Choosing the Best Forex and CFD Broker

Instead, they have to trade through a financial services organization, known as a forex or CFD broker. These businesses act as ‘intermediaries’ or ‘middlemen”, perfectly explaining their function and importance in the trading process.

New traders have literally hundreds of brokers to choose from when opening a forex or CFD account. This diversity makes it harder to find a perfect fit for an individual’s skill level, educational needs, and initial trading stake. To assist in your investigation, we’ve organized a checklist to print out and keep at your desk, identifying key factors to review when choosing a forex or CFD broker.

KEY POINTS

  • A robust trading platform is needed to trade our modern electronic markets.
  • Good brokers offer resources and value-added services that support the client’s objectives.
  • Choose a broker who is regulated and disciplined by a local regulatory body.
  • Match the broker choice with your skill, experience, and capitalization level.
  • Look for hidden costs before opening a brokerage account.

Investor Protection & Regulations

Look at regulation and domicile when selecting a forex or CFD broker, examining the firm’s home page for compliance with competent regulatory agencies (see ‘How Do Brokers Make Money’). A regulated broker has met operating standards imposed by the regulatory body in the country or zone of domicile (headquarters).

Standard regulatory requirements include adequate capitalization, segregation of accounts in order to protect client funds, and annual filings that can be easily accessed by applicants. Additionally, regulation provides reimbursement up to a statutory amount if the firm becomes insolvent and ensures the broker upholds rigorous standards as a financial service provider.

Major countries/zones with financial regulatory agencies, backed up with strict enforcement:

Tradable Products

Examine the list of tradable currency pairs before choosing a forex or CFD broker.  At a minimum, the brokerage should offer all major currency pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF) and cross-currency pairs, as well as so-called commodity currency pairs (USD/CAD, AUD/USD, NZD/USD). Traders who take exposure solely in these instruments won’t need a long list of minor pairs from faraway places that aren’t of interest.

However, a robust list reflects a broker’s willingness to go the extra mile in providing customers with the opportunity to trade lesser-known pairs when a shock event or other market mover hits that part of the world. For example, the USD/MXN pair attracted huge buying and selling interest when the United States renegotiated NAFTA with Mexico and Canada. Just keep in mind that minor and exotic pairs usually incur much wider spreads and higher commissions.

Look at the margin and leverage offered for each currency group. European regulations have capped margin on forex and forex CFDs since 2018, with a 30:1 limit on major currency pairs and 20: 1 limit on non-major currency pairs. Make sure to read the fine print because EU-regulated brokers are also required to prominently disclose the percentage of clients who lose money and provide negative balance protection to ensure the account never drops below 0.

Account Opening

Opening a ‘live’ account at most brokerages will require personal information about your current income, savings, marital status, trading experience, and risk tolerance. You’ll also have to provide minimum opening account capital, which varies from broker to broker.

On the other hand, a free demo account just requires a name and email address, giving potential customers an opportunity to ‘kick the tires’ before committing real money.  In many venues, you can go through an instant ID verification process and access the live platform in just a few minutes. In the United States, applicants also have to provide a social security number for tax purposes.

Forex and CFD brokers may also offer tiered account options that cater to different risk, capitalization, and experience levels:

  • Micro Account: One lot is equivalent to 1,000 units of the traded instrument.
  • Mini Account: One lot is equivalent to 10,000 units of the traded instrument.
  • Standard Account:  One lot is equivalent to 100,000 units of the traded instrument.

A low minimum initial investment is required to open a Micro or Mini account. The Standard account requires a higher initial investment, although the minimum varies from broker to broker. Given these tiers, it’s best to select a trading account that is commensurate with your investment capital.

Deposits & Withdrawal Options

The new account can be funded through personal check, debit card, ACH, wire transfer, or an online service like Paypal or Skrill. Some brokers will allow credit card funding but that’s no longer typical. Many brokers also let clients choose their base currency, which will be the country of origin in most cases. Funding completed through personal or bank checks may delay account access until those funds clear.

Withdrawal options vary from broker to broker and can be hard to find at web sites. This is often intentional, with the broker seeking to hide fees and standard delays in access to withdrawn funds. Processing times can vary from 24 hours to several weeks, so read the fine print closely to avoid frustration. Withdrawals are also subject to minimum amounts that vary from broker to broker and, in most cases, must go through the originating funding source, due to money laundering considerations.

Web/Desktop Platforms

The trading platform is the client’s gateway to the forex market so the applicant must ensure the interface performs all of the functions needed to trade profitably, and is reliable, with few complaints of outages on public forums. Many brokers provide a choice of platforms but the majority of newcomers should stick with the default, at least at the beginning. Also look for desktop and web versions that offer equal functionality.

Most platforms are provided through third party solution providers like MetaQuotes Software, the forex industry’s standard-bearer. Some brokers also build ‘in-house’ proprietary platforms, in an attempt to differentiate themselves from industry rivals. A proprietary platform often provides a host of features not found on a standard platform, added in reaction to input from the broker’s client base.

Look for these standard features on all trading platforms:

  • Comprehensive charting package
  • Customizable watch lists
  • Wide range of technical indicators
  • One-click trading
  • Sophisticated order entry
  • Risk management tools
  • Portfolio management

These features play a crucial role in ensuring the new trader enjoys a seamless and productive trading experience. Even so, it’s a matter of personal choice because most platforms offer the same bells and whistles. The broker’s free demo account provides a perfect way for applicants to find the best fit for their experience and capitalization level. Walk away and don’t look back if the broker doesn’t provide a demo account.

When looking for a forex or CFD broker, you’ll quickly discover the huge popularity of MetaQuotes Software’s MetaTrader, which is now offered at more than 80% of all brokers in the United States, Europe, and Australia. This mature platform is a perfect choice for new forex traders due to easy customization, robust charting, and an API that supports hundreds of add-ons. The platform is also available by desktop, on the web, and through mobile devices, allowing easy synchronization while on the go.

Mobile Trading Platforms

All forex and CFD brokers should provide slimmed-down mobile trading platforms so you don’t have to stare at a computer screen all day. These should automatically synchronize with desktop and web versions but don’t expect all the features of bigger platforms.  Major platforms, including Metatrader, now offer mobile and tablet versions for Android and iOS. Note that some brokers will ‘self-brand’ popular mobile platforms so you might need to read the fine print to find the app’s origin.

Trading Features

Brokers try to distinguish themselves from industry rivals by offering additional, value-added services that include free market analysis, real-time news feeds, live streams, and trading signals. Most of these services are provided free of charge but brokers may require minimum account size for access.

Applicants should make a checklist of advanced features when shopping for a broker. In addition to standard add-ons, look for tools that include market scanners, VPNs, and notification alerts. Also check for discounts or free trading for high volume customers. Many traders look for advanced charting or alternate platforms that go beyond the capabilities of standard offerings. Some brokers even offer third-party integration so real-time data can be used in an ‘off-the-shelf’ platform, like Elliott Wave software.

Day traders and scalpers also benefit from specialized value-added services. Given time frames for these strategies, look for a diverse selection of instruments to scout for short-term trading opportunities. These can include a signal service, tools like an economic calendar, market news filtering, and real-time earnings releases.

Commissions & Spreads

Unlike the majority of financial markets, forex and CFD brokers usually profit through spreads rather than commissions, explaining why many of these folks advertise their services as ‘commission-free’. Brokers make money by taking the spread for each buy and sell transaction passing through their hands. The spread marks the difference between the buying price and the selling price. For example, if the bid/ask for the EUR/USD currency pair is priced at 1.0875/1.0878, the spread is 1.0878 – 1.0875 = 3 pips.

As a forex trader, you will come across three types of cost structures. The type you receive will depend on the broker’s business model:

  • Fixed spread:  the spread doesn’t change as price fluctuates so you know the cost before you trade.
  • Floating spread: the spread is variable, stretching and contracting in reaction to market volatility.
  • Commission: calculated as a percentage of the spread. You should know this cost before you trade.

Traders looking for predictability with transaction costs prefer fixed spreads. Conversely, traders looking to save money through the entry and exit timing prefer floating spreads. Ultimately, specific trading needs and transaction history will determine the right choice.

Bonus & Promotions

Brokers may offer account bonuses that include a month or more of no-commission or no-cost trades, loyalty rebates, and even iPhones. Bonuses and promotions for frequent traders have become quite common as well, with customers receiving volume discounts or a basket of free trades after passing a monthly transaction threshold. Some brokers have also introduced generous rewards programs that pay customers who achieve financial commitment ‘levels’.

Customer Support

Newcomers forget to ‘factor-in’ customer support when choosing a broker because they don’t understand this group’s role in the ultimate trading experience. It’s not a question of ‘if’ you’ll need their assistance but ‘when’ because a time comes, sooner or later, when prompt customer service is needed to avoid financial losses. When it happens, you need timely access to knowledgeable individuals who don’t hate their jobs. As a result, you should confirm the broker provides reliable customer support, verified by reviews and in public forums.

Look for multiple ways to contact customer support because some brokers still rely on antiquated ticketing systems and don’t offer real-time chat or a toll-free number. All reputable brokers provide clients with several means of contact, including e-mail, live chat, support ticket, and toll-free telephone. Bottom line: don’t put yourself in the uncomfortable position of worrying what your broker is going to do with your problem … or your money.

Research

The best forex and CFD brokers offer plenty of research resources at no extra charge, letting new traders do ‘deep dives’ on the currencies they want to buy or sell, with an eye on macro conditions or developing issues that may affect price action. These resources should include daily reports from forex experts, long-term technical analysis, dates to watch, and live webinars featuring presentations on major forex pairs and emerging opportunities.

Trader Education

The depth of educational resources at a forex or CFD broker reveals the level of their commitment or lack of commitment to new traders. Look for an on-site trading ‘academy’ or ‘university’, with dozens of useful up-to-date articles and video programming to accelerate your learning and build lifetime skills. On the flip side, walk away if your search through a broker’s website comes up empty, or the few available resources are out of date or neglected.

The Trading Experience: from Novice to Professional

New forex traders need these broker resources to start out in the trading game:

  • Comprehensive education:  a suite of educational materials to assist new traders in skill mastery. These can include webinars, live streams, videos, courses, guides, and articles.
  • Demo accounts:  Reputable brokers offer free demo accounts. They are especially useful when starting out or test-driving a broker’s platform before opening a live account.
  • User-friendly platform: As a new trader, you don’t need complicated software with lots of bells and whistles. For now, find a popular, easy-to-navigate platform with lots of customization features.

As you progress, your trading needs will differ significantly from those of a new trader.

Experienced forex traders need a broker who provides these value-added services:

  • Comprehensive trading tools:  a variety of tools including commission calculator, economic calendar, and advanced charting with tons of indicators and one-click trading.
  • High leverage: experienced traders seek leverage to multiply their capital. Just keep in mind that leverage increases risk and reward equally.
  • Low spreads: spreads can undermine long-term profitability. Look for higher-tier account types that lock in lower spreads and offer volume discounts.

Questions to Ask the Broker

  • Is (broker) regulated?
  • Where is (broker)based?
  • How does (broker) make money?
  • How do I deposit into the (broker) account?
  • What is the minimum deposit for (broker)?
  • How do I withdraw money from (broker)?
  • What is the maximum leverage at (broker)?
  • How do I open an account with (broker)?
  • Does (broker) use MetaTrader or a proprietary platform?

Summary

Finding the best forex or CFD broker is hard work but the effort pays off, greatly improving your long-term prospects as a trader. This beginner’s guide provides a good first step in that selection process. However, everyone is different and your best choice may require a delicate balance between transaction costs, perks, platforms, and all the other resources needed to trade the forex market.

To simplify your search, FX Empire conducts regular in-depth reviews of all major forex and CFD brokers, vetting each broker on our recommended list to ensure they meet high industry standards. We strongly believe these financial institutions will provide the services needed to survive and prosper in our modern electronic markets.

A (Brief) Crypto Glossary – Learn Survival Crypto-speak in Just Under 10 Minutes!

Whether you’re a blockchain aficionado or crypto noob, it’s easy to feel like a total blockhead when you’re checking out what the in-the-knows are saying about the markets on Twitter, Reddit, Discord, Telegram, and the rest. Trying to work out what the members of online crypto communities are talking about can leave you feeling dizzy – particularly when the terminology and acronyms start flying.

But help is at hand: Fret no more, as FX Empire has prepared a survival guide to help you navigate the often-confusing jargon that gets bandied about on crypto social media. Master some of these terms and crypto Twitter will (hopefully) look less like Ancient Egyptian hieroglyphs…and more like something approximating contemporary English!

Alt – This term is short for altcoin (alternative + coin), which basically refers to almost every cryptocurrency out there. If you’re asking “alternative to what?”, you’re on the right track. And the answer is Bitcoin (BTC) – although confusingly some also consider the number 2 market cap coin Ethereum (ETH) to be a non-alt!

Example: “I got drunk last night and bought a load of unknown alts! I should never trade when I’m near beer!”

Nocoiner – Being called a nocoiner is basically the equivalent of being called a “normie” in most other corners of the internet. For crypto folk, it’s something close to an insult, as it refers to people who typically reject crypto, refuse to buy coins, or like to lecture others about how BTC is a scam.

Example: “The nocoiners will have a field day crowing about the latest price dip!”

