Q- What is slippage and what are the causes of slippage?

A- Slippage happens when an order is filled at a price that is not similar to the requested price.

Slippage is a common thing to experience as a Forex trader because trade size and price on a buy order must be similar to sell orders of equal size and price.

Slippage can work either negatively or positively. The important causes for slippage are execution speed, Forex market volatility expected and unexpected economic events and due to natural or man-made disasters, etc. When this occurs, the liquidity provider will complete the trade at the next available price.

Avoiding slippage is not possible, however, it can be minimised. One way for traders to reduce slippage is to make sure that their broker works with a number of liquidity providers. Second way for traders to avoid slippage is to avoid opening trades during the duration of high volatility. As we discussed earlier that volatile trading periods usually increase the chances of slippage because price moves on fast track and at wider intervals.

Examples of Forex Slippage:

Suppose the price of the EUR/USD was 1.15010. After analysis, you think that the pair is on an upward trend and long a one standard lot trade at current price of EUR/USD 1.15050, expecting order to be filled at the same price of 1.15050.

The market follows upward trend but moves above your execution price and up to 1.15060 in very short time– within a second. This is because the price (1.15050) which you expected is not available in the market, therefore, you are offered the next available price.

Let’s assume, you would experience positive slippage:

1.15050 – 015045 = 0.00005, or you can say +5 pips.

Let’s take another scenario, in this scenario the trade was executed at 1.15055. You would then experience negative slippage:

0.15050 – 0.15055 = -0.0005, or you can say -5 pips.

So, please keeps it in mind that you can experience slippage with all types of requested orders which includes Stop Loss, Take Profit, Buy/Sell Stops and Buy/Sell Limit Orders.

Q- What is a demo account and is it good for practice?

A- If you are new to trading and want to learn forex or you just want to test a new strategy then you go first try demo account. A demo account enables you to experience risk-free trading and try-out your strategies on the live market.

There is no need to deposit your own funds on Forex right away. In this market most of the brokers offer demo accounts where you can do practise. Demo account will allow you test out the live forex market using virtual money. However, everything has its advantages and drawbacks as well. Similarly, a demo account contains both. As we discussed earlier, a demo account will let you practice your skills using virtual money. No matter whether you make a mistake, you will not lose anything. It sounds appealing but there are hidden drawbacks. Firstly, demo accounts are filled with a bigger funds by brokers which enables beginners to select higher lot size and it also enables them to take higher risk. Moreover, with a large money on demo account, the trader never understand real losses as it can be easily regained by a big capital than by a small one. Secondly, another big drawback of the using demo account is the lack of real emotions. There is a saying that when you have nothing to lose, you can’t experience a loss .Loss on real account lets trader’s to learn risk management and to control their emotions. Therefore, it doesn’t make any sense to test your emotions and skills on demo account.

Q- At what time forex market open?

A- Forex market is the only market in the world which opens 24 hours a day and 5 days a week i.e from Sunday evening until Friday night. Each day of forex markets begins with the opening of the Australasia area, followed by European session and then North American session. As soon as one region’s market closes another opens, or has already opened. Traders can trade anytime as they like during the working week, therefore, it provides a great chance for traders to trade at any time of the day or night.

Forex trading hours:

New York opens from 8:00 am to 5:00 pm EST (EDT)

Tokyo opens from 7:00 pm to 4:00 am EST (EDT)

Sydney opens from 5:00 pm to 2:00 am EST (EDT)

London opens from 3:00 am to 12:00 noon EST (EDT)

These three sessions overlap during a few hours:

New York and London: from 8:00 am to 12:00 noon EST (EDT)

Sydney and Tokyo: from 7:00 pm to 2:00 am EST (EDT)

London and Tokyo: from 3:00 am to 4:00 am EST (EDT)

In aforesaid overlapping trading hours, traders find huge fluctuation, therefore, traders get more chances to earn in the foreign exchange market.

Q- What is the economic calendar and why do we use it in Forex trading?

