trading style best.
Do not use a demo account for too long
Many people make the mistake of thinking that Forex Trading is an easy way of making money, but not everybody makes it. Generally, someone who is a successful trader, is a professional Forex trader who can trade for a living. The only way you can make actual money is by trading on a live account. After you have done enough trading training and as soon as you are ready, you should switch to a live account.
Final actions you need to take in order to be a more successful Forex Trader
Forex trading strategies need to be tested and refined continuously in order to increase their effectiveness. Learning from someone with trading experience will save you a lot of time. Your trading mentor can share their story with you and give you advice on this so that you won’t make the same mistakes they did. Use your time strategically to better understand your trading style, psychology, and the trading market.
Further reading:
The Benefits of Forex Trading today
Forex trading market in South Africa
Forex PIP explained with simple examples
What does PIP mean in Forex?
What is a pip in forex?
A pip is the smallest price move that an instrument can make based on what is happening in the market. Currency pair traders will buy or sell a currency whose value is expressed in relation to another currency. What is a pip is one of the most basic questions and concepts of understanding currency pair trading.
What does PIP mean in Forex?
Have you ever heard the acronym “pip” before? In forex, PIP is an acronym for “percentage in point”. A forex pip is the smallest price move that an instrument can make based on what is happening in the market. Currency pair traders will buy or sell a currency whose value is expressed in relationship to another currency. A pip is one of the most basic concepts of currency pair trading.
To make it simple, a trader who wants to buy the USD/CAD pair would be purchasing US Dollars and simultaneously selling Canadian Dollars. On the other hand, a trader who wants to sell US Dollars would sell the USD/CAD pair, buying Canadian dollars at the same time. If traders use the term “pips” it often refers to the spread between the bid and ask prices of the currency pair. The spread is also where the broker makes his commission. Visit the Forex broker with the best spreads in South Africa. Click here to visit Khwezi Trade.
Have you ever heard the acronym “pip” before? In forex, PIP is an acronym for “percentage in point”. A forex pip is the smallest price move that an instrument can make based on what is happening in the market.
A pip, or ‘point in percentage’, is the smallest standardized unit of measure used to calculate the change in value between two currencies. Pips are utilized by traders when determining spread (the difference) between the bid and ask prices of a currency pair, as well as expressing profit or loss incurred from their trading position.
There are four decimal places for most major currencies, meaning the smallest change is 0.0001 or the fourth digit after the decimal point. Exceptions like Japanese yen only have two decimal places where the pip then becomes the second digit after the decimal point. Even though pairs are mostly quoted to two or four decimal places, some forex brokers will show an additional one known as a pipette or micro pip.
To make it simple, a trader who wants to buy the USD/CAD pair would be purchasing US Dollars and simultaneously selling Canadian Dollars. On the other hand, a trader who wants to sell US Dollars would sell the USD/CAD pair, buying Canadian dollars at the same time. If traders use the term “pips” it often refers to the spread between the bid and ask prices of the currency pair. The spread is also where the broker makes his commission. Visit the Forex broker with the best spreads in South Africa. Click here to visit Khwezi Trade.
The Spread in Forex Trading
The spread is the difference in pips between the bid and ask price of a currency pair. A pip is a measure of market price movement, so when you trade CFDs with Khwezi Trade, we refer to them as points.
The Value of a PIP
pip is an acronym for “percentage in point” or “price interest point.” A pip is the smallest unit of change in a foreign exchange rate. It is usually equal to 1/100th of 1% or 0.0001 in decimal form. For example, if the EUR/USD exchange rate moves from 1.3600 to 1.3650, that 0.0050 uptick in the exchange rate is ONE PIP. pip values vary by currency pair because they are based on the underlying currency of the pair. So, for non-USD pairs, pip values are quoted in terms of U.S. dollars. But for USD pairs, pip values are generally quoted in terms of the secondary currency — unless JPY is one of the pair’s components, in which case pip values are quoted in yen. A pip in forex may be different from one currency pair to another. For instance, at the time of this writing, the pip value for the USD/CHF forex pair is $0.9719 because each pip move on that particular currency pair is worth $0.9719.
How do you calculate Forex pips?
When there is movement in the instrument, it will be measured by pips. We all know that most currency pairs are quoted to a maximum of four decimal places, so the smallest change for these pairs is 1 pip. The value of a pip is calculated by dividing 1/10,000 or 0.0001 by the exchange rate.
Pips and Profitability
We determine the movement of a currency pair by looking at whether a trader made a profit or loss from his or her position at the end of the day. When a trader buys the EUR/USD they will profit if the Euro increases in value relative to the US Dollar. When the trader buys the Euro for 1.1835 and exits the trade at 1.1901, he or she would make 1.1901 – 1.1835 = 66 pips on the trade.
Pip Forex Calculator
To find your pip value for all major currencies, you can use a fast and free pip calculator which does all calculations instantly! You no longer need to worry about endless math formulas or manual calculations! Simply enter your account base currency and choose the currency pair you are trading on. To make your life easier use this calculator to determine the value of a pip in your trading account currency so that you can manage your risk per trade efficiently.