FUD – A dismissive term that is used as a stick to beat those who like to forecast imminent doom for the crypto ecosystem. Mainstream media outlets that predict imminent ruin for the crypto world are often accused of “spreading” FUD (fear, uncertainty and doubt).

Example: “Check out the latest FUD from the Financial Times!”

Sh*tcoin – A (sadly) increasingly common phenomenon whereby a little-known and somewhat suspicious-looking alt (see above) turns out to be, well…a pile of sh*t.

Example: “Joe just bought a load of sh*tcoins – what a sucker!”

Whale – The owners of enormous quantities of high-cap coins (usually BTC). These individuals usually bought into Bitcoin when it was worth just a few dollars and have resisted the urge to trade their vast holdings for cash over the years. When these massive sea creatures start moving their coins around, the shrimps and crabs of the crypto world had better take notice!

Example: “The whales have started to liquidate – quick, sell everything you have!”

Bear/bull – Continuing with the zoological theme, this comes from the world of traditional finance and refers to market sentiment, but also to individuals. Bears are cautious and think the market is headed downwards, and so is the bear market, while bulls think the opposite – and act accordingly. Those who remain optimistic about BTC regardless of volatility are often called “Bitcoin Bulls.”

Example: “Company X is hiring a bunch of crypto developers. Sounds bullish!”

Maxi – Usually short for “Bitcoin maximalist,” this term refers to people who think that only Bitcoin will make it in the future – and that a day may well come when all other coins fall by the wayside with BTC becoming the “native coin of the internet age.”

Example: “Why don’t you buy any alts? Are you a BTC maxi?”

BTFD – Another acronym, this one short for “buy the f***ing dip!” Not much to explain here – this is something of a rallying cry for people who are heavily invested in crypto and want to put a brave face on things when tokens hit periods of volatility.

Example: “ETH prices are crashing – it’s time to BTFD!”

PND – Short for “pump and dump,” this refers to a malicious move that stock traders might recognize. Using a range of tools such as social media, sponsored media content, and the like, the masterminds of a PND try to drive up the price of a coin before selling it at a high price, usually leaving it to crash down to the floor in their wake.

Example: “I think I’ll pass on this coin, looks like a PND!”

Rug Pull – Another nasty phenomenon in crypto: This one usually involves the project’s core developers vanishing off into the sunset with armfuls of their investors’ funds!

Example: “Don’t buy into this rug pull project – you’ll lose everything you invest!”

Sats – Short for satoshis (from Satoshi Nakamoto, the pseudonymous creator of Bitcoin), these are fractions of a Bitcoin and are often used with the verb “stack.” To be stacking sats means buying small amounts of BTC over a long period of time, rather than making big, lump-sum purchases. Unless you’re a whale (see above) or you have a few thousand dollars sitting around in the bank, chances are all most traders will ever do in the Bitcoin market is stack sats!

Example: “I sent a few sats to you for your birthday – have a great one!”

Multi sig – A security-related term that refers to a type of cryptocurrency wallet (multi-signature) that requires two or more private keys to sign and authorize a transaction. It can be complicated to comprehend or manage for newbies, but if safeguarding your coins is important to you, it may be worth looking into.

Example: “This new multi-sig wallet is sick!”

Bear Trap – A somewhat sneaky move orchestrated by groups of experienced traders who try to snare “bears” (see above) into going short on a coin as a response to falling prices. The trap operators might do this by selling high volumes of a coin to drive the market downward. The bear, expecting the market to continue trending in the same direction, can end up selling at a price that is still high – only for prices to bounce back again once the “trap” has been sprung!

Example: “Don’t sell those coins yet, this looks like a bear trap!”

Benefits of Contracts for Differences

CFDs allow forex traders to take long or short exposure using leverage and settle the transaction with cash, rather than delivery of physical assets.  These instruments differ from buying or selling the underlying asset because the contract holder doesn’t need to post 100% of capital and does not own the asset. CFDs are not allowed in the United States.

The CFD trading stake only needs to cover the net change from the entry price to the exit price. Compare this to a forex broker who requires a higher percentage of capital in the account to buy or sell currency pairs. CFDs can be used to trade directionally, or you can buy one CFD and simultaneously sell another CFD, capturing the relative change in value in a ‘pairs trade’.

KEY POINTS

  • Contracts-for-difference are derivative instruments that track many assets.
  • CFDs provide leverage based on the buy and sell price, rather than the underlying assets.
  • CFDs support greater total exposure than forex cash markets.
  • EU rules limit the margin on forex CFDs to 30:1 on major pairs and 20:1 on minor pairs.
  • Limit CFD exposure on a single trade to a small percentage of total capital.

Do CFDs Provide Leverage?

The contract for difference has an embedded leverage feature that differs from broker to broker, and asset to asset. Leverage increases both trading profits and trading losses, allowing the market participant to take an exposure with borrowed capital. Current European Union regulations limit leverage on major currency pairs to 30: 1 and minor currency pairs to 20: 1. In addition, those rules provide negative balance protection so the trading account never goes below zero.

Forex contracts for difference are bought or sold in standard, mini, or micro ‘lots’, or unit sizes, that correspond with $100,000, $10,000, or $1,000 of the underlying forex pair, respectively.  So, for example, a broker following EU rules will allow the trader to purchase three EUR/USD CFD mini lots ($30,000) while posting collateral (free account capital) of just $1,000.

It’s important to understand how leverage will impact your trading returns, positively and negatively.  For example, if you purchase $30,000 of EUR/USD using 30: 1 leverage in a $1,000 account, it will take just a 3.33% ($30,000 * .0333) move to either double your money or wipe out your capital. So, while leverage is an attractive tool, it’s also a double-edged sword.

To use leverage, the trader needs to open a ‘margin’ account as opposed to a ‘cash’ account. Each broker has different criteria for opening a margin account but most require a higher minimum stake than a cash account. In addition, the applicant may need to answer questions about trading experience and investment knowledge.

After opening a margin account, the trader needs to maintain a specific amount of capital. Each position requires the account holder to post a specific amount of funds from this capital pool, referred to as ‘initial margin’.  This is the money needed to cover the loss if the trade doesn’t work out as expected.

The broker will ensure the account holder has funds to cover potential losses or positions will be closed automatically to cover the deficit. As the market moves, the amount of margin needed to maintain the trade will change. If the value of the position decreases, the broker will take a ‘maintenance margin’ to cover losses in addition to the initial margin. If the value of the position increases, the initial margin will remain unchanged, but the maintenance margin will decline.

The margin calculation is in real-time, telling the broker the minimum amount of capital required for the account holder to maintain the trade.  If the position moves against the trader and account capital isn’t increased, the broker has the right to liquidate the position.  It’s vital that new forex traders understand the written margin agreement and the broker’s rights to liquidate positions before starting to trade CFDs.

Managing Your Risk

Trading CFDs can be risky, especially if you use leverage, so a written trading plan (trading rules) must be in place before entering a position (see ‘Psychology and Trading’). Limit the amount of individual trade exposure to a small percentage of the total account size, providing a measure of safety as your trading skills grow.  Place stops on all trades, cut your losses and, if the market moves in your favor, adjust the stop and lock in some profits.

Summary

Contracts for difference (CFDs) are financial derivatives that allow market participants to trade the forex market without purchasing or selling currency pairs. CFD pricing tracks underlying assets and provides leverage to enhance returns. Trading CFDs requires opening a margin account at a CFD broker. Leverage can significantly enhance forex trading returns but will also generate damaging losses, especially when applied incorrectly. A well-constructed risk management plan is needed to trade CFDs for consistent profits.

Psychology and Trading

Unfortunately, new participants get punished with this naive mentality, shocked to discover that ‘winning’ trades aren’t enough to become successful in the forex market.

Trading is a head game and it’s not the market you need to beat … it’s yourself. Psychological habits built up over years or decades affect our trading decisions and stand in the way of long-term profitability. Psychology is the study of the mind, behavior, and behavior patterns. It’s what makes us do the things we do and how we overcome obstacles that are holding us back.


KEY POINTS

  • Discipline is the key to long-term market survival.
  • New traders need to write down trading rules and follow them.
  • Greed and fear control the buy and sell decisions of losing traders.
  • Most folks have trouble taking losses, which is a required skill for profitable trading.
  • Control emotions by limiting individual trade risk to a small percentage of total capital.

Trading Discipline: The Foundation to Profits

Trading discipline is the foundation to profits because it provides a set of rules to follow that lower the frequency of self-inflicted losses. We’re all human, prone to mistakes and miscalculations that no discipline can eradicate, but rules optimize this behavior so it doesn’t drive us insane. Even so, it won’t extinguish all greed and fear, the two strongest trading emotions and hardest ones to overcome.

Write down a set of trading rules to follow religiously to lower the impact of greed and fear. It’s harder to follow those rules than to put them on paper due to the destructive habits we’re trying to overcome. Rules can be as simple as trading just once per day or as complex and multi-leveled as entering a trade only when an instrument, for example, (1) bounces from support (2) after a bullish breakout, (3) confirmed by a bullish crossover in MACD and (4) rising RSI.

The forex market can evoke intense anger and frustration when it doesn’t do what you expect. Grudge trading, revenge trading, and trying to ‘get back at the market’ with wild bets are all deadly and real ways to lose your trading capital. Rules are intended to keep you from making trades based on blindness, triggered by these dark emotions, and the most important step you can take on the road to profitability.

List of Simple Rules

Here is a list of simple rules for speculative forex traders.

  • “I will risk no more than 2% of capital on a trade”. (Using a percentage instead of a fixed amount allows the trade size to grow or shrink, depending on account balance, in order to maximize profits and minimize losses).
  • “I will always trade with the trend. I will determine trends by price action, trendlines, moving averages, and momentum indicators”.
  • “I will only enter on confirmed long and short entry signals. My signals are bullish or bearish crossovers in relative strength and momentum indicators, confirmed by a breakout or breakdown of the 50-period moving average”.
  • “I will not enter if price action is within 3% of resistance for a buy trade or 3% of support for a sell (short) trade”.
  • “I will use support and resistance as exit targets. If the price reaches a target, I will exit to take profits”. (Some profits are better than no profits and infinitely more satisfying than losses).
  • “I won’t have more than one trade open on one asset at a time”.
  • “I won’t have more than five trades open at the same time, or risk more than 5% of account capital at one time”.
  • “I will always follow my rules”.

The last rule is the most important rule of all. It doesn’t make sense to have rules if you don’t follow them.

Negative Psychological Factors

The following list identifies the biggest reasons that traders lose money. These often-unconscious emotions generate bad decisions and must be addressed with specific rules to reduce negative fallout. When you take emotions out of the equation, better decisions, more consistent wins, and capital preservation will naturally follow.

  • Fear: one of the market’s most vicious emotions. Fear can keep you from making a good trade, or keep you from taking a timely profit. Fear of losing money will keep you awake at night but don’t let that stop you from trading. The solution: keep trade size small so one loss can’t hurt too badly and you still have the capital to trade.

Scared Trader

  • Greed: is as damaging as fear but the positive feelings make it harder to recognize. Greed is the other face of fear. Greed is the fear of losing profits you don’t have, or the desire to make big trades and take even bigger profits. Greed rears its ugly head when we’re doing well, taking most of us by surprise. In its most common form, profits build confidence beyond the current experience level, invoking greed that encourages over-aggressive trades and excessive leverage.

Greedy man

  • Ambition: a required trait for long-term success but a noose around the trader’s neck when it isn’t controlled.  Admittedly, it takes a ton of raw desire (and adrenaline) to succeed in the financial markets but ambition becomes dangerous to survival when it triggers bad decisions. Comparing results to another trader’s performance and letting that influence your decisions offers a perfect example of runaway ambition.
  • Loss: an inevitable part of trading that can be managed through rules and discipline. The goal is to take ‘appropriate’ losses while avoiding catastrophic career-ending losses. Position sizing is the key to loss management (2% rule), and not getting blinded by greed or fear and throwing away money. Walk away if you get frustrated from a string of losses.
  • Hope: turns against you when the ‘ticker tape’ turns against you. It makes sense to hope that your hard work pays off but the train goes off the tracks when ‘hoping’ a trade pays off the mortgage, buys a vacation, or saves a marriage. That’s ‘gambling’ not trading, a perfect way to lose your trading stake and wash out of the forex market.

Summary

Negative psychological traits and their impact on trade decisions need to be studied and mastered to succeed in the forex market. Putting it bluntly, emotions need to be removed from forex decision-making to be profitable in the long term. That requires specific rules, the discipline to follow them, and the ability to walk away when things go haywire.

Seven Common Trading Mistakes

In many cases, these folks just made dumb mistakes that could easily have been avoided, given the proper guidance and discipline.


KEY POINTS

  • Common mistakes force the majority of forex traders to ‘wash out’ and leave the markets.
  • Poor trend recognition is a major reason why traders fail.
  • Leverage is deadly to new traders, encouraging unskilled participants to risk too much capital.
  • The chosen market interface (platform) has to meet the trader’s specific needs.
  • Stop losses keep traders ‘in the game’ long enough to develop important skills.

Here are the most common mistakes made by new forex traders.

1. Choosing the Wrong Platform

A robust platform is essential if you want to trade the forex market. The ‘right‘ platform will provide solid educational resources, access to news, a dependable real-time feed, an easy-to-read trading interface, and a variety of trading signals. The software should also include access to major currency and cross-currency pairs, as well as minor and exotic pairs you find of interest.

