4 Steps to Becoming an Introducing Broker

become an introducing broker

New forex brokers have different ways to enter and offer forex trading services in one of the most fascinating and lucrative markets in the world. One way to do so is by becoming an introducing broker (IB). 

Much like an affiliate marketer, introducing brokers operates in collaboration with another brokerage firm that already has a client base and a successful profitable operation. However, an IB broker is much more than an affiliate marketer. It’s a real partnership between two firms where the IB broker is able to offer additional services and even make higher commissions.

Therefore, if you have the ability to attract forex clients and provide forex trading services, becoming an introducing broker could be the ideal solution for you. With the steps we have outlined in this article, you can start an IB business. But firstly, let’s understand what an IB Introducing Broker is…

What is an Introducing Broker (IB)?

An introducing broker, also known as IB, has a direct relationship with forex clients but without having to directly execute trades for them. Instead, the trades are executed by the brokerage firm with whom the IB partners. This means that the introducing broker directs clients to the partner broker, provides trading services such as consolation and customer support, and in return, receives a commission for every trade executed by the partner broker. 

Essentially, referring clients to a brokerage firm might sound like what an affiliate marketer does. However, there are some notable differences between an affiliate and an Introducing Broker. An affiliate basically can set up a website or simply refer clients by using affiliate links and get paid for referrals for the brokerage. An IB, on the other hand, not only brings in clients but also provides trading services and consultation. An IB can create long-term relationships with clients that are based on the quality of their services and the professionalism they offer. Secondly, an IB doesn’t accept and hold clients’ funds. Lastly, an IB does not need to have a compliance department and proceed with KYC procedures with clients.

How to Become an Introducing Broker (IB)?

If you are wondering how to become an Introducing Broker,  here are the steps you need to take. 

1. Find the Right Brokerage Firm to Partner with

The next step is to find the right broker you want to partner with. There are lots of forex and CFD brokers to choose from so this step might be the most important of all. In some cases, you might have to open a trading account with the prospective partner broker and find clients’ reviews about the firm. 

Further, you should consider the following aspects before you sign up with a partner broker:

  • Is the broker licensed and regulated?
  • What financial assets do they offer? Forex, CFDs, options, stocks?
  • How long do they operate in the forex trading industry?
  • What’s their reputation?
  • Do they have good trading platforms and mobile trading apps?
  • What’s their commission structure for IB?
  • Do they offer marketing assistance?

As we mentioned, finding a regulated brokerage firm to partner with is not an easy task. The forex industry is filled with unregulated brokers and occasionally, even scam brokers. As such, you need to ensure that clients get safe trades and are able to withdraw funds whenever they wish. Partnering with a regulated and reputable broker is essential for your success as an IB.

What’s more, you need to sell your clients a top-notch trading experience and preferably, low trading costs. So, an advanced trading platform and a mobile trading app will help you attract more clients. Additionally, a wide range of financial instruments would be another crucial factor. Make sure you choose a  partner broker that gives your clients access to shares, ETFs, Forex, commodities, indices, and cryptocurrencies. 

2. Close the Partnership Deal with the Partner Broker

Now that you have set your mind on a certain brokerage firm to partner with, it’s time to check out what they are actually offering you. Look at the execution model they have – ECN/STP or market maker, check their commission per trade, and understand all the terms and conditions they have for IB. 

Also, try to figure out whether the rates they offer match your clients’ style. If you can bring heavy traders with a large sum of money to trade with, you might have to choose forex brokers with VIP accounts, and special terms for those who trade with large account balances. Ask your partner broker how flexible they are with the commission types they offer and do they have special packages for the type of clients you plan to refer. Further, will they provide special trading tools for IBs? Do they offer a demo account? Islamic account? 

Then, once you have got the answers and you are certain you made the right choice – close the deal. 

3. Find Clients and Refer them to the Partner Broker

Now it’s time to find clients and refer them to your partner broker. After all, this is how you can make an income from becoming an IB.

To do so, you need to create a website and social media pages or use your existing contacts, if you have any of these. Try to differentiate yourself with the unique service and trading tools you provide your clients. Most importantly, be attentive to your clients’ needs and help them find a way to get reliable access to the market.

When your clients feel that you have the tools to provide them top-notch access to the trading world, you’ll be able to develop a long-term relationship and increase your client base. This will benefit you as an IB as well as the brokerage partner you are promoting. 

4. Build on Your Success

Lastly, you need to build a successful business. One way to do that is to develop an online presence by building a website, social media pages, newsletter, etc. Obviously, you’ll have to create a unique name for your business, whether you decide to use your personal name or a professional brokerage firm name. 

One thing you need to remember – in the world of online trading, reputation is everything. A successful introducing broker usually has the most satisfied customers. So, make sure your clients are satisfied with the trading experience you provide them and do everything possible to transfer that information forward. This can be done via reviews, forums, a YouTube channel, trading tutorials, etc. 

Becoming an Introducing Broker (IB) – Things to Keep in Mind

Now that you have the necessary information on how to become an introducing broker, here are some additional key points to keep in mind. 

You need clients, and you need them now!

As an IB, you need clients. And the more clients you have, the more successful your IB business will become. This means you need to get the word out quickly and aggressively. Use different marketing methods, and set aside a generous budget for marketing. If you don’t have clients, you cannot build a reputation and your business will fail sooner than expected. 

Find a business model

Finding a business model that works takes time, especially in a competitive industry like the forex one. Nonetheless, try to do your best in order to build a business that works for all sides – that is your company, your forex clients, and your partner broker.  

Some forex brokers prefer working with beginner traders while others insist on working with professional high-volume traders. It all depends on the circumstances. Be attentive to your partner broker and make all the calculations that may benefit all sides. If doing so, eventually, you’ll be able to find the right business model. 

Make your partner broker satisfied

In this arrangement, your partner broker is your most important client. Make sure you not only choose a brokerage partner that is regulated and licensed, but also a broker that has a good staff so you can build a long-term relationship and mutually profitable partnership. Also, ensure they are happy with the service you provide and ask them occasionally if there’s anything you can do to improve your offerings.


Become an Introducing Broker Now!

With more people joining the online trading arena and looking for ways to grow their wealth, now is the best time for you to find a partner broker and build your own client base. Start today by reaching out to them, and making the first step to create a successful IB business.


Top Economic Events For 2022

top economic events 2022

With 2021 now behind us, it’s time to turn our attention to the coming year. Are you ready for 2022? If not, don’t worry. This article will prepare you for the next 12 months in the financial markets.

Major Financial Events Of 2022

Public health, monetary policy, energy, and politics are the featured market underpinnings on tap for the coming year. Read on to learn more about the timing and potential impact of each market driver on the world of finance.

COVID-19

If we’ve learned anything from the past two years, the COVID-19 pandemic can profoundly impact the markets. From the initial onslaught during March 2020 to the emergence of Omicron in November 2021, COVID-19 can quickly derail any analyst’s economic outlook.

In late November 2021, the Omicron variant brought angst to the markets. Upon the variant being reported in the United States, the US30 posted a 1,000 point Black Friday loss.

Omicron Black Friday panic

The reach of COVID-19 is extensive. The events below can impact any business strategy and quickly bring volatility to all markets:

  1. New variants
  2. Travel restrictions
  3. Quarantines
  4. Supply chain disruptions

COVID-19 will continue to play a role in the markets throughout 2022. As we saw with the Black Friday Omicron panic, corrections can be severe and develop swiftly.

Monetary Policy

2022 is slated to be an active year for central banks. Industry analysts expect interest rates to rise as policies turn from “accommodative” to “restrictive.” The main reason for this pivot is to manage inflation and promote pricing stability for consumers.

The tightening narrative stems from 2021’s robust inflation figures, specifically consumer price index (CPI) readings. In the U.S., CPI reached 40-year highs; the U.K. saw inflation hit levels not seen in 10 years. To combat global inflation, the European Central Bank (ECB), Bank of England (BoE), and U.S. Federal Reserve Bank may look to raise interest rates, reduce debt purchases, and incentivize savers.

One thing is certain, Jerome Powel is about to face a very challenging year.

Jerome Powell, economic news

A recent example of central bank-induced volatility came in February 2022 with a 0.25% BoE rate hike. The GBP/USD chart below gives us a good look at how policy changes can impact a major currency pair.

GBPUSD interest rate hike

If you’re going to trade in 2022, be sure that you know when central banks make their policy announcements to the public. Central bank releases can significantly impact economic growth, market volatility, and the global economy. In the event that the U.S. Federal Reserve Bank, BoE, or European Central Bank adjust their policy stance, forex volatility is assured.

European Central Bank (ECB) Schedule

  • ECB monetary policy meetings for 2022 are scheduled as follows: 11 March, 22 April, 10 June, 22 July, 9 September, 28 October, 16 December.

U.S. Federal Reserve Bank (Fed) Schedule

  • Meetings for 2022 are scheduled as follows: March 15-16, May 3-4, June 14-15, July 26-27, September 20-21, November 1-2, December 13-14.
  • The official U.S. Federal Open Market Committee (FOMC) meeting minutes are released three weeks after each Fed meeting.