A- Economic calendar is one of the best tools to use in Forex trading. In simple words, it tells us the relevant events which are happening across the globe and tell about the impact of these events on the Forex market. The economic calendar allows a trader to know and understand about market movements in a certain way, apart from this, it also allows a trader to predict these moves in advance. It is normally seen that the biggest market-moving moments happens due to the release of economic data such as the GDP, US non-farm payroll, interest rates, etc. These economic events offer excellent trading opportunities for traders. Let’s discuss major economic events which have a great impact on the Forex market.

U.S crude oil inventories:

The Energy Information Administration ascertains the weekly fluctuation in the number of barrels of commercial crude oil stored by US companies. The aforesaid fluctuation has a great impact on the prices of petroleum products, which is one of the major cause of inflation. In case the increment in crude oil is more than expected, it represents weaker demand and is a bearish sign for crude prices. On the other side, If the increment of crude oil is lower than expected, it represents higher demand and is a bullish sign for crude prices.

U.S. Core Consumer Price Index (CPI)

The Core Consumer Price Index calculates the variation in the price of services and goods, eliminating energy and food. As far as price stability is concerned, the Central bank gives much importance to this figure as the Federal reserve system believes that core inflation is the best instrument of underlying price pressures. We will consider it bullish for the USD when the actual reading is stronger than forecast reading, while we will consider it bearish for the USD when the actual reading is weaker than forecast reading.

Non-farm payrolls

Non-farm payrolls is a statistic data which is published usually on the first Friday of any given month. Non-farm payroll data tells us how many people are currently employed in the US, and working under construction, manufacturing and goods companies. NFP is a short form which is generally used. NFP data also represents the average number of hours worked per week, the unemployment rate, and average hourly and weekly earnings is also published. Non-farm payrolls data excludes: workers who are in the agriculture sector and those employed in private households or in non-profit organizations. US Bureau of Labor Statistics releases the non-farm payroll data. So, in nutshell, NFP data represents the number of jobs lost or added in the economy over a one-month period, which is then compared to previous month’s release in order to measure the health of the economy.

If the actual figure is stronger than forecast it is normally a positive sign (bullish) for the USD, while a weaker than forecast data is normally a negative sign (bearish) for the USD.

Core Retail Sales

The rise or fall in the total value of sales at the retail level in the U.S., except automobiles and gasoline sales is known as Core retail sales measures.T his indicator indicates us about the consumer spending which accounts for a big percentage of US GDP. Core retail sales is also a major indicator which indicates economic health. U.S. Department of Commerce releases this monthly figure.

If the actual figure is stronger than forecast is normally a positive sign (bullish) for the USD, while a weaker than forecast data is normally a negative sign (bearish) for the USD.

US Retail Sales (MoM)

The main difference between the U.S. core retail sales data and U.S. retail sales data is that core retail sales does not include autos and gasoline figures. Gasoline components and autos are not taken into consideration as they are quite volatile as far as price fluctuation in concerned. The Census Bureau publishes (CB) retail sales data, for a month over month (MoM) and year over year (YoY) percentage changes. Fluctuation in the market can be easily seen when the data is released. Therefore, retail sales is considered a major event as far as the economic health of a nation is concerned.

If the actual figure is stronger than forecast is normally a positive sign (bullish) for the USD, while a weaker than forecast data is normally negative sign (bearish) for the USD.

Unemployment Rate:

When the labour force actively looking for work we call it unemployment rate. It is defined in percentage. Long term unemployment are highly damaging to consumer sentiment, and as a result it also affect consumer spending and finally it creates a bad effect on economic growth.

In other way we can say, when somebody loses job, his family is also affected. Likewise, when people lose jobs in bulk, gradually the whole country is affected. So, unemployment rate is a key way to monitor the health of the economy.

If the actual figure is weaker than forecast is normally positive sign (bullish) for the USD, while a higher than forecast data is normally negative sign (bearish) for the USD.