2. Risking Too Much

Newcomers let the fear of missing out (FOMO) take control, encouraging excessive risk. This is a classic mind-cramp that starts when new traders see missed opportunities and wonder how much they would have gained while forgetting much they could have lost. Say you lose 50% of your capital on a single trade. You now need to double your money on the next trade, just to break even. That isn’t sustainable, especially if you’re just getting started in the forex market.

Only trade what you can afford to lose. A good rule of thumb: risk no more than 2% of capital on a single position, or a combination of correlated positions (pairs that move together). The percentage might seem small but it’s an effective methodology to stay in the game long enough to develop profitable skills.

Another advantage: you’ll stay calm and not lose your cool the next time you’re stuck in a losing trade. It will also discourage closing out good trades too early out of panic because you’re now willing to lose up to the percentage limit.

3. Ignoring Longer Time Frames

The longer the trend higher or lower, the stronger and more durable it will be. Many traders walk into the forex market with a day trading mentality, getting sucked repeatedly into 1-minute to 15-minute chart signals. However, trends on hourly, daily, and weekly time frames exert much greater control, causing the majority of contrary short-term signals to fail. For example, a dip on a 15-minute chart means nothing without a review of higher time frames.

4. Trading with Poor Risk-to-Reward Ratio

The act of trading releases adrenaline and focuses attention, generating addictive sensations that aren’t impacted by profits or losses. This bad chemistry induces the new trader to take positions with poor profit potential and excessive risk, just for the thrill of ‘being in the market’. Rigid discipline and unbiased reward-to-risk analysis is needed before taking a trade to overcome this common flaw. In most cases, stick to opportunities that generate profits of at least three times expected losses if trades turn against you.

5. Not Using a Stop Loss

Placing a stop loss at the right price marks the difference between prosperity, survival, and losing everything. The forex market becomes enormously volatile at times, carving near-violent price swings with little or no warning. Add in excessive leverage and the new trader faces a potentially catastrophic loss in just a few minutes. Even walking downstairs and making a sandwich can trigger career-ending losses so it’s vital to place a stop after entering a new position.

6. Trading Difficult and Unclear Patterns

Take only the most promising profit opportunities and walk away from everything else. Do your homework no matter how long it takes, looking for nearly-perfect technical patterns or fundamental set-ups. Beware of form-fitting when doing your research. An untrained eye can easily block out aspects of a chart that don’t fit the pre-established bullish or bearish bias. When in doubt, rely on cross-verification that looks for confirmation through three, four or even five different types of indicators or analytical methods before taking the trade.

unclear pattern

7. Losing Control of Your Emotions

A profitable trading career requires the same level of mental discipline as building a successful marriage or raising children. If you lose control of your emotions in other aspects of your life, expect the same thing to happen when a trade goes against you. Tobacco, alcohol, THC, and gluttony all contribute to a trader’s emotional state so it’s a good idea to start the journey by developing good health habits, getting a good night’s sleep, and doing a little meditation.

Frustration

Summary

New traders come into the forex game hoping to ‘score big’ and take home a quick fortune. Then reality bites, generating unexpected losses that lower confidence and generate waves of bad decision-making. Survivors eventually learn that profitable trading is a lifetime pursuit, in which the practitioner controls his or her emotions and lets numbers and signals decide buy and sell decisions, rather than greed or fear.

Basics of Forex Trading – Part 2

As a trader, you’ll have access to all or some of these venues, depending on the services provided by your broker. In addition, let’s introduce the three types of trading styles you can choose, depending on your account size, willingness to watch the forex market in ‘real-time’, and long-term goals.


KEY POINTS

  • Currencies can be traded through spot, forwards, and futures markets.
  • Forex traders can take positions lasting from a few seconds to a few months or years.
  • The majority of forex trading strategies follow the trend, higher or lower.
  • Trends and counter-trends can be subdivided into much longer and shorter time frames.
  • Charles Dow’s work on trends more than 100 years ago is still used every day by forex traders.

Spot Market and the Forwards & Futures Markets

Market participants can take risks in three types of forex markets: spot market, forwards market, and futures market:

  • Spot Market: the most popular of the three, with traders worldwide exchanging ‘real assets’ through an electronic communications network, broker dealing desk, contracts for difference, or direct interbank system. Prices on the spot market are based on supply and demand.

Spot market

  • Forwards Market:  a more sophisticated venue, accessed by international companies and large investors seeking to hedge currency risk. For example, McDonald’s might enter into forwards contracts to lower the risk of exchange rate fluctuations and price shocks in other parts of the world. The parties to a forwards contract choose agreed-upon pricing, which can differ greatly from interbank or futures quotes.

Forward Market

  • Futures Market: the most popular forex venue prior to the advent of retail forex brokers. Futures contracts are based upon a standard size and settlement dates on the Chicago Mercantile Exchange (CME) in the United States and regulated by the National Futures Association. Smaller exchanges in other countries also offer currency futures contracts. Minimum price increments, delivery, and settlement dates are determined by the contract and the exchange is the counter-party in all cases.

Different Trading Styles

The majority of retail forex traders follow one or more of three main strategies and methodologies:

  • Day trading
  • Scalping
  • Swing (position) trading

Day trading and scalping are two of the most aggressive and active trading styles. In both cases, positions will be closed before the end of the active session. However, these styles differ in trade frequency and holding period.

Scalping techniques take advantage of very small movements, often buying and selling within a few seconds or minutes. Scalpers analyze very short-term charts, looking at 1-minute to 5-minute price action for clues to directional impulses. High transaction costs eat up returns with this high volume trading strategy, requiring a high win-to-loss ratio to book consistent profits.

Day trading techniques focus exposure on 5-minute to hourly charts, looking for directional impulses lasting from one to six hours, as a general rule. Occasionally, day traders will ‘take-home’ a position, holding it overnight while seeking greater profits or an important move at the start of the next session.

Swing trading techniques are longer-term, with positions held for days or weeks. A sizable minority of swing traders also review long-term signals and hold positions for several months.  The chosen method determines which price charts to follow, looking for buying or selling signals on hourly, daily, and even weekly charts.

Forex traders use different types of entry and exit orders, depending on their trading styles. For example, scalpers use market orders more often than swing traders because it lets them enter or exit positions instantly. Limit orders are more useful for day traders and swing traders because positions can be taken at pre-determined prices. In addition, it’s important to use stops on all, day and swing trades to limit losses, in case the market decides you’re wrong.

The Importance of the Trend in Forex Trading

Forex traders follow interest rates and the world economy but most rely on technical analysis to evaluate major trends and make trading decisions. This classic approach depends upon three basic assumptions:

  • Prices discount everything.
  • History tends to repeat itself.
  • Prices move in trends.

The majority of newcomers think prices only go up or down but Dow Theory asserts there are actually three trends in the market: up, down, and ‘sideways’ or rangebound. According to Charles Dow’s work, 100 years ago, investors and traders need to look at the sequence of highs and lows to determine a trend’s long and short-term direction.

Downtrend

uptreng

Sideways

Specifically, his theory states an uptrend is generated by higher highs and higher lows while a downtrend is generated by lower highs and lower lows. In addition, when neither buyers nor sellers have control of the market, prices evolve within a lateral consolidation, also called a ‘trading range’.

ups and downs

The theory categorizes relationships between trends in different time frames, which may converge with each other or diverge from each other. According to Dow, each trend is formed by three other trends: ‘primary’, ‘secondary’, and ‘minor’.

A primary trend lasts more than a year and signals a bull or bear market. Within a primary trend, a secondary trend goes in the other direction, carving a pullback lasting between three weeks and three months. Finally, minor price action is common within the secondary trend, lasting less than 3 weeks.

Traders and technicians have refined Dow’s brilliant trend observations over the last century. We now understand, in our fast-moving modern electronic markets, that primary, secondary, and minor trends can evolve over days or weeks, rather than months or years. Even scalpers apply Dow’s work when flipping positions in the 21st century, using 1-minute to 5-minute charts to determine the primary trend.

Summary

Market participants can take forex exposure through a variety of cash and derivatives markets but most trade in a cash market through a forex or contracts-for-difference broker. Most forex traders speculate on currency prices through time-based trend-following strategies that include scalping, day trading, swing trading, and long-term investment. The majority of forex trading falls in-between these extremes, with positions open for a few hours to a few days.

Basics of Forex Trading – Part 1

What is the forex market? Why is it a great market to trade? What is a currency pair and how it is read? What are the major terms and concepts that forex traders need to learn? These are some of the questions you will find answers to at the end of this series.

Forex trading can be an exciting and lucrative activity, but it can also be tough, especially for beginners. New market participants underestimate the importance of financial education, lack risk management skills, tend to have unrealistic expectations, and fail to control their emotions, pushing them to act irrationally and impair their performance. In addition, traders in all markets have to accept drawdowns and losses because the best strategies only work part of the time.


KEY POINTS

  • The forex market is the largest and most liquid financial market in the world.
  • Traders speculate on the foreign exchange through currency pairs.
  • A variety of factors affect the price of a currency in relation to a second currency.
  • The trader opens and closes positions through buy, sell, stop, and limit orders.
  • Traders use margin and leverage to increase reward and risk.

What is the Forex Market?

The foreign exchange market, also called ‘forex’ or the ‘FX market’, is a global decentralized venue where the world’s money is exchanged through the buying and selling (short) of different currencies. This trading takes place through transactions at brokerages, over-the-counter (OTC) markets, or via the interbank system, rather than centralized exchanges.

Many types of market participants trade the forex market, including private individuals (retail traders) working from home on personal computers or on the road through mobile devices. Thousands of professionals also trade forex through funds, institutions, central banks, and commercial banks, among others.

Forex has grown into the world’s most liquid market for the following reasons:

  • Its Enormous size, with trillions of dollars in daily transactions
  • 24-hour access between Monday and Friday
  • Wide variety of currencies and currency pairs
  • All levels of volatility, from quiet price action to historic uptrends and downtrends
  • Low account minimums
  • Low transaction costs (commissions, spreads, fees, and interest)

Forex trading is conducted through cash-based spot markets, as well as derivatives markets that provide sophisticated access to forwards, futures, options, and currency swaps. Private individuals generally trade forex to speculate on higher or lower prices, making a profit or loss on each closed position. On the other hand, most institutional forex activity is geared towards hedging against currency and interest rate risk or to diversify large portfolios.

New traders open accounts at forex or contracts for difference (CFD) brokers, taking exposure when they speculate on currency pairs, like the Euro vs. U.S. Dollar (EUR/USD) or U.S. Dollar vs. Japanese Yen (USD/JPY). At a typical forex broker, the participant opens a buy or sell (short) position in a decentralized market and books a profit or incurs a loss on the difference between the opening and closing prices.

Exposure at a CFD broker is taken between the trader and broker, establishing a legal obligation to exchange the difference between the entry and exit price of the asset, which can be a currency pair or other financial instrument that includes stocks, bonds, and futures. Forex lot sizes are uniform regardless of currency pair while CFDs have greater size flexibility. This advantage translates into greater risk control and customization of a trader’s experience level and market strategy.

What Moves the Forex Market?

Many factors move the forex market on a daily basis. Forex traders keep 24-hour economic calendars close at hand because regularly-scheduled data releases generate the majority of currency pair rallies and declines, especially when numbers fall outside expectations projected by experts. Global shock events and political developments move currency markets as well, with an election, skirmish, or natural disaster translating into highly-volatile price action.

Economic Calendar

Reading a Forex Quote

Foreign exchange is always quoted in pairs. For example, in the EUR/USD currency pair, the Euro (EUR) is the ‘base’ currency while the U.S. Dollar (USD) is the ‘quoted’ currency. The quoted currency is always the equivalent of one base currency, so if the EUR/USD exchange rate is worth 1.1222, you will get $1.12 for €1.00.

Note how the EUR/USD currency pair has four decimals. This is typical of most currency pairs, except those including the Japanese Yen (JPY), which displays only two decimals. When a currency pair moves up or down, the change is measured in ‘Pips’, which is a one-digit movement in the last decimal of a currency pair. So, for example, when the EUR/USD rallies from $1.1222 to $1.1223, the EUR/USD has increased by one Pip.

Forex Quote

The broker’s trading platform will display two prices in a currency pair quotation: a SELL price on the left (BID price) and a BUY price on the right (ASK price). The difference between these prices is called the ‘spread’. The spread is pocketed by the broker and is one of the main ways in which the company makes money.

A buy order that’s filled above the quoted ask or sell order that’s filled below the quoted bid incurs ‘slippage’, one of the biggest obstacles to profitable forex trading. Slippage occurs most often in volatile or active currency pairs when placing a market order.

Forex Spread

The average daily trading volume of the forex market now exceeds 5 trillion U.S. Dollars, making it the most liquid market in the world. Liquidity refers to how easy it is for market participants to open and close positions without affecting the price of the underlying asset.

The concept of liquidity also works hand-in-hand with volatility, which measures the speed and velocity of changing buy and sell prices. The majority of forex traders love volatile markets because they provide greater opportunities to profit, especially with short-term strategies like scalping and day trading.

Forex Trading Risks

Most forex traders lose money over time. Lack of preparation, bad leveraging, weak skill sets, and emotional fatigue all take their toll, triggering losses that eventually force the trader to ‘wash out’, leaving the forex game to the next participant.  The profitable minority learns how to overcome these headwinds, often spending hours building skillsets, doing research, and testing new systems and strategies.