Bank Of England (BoE) Schedule

  • Monetary Policy Committee (MPC) announcements for 2022 are as follows: 17 March, 5 May, 16 June, 4 August, 15 September, 3 November, 15 December.

OPEC+ Policy

As the adage goes, “oil is the lifeblood of the industry.” For 2022, oil will be a significant economic and GDP growth driver. West Texas Intermediate (WTI) and North Sea Brent (Brent) crude oil eclipsed the $93.00 mark in early February, setting the stage for a 2022 test of $100 per barrel.

Given oil’s lofty valuations, its supply will be a primary focus for energy traders and investors. And, one of the vital supply-side energy market drivers is the policies of OPEC+. In an early-February meeting, the members of OPEC voted to stick to a planned springtime 400,000 barrel increase in output. As you can see in the USOIL market data below, traders took the decision as a sign of limited supply.

crude oil futures chart

OPEC+ meetings and decisions may prove to be significant market movers in 2022. Typically, an OPEC press conference or policy vote is announced in advance; be sure to regularly monitor OPEC scheduling as special events may be held in excess of the planned docket.

If you’re trading energies in 2022, a great way to stay on top of OPEC news is to study the group’s Monthly Oil Market Report.

U.S. Mid-Term Elections

In November of this year, the U.S. Congressional Midterm elections will be held. Up for grabs is control of the House of Representatives and Senate. The key hot-button political issues will be COVID-19 response, infrastructure spending, labor market strength, and immigration policy.

As the 8 November Election day approaches, politics is likely to become a vital financial market driver. At stake are trillions of dollars in proposed government spending and a potential transition of power from the Democratic to the Republican party.

Will Election 2022 derail the 2020/2021 Dow Jones Industrial Average (DJIA) bull market? Given the current political and economic landscape, anything is possible.

dow jones industrial average index chart

The outcome of this year’s midterms remains uncertain. And, markets aren’t fond of uncertainty. If historical data is correct, the sitting US president’s party loses congressional seats in midterm elections. Should history repeat itself, control of the Senate and House of Representatives would reside with the Republicans.

Given a Republican congressional majority, the Biden administration’s proposed $5 trillion in infrastructure spending and proposed environmental policies would likely be off the table. The forex impact could be substantial, as traders and investors price in the new balance of power in Washington D.C.

Bottom Line

2022 is filled with events that may roil markets, impact consumer spending, and directly influence economic growth. Each is likely to encourage participation from traders and investors, which may enhance pricing volatility. 

If you’re going to be active in the markets during 2022, be sure to reference an economic calendar and live news feed. By staying abreast of key events, you can navigate market turbulence and profit from the action.

Make your 2022 the best it can be with SwitchMarkets.com. Featuring 180+ tradeable instruments, fast order execution, and tight spreads, Switch Markets is world-class forex and CFD outlet. Before you place another trade, check out a free Switch Markets demo today!

How to Day Trade Crude Oil Futures and CFDs

crude oil trading, commodity trading

Crude oil is one of the most vital energy sources used globally and is a highly traded commodity.  It can be traded physically or for the purpose of speculating on the price of crude oil and making profits from short-term movements. 

If you consider crude oil as your primary day trading asset, you need to understand the basics of the ‘black gold’ commodity. In this guide, we’ll help you find out if crude oil is the best asset for you to day trade, what are the factors that impact crude oil prices, the methods in which you can trade crude oil, and more. 

Key Points to Take Away

  • WTI crude oil is the most popular and traded commodity in the world with nearly 1.2 million contracts traded on a daily basis
  • There are different ways to day trade crude oil. These include futures contracts, CFDs, ETFs, and options.
  • When trading oil futures, there are several factors and important reports that impact crude oil prices
  • Some of the tools that can be used to day trade crude oil futures include crude oil vs natural gas spread, trading the fundamentals, and understanding contango and backwardation

Is Crude Oil Good for Day Trading?

The short answer – absolutely, crude oil is a great asset for day trading. It’s an extremely popular commodity due to the fact that it offers high liquidity and market volatility. Further, there are various factors that impact crude oil price –  including geopolitical factors, seasonal demand, storage costs, etc – which make crude oil among the most interesting financial assets to trade. 

On the other hand, you need to take into account that the volatility of crude oil prices can work against you. It all depends on the type of trader you are and the type of trader you want to become. Typically, crude oil prices are moving fast in heavy trading and in large amounts. It is, therefore, a favorable commodity for aggressive traders that look for wide price swings rather than stable and ranging markets

Fun Fact

OPEC member countries control under 80% of the total crude oil reserves around the world

All the Ways to Day Trade Crude Oil

Much like any other financial instrument, there are various ways in which you can get access to crude oil day trading. Every way has its own pros and cons so you better investigate each method before you start day trading crude oil. 

Crude Oil Futures

The first and most conventional way to trade crude oil is via futures trading. In essence, crude oil futures are financial contracts between buyers and sellers to buy and sell the specified commodity at a certain price and date. 

There are different hubs for crude oil futures contracts with the most popular of all that is also used as the benchmark price for oil prices is the NYMEX West Texas Intermediate (WTI) Crude Oil futures. In 2008, the New York Mercantile Exchange (NYMEX) was acquired by CME Group, so the contracts are available on the Chicago Mercantile Exchange

The main attractions of trading crude oil futures contracts via the CME are the ability to buy and sell futures contracts with different expiration dates. As a matter of fact, many day traders use this as a trading strategy and trade the spread between futures rather than buying or selling an individual contract.

crude oil futures, commodity trading

Another major benefit of trading a crude oil futures contract is the use of the level 2 order book. This allows traders to view all the buyers and sellers and quantities of each crude oil futures trade.  Therefore, they can get a sense of the sentiment in the market and have information related to the specified market. 

Crude Oil CFDs (Contract for Difference)

Needless to say, there are lots of advantages to trading crude oil futures on a commodity exchange. The level 2 order book, the rebates, tight buy and sell spread, etc. But, trading crude oil futures is not necessarily the best option for every trader. 

First, it requires a high initial investment of somewhere around $5000-$10000 (although some brokers will allow you to open a futures trading account with $1000). Secondly, you need to expect a long and complicated registration and verification process. After all, crude oil is a physical commodity, which means that in some futures contracts, you ensure you’ll deliver the commodity at a predefined location and at a certain date. 

So, another way to get access to trading crude oil futures prices is through CFDs. These are basically derivative contracts of the NYMEX futures contract that enables traders to simply speculate on crude oil prices without physically holding and having to deliver the commodity. For that reason, CFD brokers require a low initial investment, provide leverage of up to 50:1 and give users access to free top-notch trading platforms and tools. 

Here, at Switch Markets, we offer crude oil futures trading via CFDs with a leverage ratio of 50:1, no fixed fees, and access to the popular MetaTrader 4.   

Crude Oil ETFs (Exchange Traded Funds)

Another way to speculate on crude oil prices is via Exchange Traded Funds (ETFs). These crude oil ETFs are essentially a basket of top oil companies around the world that make their income from distributing and selling various petroleum products. For that purpose, you’ll have to open an account with a brokerage firm that gives you direct access to stock exchanges (although many CFD brokers also provide Exchange Traded Fund trading). 

Nonetheless, here are the 5 most popular crude oil ETFs as of 2022:

FYI

The global supply of crude oil is expected to meet the world’s demand for at least the next 25 years

How to Day Trade Crude Oil?

Trading crude oil is no different than any other instrument. You’ll have to develop a trading strategy and master your fundamental and technical analysis skills. 

But before (and after) you develop a trading technique and learn how to use a trading platform – here is the information you must know when day trading crude oil futures. 

Factors that Affect Crude Oil Prices

There are several different factors that have a direct impact on crude oil prices. These include:

  • Seasonal demand
  • Economic growth and recession
  • Geopolitical events –  conflicts, wars, etc
  • Disruption in oil transportation
  • Increase or decrease in oil output by top oil-producing countries
  • Green energy technology improvement
  • Price movements in other petroleum products – natural gas, heating oil, Brent crude oil, gasoline, etc

Major Oil Companies to Follow

Even though the oil industry has been hit by the Covid-19 pandemic, it is still considered by many as the most profitable industry of all and the backbone of the global economy. Furthermore, there are signs of a recovery of the oil industry as the demand for oil is rising following the mini-crisis in 2020.  

Therefore, as a crude oil trader, you’ll not only have to follow the energy industry but also need to keep your eyes open and follow major oil and petroleum-related stocks. These companies include

Crude Oil: Key Data to Watch

Below, you can find some of the most important reports you need to watch when trading crude oil:

For more information, check our guide – How to Trade Natural Gas: Key Data to Watch

Fun Fact

As of early 2022, Saudi Aramco is the 3rd largest private company in the world in terms of market capitalization with a valuation of nearly $2 trillion. 

Tips and Trading Strategies for Day Trading Crude Oil

Professional oil traders need a trading strategy and a better understanding of the oil market. Remember, the oil market is quite complicated and you must increase your knowledge about the politics of the oil markets. To do so, you can read about the Petrodollar system between the United States and Saudi Arabia, the Russia-China oil and natural gas deal, etc. 