Conclusion
Forex pip is the acronym for “percentage in point” or “price interest point.” A pip is the smallest unit of change in a foreign exchange rate. It is usually equal to 1/100th of 1% or 0.0001 in decimal form. For example, if the EUR/USD exchange rate moves from 1.3600 to 1.3650, that 0.0050 uptick in the exchange rate is ONE PIP.
Pip values vary by currency pair because they are based on the underlying currency of the pair. So, for non-USD pairs, pip values are quoted in terms of U.S. dollars; but for USD pairs, pip values are generally quoted in terms of the secondary currency – unless JPY is one of the pair’s components, in which case pip values are quoted in yen.
The value of a pip may be different from one currency pair to another and can be determined using a pip calculator. When there is movement in an instrument it will be measured by pips and we determine profit or loss by looking at whether a trader made a profit or loss from their position at the end of the day
Further reading:
The Benefits of Forex Trading today
Forex trading market in South Africa
What is Spread in Forex?
Forex experts explain what Spread is in Forex.
A spread in Forex, simply defined, is the price difference between where a trader may BUY or SELL an instrument. A market maker determines these prices based on the prices he gets from the greater market. Traders that are familiar with equities will call this the Bid: Ask spread or bid and offer
A traditional broker earns his commission or fee from the difference in the spread. Which, is the difference between the buyer’s price, and the seller’s price. To the trader, this is the COST of the trade. The wider the spread the more expensive it is for a trader to trade that instrument
Remember you BUY at the seller’s price and SELL at the buyer’s price. This is also known as “crossing the spread” and it is the COST of trading. It is the broker’s commission or brokerage fee.
Since the spread is different amongst brokers, it’s worthwhile to a little online research before you open an account with a broker. If you’ve been with the same broker for a while you may want to research compare spreads with other brokers. You may find relevant information on brokers here.
The forex spread has two prices: the buying (bid) price for a given instrument, and the selling (ask) price. Traders pay a price to buy the instrument and must sell it for less if they want to sell back it right away.
The spread increase or decreases in forex when the volatility increases or decreases. Inactive trading hours or in volatile times market makers compete with each other to be the “best price” or first price in the queue. This in effect means jumping the queue to be the best price resulting in a narrowing the spread.
The opposite is true in less volatile or out of active trading hours. Traders are reluctant to be the best price. This causes a widening of the spread to avoid overpaying or selling too cheaply. Generally, the spread will widen when there is a great uncertainty as to Market direction.
Variable and Fixed Spread in Forex
The bulk of instruments trade with a variable spread. In a variable spread, the difference between the buy and sell price of a currency pair fluctuates in a range, depending on the volatility of the market, or the time you are trading an instrument.
A fixed spread is a spread that remains unchanged regardless of the circumstances, these instruments usually trade with a commission.
Understanding the general forex trade structure shows how the Forex Spread affects your trading. Brokers are the middlemen that conduct the trades. For processing the trades Forex brokers charge for their services. The charge or the difference between the bidding price and the asking price for a trade is called the spread.
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Further reading:
Forex Trading For Beginners To Learn The Basics
Forex Trading Basics Everyone Should Know
In this article, we cover the forex trading basics you should know if you’ve decided you’re going to open a live or demo trading account. The online currency trading market is the largest investment market in the world and continues to grow at a rapid pace. Online trading is a 24-hour market that is only closed from Friday evening to Sunday evening. There are three main sessions; the European, Asian, and United States trading sessions.
It is relatively easy to start trading, but it can be very difficult to become good and successful at it without proper guidance. The benefits of online trading have made accessible to everyone but not everyone is successful. According to statistics, about 90% of traders fail within their first year of trading! This showcases the importance of proper guidance, which we gladly provide, in order to successfully navigate through the trading waters.
Here are the essential Forex trading basics every beginner should know.
Pairs and Pips
Currency Trading consists of pairs and pips. What does this mean? It’s not like the stock market, where you can buy or sell a single stock. You have to buy one currency and sell another currency in the online currency trading market. This will have to be done in pairs. With currency trading, it is priced out to the fourth decimal point.
A pip can also be called a percentage, which means that it is in point the smallest increment of trade. One pip typically equals 1/100 of 1 percent. Beginner traders often trade currency in micro lots, because one pip in a micro lot represents only a 10-cent move in the price.
What are the aspects that influence currency?
One of the biggest things that influence currency is “supply and demand”. Meaning that when the world needs more dollars, the value of the dollar increases and when there is too many circulating, the price drops.
There are other factors that will influence the markets like interest rates, new economic data from the largest countries and geopolitical tensions as well as unemployment rates. This is only a few of the events that may affect currency prices and one should stay up to date in order to trade effectively and efficiently.
The Conclusion
Learning about currency online trading is easy but finding the winning strategies takes a lot of practice. The most important thing is to consult experts in the field and let them help you find the road to trading success.
Further reading:
Posted in Forex Trading