In addition, banks around the world seek to manage sovereign and credit risk through bid and ask prices on the interbank quoting system, triggering frequent supply and demand disruptions unrelated to market-moving events or economic releases. These pose a major risk for the typical newcomer who grows complacent between scheduled market movers, failing to place stop losses, or taking too much short-term exposure for their experience level.

Ironically, the new trader’s biggest risk comes from the broker they choose. The vast interbank system is a hodgepodge of ‘regulated brokers’, offering unbiased market access, and ‘unregulated brokers’ who take advantage of customers’ lack of sophistication. These companies are easy to spot because most are domiciled (headquartered) in off-shore tax havens, rather than in the U.S., U.K., E.U., or Australia, which heavily regulate currency trading.

Unregulated brokers do the most damage when they operate a ‘dealing desk’ that takes the other side of a customer’s position and manipulate price through ‘requoting’ to trigger stops and force unexpected losses, especially in the off-hours when most active traders are asleep. It can also be difficult to get your money back when you choose to close an account at an unregulated broker.

Key Forex Trading Terms

Currency Pair: Currency pairs consist of two currencies, the base currency on the left (top) and the quoted currency on the right (bottom). EUR/USD is an example of a currency pair. When buying this pair, the trader buys the Euro and sells the U.S. Dollar. Alternatively, when selling this pair, the trader sells the Euro and buys the U.S. Dollar.

Major Pairs: Currency pairs can be sub-divided into major, cross, minor, and exotic pairs. Major pairs include the U.S. Dollar as the base or counter-currency, coupled with one of seven major currencies: EUR, CAD, GBP, CHF, JPY, AUD, and NZD.  New traders focus on major pairs because they’re highly liquid and carry lower transaction costs through tighter spreads, limiting slippage.

Cross Pairs: Cross pairs consist of any two major currencies, except the U.S. Dollar. Unlike major pairs, cross pairs have higher transaction costs, higher volatility, and lower liquidity, increasing potential slippage. Examples of cross pairs include EUR/GBP, EUR/CHF, and AUD/NZD.

Exchange Rate:  Exchange rate shows the price of a base currency, expressed in terms of a counter-currency (quoted currency). For example, if the EUR/USD exchange rate is 1.2500, €1.00 will cost $1.25. A rising exchange rate indicates the base currency is appreciating against the counter-currency while a falling exchange rate indicates the base currency is depreciating against the counter-currency.

Bid/Ask: Currency pairs have two exchange rates: the bid price and the ask price. The bid price identifies the current price that market participants can sell (short), while the ask price identifies the current price that market participants can buy. The bid price is always lower than the ask price and the difference between the two is called the spread.

Spread: The difference between the bid price and ask price. The spread marks one type of transaction cost for a trade and a profit source for the broker. This cost can greatly reduce profits or increase losses when engaged in high-frequency trading strategies, like scalping.

Pip:  Pip refers to ‘percentage in point’, or the smallest increment that a currency pair can rise or fall in price. One pip is equal to the fourth decimal of most currency pairs. For example, if the EUR/USD ask price is quoted at 1.2542 and rallies to 1.2548, the change is equal to six pips.

Hedge: A hedge marks a forex transaction intended to offset or protect another position from positive or negative exchange rate risk. Traders, investors, and institutions apply hedging techniques to enhance profits, limit losses, or protect investments.

Margin: Brokers lend money up to a multiple of account capital, called margin, so traders can take leveraged positions. Borrowed funds incur transaction costs through overnight lending rates. For example, a 30: 1 margin allows exposure up to 30 times higher than account capital.  Leveraged positions need to build profits in excess of borrowing costs or they lose money.

Leverage: Leverage allows traders to take positions in excess of account capital through broker margin lending. Taking substantial leverage is risky for new forex traders but an appropriate and required strategy for experienced forex traders.

Major Order Types

The forex trader opens a position through a buy or sell order, specifying whether to take the position ‘at the market’, or at a specified price. A market order will execute immediately at the current ask price for a buy or the current bid price for a sell. Both orders can incur slippage when prices are moving quickly, triggering trade executions at much higher or lower price levels.

A limit order can be used in place of a market order, specifying the price at which a) the limit order turns into a market order or b) the exact price of the entry. The order will be filled when the price is hit with the first technique, potentially incurring slippage, but the price can ‘skip over’ order with the second technique and never get filled. Similar limit order types, including stop and stop-loss orders, are used to open, manage, and close outstanding positions.

In summary:

  • Buy Stop: open a long position at the price higher than the current price or close a short position at the price lower than the current price.
  • Sell Stop: open a short position at the price lower than the current price or close a long position at the price higher than the current price.
  • Buy Limit: open a long position at the price lower than the current price or close a short position at the price higher than the current price.
  • Sell Limit: open a short position at the price higher than the current price or close a long position at the price lower than the current price.

Summary

The forex market has grown hugely popular with new traders and has never been easier to access. Learning the basics of forex trading isn’t overly complicated but choosing the right way to trade requires self-examination, with a realistic view of personality traits, available time, long-term goals, and current income. It’s a rewarding endeavor that benefits from dedication, patience, emotional control, and a willingness to build multiple skillsets and strategies over time.

These Are the 3 Biggest Differences Between a Cryptocurrency and a CBDC

Central Bank Digital Currencies (CBDCs) have become a pressing concern for governments all over the world. Every central bank you care to mention, from Jamaica to Japan, is either talking about them, desperately trying to create them or currently trying to launch them.

The subcontinent’s central Reserve Bank of India could roll out its digital rupee as early as this year.

Meanwhile, in the world’s most populous country, the pace of progress is even faster. China, which is already piloting its digital RMB in 11 major cities – including the capital Beijing, as well as the economic powerhouses Shanghai and Shenzhen – has already begun onboarding its biggest commercial banks and tech firms to the new token.

Even the United States, the world’s biggest economy is mulling a digital greenback launch – with some in the sector calling an American CBDC “inevitable.”

Some say that the advent of crypto has forced central banks’ hands – pushing them to create their own answer to digital tokens like Bitcoin and Ethereum. But what are the biggest difference between CBDCs and coins like BTC?

CBDCs don’t have to use blockchains

Many central banks are building their pilot tokens on existing public blockchain protocols. For instance, South Korea is now testing its digital KRW prototype on the Klaytn blockchain (which uses the native Klay token). The latter was developed by a subsidiary of the domestic internet giant Kakao. Australia’s central bank is also looking at an Ethereum-powered solution.

The masterminds behind other leading CBDC projects, such as Sweden’s e-krona initiative, also say they will make use of blockchain and distributed ledger technology.

But unlike crypto – which is by its very nature decentralized – CBDCs don’t have to use blockchain. Case in point: the digital RMB. China’s leadership has championed blockchain technology but has decided to effectively eschew it in the creation of the e-CNY, currently being showcased to the planet at the Winter Olympics.

In theory, there are a plethora of ways a central bank could create a digital currency, and blockchain technology is just one of a number of tools bankers have at their disposal. The same cannot be said for crypto. Because, as any savvy crypto investor knows, a cryptocurrency without a blockchain is, ultimately, a scam.

CBDCs are the epitome of centralization, cryptos are the polar opposite

The above is a perfect example of the next biggest difference between coins like BTC and CBDCs. The central People’s Bank of China (PBoC) doesn’t need to use blockchain technology for its token because transparency and decentralization are not its main aims in creating its coin.

Some critics (including Washington-based senators) say that, in fact, the PBoC is creating its e-CNY in a bid to increase centralization.

Governments, Beijing included, hate cash because it is the de facto currency of the black market. They also hate the fact that tech firms currently have a stranglehold on payment platforms because big IT companies operate across borders and can grow extremely powerful.

Skeptics would argue that CBDCs, if successful, would let them kill two birds with one stone. By making a centralized digital currency that has no elements of anonymity built into it, they could (theoretically) do away with black markets, freeze criminals’ funds, and wrestle back control of payments from IT companies.

Centralization would essentially reposition central banks, currently at the fringes of daily economic activity, as the central, controlling bodies at the heart of domestic finance. Crypto, its advocates claim, seeks to do the exact opposite.

CBDCs are (still) largely theoretical and exist only in the planning stage

Crypto has an enormous head start over CBDCs. Although crypto pay incentives have never really taken off, crypto ownership has shot up in recent years. People may not want to spend BTC and altcoins, but they certainly seem keen to buy them.

You are no longer an outlier if you tell people you own Bitcoin, ETH, or altcoins. In fact, many mainstream financial advisors now tell their clients to keep a small amount of their portfolio in crypto – advice even some city treasuries are taking to heart.

By contrast, CBDCs aren’t even in their infancy yet. Except for a select few countries such as the Bahamas and Cambodia, CBDC rollouts are still years off, experts have told FXEmpire.

China’s progress is impressive, but the PBoC is still claiming to be in the “R&D phase” of its digital yuan project. Other nations, such as Israel, are claiming breakthroughs, but the truth of the matter is nobody really knows if, when, and how CBDCs will start launching, or how aggressively central banks will promote them.

In the meantime, crypto keeps on growing. And as central banks now have their hands full battling inflation – another factor that appears to be driving up crypto adoption in multiple regions – crypto advocates agree that CBDCs face an uphill battle in their quest to pass, and surpass, crypto.

What Is Santa Floki Coin and Where To Buy It

A brand-new cryptocurrency made the headlines across the sphere due to its astonishing skyrocketing move after a tweet made by the eccentric billionaire and Tesla’s CEO, Elon Musk.

Of course, we’re talking about Santa Floki Coin (HOHOHO), whose price soared by over 18,840% in a couple of days ahead of the end of 2022.

The token surged from $0.000000012935 to a new all-time high of $0.00000245, according to data from CoinMarketCap.

Since then, the optimism around the coin as often happens with the sudden spikes that follow such patterns, faded away, and HOHOHO retraced back to exchange hands at around $0.0000002049 as of press time.

Who Are The Creators

According to Santa Floki’s official website, the coin was developed by Parabolic’s Development Team, which was established with the objective to produce “strong projects, offering the investor peace of mind.”

On November 16, 2021, it began a presale across social media platforms and the website, accompanied by official audits and an NFT launch.

The team behind the token also developed a personal wallet and announced a 3D metaverse gaming project, including major partnerships. However, the development team hasn’t given enough information on whether there are more plans for 2022, aside from growing the community of holders.

HOHOHO coin was developed under Binance Smart Chain (BEP20) blockchain, and it has a fully diluted market of over $2.5 million as of press time, according to CoinMarketCap. As per the rewards, the website says:

“(…) as a matter of fact, the contract is designed to allow 4% of all BUY/SELL transactions to be rewarded back to the holders of SantaFloki in the form of BUSD.”

Where Can I Buy Santa Floki Coin

Santa Floki can be bought via cryptocurrency exchanges like PancakeSwap and LATOKEN. The website also notes that HOHOHO can be acquired via Trust Wallet and Metamask.

Elon Musk and Santa Floki: Is He Endorsing the Coin?

As highlighted above, the Santa Floki coin price pumped strongly before the end of 2021 due to a tweet from Elon Musk, where he published the picture of a dog dressed in a Santa Claus outfit, accompanied with the text “Floki Santa.”

It’s not clear if Tesla’s CEO bought the cryptocurrency or not, as somebody could infer that after the cryptic tweet crossed the wires.

In fact, the creators of Santa Floki thanked Musk for the “recognition” granted through the tweet, although the billionaire never replied nor continued with the saga in other tweets to confirm if he’s legitimately endorsing the project.

Santa Floki creators’ tweet included a meme’s image comparing the surge of Dogecoin (DOGE) in 2020 and HOHOHO coin recently.

Risks of Trading Santa Floki

As usual with the brand-new tokens, there are high risks involved when somebody wants to invest in them. But, first, a cryptocurrency that just arrived in the space carries a lot of volatility because it’s gathering investors from around the world.

In fact, if it’s legitimate, the project is actively working to gain trust across people and make them acquire the tokens.

Second, the cryptocurrency will be highly susceptible to pump and dumps followed by tweets from celebrities or key crypto players’ statements, such as the one that came from Musk.

Moreover, as time passes, the market cap will increase and thus the volatility, which will produce even more savage swings that could make even riskier trading coins like Santa Floki.

Recent Brand-New Tokens Pumps

Early in December, FXEmpire reported that just a single joke during a Congressional hearing was needed to encourage cryptocurrency enthusiasts to create a brand-new coin.

A US Congressman, Representative Brad Sherman, made some statements in the midst of regulatory discussions with crypto CEOs, talking about meme coins and the relationship with the name of an animal.

In fact, Mongoose Coin (MONG) became a reality and hit a market cap of $14 million at that time, on December 10. After such a mention in the hearing named “Digital Assets and the Future of Finance: Understanding Innovation in the United States,” MONG gained an ROI of over 80,000%.

It became interesting how just an ironic mention sparked discussions about the risky nature of investing in meme coins like Mongoose Coin, which are exposed to such volatility.

What Can You Buy With Cryptocurrencies?

The cryptocurrency market has become one of the leading financial markets in the world, thanks to its recent growth. The industry is worth more than $2 trillion, and with this level of growth comes the adoption. However, despite the growing popularity of cryptocurrencies, some people still don’t know what they can purchase with their crypto.