With that in mind, below are some tips and tools that you can use and integrate into your trading strategy:

Know and Trade the Fundamentals

Crude oil is primarily influenced by fundamental factors such as geopolitical events, weather, economic growth, etc. This means that if you are planning to day trade crude oil, you need to follow the news and trade the fundamentals. 

You can follow oil and gas websites, the EIA official website, Twitter (#crude oil, #WTI, #oilprice), etc. All for the purpose of knowing exactly what is going on in the oil market at any given time. 

Crude oil vs Natural Gas Spread

As an inter commodity spread, it is not surprising that there’s a strong correlation between crude oil and natural gas. Much like the gold to silver ratio – crude oil vs natural gas spread can be used as an indicator to buy or sell one of the assets, especially for intraday trading. In many cases, you’ll notice one of the commodities is moving before the other, which will help you find lots of trading opportunities. 

crude oil vs natural gas, trading chart

Crude oil vs Natural Gas Chart

Understanding Contango and Backwardation

In 2020, the price of a barrel of WTI crude – perhaps the most important benchmark price crude oil – fell below zero for the first time in history to a level of minus $37.63 per barrel. How is it possible? Well, basically the storage of crude oil is a factor that must be taken into consideration. At that time, when the coronavirus pandemic emerged and the lockdowns were implemented, no one wanted to buy oil products and sellers were willing to pay in order to get rid of the high crude oil storage cost. 

That is known as contango – a situation in which the future price of crude oil (or any commodity) is higher than the spot price. On the other hand, backwardation occurs when crude oil spot prices and the price of front-month futures exceed the price of futures contracts.  Usually, the crude oil market is in backwardation because there’s a constant demand for oil products. However, you must learn the concept of contango and backwardation and understand the huge impact storage costs have on oil prices. 

contango and backwardation, commodity trading

Source: Wikipedia

Day Trading Crude Oil Futures vs Forex

Beginner traders usually contemplate on what asset or market to focus on – crude oil (commodities) or forex. Clearly, there are a lot of opinions on both sides and you’ll most likely have to try each market before you make a decision. 

To start with, here are the main factors you need to consider:

Leverage: In the FX market, the leverage ratio can reach up to 500:1 while crude oil comes with a lower leverage ratio of up to 10:1 on futures exchanges and 30:1 with CFDs (Some CFD brokers like Switch Markets offer a higher leverage ratio of 50:1 for commodity trading). 

Volatility: Make no mistake, the forex market is volatile but is not as volatile as the crude oil market. However, bear in mind that volatility can work for you as well as against you so you need to develop your trading strategy and trading style before you choose the asset you want to trade on. 

Diversity: The good thing with the FX market is that you have a wide selection of currency pairs to trade on. The crude oil market, on the other hand, enables you to focus on one product only (unless you trade futures contracts with different expiration dates). That is, for some people, very monotonic. 

The bottom line – the volatility of crude oil can be certainly risky, especially for beginner traders. Having said that, it’s all up to you to decide. Traders who love fast-moving markets will prefer trading the crude oil markets while those who prefer diversity will choose the FX market. Our tip – Try both on a demo account and then decide. 

Fun Fact

According to researchers, oil has been used in different societies since the 3rd century BC

Final Thoughts

All in all, crude oil is certainly a good choice if you want to get involved in day trading. Oil is a liquid and volatile commodity and there are plenty of factors and market news announcements that affect crude oil prices. It is an exciting market to get into with different angles and interpretations. If you feel that you have an aggressive trading nature, crude oil could be the asset of choice for you. 

In this case, all that is left is to choose the best way of trading crude oil. Taking aside ETFs – the best choices for you are crude oil futures contracts or CFDs. If opting for the second option, Switch Markets enables you to trade crude oil with a leverage ratio of 50:1 on the MetaTrader4. But if you still have doubts, you can get access to a demo practice account before risking real money and see how the crude oil market works in real-time.  

FAQs

What’s the difference between WTI crude oil and Brent crude oil?

Brent and WTI Crude oil are the two main benchmarks for oil prices, located in different areas in the world. While Brent crude oil, traded on ICE exchange, is considered an international benchmark, West Texas Intermediate (WTI) is a US light sweet crude oil benchmark that trades on the CME exchange. 

Is oil traded 24 hours a day?

Well, basically yes. But not 24 hours. Only 23 hours a day. This is because the CME crude oil futures markets are open 5 days a week from 6:00 pm US until 5:00 pm ET. 

What’s the best way to start trading crude oil futures?

This largely depends on your goals as a trader and the budget you have to start your day trading journey. To be honest, if you are planning to become a professional crude oil day trader – then the best option is to invest a large sum of money (at least $15K-$25k) and open a futures trading account. Otherwise, the best way for you would be to open a CFD trading account – The deposit requirement is low, you get a high leverage ratio, there are no fixed trading costs (only spreads), and the tick value is not as high as trading crude oil futures contracts ($10 per tick for the standard futures contract, and $12.5 per tick for the mini crude oil futures ).  

How to trade crude oil on MT4?

To trade crude oil and other commodities on the popular MetaTrader4, you need to find a CFD broker that offers users the MT4. Switch Markets, for example, offers traders to open a trading account and get access to crude oil trading via the MT4 with a leverage ratio of up to 50:1.

Everything You Need to Know About The Gold-Silver Ratio

As its name suggests, the gold to silver ratio is a ratio that measures how many ounces of silver are needed to purchase just one ounce of gold. Due to the historic role of these two commodities and the fact that both gold and silver are extracted from the earth, many investors believe that it is a reliable indicator to predict gold and silver’s future performance. 

But how can you use this ratio in your trading? How does the gold-silver ratio really work? And what is the magic ratio number of the gold to silver ratio?

Key Points to Take Away

  • The gold-silver ratio is widely used by investors to predict future price movements of the two precious metals.
  • Since the early twentieth century, the average gold to silver ratio has floated between $40-$60.
  • The gold/silver ratio is one of the most ancient indicators applied by gold and silver traders and dates back to around 700 BC.

Understanding the Gold to Silver Ratio

From the basic point of view, gold and silver are some of the only precious metals commodities with intrinsic value that are not influenced by inflation, deflation, and the uncertainty of the world economy.  Each precious metal has its own unique features that remain irreplaceable until now, and both of them are expected to be even more precious in the future. 

Historically, these two metals became a legal form of money around 700 BC when the first Roman coins were issued to the public. Since then, gold and silver have had a strong financial connection known as the gold to silver ratio. As a matter of fact, the gold to silver ratio is most likely to be one of the most historical ratios to be made and it remains a significant ratio in the financial system until today. In Roman times, the gold-silver ratio was fixed at 12:1 and by the 18th century, the ratio was set to 15:1 in the United States and to 15.5:1 in France.

During the 20th century – when the free market economy has developed – the average gold-silver ratio was 47:1 though it experienced lots of extreme highs and lows over the century due to the great depression, the gold standard act in 1900 and the decision of the US government in 1971 to no longer convert US dollars to gold at a fixed rate.  

Since the beginning of the current century, it was mostly trading at a range between 40-80 until the ratio peaked to an all-time high of above 126 due to the impact of the Covid-19 pandemic in early 2020. But once again, since the economic recovery started in May 2020 and the end of lockdowns have resulted in a massive rebound in global economic activity, the spread dropped to be trading around 60-80.

Gold Silver Ratio Monthly Chart
Gold to Silver Ratio Monthly Chart

Simply put, the ratio measures how many silver ounces are needed to purchase one ounce of gold. It is a fairly simple ratio that calculates the relationship between the gold spot price and silver spot price. Meaning, anyone can make this calculation by dividing the price of gold by the price of silver. 

So, what’s the big story with this ratio? Well, for many reasons and in many ways, the gold-silver ratio has been an extremely reliable indicator to make investment decisions by gold and silver traders. This can be attributed to the high correlation between the two assets, and perhaps even the myth of the gold to silver ratio.

Regardless, many traders take advantage of probably the most basic and simple ratio out there.

Why Does the Gold-Silver Ratio Matter When You Trade Precious Metals?

Throughout modern history, gold and silver have been human’s most pure and widely used forms of money. That made the gold and silver ratio such a vital piece of information and even nowadays, the ratio is being used by metals merchants and traders. 

In trading, investors who trade gold and silver, as well as other precious metals, use the gold-to-silver ratio as an indicator for the right time to make a purchase or to sell one of the metals. Also, according to geologists and ‘rational’ traders, the ratio should be close to the ratio of silver to gold in the earth’s crust. If this is the case, then there’s no doubt that the gold-silver ratio should drop at some point. Theoretically, some people believe that the ratio should be set at 16:1 in favor of gold, which is the same ratio it has been trading for centuries. Others even take it further stating that in the current market conditions at which silver is widely used in industrial applications and electronics, the ratio should be in favor of silver. 

Nonetheless, in my view, for the average Joe trader – there’s no question about the importance of the gold-silver ratio. It has been there for thousands of years and is closely watched by professional day traders and long-term investors. 

Trading the Gold-Silver Ratio – How Does It Work?