Federal Fund Rates

The interest rate which banks levied on each other for overnight loans to meet reserve requirements. In case bank is not able to fulfil its reserve requirements, it can borrow funds from the Federal Reserve or from other banks that keep funds at the Fed. This is different from the discount rate, the rate that the Fed levied for overnight loans. The Federal Reserve can increase or decrease fed fund rate in order to control U.S . economic growth. That is why people call it most important interest rate in the world. In simple words, According to Federal Reserve, banks and other financial institutions must keep a required amount of funds in reserves at the end of each working day to safeguard customers funds and to secure against bank insolvency. This is known as reserve requirement. If we talk about the reserve requirement in terms of percentage, that is around 10 percent of the deposits made at a financial institution. Lets say, if a bank has deposits of $10,000,000 so in this case the $1,000,000 (roughly) would be Bank’s overnight reserve requirement.

If the figure is stronger than forecast is normally positive sign (bullish) for the USD, while a weaker than forecast data is normally negative sign (bearish) for the USD.

GROSS DOMESTIC PRODUCT (GDP)

GDP is a tool to measure country’s economic growth. It is GDP which enables wall street to understands the direction of the economy, and it is the big indicator as far as corporate planning is concerned. Political leaders use GDP to shape economic policy and to make budgets, and central banks use it to prepare monetary policy. This GDP indicator help us to see and compare standard of living & economic growth rate of different countries. In order to compare GDP data of different countries, we need to convert their value in national currency using the current currency exchange rate. If a vehicle is manufactured in one quarter and not sold until two quarters later, in this case, its value will be considered in GDP in the quarter when the vehicle was actually manufactured.

GDP considers all public and private consumption, investments, government outlays, paid-in construction costs, private inventories, and the foreign balance of trade (exports are added and imports are subtracted)

If the actual figure is stronger than forecast is normally positive sign (bullish) for the USD, while a weaker than forecast data is normally negative sign (bearish) for the USD.

INDUSTRIAL PRODUCTION INDEX

This index tells the growth rates in different industries of the economy in a stipulated time frame. Central Statistical Organisation (CSO) computes and publishes IIP index on a monthly basis. The industrial production index calculates levels of production by the mining – including oil and gas field drilling services, manufacturing sector, – and gas and electricity utilities. The Federal Reserve Board (FRB) issues the data related with industrial production index (IPI) at the mid of every month, and corrections to previous estimates are published at the end of every March. The aforesaid FRB collects these data from government agencies and industry associations, and aggregates them into an index using the Fisher-ideal formula.

If the actual figure is stronger than forecast is normally positive sign (bullish) for the USD, while a weaker than forecast data is normally negative sign (bearish) for the USD.

DURABLE GOODS ORDERS

This is an economic indicator published by the United States Census Bureau (The Census Bureau is related with the U.S. Department of Commerce and its director is selected by the President of U.S.) on monthly basis. Durable goods orders are published in two releases every month: The manufacturers’ shipments, inventories and orders and the advance report on durable goods.

Durable goods consist of costly items that are used for three years or more. Due to this, organizations purchase them but not on regular basis. It includes equipment and machinery, such as industrial machinery, computer equipment, and raw steel. Durable goods also consist of costly items such as tanks, steam shovels, and airplanes.

If the actual figure is stronger than forecast is normally a positive sign (bullish) for the USD, while a weaker than forecast data is normally a negative sign (bearish) for the USD.

U.S EXISTING HOME SALES

This report tells us about the existing residential houses that were sold during the previous month. Profit earned from the sale of their present house is used to purchase a larger house that means more are spending on power. The increment in existing home sales data also tells us about commissions to property agents and larger revenue for packaging companies and mortgage lenders. Apart from this, existing home sales data is shows consumer spending and can impact interest rates.

If the actual figure is stronger than forecast is normally positive sign (bullish) for the USD, while a weaker than forecast data is normally negative sign (bearish) for the USD