To address those concerns, this article informs you of the various places where you can pay with cryptocurrencies.

Cryptocurrencies are accepted in many sectors

A decade ago, Bitcoin was a relatively unknown financial asset. However, nowadays, it is known in every part of the world and is slowly going mainstream. With the mainstream adoption of cryptocurrencies increasing, it became easier to pay for goods and services using Bitcoin and other cryptos.

El Salvador became the first country to make Bitcoin a legal tender, and you can pay for anything with BTC. The United States, Canada, Spain, the United Kingdom, South Korea, and Singapore are amongst the countries that are also recording an increase in cryptocurrency transactions. Here are some of the ways to use your cryptocurrencies to pay for goods and services.

Technology and Ecommerce

One of the areas where you can easily spend your cryptocurrencies is technology and eCommerce. eCommerce companies are making it easier for their customers to pay for their products using BTC and other cryptocurrencies.

Overstock is one of the leading retailers that allows users to pay for their products with crypto, thanks to its partnership with Coinbase. NewEgg is an online retailer of technology products like computer hardware and consumer electronics, where you can use your bitcoins to pay for these products. Alza, the leading online retailer in the Czech Republic, and Japan’s Rakuten are other top retailers that accept cryptocurrencies.

If you wish to pay for your domain name in bitcoin, then Namecheap is the hosting company you should patronize. The Internet Archive also allows users to access web archives and accepts bitcoin donations.

AT&T is one of the first major mobile carriers globally to enable its users to pay for services using cryptocurrencies. The company partnered with BitPay to provide the crypto payment option to its subscribers.

Tech giant Microsoft allows its users to top up their Microsoft account using cryptocurrencies. The company suspended the service for a while but reactivated it as the adoption of BTC and other cryptos grew.

Dish, one of the leading TV service providers in the United States, allows users to pay for their cable subscription using Bitcoin, thanks to its partnership with Coinbase.

Entertainment sector

One of the areas where cryptocurrencies have gained adoption is the entertainment sector. It is becoming easier to pay for services using bitcoin and other cryptos in this industry. AMC, one of the leading cinema chains globally, now allows people to pay for movie tickets and other services with a few cryptos such as BTC, ETH, SHIB, and DOGE.

Amazon-owned leading game streaming platform Twitch is another place where you can pay for services using Bitcoin. The company briefly removed the service in March 2019 but has re-enabled it in June 2020.

Food Industry

Another area where cryptocurrency adoption is growing is the food sector. Several fast-food joints are now accepting Bitcoin and other cryptocurrencies as payment options for their products.

Burger King Venezuela partnered with Cryptobuyer to accept cryptocurrencies as a mode of payment. Their customers can pay in Bitcoin, Dash, Litecoin, Ethereum, and Tether. Pizza Hut is another giant pizza franchise that allows customers to pay for their food with Bitcoin.

KFC Canada is another major fast-food company that accepts Bitcoin as payment for its products. The company partnered with BitPay to process the payments. Denver-based Quiznos partnered with Bakkt to launch a pilot that allows customers to purchase food with bitcoin via the Bakkt app.

Sports

Cryptocurrency companies have penetrated the sports industry. Over the past few months, crypto companies such as FTX and Crypto.com have partnered with numerous sporting institutions to increase the awareness of cryptocurrencies.

The adoption goes beyond sports entities partnering with cryptocurrency companies. Some sporting institutions now accept cryptocurrency payments. The Dallas Mavericks accepts Bitcoin as a payment method for both game tickets and merchandise, and BitPay processes cryptocurrency payments via the team’s website.

The Miami Dolphins is another team that allows you to pay for game tickets using Bitcoin and Litecoin.

Portuguese-based football team Benfica is one of the first soccer institutions in Europe to accept Bitcoin for game tickets and merchandise.

Travel and Hospitality

The hospitality industry is one of the biggest promoters of cryptocurrencies. Richard Branson’s Virgin Mobile and Virgin Airlines allow you to pay for space travel with BTC. Norwegian Air Shuttle (Norwegian), Scandinavia’s largest airline and Europe’s third-largest budget airline, is another travel company that allows customers to pay for tickets with cryptocurrency.

CheapAir, one of the leading online travel agencies in the United States, partnered with Coinbase to allow its customers to pay for travel and hospitality services with Bitcoin. Travala and Bitcoin.Travel are two other leading online travel agency that permits their customers to pay for services using BTC and a few other cryptocurrencies.

Real Estate and Art

An increasing number of real estate firms accept cryptocurrencies as payment for their properties. Cryptocurrencies have also penetrated the art world. British auction house Christie’s now accepting Bitcoin and Ether for some of its paintings, both physical and digital.

Gift Cards and VPNs

The other sectors where cryptocurrencies have gained adoption are VPN and gift cards. Gyft allows users to buy and sell gift cards online for top retailers like Amazon, iTunes and Starbucks, and the company accepts Bitcoin as payment for its services.

ExpressVPN, CyberGhost, NordVPN, and PrivateVPN are some of the leading VPN service providers that allow users to pay for their services and upgrade their accounts using Bitcoin and a few other selected cryptocurrencies.

Final Thoughts

The use of cryptocurrencies to pay for goods and services is becoming increasingly popular. Businesses are beginning to accept cryptocurrency payments directly or through third-party processors like BitPay, a trend that seems set to continue through 2022.

 

What are Lending Protocols? The Rise of DeFi Lending

The cryptocurrency space has grown to become a $3 trillion industry. Over the past decade, there have been numerous innovations within the cryptocurrency space. One of the most recent innovations is the decentralized finance (DeFi) space.

DeFi is one of the fastest-growing sectors within the cryptocurrency space. It offers numerous services to cryptocurrency investors and other market players. Due to its importance, this post will touch on an aspect of DeFi, which is lending.

What is DeFi?

DeFi can be defined in simple terms as decentralized finance. This is an ecosystem of financial applications built on top of blockchain technology. Unlike the regular financial ecosystem, the DeFi space operates without any third part of central authority.

Instead, DeFi relies on a peer-to-peer network to establish decentralized applications that would allow people to connect and manage their assets regardless of their location or status. DeFi aims to ensure people gain access to open-source, transparent and permissionless financial services from every part of the world.

The decentralized finance ecosystem is built on smart contracts. Smart contracts are self-executing and don’t require a third-party intermediary. DeFi started on the Ethereum network. Hence, it is not a surprise that most of the DeFi protocols are built on the Ethereum blockchain.

Understanding DeFi Lending

DeFi lending occurs thanks to the lending platforms or protocols. These platforms offer cryptocurrency loans in a trustless manner, allowing the holders to stake the coins they have in the DeFi lending platforms for lending purposes.

On the DeFi platform, a borrower can take a loan, allowing the lender to earn interests once the loan is returned. The lending process is executed from the start till the finish without intermediaries.

A coin holder sends the tokens they intend to lend into a pool using a smart contract. Once the coins are sent to a smart contract, they become available to other users to borrow. Afterward, the smart contract issues tokens (usually, the platform’s native token) that are doled out automatically to the lender. The tokens can be redeemed at a later stage in addition to the underlying assets that were sent to the smart contract.

Virtually all the loans issued via the native tokens are collateralized. This means that users who wish to borrow funds will need to provide a guarantee. However, unlike the centralized financial system, the guarantee in the DeFi space is in the form of cryptocurrencies that are worth more than the actual loan itself.

On paper, this idea might seem absurd as the borrower could potentially sell their assets in the first place to generate the money. However, there are numerous reasons why DeFi borrowing makes sense.

For starters, the users might require funds to take care of unforeseen expenses they may have incurred and don’t intend to sell their holdings as they believe the assets are due to an increase in value in the future. Furthermore, by borrowing money via DeFi protocols, users can avoid or delay paying capital gains taxes on their cryptocurrencies. Also, individuals can use the funds they borrow from the DeFi protocols to increase their leverage on some trading positions.

What are the Popular DeFi Lending and Borrowing Protocols?

Maker

Maker is one of the leading and unique DeFi crypto lending platforms. It allows users to borrow money via its DAI tokens. DAI is a stablecoin whose value is pegged to the US Dollar. Using the Maker protocol is available to anyone. Users can open a vault, lock collateral like ETH or other cryptocurrencies and generate DAI as a debt against the locked collateral.

The Maker protocol encourages users to take part in operational earnings via governance fees, acting as interest rates for the platform. MKR is the native token of the Maker protocol, and its holders serve as the last line of defense in the event of a black swan. As soon as the collateral value starts to decrease, MKR is minted and sold in an open market to raise more collateral. Hence, diluting MKR holders.

Aave

Another leading DeFi lending protocol is Aave. This is an open-source platform and one of the most popular DeFi lending protocols in the crypto space. Aave is a non-custodial liquidity platform for earning interests on deposit and borrowing assets. It allows the lenders to deposit their cryptocurrencies in a pool and receive an equivalent amount of aTokens, its native token. The protocol algorithmically adjusts interest rates based on demand and supply, indicating that the more a user holds aTokens, the higher the interest amount.

AAVE/USD chart. Source: FXEMPIRE

Compound

Another popular DeFi lending protocol is Compound. This is an algorithmic and autonomous money market protocol designed to unlock numerous open financial applications. Compound allows users to deposit cryptos, earn interests and borrow other cryptocurrency assets against them. By using smart contracts, Compound automates the management and storage of capital on the protocol.

As a permissionless protocol, anyone with a cryptocurrency wallet and an internet connection can interact with Compound and earn interest. Metamask is one of the wallets that support the Compound DeFi protocol. The Compound protocol supports the lending and borrowing of numerous assets, including DAI, ETH, WBTC, REP, BAT, USDC, USDT and ZRX.

How NFTs Can Be More Than Just Tools for Artists

There is little to no doubt that the world has definitely evolved and is ready to move even deeper into the NFT trend. However, like every new concept that grabs attention, many people run the risk of misunderstanding some fundamental things about NFTs.

NFTs Have Benefited the Art and Content Industries

One of the biggest misconceptions about NFTs is that they are only beneficial for artists and content creators who want to protect themselves. This misconception is completely understandable since NFTs have become especially popular because of these artists. Names like Snoop Dogg, Grimes, and more have been prominent in the push for artists to jump on the NFT train and become more self-sufficient.

Even in Africa, artists are using NFTs massively. Jude “MI” Abaga, one of the biggest hip-hop artists on the continent, has partnered with Binance and is looking at the possibility of launching his next album as an NFT. everywhere you go, artists are driving the adoption of NFTs.

Then, there’s the actual art scene. People are minting NFTs everywhere, using them to sell digital art and make money. They’re now side-stepping the conventional art industry, which involves exhibition houses and curators – all of whom take their own cut of the funds. Now, with NFTs, anyone can make money.

The same can be said for content creators. These people can build their following significantly and leverage that to sell NFTs to people. They set their own prices, and they get to enjoy all the profits that come from the sales of their tokens. If they like, they could program their NFTs so they take cuts out of any token sales that occur even after they’re done with their own purchases.

Utility NFTs: Their Rise, and Why They Look Appealing

But, NFTs are much more than this. Today, there is an interesting rise of “utility NFTs” – NFTs whose values are based on specific metrics which, to the largest extent, can be measured. Many NFT enthusiasts actually believe that these utility NFTs are the future of the industry.

Today, the NFT market is in an interesting position. Many tokens don’t specifically have a market value, and this has experts scared that the rise in popularity of NFTs will eventually create a bubble that will massively pop eventually. We saw a bit of a glimpse into this eventuality when the crypto market itself went on a downturn for months. Coins dropped significantly in value, and NFT volumes actually slowed down.

With NFT volumes rising significantly in February, things took a bit of a turn for the worse at the start of April. Coincidentally, this was also the period when the larger crypto market started what would be a months-long crash.

While things might be going great again, the crypto market has shown several signs of dangerous volatility that could wreck investors. What if we’re seeing the same thing with NFTs?

Despite the general belief that we could be in an NFT bubble, however, many experts believe that NFTs can still survive any wipeout that happens. One of the key factors that will play into that will be utility NFTs.

The concept of utility NFTs is pretty much the same as a utility token. These NFTs provide actual value, as well as the benefit of being scarce. A utility NFT could offer access to specific benefits and perks to its holder. Then, combined with the nature of being scarce, this token can drive massive value.

Several projects are already exploring the growth of utility NFTs. One interesting project is Sloties – an NFT project looking to revolutionize the gaming industry. Sloties are a collection of 10,000 NFTs built on the Ethereum blockchain. Each Slotie purchased offers ownership of an actual gaming platform’s profits. Sloties can also be used for staking, while the tokens offer additional perks like rakeback guarantees on bets and much more.

It’s easy to see the benefits that a project like Sloties will bring. The gaming industry is a real one, with billions of dollars in value and revenues. Instead of just buying an NFT for the fun of it, Sloties actually allow you to benefit from gaming.

There are many other projects using utility NFTs to their benefit – and those of the token buyers.

Should You Keep Faith in Utility NFTs?

For now, it is worth noting that utility NFTs are still in their infancy. If anything will be done with these tokens, prospective investors will need to verify the details of the utility that they claim to offer.

The cryptocurrency space is filled with several scam projects that claim to do something but aren’t true. Considering that there is still a lack of regulation in the NFT space, investors are tasked with verifying the details of the tokens they purchase.