In essence, trading the gold-silver ratio works on a very simple principle. As mentioned previously,  the ratio simply measures the number of silver ounces an investor needs to trade in order to receive one ounce of gold. For instance, if gold (XAU/USD) is trading at $1860 per ounce and silver (XAG/USD) is trading at $25 per ounce, then the ratio is set at $74.4. 

Keeping that in mind, there’s no future contract or any derivative contract that enables you to trade the ratio directly. To trade the ratio, you can basically trade gold and silver future contracts or commodity CFDs. This basically means that the ratio is being used by gold and silver traders as a signal to determine which metal outperforms the other at a given moment.  

Generally, some investors believe the ratio should be in line with the availability of the two metals extracted from the earth. It should also be traded somewhere between the average levels since the early 20th century that fall somewhere between 50-60.

Therefore, as mentioned, the ratio is only being used as a technical indicator to buy and sell one of the metals on the assumption that assets should be trading close to their averaged ratios. Obviously, the ratio fluctuates to extreme prices from time to time, which is an indication for investors to buy or sell one of the precious metals with the hope that the ratio will be trading again at ‘normal’ levels.

Gold to Silver Ratio 1900-now
Gold to Silver Ratio 1900-now

For example, when the Covid-19 pandemic burst, the demand for gold was higher than the demand for silver, which caused a very high spread between the two precious metals. How high? Some experts and historians say it has been the highest level in 5000 years. But then, as things calmed down following the pandemic crisis, the gold and silver ratio dropped from 126 to its slightly above average levels of around 70.

What was the catalyst behind the huge drop? Simply because the demand for silver was higher than the demand for gold in the industrial world, especially at times of trade shutdowns. So, when economic activity went back to normal, silver prices rose more than gold, and the spread tightened.

As evident from the above – while gold is mainly a safe haven asset, silver is one of the most highly traded commodities and widely used metals in the world – it is used in a variety of products including LED lighting, solar panels, touch screens, TV screens, mobile phones, water purification, and other electronic equipment.

How to Day Trade the Gold Silver Ratio?

Another interesting approach to using the gold-silver ratio is through intraday trading. Clearly, there must be a strong correlation between yellow metal and silver, especially when these two metals are known as safe-haven assets and are being used for a variety of similar purposes. So, how can you actually use the gold to silver ratio in short-term trading and implement it in your trading strategies?

First, if you closely watch the trading screens on a daily basis, once in a while you might be able to notice an early sign from one of the two metals – meaning one precious metal moves in a certain direction before the other metal makes the same move. For instance, if gold prices rise but silver prices are neutral or fall on the same day, then a good position to take in this case is to buy silver (or short-sell gold).

Another way is to find support and resistance levels of the gold to silver ratio historical chart and use these levels to determine entry and exit levels. For example, the 40, 60, and 80 are crucial levels for the gold to silver ratio and can be effectively used to buy or sell one of the metals. 

Lastly, another trading strategy is to analyze the trend for both the gold and silver ratio and the assets on their own. In this case, you can use the following formula to decide which one of the metals is in the strongest trend and thus, to buy or sell a certain metal.

Gold Silver RatioGold and Silver trendAction
UptrendUptrendBuy Gold
UptrendDowntrendBuy Silver
DowntrendUptrendBuy Silver
DowntrendUptrendSell Gold

Conclusion

In conclusion, the gold to silver ratio could be a handy tool to determine when you enter a gold or a silver position. Working in the commodity trading space, I’ve heard many gold and silver traders constantly talking about the gold-silver ratio and its huge impact on market speculation. 

All in all, in my opinion, it’s not too complicated to take advantage of the gold-silver ratio when trading precious metals. You should always place silver below gold on your watchlist and follow the gold-silver ratio. Then, you’ll be surprised by how many trading opportunities you’ll be able to find when using this ancient ratio. After all, even the Romans and the Greeks used it at some point in time, so maybe you should too… 

FAQs

Why is the gold-silver ratio so high?

At the time of writing, the gold-silver ratio trades at around 74 after falling from the all-time high levels it reached last year due to the coronavirus pandemic. In 2020, the ratio was trading at 126 – the highest level ever recorded. The reason for that was the huge demand for gold due to economic uncertainty. Since then, the ratio is still trading at relatively high levels, however, it has dropped significantly due to the economic recovery around the world and the increasing demand for silver (especially during the lockdowns and trade shutdowns).

What is the gold-silver ratio right now?

As mentioned before, you can always calculate the gold-silver ratio by dividing the current gold price by the current silver price. Additionally, you can check the gold-silver ratio quotes on reliable portals like TradingView.

What affects the gold to silver ratio?

Well, the gold to silver ratio simply measures the price of gold in relation to the price of silver. So, it would be better to ask what affects gold and silver prices? Both precious metals are known as safe-haven assets, although gold is the most logical choice as a protection against inflation and uncertainty. On the other hand, gold does not have many industrial uses like Silver. 

The bottom line, in periods of economic downturn and stock market crash, the ratio tends to rise due to high demand for gold while in periods when the global economy functions well, the ratio is expected to fall due to the increasing demand for silver. In addition, it is worth noting other factors that might affect gold and silver prices include the US dollar, interest rates, and supply of gold, silver, and other precious metals like Platinum, Aluminum, etc.

What is the ratio of gold to silver in the earth’s crust?

Presently, geologists believe that the abundance of silver is much greater than gold, or in other words, there is approximately 19 times more silver than gold in the earth’s crust. 

Trading Indices vs Forex – Which Should You Trade?

Since the early years of this century when the forex market has become accessible to every individual investor, many retail traders wonder whether they should trade forex, or perhaps stock indices. Deciding which of the two markets you should trade can be complicated, and there are various factors that you need to consider before making a decision. 

This article will help you understand better the similarities and differences between trading stock indices and trading FX currency pairs and choose that asset class that suits your personality, trading strategy, and trading style.

Key Points to Take Away

  • Trading indices and trading forex are two of the most popular forms of trading.
  • The key differences between stock index trading and trading forex pairs are the way a trader needs to analyze the markets, the leverage ratio provided by brokerage firms, the range of assets, and volatility.
  • While forex trading is more suited for active day traders, indices trading generally works best for medium and long-term investors.

First, What’s the Difference Between Trading Indices and Forex?

To begin with, both the forex and the stock markets are among the most liquid financial markets in the world and are extremely popular among short-term traders. This is partly because there’s plenty of news and information when trading one of these two markets, and it is, therefore, easier to take a large number of trades in a short period of time. Beyond that, both markets are very liquid, which is an essential factor for beginner traders who always need a buyer or a seller on the other side of the trade. 

The key difference between these two asset classes is that when trading forex, you essentially buy one currency and sell the other, meaning you usually need to analyze two economies. In other words, you need to be aware of the interest rates of each currency, the economic performance of the country as a whole, and the expectations of a rate hike rate cut. 

On the other hand, trading major indices typically require you to focus on one market, one economy, and the assets (companies) that the stock market index is composed of. This Is because a stock index is not traded versus other assets and generally has an upward bias due to the nature of the stock markets. Consequently, it would be fair to say that stock indices are generally more suited for long-term investors or medium-term traders.  

What’s more? Index trading typically has wider spreads, which makes it, once again, less suited for active day trading, or scalping. When you trade stock indices, it is a challenge to make intraday profits due to the relatively high spread charged by brokers, the low leverage, and the low volatility (when compared to stocks and forex currency pairs). As such, most people who trade indices usually focus on swing trading (holding poisons between 2-5 days). As for forex – some brokers offer zero spread on FX currency pairs so with the combination of high leverage and very low trading commissions – the forex markets are the ideal playground for active day traders.

Trading TIP

Leverage in trading is known as a double-edged sword – It increases the potential of making profits but also the risk of losing money rapidly

Trading Indices vs Forex – Which Market is Better for Beginners?

Beginner traders and those who prefer simplicity generally will choose to trade indices. With stock indices, trading is very simple and straightforward. After all, almost every person on the planet has some basic understanding of the stock markets, and thus, analyzing stock indices requires a less tactical approach and in-depth knowledge. 

The forex market, on the other hand, is more complex. Investors who want to start trading forex need to learn the basics of the forex market and understand what forex is and how it works
Nonetheless, when it comes to choosing which is the best market for you to trade, there is no decisive answer to this question. Each market has its own pros and cons and there’s no reason for you to not take advantage of both markets, especially if the broker gives you access to both of them.

What are the Possible Ways to Trade Indices and Forex?

One thing you should note: stock indices are not traded on a stock exchange. They are simply benchmarks that track a list of stocks on a certain exchange and are used to measure the growth of the general stock markets. What it means is that, unlike trading stocks, the only way to trade indices is via futures contracts or via CFDs (Contract for Differences). For those unaware, CFDs are financial derivatives that enable traders to speculate on the market movement of assets without owning the underlying assets.

Trading forex is more accessible to ordinary people and there are several ways for any individual to speculate on the price movement of currency pairs. These include the spot market (via bank or a forex change store), futures, and trading CFDs.