Of course, this isn’t to say you shouldn’t invest in utility NFTs. Based on the intrinsic value that they offer, utility NFTs are actually a much better investment than just any other token out there. At the very least, they offer something. The problem is simply that you need to be more confident about the projects you’re backing by purchasing these tokens.

What is Shiba Inu? The Meme Coin Designed to Kill Dogecoin

One of the most important trends in the cryptocurrency space over the past year is meme coins. The rise of Dogecoin has led to the creation of a wide range of other meme coins as investors flocked to them in hopes of making money.

Dogecoin rallied by more than 7,000% at some point earlier this year, attracting more people to the cryptocurrency world. As a result, investors started to focus on other meme coins and invest in them looking to make as much profit as Dogecoin did.

Dogecoin chart

One of the biggest meme coins in the market is Shiba Inu (SHIB), the coin designed to “kill Dogecoin” and overtake it in the market. However, for those who are hearing about it for the first time, here is everything you should know about Shiba Inu.

What is Shiba Inu?

Shiba Inu (SHIB) is an Ethereum-based cryptocurrency that features the Shiba Inu dog. SHIB is considered by many to be an alternative to Dogecoin. However, the Shiba Inu coin was created to be the “Dogecoin killer.”

shibainu coin fxempire

SHIB is a meme coin based on the Japanese Shiba Inu dog. The meme coins are usually launched as an inside joke rather than as digital products with real-world utility although Dogecoin has been around since 2013, Shiba Inu was launched in August 2020 by an anonymous individual or group called Ryoshi. 

According to the 28-page whitepaper or woof paper, the goal of Shiba Inu’s creator was to move away from the rigid social structures and traditional mindset. Shiba Inu is designed to be an experiment in decentralized spontaneous community building” and to give power back to the “average person.”

How Does Shiba Inu Work?

Shiba Inu is an Ethereum-based token, which means that it is compatible with the vast Ethereum ecosystem. According to the developer, the Ethereum blockchain was the perfect host for Shiba Inu because it was already secure and well-established, and it allowed the project to stay decentralized.

The Shiba Inu ecosystem is comprised of three tokens and other services that users can enjoy. The three tokens are;

  • Shiba Inu (SHIB): SHIB is the project’s main currency. It is the token that powers the entire Shiba Inu ecosystem and has a total supply of 1 quadrillion. However, the developer locked 50% of the supply in Uniswap for liquidity purposes while Ethereum co-founder Vitalik Buterin was tasked with holding the remaining 50%. Buterin sold some of the tokens in his possession and donated the money to a Covid-19 relief fund in India, an act that further pushed SHIB’s price higher. Buterin burned 40% of SHIB’s total supply, reducing the possible amount available to users. 
  • Leash (LEASH): This is the second token in the Shiba Inu ecosystem and it represents the other side of Shiba. Its total supply is 107,646 tokens, far below the trillions of Shiba Inu tokens.
  • Bone (BONE): This is the governance token of the Shiba Inu ecosystem. It allows the ShibArmy to vote on upcoming proposals and has a total supply of 250 million tokens. 

There are other sides to the Shiba Inu ecosystem and they include;

  • ShibaSwap: This is the decentralized exchange of the Shiba Inu ecosystem. This is an exchange designed to allow people to trade cryptocurrencies in a decentralized manner. 
  • Shiba Inu Incubator: The incubator is designed to discover ways to honor the creativity of artists outside of the traditional artforms. It aims to breed genuine creators of art and other content. 
  • Shiboshi: These are Shiba Inu-generated Non Fungible Tokens (NFTs) available on the Ethereum blockchain each Shiboshi has a different trait, making them unique. 

Is Shiba Inu Real Money? Why has it Rallied so Much?

It is tough to think of Shiba Inu as real money. The cryptocurrency space has evolved over the past few years to involve stablecoins. Stablecoins are digital currencies whose values are tied to fiat currencies. They are the most likely to be considered real money.

SHIB/USD chart. Source: FXEMPIRE

We also have some coins such as Bitcoin, DASH, Litecoin and some others that are designed to serve as currency and have received adoption in various parts of the world. However, Shiba Inu is a meme coin, and is hard to consider it as real money. 

SHIB has been one of the best performing cryptocurrencies so far in 2021. Over the past three months alone, SHIB has added more than 500% to its value. It briefly overtook Dogecoin in terms of market cap.

The rally was caused by a wide range of things including getting listed on the Coinbase cryptocurrency exchange a few weeks ago. The rally brought so much media attention to SHIB and more investors flooded into the cryptocurrency. 

Tesla founder Elon Musk added fuel to the fire when he tweeted a picture of his new Shiba Inu puppy Floki last month. thus, generating massive retail investor interest in the meme token. 

The launch of the Shiba Inu NFTs also added to the excitement as NFTs are gaining popularity in the cryptocurrency space and beyond. There are currency unconfirmed rumors that popular stock and crypto trading app Robinhood is set to list SHIB on its platform. All these contributed to Shiba Inu recording massive gains in recent weeks. 

Shiba Inu Wallet

As one of the top 20 cryptocurrencies in the world, SHIB is very valuable in the crypto space. It is an ERC-20 token, which means that it can be stored in numerous wallets that support Ethereum-based tokens. Some of the wallets you can use to store your SHIB tokens include; 

  • Ledger Nano X (cold storage wallet)
  • Trezor (cold storage wallet)
  • Trust Wallet 
  • Ellipal Titan (hardware wallet)
  • MetaMask 
  • Coinomi
  • Lumi wallet
  • CoolWallet
  • Guarda Wallet 

What is Solana – One Of Ethereum’s Major Rivals

The cryptocurrency market has been in a bearish trend for the past few weeks. Bitcoin has lost its position above the $50k mark, while Ether has been unable to surpass the $4k mark over the past few months.

Despite the bearish trend in the market, one of the cryptocurrencies that stood out is Solana. Solana (SOL) reached a new all-time high above $200 at a time when the other major cryptocurrencies were suffering massive losses. This unusual movement in price grabbed the attention of many traders, investors, market participants, and people outside the cryptocurrency space.

As one of the leading cryptos in the world, it is not a surprise that many people want to learn about Solana and why it pumped when other cryptocurrencies were losing their value. This post looks into the Solana basics and explains its rally a few weeks ago.

What Is Solana?

The first obvious question is what Solana is. Solana is a blockchain platform specifically designed to host decentralized applications. It is similar to other leading dApp blockchains like Ethereum and Cardano.

However, Solana is an open-source project currently run by the Geneva-based Solana Foundation. The blockchain was built by developers at San Francisco-based Solana Labs. Solana has gained traction by offering something that the Ethereum blockchain has so far being unable to deliver; faster operation and lower transaction fees.

Unlike Ethereum, Solana is a PoS (proof of stake) blockchain, making it more environmentally friendly than the popular PoW (proof of work) blockchains like Ethereum and Bitcoin. It has a naïve coin called Solana and has the ticker SOL.

The proof of stake protocol used by Solana is currently preferred in the cryptocurrency space. Unlike the proof of work where massive energy is needed to run a blockchain, proof of stake makes the validator nodes on the network to stake something. In the case of Solana, the validators stake the SOL tokens. Although the validators also consume power to operate, their power consumption is far lower than that of the PoW miners.

Solana Is A Programmable Blockchain

Solana can best be described as a programmable blockchain. It is currently one of the fastest programmable blockchains in the cryptocurrency space. It is a major competitor to other programmable blockchains such as Ethereum and Cardano.

Programmable blockchains are very popular within the cryptocurrency space and beyond due to their massive functions and potential. They have the ability to store tiny pieces of code known as smart contracts. Smart contracts can be programmed to execute certain actions when the conditions of the contract are met.

For instance, if you rent a car, the dealership might initiate a smart contract that automatically pays back your deposit when you return the car in good condition. Ethereum was the first and remained the leading programmable blockchain in the world. Over the past few years, the Ethereum blockchain has attracted a wide range of developers who use it to build decentralized applications (dApps).

However, the Ethereum network continues to fall short in certain aspects, especially in terms of scalability. The network congestion sometimes leads to huge fees. The developers are currently working on ETH 2.0, migrating the blockchain from a proof of work to a proof of stake protocol. The ETH 2.0 upgrade is expected to solve the scalability issue and make Ethereum have a lower carbon footprint.

Due to Ethereum’s shortcomings, new programmable blockchains have come up and are taking some of Ethereum’s market share. The likes of Solana, Tezos and Cardano are designed to be cheaper, faster, and more sustainable than Ethereum. Solana is now the fastest of them all.

How Does Solana Differ From Ethereum?

Ethereum is currently the leader in the smart contract space, with over 70,000 nodes compared to just 1,000 for Solana. However, Solana is considered to be an Ethereum killer because of its innovation and how it is tackling some of Ethereum’s weaknesses.

Solana, through its proof-of-history (PoH) protocol, is revolutionizing how blockchains work. By allowing validators to be in charge of their own clock, the transaction verification process is reduced since the nodes don’t have to put in processing power before they can verify various timestamps. Thus, improving the speed at which transactions are processed on the Solana network. The Solana network processes up to 60,000 transactions per second, surpassing that of Bitcoin, Visa, XRP and Ethereum combined.

In addition to the transaction speed, the costs are significantly lower on the Solana blockchain. As mentioned above, one of Ethereum’s major challenges is its high gas fees. Users pay up to $50 to process a transaction on the Ethereum network. Earlier this week, Bitfinex paid $23.7 million just to move $100,000 USDT on the Ethereum network. With Solana, the fees are significantly lower, usually around $0.00025 per transaction.

How Fast Is Solana?

Solana is currently one of the fastest programmable blockchains in the world. It can process more than 50,000 transactions per second (TPS). The developers say the transaction speed can reach 700,000 TPS as the network grows. This is far better than Ethereum, which currently processes between 15 to 45 TPS.

Solana’s speed and low transaction fee have attracted numerous developers to the blockchain. A wide range of dApps and smart contract projects are now deployed on the Solana project. Thus, making it one of the most widely-used blockchains and cryptocurrencies in the world.

Coins Supported By Solana Blockchain

The Solana blockchain is becoming home to a wide range of cryptocurrencies. Some of them include;

  • Chainlink
  • The Graph
  • Waves
  • Serum
  • Audius
  • REN
  • Raydium
  • Coin98
  • Oxygen
  • Akash Network
  • Mango Markets
  • Velas
  • Civic
  • Bonfida
  • Star Atlas
  • Hxro
  • Orca
  • Kin
  • Solanium
  • Ramp
  • Step Finance
  • MAPS
  • PARSIQ
  • Frontier
  • Saber
  • Cope
  • Only 1 and hundreds of others

Why Did Solana Pump When Others Were Dumping?

There is no denying the fact that Solana (SOL) is one of the best-performing cryptocurrencies this year. SOL has forced its way into the top ten cryptocurrencies by market cap, surpassing the likes of Dogecoin and Polkadot and also competing with XRP in terms of market cap.

Although its price is now slightly above $170, Solana reached a new all-time high at $213 on September 9. This was during a time when the broader cryptocurrency market was losing most of its value.

Although other competitors such as Ethereum, including Cardano, Polkadot, Dfinity, Terra, Polygon, and Avalanche, have all increased huge gains in price over the past year, Solana’s performance was extraordinary.

A key reason for its growth is that the Solana ecosystem has the backing of FTX, one of the leading digital asset exchanges in the world. FTX has launched numerous Solana-based projects over the past few months.

The Solana project is also backed by some of the biggest investors in the cryptocurrency space, including Alameda Research, Andreessen Horowitz and Polychain. Solana also has lower transaction fees than most of its competitors.

Some market experts believe that Solana is at the beginning of its growth cycle and has the potential to match Ethereum in terms of price and market value over the next few years. As such, several investors remain bullish on the medium and long-term prospects of the Solana project.

Solana – A Look To The Future

Solana is one of the leading cryptocurrencies in the world. The cryptocurrency and its blockchain are expected to continue growing and eventually pose further challenges to the Ethereum network.

Sam Bankman-Fried is very bullish about the Solana blockchain and for good reasons. The developers continue to innovate and push for more developments. while Ethereum remains the market leader, Solana, alongside Cardano, will continue to eat into Ethereum’s market share.

In terms of price performance, many analysts are bullish that Solana’s price could top the $1,000 mark over the coming months. If the adoption and growth continue, SOL could reach ETH’s price of roughly $3,500 in the next few years.

Introduction to the Major Fundamental Influences on Forex Prices

When most individuals think of trading, they think of stocks and futures. This is probably because of the long-term history of these investment vehicles. Some may even think of cryptocurrencies because of their huge popularity with a younger generation of investors.

What they may not realize, however, that in terms of market value, there is one asset class that dwarfs them all and, in fact, some may not have even realized that they’ve already speculated in it when they’ve traveled internationally or bought something from a foreign country.

This huge investment class is the foreign exchange market, also known as FOREX. In the FOREX market, an estimated $6 trillion is traded on a daily basis. To put this in perspective, the U.S. stock market trades around $257 billion a day; quite a large sum, but only a fraction of what FOREX trades.

For a novice trader, there is a lot to learn about trading in the foreign exchange market because it lacks the familiarity of stocks like Apple, IBM and Google, as well as the glamor of gold and silver futures.

Before even attempting to trade or invest in the FOREX market, individuals have to become aware of the macro-economic and geo-political factors that help drive the price action in this trading vehicle.

What is FOREX?