Indices vs Forex – Number of Available Markets and Instruments

A crucial factor to consider when choosing an asset class to trade is the range of assets available on each market. When comparing indices to forex, trading the forex market clearly offers more markets and instruments than trading stock market indices. 

Whether you decide to start trading indices via stock index futures contracts or via CFDs, typically you’ll get a range of 15-20 assets. On the other hand, every CFD and forex broker usually offers a range of at least 30 currency pairs, with some brokers like Switch Markets offering a higher selection of 60+ FX pairs

For various reasons, forex traders typically focus on major currency pairs that include the EUR/USD, GBP/USD, USD/JPY, USD/CAD, AUD/USD, NZD/USD, and USD/CHF). These pairs are the most popular and liquid assets and are widely covered in the media. Additionally, most forex brokers offer very high leverage for major currency pairs and very tight spread – another incentive for traders. Some traders, however, prefer to stick with exotic currency pairs, largely due to extreme price movements and the high volatility. 

So, all in all, when compared to indices, the forex market offers a larger variety of assets (at least 100+ assets).

On another note, a useful tool that can assist you in analyzing currency pairs and stock indices is our market heap map that highlights the daily strengths and weaknesses of different assets.

Market Heat Map - Currencies and Indices
Market Heat Map – Currencies and Indices

Forex Trading vs Indices Trading – Key Similarities and Differences

Below, we break down the key similarities and differences between trading forex and indices. 

Similarities

Liquidity – Both markets are extremely liquid, offering investors to get market execution at any given moment.

Both Rely on Macroeconomic News – One of the key similarities between indices and the forex markets is the way you need to follow market news and economic data. Unlike stock trading which requires you to spend time on picking and analyzing public-traded companies, trading indices and foreign exchange currency pairs are based on macroeconomic factors and the economic state of countries. 
Market Trading Hours – Even though the stock markets are open for a limited time during the day, nowadays you can trade indices futures or index CFDs 24 hours 5 days a week, much like the forex market.

Differences

Analyzing the Markets – As we mentioned before, the way a trader analyses the forex market and stock indices is a bit different. This is because stock indices are a collection of top-performing stocks and do not trade against another financial instrument. Hence, a trader needs to analyze the economic performance of the country and be aware of any developments in the companies that composed the index. When analyzing currency pairs, a trader must have more macroeconomic knowledge and be aware of the factors that affect the price movements of forex pairs one versus the other. 

Leverage Ratio – Assuming you decide to trade one of these asset classes via a CFD broker like Switch Markets, then you’ll be able to use the leverage that gives you the option to trade with higher capital than initially deposited. In this case, the leverage provided for forex tends to be much higher than indices and other markets.  On most CFD platforms, traders generally have access to 30:1 for currency pairs and 20:1 for indices. That said, some CFD brokers like Switch Markets provide a higher leverage ratio for FX currency pairs that could be as high as 500:1. 

Range of Assets – Usually, regardless of the trading platform you are going to choose you’ll be able to get access to 10-15 most traded indices. On the other hand, if trading forex, you get access to at least 30 FX currency pairs, and some brokers even offer a larger selection of 100+ currency pairs.  

Volatility – Forex has the lowest volatility of all markets, partly because currency pairs have a major role in civilians’ income and in a country’s economic performance. 
Price Gaps – Because the forex market is open 24 hours a day five days a week, price gaps are less common in the forex market than in indices.

Forex TradingIndices Trading
Best ForActive day tradingMedium and long term investors
Range of AssetsOn most trading platforms –  50+ currency pairsOn most trading platforms –  around 10-15 stock indices
Leverage Ratio via CFDsUsually between 30:1 to 500:1Usually around 20:1
How to TradeSpot, futures, and CFDsFutures and CFDs

Trading TIP

To trade indices, investors need more capital than they do with forex. On the other hand side of the coin, trading indices are presumably less risky due to the lower leverage ratio provided by brokerage firms.

Final Thoughts

The bottom line, index or forex trading will serve your purpose to be able to place a large number of orders on a trading day and find lots of trading opportunities. Both markets are liquid and volatile enough and the flow of news and analysis will help you form your own trading plan and strategy.

Ultimately, I still think the best way to make an informed decision on the asset class you want to focus on is to try both markets and see where you feel more comfortable. Even today, very often I switch between markets with the intention of finding the right trade. You should do the same, at least at the beginning of your trading journey. Luckily, some CFD brokers offer you to open a trading account (or a demo practice account) where you get access to a number of markets including, obviously, the forex market and stock indices.

FAQs

Is forex trading riskier than index trading?

Well, that is a matter of opinion. Trading is subjective and every trader feels more comfortable in other markets. Some prefer to trade the volatile crypto jungle while others prefer to trade less volatile assets like fixed-income assets. 

Still, while many people like the flexibility of the forex market, it is known as a riskier market for one primary reason – that is the high leverage provided by forex brokers.

What’s better for beginners – indices or forex?

The way I see it, if you choose the right platform then you should try to have the best of both markets. Financial markets like the forex markets and indices are connected beyond generic correlations, which means you can follow all markets and find trading opportunities in any market you have access to. 

What are the most popular indices in the world?

Some of the most popular and widely traded stock indices around the world include the S&P 500, NASDAQ100, Dow Jones Industrial Average 30, Nikkei 225, FTSE 100, CAC 40, and DAX 40.

What’s the relationship between stock indices and currency pairs?

In normal market conditions, stock indices and the forex market don’t have a high correlation. Also, each stock index has a different relationship with its domestic currency, which means every case has to be assessed differently. That said, all markets are interconnected so there’s certainly a connection between stock indices and currencies – In most periods when the domestic stock market index rises, the local currency tends to strengthen and vice versa.

Gap Trading: How to Trade Price Gaps in 6 Simple Steps

How to Trade Gaps

From time to time, you’ll be able to notice price gaps when trading the markets – these are blank areas in a trading chart where an asset’s price opens higher or lower from the previous day’s close. 


Generally, it is quite common that gaps tend to get filled at some point in time, which could be a great opportunity to make trading decisions and take advantage of these price gaps. So, let’s see how you can add this tool to your trading arsenal.

Key Points to Take Away

  • In trading, gaps are blank areas in a trading price chart that usually tend to get filled.
  • There are four types of trading gaps – common, breakaway, continuation, and exhaustion.
  • Gaps typically occur due to unexpected fundamental and technical events during times when the markets are closed.

What is a Gap in Trading?

First, in my view, the best way to explain a gap in trading is to see gapping happens on a candlestick chart.

Amazon Daily Chart Common Price Gap
Amazon Daily Chart Common Price Gap

As you can see in the chart above, a gap is simply an area in a chart where no trading activity has taken place, and there’s a sort of empty space from the previous closing price displayed in candlestick and bar charts. In financial terminology, this is known as gapping and is exactly what happened in the chart above when Amazon stock opened higher and in the following three trading days, the gap was filled. 

As we already know, due to the herd behavior in financial markets, a lot of people are looking at the same charts and are taking similar trading actions. Hence, many experienced traders exploit these gaps to make profitable trades.

Types of Gaps

There are 4 types of gaps’ price patterns you can find on trading charts. These are:

Common Gap

A common gap, also known as an area gap, is a price gap that occurs without any pattern or shape. These gaps normally happen due to technical reasons and in most cases tend to get filled quickly. (see image above)

Breakaway Gap

A breakaway gap is an untraded region that occurs at the end of a trend, or more accurately, at the end of a period when the market is in consolidation. Usually, it marks the end of the previous sideways region and the beginning of a new trend. Generally, breakaway gaps are less likely to get filled and if they do, it usually takes a long time for the gap to be filled.

Tesla Stock - Breakaway Gap
Tesla Stock – Breakaway Gap

Continuation (Runaway) Gap

As the name implies, continuation gaps usually occur in the middle of a price trend. So, when a continuation gap is identified, it means that the trend is very likely to continue. A runaway gap is also characterized by a significant gap and high volume.

Tesla Stock - Continuation Gap
Tesla Stock – Continuation Gap

Exhaustion Gap

An exhaustion gap typically occurs at the end of a long market trend when asset prices are testing new record highs or lows. As a result, this type of gap signals a taking profit condition and a reversal of the prior trend. As you can see in the chart below, once the exhaustion gap occurs, the price moves in the opposite direction.

Tesla Stock - Exhaustion Gap
Tesla Stock – Exhaustion Gap

Why Does a Price Gap Occur?

Apart from the cryptocurrency market, all other markets have opening and closing times. The forex market, for instance, is open 24/5 and is closed on Saturday and Sunday. Most stock markets around the world are open for 8-9 hours a day. This leaves plenty of time for unexpected events to influence assets’ prices in times when the markets are closed. Then, when the market reopens again, the fundamental factor that was released is being priced in and thus, the gaps occur when a financial instrument opens at a lower or a higher price.

As a matter of fact, central banks and private companies often prefer to release important data at times when the markets are closed (They usually do that to reduce volatility and market noise). Eventually, these unexpected events such as earnings reports, economic data, and political issues may create a gap in the market. 

Bear in mind that a gap can also occur when you are holding a position overnight. For that reason, it is also crucial to closely follow the economic calendar, companies earning results, and commodities reports. 