Simply stated, the word FOREX is derived by combining parts of foreign currency and exchange. It is also referred to as FX trading.

Foreign exchange is the process of changing one currency into another for a variety of reasons, usually for commerce, trading, finance or tourism. FOREX markets tend to be the largest and most liquid asset markets in the world.

Briefly, Forex markets exist as spot (cash) markets as well as derivatives markets, offering forwards, futures, options, and currency swaps.

Market participants use Forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among other reasons.

What is a FOREX Pair?

In foreign exchange, currencies trade against each other as exchange rate pairs. For example, EUR/USD is a currency pair for trading the Euro against the U.S. Dollar.

A FOREX pair or currency pair is simply the quotation of the value of a given currency against another. The first is termed the base currency and is the currency being sold, while the second is known as the quote currency and is the currency being bought.

For example, the quotation EUR/USD = 1.0700 would mean 1 Euro is exchanged for $US1.07.

What are the Factors Affecting Forex Pairs?

If you desire to become a successful FOREX trader then you have to develop an understanding of the fundamentals that drive the price action. This is the information that will help you to establish an informed hypothesis about whether a particular FOREX pair is being fairly valued at present and what potential upsides or downsides might be from current price levels.

These include: central bank policy, interest rates, inflation, economic growth, trade data, and political/government factors.

How Does Central Bank Policy Influence FOREX Prices?

The major central banks influence Forex prices by controlling open market operations and interest rate policies. They are responsible for fixing the price of its domestic currency on Forex.

Any action taken by a central bank in the FOREX market is done to stabilize or increase the competitiveness of that country’s economy. A central bank may weaken its own currency by creating additional supply during periods of long deflationary trends, which is then used to purchase foreign currency. This effectively weakens the domestic currency, making exports more competitive in the global market.

Central banks use these strategies to calm inflation. Their doing so also serves as a long-term indicator for FOREX traders.

How Do Interest Rates Influence FOREX Prices?

Interest rates have a significant influence on currency movements. So much so that a currency pair will often spike up or down following a central bank announcement.

The main reason for the volatility is the so-called carry trade, where investors borrow at lower interest rates in one currency and invest at higher interest rates in another.

Basically, investors tend to chase yields so when a central bank raises rates, it tends to make that country’s currency a more attractive investment.

How Does Inflation Influence FOREX Prices?

Central banks raise and lower interest rates to control inflation. Therefore, movement in the inflation rate can impact currency prices. For example, if a country’s central bank believes inflation is rising too quickly, it may raise interest rates to lift the cost of borrowing and to take money out of the system. This action is designed to slow the economy.

For this reason, the national consumer price index (CPI) is one of the most closely watched pieces of information for FOREX traders.

How Does Economic Growth Influence FOREX Prices?

Economic growth is tied directly to the inflation rate, which relates to interest rates. When a country’s economy is growing quickly as measured by the Gross Domestic Product (GDP), for example, the rate of inflation will typically start to rise. This usually means the central bank will need to lift interest rates to slow the rate of growth.

This is why the currency of a country showing strong economic growth will often appreciate against those of other countries showing slow or negative growth.

How Does Trade Data Influence FOREX Prices?

Balance of Trade data, which is based on the relationship between a country’s imports and exports, also has an impact on the direction of a currency’s prices. Trade figures can also be seen by some as a sign of the strength of the economy, which in turn has implications for inflation and interest rates, and therefore the domestic currency.

If a country is exporting more goods than it imports, for example, it increases demand for its currency as the money used to pay for those exports ultimately needs to be converted into the domestic currency.

How Does Political/Government Factors Influence FOREX Prices?

Government policy can have profound implications on FOREX prices especially if it influences the inflation rate.

A government could decide to trim spending and pay down debt, which may end up causing the economy to slow.

Following the pandemic of 2020, many governments flooded their economies with fiscal stimulus. As this money trickled through the economy, it caused inflation which is fueling a response from central banks in the form of interest rate hikes.

In response, Forex markets have experienced heightened volatility as the major central banks race to stem runaway inflation by raising rates. Investors will become more attracted to the currency of the country that raises interest rates more aggressively.

Other Factors to Consider When Trading FOREX

Although fundamental data and daily news events play a major role in the price action of a currency, it is important to note that an estimated 90% of the daily FOREX volume is fueled by speculators (traders). So in addition to knowing the major fundamental influences on the long-term direction of currencies, traders will also need to learn about the technical factors that play a major role in the movement of currency prices.

5 Investment Tips for Forex Market Investors

Forex trading is a complex but fascinating field. Forex traders have tremendous opportunities to make money, but they also need to constantly improve their skills. In this article, we’ll discuss how you can enhance your trading results.

Consistency is the Key to Successful Trading

If you want to be successful as a trader, you must have a trading strategy and a proper trading plan for each trade you make. Once you choose your trading strategy, you should stick with it for a while to see whether it produces positive results in the current market environment.

Many traders, especially beginners, fail to appreciate the importance of consistency in trading. They quickly switch between trading strategies if some trades go in the wrong direction.

This is a major mistake as trading is a probability game. To be profitable, you do not have to be right about the market direction every time. Instead, you need a trading strategy with a decent risk/reward and win/loss ratios.

Any strategy that you choose should be tested with a sufficient number of trades to see if it works well in the current market environment. This is very important since trading strategies need time to show their true performance.

For example, if your strategy has a 60% win/loss ratio, you may easily start with three losing trades in a row. You need to make more trades to see its potential. The more trades you make, the more confidence you’ll have in the expected results of your strategy. If you switch to another trading strategy right after a disappointing start, you’ll never know the true potential of your trading strategy.

Choose Your Risk Levels Wisely

You need to make a certain number of trades to test any trading strategy. Therefore, you must limit risk in each trade you make in order to provide yourself with an opportunity to test various trading strategies.

The math is simple. If you risk just 1% of your account in every trade, you’ll have to make 100 losing trades in a row to run out of money. This is an extremely unlikely scenario.

Do not be greedy during the testing phase. Choose modest risk levels for every trade, test various strategies without stress and concentrate on execution of every trade. Once you have established what works best for you in the current market environment, you’ll be able to increase your risk level if you wish so.

Analyze Your Trades

Profitable trading requires analyzing trades on a regular basis. Proper analysis provides you with an opportunity to learn what works in the current market environment – and, even more importantly, what does not work.

To get the best out of your analysis, you’ll have to follow a certain strategy (as noted above, consistency is the key to success in trading). If you make trades based on your “gut feeling” rather than a well-defined strategy, there’ll be nothing to analyze – your results would be random.

Meanwhile, following a strategy will equip you with information that will improve your trading performance.

Start by looking at whether all your trades met the conditions of your strategy. Even experienced traders sometimes fail to make trades according to their strategy. Reasons for such failures may be emotional (markets are always exciting) or technical (for example, some patterns look similar). Eliminating unnecessary trades should boost your performance so do not take this issue lightly.

Once you have established which trades were made according to your preferred strategy, you can analyze its performance. This analysis will show whether your strategy works in the current market environment, as well as expected win/loss and risk/reward ratios. If you are satisfied with the results, keep using your current strategy and focus on execution. If results fail to meet your expectations, you can tweak your existing strategy or try a new one.

If you choose to tweak your existing strategy, make sure to proceed with just one change at a time so that you can evaluate the impact of this change on the performance of your strategy. If you make several changes and something goes wrong, you will not be able to learn what hurts your performance.

Focus on a Limited Number of Instruments, then Expand your Watchlist

Forex markets offer multiple trading opportunities every day, but it is not easy to track them all if you have just started trading.

Thus, you should start by tracking a limited number of instruments so that you do not miss entry and exit points according to your strategy.

Once you have tested your strategy on several instruments, you can add more pairs to your watchlist and evaluate whether your strategy works with them.

Eventually, you will have a set of various strategies to choose from, and you’ll learn what works best for every pair you trade.

Having several strategies is very important for a trader’s success in the long term as markets always change. Let’s discuss how to deal with this challenge.

Be Prepared for the Inevitable Change

Change is the only constant thing in markets and – this is why you often hear that past performance does not guarantee future results.

What works well today may not work tomorrow, and a strategy that brings disastrous results in the current market environment may turn into a real gold mine in the future.

Fortunately, you can prepare for the inevitable change. Analyze your trades and closely track the results of your current trading strategy. Pay attention to the efficiency of your strategy – if you see that its performance is declining over time, then it’s time to act.

Do not wait until your current trading strategy stops being profitable. Instead, start testing another strategy on a limited basis once you see that the performance of your current strategy is declining.

By the time your previous strategy stops bringing profits, you’ll be ready to use a new strategy that works better in the current market environment. Be prepared, and you’ll successfully navigate through all market changes and profit from them!

This article is brought to you by Forex4you.

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

Cryptocurrency vs Forex Market – Similarities and Differences

Over the past few years, cryptocurrencies have become mainstream, and many traders wonder whether they should focus on crypto markets instead of forex or try to have the best of both worlds. This article explains the similarities and differences between these two asset classes so that you can make an informed decision.

Similarities Between Crypto Markets and Forex Markets

To start trading, you’ll need a trading account and a modern electronic device with a stable internet connection. You can easily learn the basics of crypto trading if you have experience with trading forex and vice versa. Charts are widely available and execution is fast, so that you can concentrate on your trading.

Like forex markets, crypto markets are driven by the supply-demand balance. The price moves higher when there are more buyers than sellers and drops when sellers overwhelm buyers. Thus, you’ll be able to use familiar indicators and chart patterns when trading crypto.

Differences Between Crypto Markets and Forex Markets

While crypto trading looks very similar to forex trading on the screen, there are many differences that will be discussed below.

Number Of Available Instruments

Inforex, traders typically concentrate on main currency pairs (EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD). Some traders prefer to work with exotic currency pairs, which include a major currency and a currency of a developing economy like South Africa or Mexico.

Currently, there are more than 11,000 different cryptocurrencies, and the number keeps growing. Some of them are actively traded, like Bitcoin or Ethereum, but many cryptos are only known to hard-core crypto enthusiasts.

There are many instruments to choose from in crypto markets, whereas forex markets can occasionally experience periods of calm trading for days or even weeks.

It is impossible to track all cryptocurrencies, so traders will have to choose a finite number of coins to track. Thus, traders will still be working with a limited watchlist.

Liquidity

Forex is an extremely liquid market, and forex trading volume exceeded $6.6 trillion in 2019. Regardless of your position size, you will be able to easily buy or sell your chosen instrument without material slippage. This is a big advantage as you will always be able to get out of the trade at a price that is equal or very close to the price that you see on the screen.

This is not true for most cryptocurrencies. The total crypto market cap is less than $2 trillion, and more than 45% of this market cap is taken by Bitcoin. For most cryptocurrencies, trading is not nearly as active as in Bitcoin, so traders may have some trouble getting out of the trade at a desired price.

Huge Difference Between Coins

Due to the enormous number of available cryptocurrencies, there is a huge difference between various coins. Anyone who is willing to trade lesser-known cryptocurrencies will have to dive deep into their fundamentals.

As noted above, there is no way to track all opportunities in crypto markets, so traders will have to focus on coins that they understand well. This makes the size of their trading watchlist similar to the size of a typical watchlist for forex traders.

Volatility

Cryptocurrencies are very volatile while forex markets are more stable. The world’s leading cryptocurrency, Bitcoin, started this year at $29,000 and moved up towards the $65,000 level before pulling back to $30,000 and rebounding towards $45,000. Smaller cryptocurrencies can make huge moves within short time frames.

Such moves are rare in forex markets and mostly occur in exotic pairs. In this light, it is easier to control risk on forex, but the profit potential is bigger in crypto markets.

Profit Potential

Crypto markets gained popularity as they offer opportunities to make outsized profits. In trading, risk increases together with profit potential, so traders should be prepared to take bigger risks when trading cryptocurrencies. In fact, the value of many coins may ultimately drift to zero if the projects do not work well or capital flows into more established coins, which is the norm for more advanced stages of developing markets.

It should be noted that traders can always increase their potential in forex trading by using leverage. Leverage is a double-edged sword, so risks also increase, but traders can manage risks by choosing the appropriate amount of leverage for their trades.

Market Hours

Crypto market is open 24/7 while the forex market is open 24/5. This is a huge difference from a lifestyle point of view. Forex traders can switch off their screens and enjoy their weekends. Crypto traders should always be in touch with markets as cryptocurrencies often make big moves on weekends.

While both markets are open 24 hours, forex market activity follows a regular pattern as forex trading is driven by big institutions. The situation is different in crypto markets as bigger institutions have only recently started to increase their activity, and many coins are driven by individual traders or small crypto investing firms.

Security

Crypto markets are still in their early development stages, and appropriate regulations are currently developed in various countries. Crypto traders have to deal with counterparty risks (scams occur, which is natural for booming markets) and hacking risks. Just recently, hackers have stolen $600 million in Poly Network (oddly, they have returned about half of the stolen assets at the time of writing this article).

In contrast, the forex market is heavily regulated, so forex traders face fewer risks. Forex traders should still check the history of their broker and the appropriate regulations in the country where the broker is registered. As the forex trading industry is well-developed, scams have been mostly eliminated.

Choosing between Crypto Trading and Forex Trading

Traders should check their financial goals, available capital, trading style, and lifestyle demands when choosing between crypto and forex markets.