So, all things considered, gaps are usually created by fundamental underlying factors, especially in the stock market. In the foreign exchange market, it is not very common to find gaps as the market runs 24 hours five days a week. However, in some cases, you might be able to identify a gap in certain currency pairs on Sunday/Monday when the market opens.

How to Trade Gaps?

Before we delve into the details, you should know that trading the gaps does not actually involve the use of any complex trading strategies, and is usually not a trading strategy you could solely focus on. Most likely, you are not going to search price gaps in the market and make it your top strategy. Still, it’s a good trick and an interesting way to ‘hack’ the markets. 

In my opinion, it is best to keep this method of trading in the back of your mind when you start trading and occasionally enter trades when you identify a gap in a certain market.

So, how does it work? In a nutshell, traders who use gap trading strategies try to identify gaps between the opening price and the closing price on a trading chart and use these gaps as the main reason to buy or sell an asset. The decision obviously depends on the asset’s market sentiment and the type of gap price pattern that was formed. However, this is the main rationalism behind this type of trading – once a trader notices the market is about to close the gap, the trader predicts that the price will cover all the gap regions, which gives the trader an evaluation of the next price movement. 

Keeping the above in mind, here are some basic rules to take into account when trading gaps:

  1. Try to identify the type of gap and the market sentiment before the gap was created
  2. Follow the news and make sure you understand what caused the gap
  3. Always wait for the first candlestick to be completed
  4. If the market goes against you, get out. Once the price reaches near-gap levels, you can enter a trade again. 
  5. Once the asset starts to fill the gap, stay until the end. After the gap occurred and the asset’s price has started to fill the gap, prices rarely stop and typically cover the entire region of the gap. 
  6. Add a volume technical analysis indicator.

So, What’s the Big Deal About Gap Trading?

The bottom line – Much like using Doji candlestick chart patterns in order to make trading decisions, the use of price gaps in trading is something that should come naturally. There’s no need to learn how to use or analyze it – instead, you need to be aware of this occurrence and grab the opportunity whenever you see it. 

As a general rule, I wouldn’t say that gaps are always automatically filled. Occasionally, it takes days, weeks, and even months until the gap is filled. However, I don’t think I’ve seen many cases at which a price gap was not filled (unless the asset is illiquid and there’s low volume). So, taking this ‘trick’ and applying it to your trading routine could be extremely useful for you.  

FAQs

How to trade gaps successfully?

Frankly, trading gaps might be a tricky business. While spotting gaps does not require any special trading skills, it could be quite a challenge to identify the type of gap.  Still, if you master your skills in identifying the type of gap and when to enter a trade, gap trading offers lots of trading opportunities. 

One tip that might be helpful – knowing when to enter a trade once you notice a gap is not an easy task, especially if you are not familiar with the stock or the asset you are trading on. That said, in the vast majority of cases when the asset starts filling the gap, the price will go until the point it fills the entire region. This trading method is something you should take into your decision process and use as much as possible.

How to trade stock gaps?

As we mentioned in our guide, price gaps are more common in the stock market than in other markets, largely because the stock markets are open for several hours a day.  To trade stock gaps, you need to watch the pre-market and the first hour after the stock market opens. Then, once you identify a price gap, wait for the next candle to be completed and try to identify the type of gap. Whenever the stock’s price starts filling the gap, this is your trade – meaning, you need to stay until it covers the entire gap. 

Additionally, one of the key things that create gaps in the stock markets is earnings report so it is advisable to always be alert of reports released by public companies.

How to determine stock gaps to trade?

Generally, there are a few services online that provide a stock screener with alerts about stock gaps. This includes Finviz, Chartmill, and even TradingView. Another way to find stock gaps is to create your own stock screener, and independently find stock gaps during the pre-market session. 

Where to place stop loss when trading gaps?

Another gap trading strategy is to enter a position once the asset has started to fill the gap, and place the stop loss at the level at which the price hits yesterday’s close. This way, if you believe the asset is going to fill the gap and continue this trend, you can benefit from using the previous close as a protection level and try to ‘squeeze’ the trade. 

Best Lot Size Calculator: Full Guide & Tutorial

In forex trading, calculating the exact size of your trade could be quite a challenge, especially given the fact that investors usually get different leverage ratios from their brokerage firm, and each broker offers different lot sizes. 

For that purpose, using a lot size calculator is crucial to your trading success. Until you reach the point at which you can automatically calculate your positions’ size, you should absolutely use a position size calculator. 

So, in this article, we’ll help you understand how a position size calculator works, and how you can easily and efficiently calculate your forex positions.

Key Points to Take Away

  • Lot size calculator is a simple-to-use tool available on many websites online. This includes our Switch Markets lot size calculator that helps traders find the right position size and manage trading risk..
  • Leverage is the most important element of the forex markets and is often referred to as the double edge sword – the greater the leverage, the higher the potential to make profits, and the higher the risk of losing your capital.

What is a Lot Size Calculator?

Historically, FX currency pairs have always been traded in amounts called lots. But unlike the stock market, for example, where things are somehow easier to understand – in the forex market, position sizing is essential to manage the risk and to be comfortable with the size of your positions. As a tip – getting into a large FX position could be very stressful and create unexpected losses. So, this is where a lot size calculator, also known as a position size calculator, comes into play. 

A forex position sizing calculator is a valuable tool that enables a user to know the exact details of a forex position before entering into it. The calculator is usually available on forex websites but it can also be found as an MT4 plugin.

FYI

When you are using a position size calculator to make a forex trade, you need to insert the entry point and the stop-loss location. These two inputs are the most important for understanding the size and risk value of your trade.

Different Forex Lot Sizes

Before we go into the ins and outs of using a forex lot size calculator, there’s one thing every trader needs to know about forex trading – that is, the different forex lot sizes. As already mentioned, the standard lot size in forex is equal to 100,000 units of currency. However, since the majority of traders cannot deal with this size of position (around $10 per pip), forex brokers have created different lot sizes that include mini, micro, and nano.

Lot Size Number of UnitsValue per PipInitial Investment Requirement in USD
1 Standard Lot – 1.0 lots100,0001 Pip – 10 USD1000 USD
1 Mini Lot – 0.1 lots10,0001 Pip – 1 USD100 USD
1 Micro Lot – 0.01 lots10001 Pip – 0.1 USD10 USD
1 Nano Lot – 0.001 lots1001 Pip – 0.01 USD1 USD

How to Use a Forex Lot Size Calculator? 

By now, you should understand the concept of a forex position size calculator. Luckily, using a position size calculator is not rocket science and is extremely simple to use. 

To use the calculator in actual trading, you simply need to insert the inputs of your particular trade in order to get the calculation results. 

For example, when using the Switch Markets lot size calculator, you’ll be asked to insert the following data: FX instrument, deposit currency. Entry-level, stop-loss rate, and risk tolerance (the amount you are willing to lose – fixed income or percentage risk).

Switch Markets Lot size calculator

So, as you can see in the above data, the fixed amount inserted in this example is $250 and the stop-loss rate is 93 pips below the entry price. According to this data, the Switch Markets position size formula makes the calculation and helps investors to know the exact position size needed for this trade, which is, in this case, 0.26 lots. 

Position Sizing Tutorial Switch Markets

What is Leverage And How to Use It As Part of Your Trading Strategy?

Clearly, one of the key features of the forex market, for better and worse, is using leverage ratio (also known as margin trading). In simple terms, a leverage ratio in forex means you can essentially borrow funds from your brokerage firm in order to be able to trade with higher capital. How is that possible? Largely because the forex market is primarily speculative, meaning that forex brokers can provide leverage for their users. 

But to better understand the concept of leverage in the forex and CFD markets, you can view our video below explaining what leverage is, and how much leverage you should use as an independent trader.

More Risk Management Tools to Use

Using a Forex position sizing calculator is an excellent way to calculate the size of positions and know how much money you are risking in a certain position. Besides this tool, there are other useful risk management tools you need to take into account, especially if you are making the first steps as a trader.

The Bottom Line – A Position Size Calculator is a Handy Risk Management Tool

To sum up, knowing the pip value and the position size in every forex transaction you are going to make is not so easy. For some people, it can take months and even years to calculate these metrics, particularly if you are trading multiple assets. This is because you need to consider the lot size (standard, mini, or micro), the leverage ratio you are using, and the currency pair you are trading. For that matter, you certainly should be using the tools available out there to make informed decisions. One such tool is the position size calculator. 

With a number of inputs, a good position sizing calculator will help you find the exact size of your forex position and evaluate the risk of your current account balance you are going to risk in the next trade.

FAQs

How much is best to risk per trade?

Most traders and experts will say that ideally, you should not risk more than 1%-2% per trade of your account balance. On the other hand, most day traders typically risk even more than the above per trade (around 3%-5%) as part of their trading strategy due to the low risk of getting in and out of position in short timeframes.

What lot size should you use?

That largely depends on the amount of capital you have invested, the trading strategies you are going to use, and your financial goals. If you have a small account with a balance below $1000 and you are going to take medium to long-term positions, then you should only use mini and micro-lots. Otherwise, if you are an active intraday trader, you can use the standard lot size as long as you are maintaining other risk management approaches such as the risk-reward ratio in a single trade, stop-loss orders, etc. 

How to calculate gold pips?

Here’s what you need to do to calculate XAU/USD pip value – multiply the amount of your position in lots by the size of the position in oz and then multiply by the current price of golds. The formula – (Volume in lots) x (100 oz.) x (price). Regardless of the formula, generally, the pip of gold is valued at $1 when opening a lot size position, 0.1 for a mini lot position, and 0.01 for a micro lot position. 

How to use the risk-reward ratio?

The risk-reward ratio is a risk trade management tool that measures the profit of a given trade against the loss of the same trade. For long and swing traders, the ideal risk-reward ratio stands at around 1:2 or 1:3, meaning the investor is willing to risk 1 USD to potentially make a profit of 3 USD. For day traders and scalpers – the most recommended risk-reward ratio falls at 1:1 and below. 

How to Build the Perfect Setup for Day Trading

There’s quite an interesting discussion between musicians about the impact of various tools on the sound a musician is able to produce. Some people will argue that you could be the most talented musician in the world but if you don’t have the right equipment, then… Moreover, some medium musicians were able to get that one pedal, tool, or amplifier that makes their playing sound so special and unique. 

In some way, the same applies to trading, especially if you are going to make it as a profession or at least be serious about it. You, therefore, need some tools such as a strong computer, monitors, good trading platforms, VPS service, signals services, and more. In other words, a good trading office setup makes a world of difference in becoming a successful day trader and investor.

You might have to make an initial investment and spend money to create your own trading space, but over the long term, it can lead to future opportunities and better future performance. So, with that in mind, in this article, we take a closer look at some of the most important things you need to get in order to build the perfect setup for day trading. 

Trading Tools and Services You Need for Trading the Markets

1. Strong Computer

Obviously, the most important tool of all is your computer. To quickly switch between charts, view data, get detailed on-screen information, and execute trades – you need a reliable and strong computer. 

So, the first question – are you a mac or windows user? If you’re a Mac user like me you might already know how limited we are when it comes to compatible trading platforms. Still, you have the option to install Windows on your Mac with Bootcamp or Parallels so you can basically use any software available on the market. 

The second question – desktop computer or laptop? Well, the answer lies in your preferences and how you feel more comfortable sitting in front of a computer. Generally, most traders will tell you to use a strong desktop computer, however, in my opinion, it’s not the most crucial factor these days. There are strong laptops now in the market, and you can connect them to several screens and create a great setup with just one laptop. 

So, if choosing the latest, then a laptop with 16GB or more of RAM, and a processor that contains at least 4 to 6 cores should do the work for day trading. Another factor to consider is the size of the screen. It’s advisable to buy a notebook computer with a screen size of 15.6 inches. 

Otherwise, if you insist on using a desktop, then search for at least 16 GB RAM, a processor with at least 2.8 GHz Processor, SSD, and a graphic card with at least 2 GB of GPU.

2. Monitors for Trading

So, by now, you have a strong computer and good effort. That’s good, but you still need to look at something, meaning, the next step is to get multiple monitors for day trading. This is not something you can compromise on as several monitors can help you to get more screen space, keep track of several markets, get a comprehensive visual analysis and data sources, etc.

But, here’s the thing – too many monitors could be very confusing, especially in the beginning. In my experience as a day trader in a trading room, some traders even felt more convenient with just 3-4 screens (that will be enough for you to view at least 12-16 charts). I also know people that trade with one monitor and are doing well. One instrument, one chart – that’s it

Personally, I like the idea of having many monitors in front of you. There are more opportunities and more trade ideas. Hence, I think the most ideal way is to start with 3-4 monitors, and if at some point, you feel that it is not enough for you, you can invest and add more trading screens at a later date. 

In terms of the brands and products to buy, some of the best screens for day trading include: 

  • Samsung CHG90 
  • Dell S Series Led-Lit Monitor 32″ Black
  • LG 43UN700-B 43 Inch Class UHD
  • DELL 24 Inch U2415 Ultrasharp 
  • HP VH240a 23.8-Inch Full HD

3. Trading Platform

Going back to the analogy of musicians, a trading platform is your precious instrument in your trading activity and one of your most important tools to get the most of your trading experience. But choosing the right trading platform could be quite a challenging task that requires in-depth research and the process of trial and error. 

So, where do you start from? First, you need to decide on the market or type of asset class you are going to trade. For instance, if you have plans to trade FX currency pairs and CFDs, then stick with the MT4 or MT5. It’s simple, solid, and fast. Another excellent choice for forex and CFDs is the cTrader

Otherwise, if you want to focus on futures, stocks, and options – then some of the best options include the NinjaTrader, TradeStation, and CQG. 

4.VPS Hosting Provider

A few years ago, I had a fairly big losing trade due to internet disconnection or internet outage. Very frustrating – you make such a huge effort and eventually, you get hit by an unexpected enemy. The solution – a Virtual Private Server (VPS), which is basically a form of web hosting that ensures you always have a good connection to the markets and you can avoid slippages and internet cut-offs. Further, a VPS can significantly reduce the latency, which helps you get a faster market execution than using your broker’s server.  

Usually, the vast majority of VPS hosting services charge around $30-$90 per month. However, some brokers provide you with a VPS hosting service as a free plugin when you open a forex/CFDs trading account.

5. Something Fun to Do

Looking at numbers for long hours every day could be a daunting task. Obviously, there are lots of exciting moments in the markets, but at the same time, there are times when the markets are silent and you’ll have to find a way to stay focused. And, even if you are on a strike of daily returns, you always need to find this one fun activity you like to get you out of the markets. 

That was a great tip I received at some point from one of my mentors. For me, reading a book for 20-30 minutes during a trading day is an alternative for trading time and usually helps me relax. But, if you find any other activity that helps get your mind clear, then do it. Hence, you need to find something you like, put it in your trading room, and add it to your daily routine. 

6. A Good Mobile Phone

From my experience, you can also successfully trade from your mobile phone, especially when mobile trading applications have become so good in recent years. There may be a few professional trading apps like the MT4 that allow you to track the forex market (as well as other markets) from your mobile device, view charts, news feed, technical analysis tools, etc. Further, you can easily place orders in the market from your mobile phone and get instant market execution. 

As a matter of fact, I even know some swing traders and long-term investors, claiming that sometimes it’s even easier to trade directly from a mobile device (although you can’t really day trade from your mobile phone). After all, there are lots of benefits of mobile trading app – you can trade on the go and easily get market alerts and updates to your phone. 

And, even if you are not going to day trade from your mobile phone, intraday trading is addictive. You have to check the markets at any given moment and monitor your account as much as you can. In some cases, you might have to enter your mobile app several times a day to change orders, buy or sell an asset, analyze the markets, etc.

All things considered, you also need a really good mobile phone as part of the perfect setup for day trading. 

The Bottom Line

There’s a high probability that the first image you had in mind when you decided to become a day trader is to sit in front of 7-8 trading screens, get access to top-notch trading platforms, and make thousands of trades per day.  So, in order to get the ball rolling, you need to get the necessary tools and platforms to make the best setup for your trading business. 

Apart from what we’ve mentioned above, you also need to get other essential tools and services including a trading desk or table, high speed internet connection, ergonomic chair, etc. For your convenience, it is also recommended to choose the platform theme (dark or light), and get access to a good economic calendar/news source/trading signals provider. 

TIP

Remember, day trading is a hard job. You need to clear your mind between a trade to trade during the trading day. This means you can add something you like as part of your day trading routine – play bubbles on your phone, read a book, watch TV, visit social media platforms, listen to music, or anything else that makes you feel like you want to go back to the battlezone. 

At last, bear in mind that there’s no one way to do it – some people prefer a minimalist approach with just one laptop, one chart, etc. Others are much more confident in an abundance of information. It would be best for you to start with the basic tools and services we mentioned above and find your way as you go through the first months of your trading journey. 

5 Best MetaTrader 4&5 Add-Ons and Plugins in 2022 and Beyond

Since its inception, the MetaTrader4 and its successor the MetaTrader5 have won the hearts of traders thanks to the excellent user interface and the variety of advanced features and trading tools. As of 2021, it is estimated that more than 1500 brokerage firms offer users to trade via the popular MetaTrader 4 and 5. 

This free-of-charge trading platform, which was founded way back in 2005 by a software development company known as MetaQuotes Software Corporation, offers wide technical analysis options, automatic trading solutions, and a huge variety of add-ons that can be added to the platform to further expand the trading capabilities. Additionally, the most popular trading platform in the world is also available on any web browser via its Web Terminal, or via a mobile trading app.

So, in this article, we suggest 5 of the best add-ons and plugins that the MetaTrader platform has to offer in 2021 and beyond. 

Best MT4 and MT5 Add-Ons and Plugins – How Does it Work?