The best way to make an informed choice is to try both crypto trading and forex trading with small accounts. After a few months, you’ll see which market suits your needs.

Don’t forget, you aren’t required to choose between crypto trading and forex trading, which means you can take advantage of the opportunities available on both markets.

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

This article is brought to you by Forex4you

Analysis Methods – Fundamental, Technical and Sentiment Analysis

Technical analysis is the study of trading activity through the use of patterns, trends, price movement, and volume. Fundamental analysis is the study of price movement to determine the value of an asset. Sentimental analysis is feeling the tone of the market through the study of crowd psychology.

Each of these methods of looking at an asset’s value has its merits and no one of them is complete on its own. Still, with some types of trading, you will want to rely more heavily on one type of analysis than another in order to better control the risk.

Analysis Tools Defined

Technical analysis differs from fundamental and sentimental analysis in that it only takes into account the price and volume of an asset.

The core assumption is that all known fundamentals are factored into price; thus, they become irrelevant and there is no need to pay close attention to them.

The technical trader is not attempting to measure the asset’s intrinsic value, but rather trying to use technical analysis tools like chart patterns, oscillators and trends to determine what an asset will do in the future.

Fundamental analysis relies on macro-and micro-economic factors to determine the long-term and short-term value of an asset. Fundamental analysis looks at the factors that cannot be measured in a price chart. Some of these factors include supply/demand, economic strength, and economic growth.

Sentimental analysis has often been described as “reading the news”. However, it is probably closer to “reading the price action”. This is because something reading the headlines can fool a trader. Therefore, sentimental analysis works better over the short run with technical analysis, but over the long run, fundamental analysis will likely override any short-term sentimental biases.

Trading with sentimental analysis alone can be effective, but you need to be patient when you utilize this method. News does not happen every day for every asset. If you specialize in currencies, for example, you might only be making a couple of trades per week.

How and When to Use the Three Analysis Tools

Every trader will have a slightly different way of analyzing their assets of choice, and this is okay.

Some traders refer to themselves as pure technical traders and choose to ignore the fundamentals completely. They rely on statistical confidence in trading signals and assume the fundamentals have been priced into their analysis.

Fundamental traders tend to develop a bias in a market based on the macro-economic or long-term fundamentals then make adjustments to the microeconomic or short-term fundamental news.

Sentimental traders tend to react to the headlines and trade the momentum based on the news. This implies that a sentimental trader leans toward the technical side since momentum refers to price action.

A sentimental trader is linked to the fundamental side of the equation because the best momentum-generating headline is often caused by a surprise in the news. In order to be surprised by the news, one has to know the fundamental expectations ahead of a report, for example.

Summary

There is no one way to trade that is better than another. However, when measuring trading risk, technical analysis is probably the best tool to use. Furthermore, when building a trading system, technical analysis is probably best because of the plethora of statistical tools available to back-test trading theories.

It’s difficult to measure the success of fundamental analysis over the short run because it takes a long-time for a major fundamental event to develop. Think about how difficult it is to trade central bank activity over the short run. Then think about how much easier it is once a central bank decides to loosen or tighten policy.

Sentimental analysis is primarily used by the trader who likes action. The sentimental trader often has an indication of what the fundamental report is expected to show then reacts to whether the report is above or below expectations. Furthermore, the trader likely takes a peek at the chart to determine the momentum of the price action. In this case, it’s safe to say the sentimental analysis trader is more likely to use a blend of technical and fundamental analysis.

Many people thrive on short-term trades, but just as many need to trade longer-term in order to be successful. A well-rounded approach will utilize both time frames and will also use all three types of analysis.

You’ve probably heard the popular phrase about how you shouldn’t keep all of your eggs in one basket. This is a fancy way of saying you shouldn’t rely solely on one method for success. This suggests that trading a blend of technical, fundamental, and sentiment analysis may be the best approach with more control over risk.

Trading is a high-risk activity any way you look at it and you will want to reduce that risk for long-term success. A little bit of short-term trading plus a little bit of long-term trading will be your best choice for sustained results. Just like blending a little technical analysis with a little fundamental analysis.

Meanwhile, if you like trading the action then sentimental trading is probably the best, provided you use technical chart points to control the risk.

Interest Rates and Their Importance

In simple terms, an interest rate is the percentage of principal charged by the lender for the use of its money. The principal is the amount of money loaned.

Interest rates affect the cost of loans. As a result, they can speed up or slow down the economy. The Federal Reserve manages interest rates to achieve ideal economic growth.

Banks and other institutions charge interest rates so they can run a profitable business. They borrow money at a lower rate than the rate that they charge. This generates a profit.

Credit card companies charge interest on the goods and services that you purchase. Mortgage companies charge interest on the money borrowed to buy a house.

Banks and the U.S. Treasury also pay interest to investors who put money into savings accounts, CDs, Treasury bills, notes and bonds. In these cases, the investors lends the money to the bank or Treasury.

What is an Interest Rate?

An interest rate is either the cost of borrowing money or the reward for saving it. It is calculated as a percentage of the amount borrowed or saved. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR).

Understanding APR

The annual percentage rate (APR) is the total cost of the loan. It includes interest rates plus other costs. The biggest cost is usually one-time fees, called “points.” The bank calculates them as a percentage point of the total loan. The APR also includes other charges such as broker fees and closing costs.

Both the interest rate and the APR describe loan costs. The interest rate will tell you what you pay each month. The APR tells you the total cost over the life of the loan.

Understanding Interest Rates

Interest is essentially a charge to the borrower for the use of an asset. Assets borrowed can include cash, consumer goods, vehicles, and property, according to Investopedia.

Home buyers borrow money from banks when they take out a mortgage. Other loans can be used for buying a car, an appliance, or paying for college.

Banks also become borrowers when an investor deposits money into a savings account. They pay the investor interest on the money deposited. They then use the deposited money to fund loans that they charge a higher rate to borrow. The difference between what a bank pays and what a bank receives is their profit.

How Interest Rates Work

When an individual borrows money from a bank, it applies the interest rate to the total unpaid portion of his loan or credit card balance, and he must pay at least the interest in each compounding period. If not, the outstanding debt will increase even though the individual is making payments.

Bank interest rates are very competitive, and their lending and savings rates aren’t the same. A bank will charge higher interest rates if it thinks the borrower is a credit risk. For that reason, it assigns a higher rate to revolving loans such as credit cards. The interest rate a bank pays a savings account holder is usually determined by market conditions usually set by the Federal Reserve.

Fixed Versus Variable Interest Rates

Lending institutions charge fixed rates or variable rates on their loans. Fixed rates remain the same throughout the life of the loan. At first, your payments consist mostly of interest rate payments. As time passes, the borrower pays a higher and higher percentage of the debt principal. An example of a fixed-rate loan is a conventional mortgage.

Variable rates change with the prime rate. This is the interest rate an institution charges to its best borrowers. The prime rate is based on the Fed funds rate. This is the interest rate the Fed charges to its best banking customers.

How Are Interest Rates Determined?

Interest rates are determined by the Federal Reserve, or the Fed funds rate, or by Treasury note yields, which are determined by the financial market conditions.

The Federal Reserve sets the Federal Funds rate as the benchmark for short-term interest rates. The Fed funds rate is what banks charge each other for overnight loans. The banks consider other banks their best customers.

Treasury note yields are determined by the financial market’s demand for U.S. Treasurys, which are sold at auction. Under certain economic conditions, demand for Treasurys will be high. When investors are willing to pay more for Treasurys, interest rates move lower. There are certain conditions like an economic recovery when interest rates increase, this drives down U.S. Treasurys.

Impact of High versus Low-Interest Rates

High interest rates have a negative effect on the economy because they make loans more expensive. When interest rates are high, few consumers and businesses can afford to borrow. This slows down economic growth. At the same time, it encourages people to save because they get paid more for their savings deposits. This takes money out of the economy and slows down growth.

Low-interest rates have the opposite effect on the economy. Low mortgage rates, for example, increases home buyer demand. This tends to drive up home prices. Savings rates fall and investors move money into assets that pay higher yields like the stock market. Basically, low rates increase liquidity that helps the economy expand.

Fed Tries to Hold Rates Steady

Consumers and investors often ask, “If low-interest rates provide so many benefits, why wouldn’t the Federal Reserve keep rates low all the time?”

It is generally accepted that the U.S. government, the Federal Reserve, some businesses and consumers prefer low-interest rates.

The U.S. government likes low interest rates because it borrows tremendous amounts of money to run the country. Capital intensive companies like technology firms prefer lower rates as well as consumers who want to buy houses, cars, appliances and clothes on credit. Banks, however, prefer higher rates because they tend to increase profits due to the high rates of interest they can charge on loans.

But low-interest rates can cause interest rate. If there is too much liquidity, then the demand outstrips supply and prices rise. Some inflation is good for the economy because it shows growth, but runaway inflation tends to be detrimental to the economy.

Investment Strategies for Extremely Volatile Markets

Volatile markets can be very challenging to navigate. At the same time, they offer great opportunities for outsized profits. In this article, we’ll discuss key things that will help you stay the right course during times of extreme volatility.

Always Stick to Your Plan

Trading always requires planning. A proper plan becomes even more important when markets are volatile since traders have to react quickly. It is important to stick to your original plan during big price swings, as they cause big emotions. Make sure that you are well-prepared before you make a trade. Once you have established a position, you may have little time to analyze the market’s movements, so you should just stick to your original plan. Changing plans “on the fly” often leads to poor results.

Adjust Your Position Size

Extreme volatility provides traders with a chance to win big. But, losses may also be significant if your trade goes the wrong way. In this light, it is important to limit your position size to successfully survive volatility and profit from the opportunities it provides. Some traders feel the urge to increase their position size when they feel that markets are ready for a big move. You should resist this temptation. If you see several opportunities, you’d be better off taking several positions of limited size rather than betting big on one trade.

Use Limit Orders

As the market situation changes fast, it is extremely important to get the correct price for every entry. Thus, you should only use limit orders. You can place such orders a bit above (or below, depending on the direction of your trade) the market to increase your chances to get into a trade at times of huge volatility, but you should not be too generous. A good price is a very important component of a successful trade. It is better to avoid getting into a trade altogether than to get into a trade at a price you weren’t expecting.

Use Wider Stop Loss Orders

When markets move fast, prices can easily breach key levels even if these levels are strong. Stop loss orders should be wider if you want to avoid being stopped out of a good trade – your trade need some room to “breathe” when the market is volatile. If you have adjusted the size of your position and stayed within the limits of your usual risks, wider stops will not cause problems.

Watch Your Leverage

Leverage is a two-edged sword. It helps you make more money in a winning trade, but it also bites hard when the trade goes in the wrong direction. Be conservative with leverage when markets are volatile. Volatility itself will provide you with a great opportunity to make money. Attempts to artificially increase potential profits by using excessive leverage may hurt your trading account if the market suddenly turns against you.

Focus on Short-Term Trades

Markets can move very fast in both directions at times of extreme volatility. Thus, traders should focus on short-term trades so that they can take their profits off the table before the direction of the instrument changes. Even traders who are comfortable with calm, positional trading will be better off taking at least some profits when their trade goes in the right direction in volatile markets.

Exit Your Positions in Parts

There is no magic indicator that will show you when the market is changing its direction if prices are changing very fast. You should exit your positions in parts to increase your chances of taking advantage of the instrument’s move. This tactic will also help you limit losses (or avoid them) if the trade went according to your original plan but then suddenly reversed course.Besides, it will be easier to sit through major swings if you have already taken some money off the table.

Breakthroughs Typically Work Well In Volatile Markets

Extreme volatility is a time when market moves are very strong. Thus, instruments easily breach levels and attract more speculative traders which is good for the continuation of the move. Going with the market’s momentum will work better in the majority of cases in this environment. False breakthroughs will also occur, but the percentage of false breakthroughs will be lower than at times of calm, range-bound markets.

Don’t Catch Falling Knives

As we have discussed above, momentum is a major factor in volatile markets. As they say, the trend is your friend, and this is especially true at times of volatility. While “bottom picking” may look attractive as it promises outsized profits, risks are often too big when markets are volatile. Furthermore, it is much more difficult to determine the potential bottom when prices are moving very fast in comparison with ordinary times.

Do Not Trust RSI And Similar Indicators When Markets Move Fast

By definition, volatility causes outsized moves. Thus, instruments will become overbought or oversold, but it means nothing in such an environment. Time and time again, you will see that an “overbought” instrument is rallying if momentum is strong, while the “oversold” instrument keeps dropping like a rock. Watch momentum and key levels and do not worry about indicators screaming “overbought”/”oversold”. Such indicators work much better in calmer markets.

Once A Major Level Was Breached, Minor Levels May Have Little Impact on Trading Dynamics

When markets are extremely volatile, you should focus on key technical levels. Minor levels, which may have served as material obstacles during calm times, will be ignored in most cases. That’s the nature of volatile markets. Price swings are big, and only major levels count.

Bottom Line

Stay calm and focused despite extreme volatility. Have a plan and stick to this plan. Do not be greedy – take smaller positions and use wider stops. Do not forget to take some profits off the table if your trade is going in the right direction. Follow momentum and don’t try to find the ultimate top or bottom. Extreme volatility is a time of opportunity – use this time wisely.

Forex Trading involves significant risk to your invested capital. Please read and ensure you fully understand our Risk Disclosure.

This article is brought to you by Forex4you