The great thing with MetaTrader is that it works the same way as many other platforms and applications you are already familiar with where you can install an app to the dive operating system(App Store, Google Play, SmartTVs, etc). This means that you’ll be able to download and activate the plugins directly on your Metatrader 4 and 5 trading platforms, regardless of the forex broker you have chosen. As a matter of fact, once you are logged in and you navigate to the market tab, you’ll be amazed by the huge variety of other plugins and Expert Advisors’ automated trading operations you can download (free or paid).

At the same time, you can also browse around the internet to find third-party applications and services that can be installed directly to your MetaTrader trading platform.

However, to make the process easier for you, below we have listed some of the most popular MetaTrader4 and MetaTrader5 plugins in 2021 and beyond.  

1. Autochartist

The Autochartist is a must-have plugin if you are going to trade on the MT4 or MT5. It comes with a variety of key features including a built-in market scanner, statistical analysis, market depth, and risk calculator. 

As for how to get it, there are two options. Either the brokerage services company you choose to trade with offers you this plugin or you have to purchase it on your own via the company’s website. The only downside of this app is that in order to use the Autochartist plugin, you might have to upload the plugin files to the directory, which is somehow a bit complicated.

Once you do that, the Autochartist plugin integrates with the MT4/5 trading platform and you get access to the tools mentioned above. By the way, the price for using the Autochartist plugin varies between $30-$50 per month.

2. Expert Advisor

One of the main attractions of the MT4/5 is the ability to use the Expert Advisor plugin, which is a piece of software with inbuilt algorithms that automatically places orders and executes trades on your behalf in the forex market. 

Generally, there are lots of MT4 expert advisors to choose from depending on your trading objectives, which means you’ll have to research a bit in order to find the right forex bot for you. Nonetheless, some of the best EAs we have found include Flex, Fortnite, and the 1000pip Climber System.

3. Trading Central

Even though Trading Central primarily offers its built-in plugin to brokerage firms, individual professional traders and money managers also can purchase this extraordinary tool. With Trading Central, the trader gets a new design for the MT4/MT5 with a range of tools that can make a huge difference to your trading experience. For example, you’ll get access to the TC newsfeeder, market buzz, economic insight, forex featured ideas, and the TC alpha generation indicators. 

All in all, the Trading Central plugin is certainly one of the best add ons for MetaTrader 4 and 5.

4. VPS Hosting

A VPS hosting is essentially an upgrade for traders who are looking for a reliable and fast connection to the financial markets. In simple terms, a VPS connects you to the markets via a cloud-based trade server so there are no cut-offs and the market execution is much faster. The problem, however, is that many traders are not making the effort to search for a VPS hosting provider before an error occurs. 

Luckily, some forex brokers out there provide this service as an additional software plugin on both MT4 and MT5. In that aspect, if you decide to open an account at one of our recommended brokers, Switch Markets, you’ll get access to a free VPS plugin (worth $467). This means that with this broker, you can trade financial instruments with a latency of just 1ms, get instant execution at all times, and ensure your platform is safe from any internet disconnections and other online risks. 

5. News Feed Indicator 

One of the flaws of the MT4/MT5 in comparison to many other online trading platforms is the lack of news feed, data, and market analysis. Some MetaTrader introducing brokers do offer a built-in news feed on the platform, however, the vast majority of brokers typically do not provide this feature.

But, for that matter, you can simply download the news feed indicator that is packed with economic calendar alerts about big events, real-time markets news and updates, and technical/fundamental analysis. 

Start your free trial today and let us show you how to install and manage these top plugins.

Why You Should Consider Trading Ranging Markets

A lot of traders ​​are in a constant search for the one trade that will work best for them. Whether these traders choose intraday, swing, or long-term as their strategy – they will always be looking for a single position to hold, squeeze, and take as much profit as possible. That works… for them. 

But what if I would tell you that being the ‘boring trader’ could be, for some people, even a better choice. In my view, trading inside a range is not the most exciting way to earn money, but it is certainly one of the most effective ways to do so. If you are the kind of trader that prefers to make 8 out of 10 profitable trades instead of 2 out of 10, then learning how to trade ranging markets is exactly what you need to do. 

What is Range Trading?

Well, as the name implies, range trading is a form of strategy in which you are basically buying and selling an asset inside a range in a chart. In essence, this method is characterized by prices staying in a predefined range over time, so the range-bound trader buys the asset at the support level and sells the asset at the resistance level.

With range trading, traders can take advantage of trading periods where the markets are in consolidation and there’s a sideways market pattern. As the vast majority of markets do not move in a certain direction at all times, you’ll find out that range trading is a necessary skill and one of the most useful trading strategies to trade the markets.  And, since range trading can be analyzed in various time frames depending on the type of trading strategy, it can be used by long-term investors as well as by intraday traders.  

Why is Range Trading Better than Trend Trading?

The best way to understand why range trading might be better than trend trading – is to first comprehend the logic of trading the financial markets. Basically, when you are trading the forex and commodity markets, you are buying and selling valuable assets that are being used as the core structure of the economy, and society. This is, for example, one of the major obstacles for Bitcoin right now. The volatility of Bitcoin as a currency might make it a great asset for speculation, however, it cannot yet be used as a medium of exchange. In the words of Janet Yellen, Bitcoin is an extremely inefficient currency to make transactions. 

Wheat, on the other hand, has been trading pretty much at the same levels for the last 50 years since the early years of the 70s (as shown in the chart below). Yes, 50 years. This makes Wheat (much like corn and some other commodities) an excellent instrument for range trading, particularly if you are planning to day trade the markets.

The same happens in the forex market. Most of the time, FX currency pairs are trading in consolidation, and typically have one or two trends in a calendar year. This does not come as a surprise as currencies are an integral part of the economy and are being ‘managed’ by central banks so they remain stable in order to be used as a medium of exchange. 

Consequently, trend traders are often tricked by the markets that the next trend is around the corner and that there is one direction for the markets. Yet, the markets have their own logic and in most cases, these assets are in a never-ending search for equilibrium. 

As a result, trend trading is more difficult and generates more losing trades than profitable trades. In range trading, on the other hand, things are simple. There’s no attempt to predict the next trend and find a clear direction in the market. Instead, the only action range traders are required to take is to trade inside a channel and make sure they follow the rules of range trading – Buy at the bottom, sell at the high, and use leverage…

How to Trade Ranging Markets?

When dealing with trading range markets, there are two ways to use this strategy. The first way is to find a range pattern on an upward or downward trendline. Personally, I find it very difficult to trade a range inside a trendline so we won’t be focusing on this pattern. Nonetheless, this is how the pattern works – you are selling the currency pair when the price touches the upper line and buying the pair when it’s at the bottom. 

The second way is to find a range-bound market in which the price bounces between the high and low, or support and resistance. In this case, we are looking at a market that has no direction and is in a state of consolidation, meaning prices move in a sideways range. 

So, to get started in range trading, the first step in this strategy is to identify a range-bound market where you can apply the strategy. Once you have identified a market in consolidation, you simply need to draw support and resistance levels at the bottom and at the top of the range. On a side note, it could be beneficial to research on other sites and forums to find suggestions for support and resistance levels around your range bound. Since many traders are looking at the same data of support and resistance levels, then the levels you determine to be your range could be ‘stronger’.

For example – as shown in the EUR/USD daily chart above, the pair is trading in a range-bound between 1.23 to 1.60. In this case, as the current market price gets closer to the support level, the trade would be to buy the pair with a tight stop loss below the supporting level. If the price breaks below and holds for several days below the support level, you switch your strategy and short the EUR/USD pair. 

As previously mentioned, range training is also an effective strategy for intraday and swing traders. So, in a smaller time frame, the price often fluctuates a few pips here and there. For example, in the EUR/USD 5 minutes chart below, the price fluctuates between 1.159 to 1.16. It’s a small range but enough for every skilled range trader to make profits. 

Finally, another thing to take into account when trading ranges is to choose the right technical analysis indicators. This is not mandatory as it is certainly possible to identify entry and exit levels by only using horizontal or trend lines. However, if you are a technical analysis trader, the Relative Strength Index indicator, Bollinger Bands, and the Commodity Channel Index are some most effective indicators to use in a ranging market.

Trade a Ranging Market – Level 2 order Book

Occasionally, you’ll notice a market that is simply stuck. Literally, stuck. How do you trade it? 

Well, in markets where you get access to a level 2 order book, you can essentially place orders on both sides of the market. Or, in other words, you are a buyer and a seller in the same specific market. Once you get an execution on one side, you simply switch sides and wait in the queue to get execution to close the position. Bear in mind that it can be a nerve-wracking experience as you need to have patience and discipline. However, it’s an excellent way to collect profits with low risk, especially when you use high leverage in your trading. 

How to Read Level 2 Time and Sales, Tape Reading – Day Trading for Beginners 2021

The Bottom Line

So, all things considered, range trading is certainly a unique technique to trade the markets. Once you have identified a non-trending market, you should absolutely use it. And in some cases, you’ll notice the range naturally, seeing the asset bouncing up and down and remaining in consolidation. 

From my experience, with this trading strategy, you can collect profits many times and increase the possibility of having a positive track record, in a fairly low-risk method of strategy.  The truth is… that being boring can be an excellent thing in trading. The only question you need to ask yourself – can you be boring???