What is FX investment? In 1998, the Foreign Exchange Law was amended, and although it is one of the asset management methods that has been lifted for individual investors, it may be difficult for beginners to understand how it works.
FX is an abbreviation of "Foreign Exchange", and it is a mechanism that uses foreign exchange transactions and uses rate fluctuations to make profits. For example, if you sell at a rate of 5 YEN higher than you bought it, you can get a profit of 5 YEN per currency. If it is 10,000 currency, it is a profit of 50,000 YEN.
Similarly, there is a “foreign currency deposit” as an investment method using foreign currency. The main differences between FX and foreign currency deposits are as follows. For those who are about to start FX investment, the basic knowledge will be briefly explained below for introductory purposes.
How is forex different from other financial products? Comparing Forex with “Stocks” and “Mutual Funds” and summarizing the main differences. In the first place, the investment targets are very different, so I will not touch on the detailed differences, but only on the differences in basic transaction conditions.
The difference between Forex and Stocks
Equity invests in shares issued by companies. The difference from FX is as follows. Stock investments here are based on the assumption that they are traded on the Tokyo Stock Exchange (TSE).
First, trading hours are different from stocks. In the case of Forex, there is no break in trading hours due to the constant movement of global markets from the opening of the Tokyo market in the early morning of Monday until the closing of the NY market in the early morning of Saturday. Stocks, on the other hand, can only be traded when the Tokyo Stock Exchange is open.
Holidays are handled differently. Depending on the FX company, FX can be traded even if Japan is a public holiday, as long as the overseas markets are open. On the other hand, the Tokyo Stock Exchange is closed on national holidays and cannot be traded. This does not apply to private exchanges other than the Tokyo Stock Exchange and overseas stock exchanges.
Stocks can also be leveraged by using "margin trading", but the maximum is 3.3 times. Depending on the brand, the amount required for trading tends to be larger than for FX. Basically, it is only trading from buying, but depending on the brand, it is also possible to trade from selling.
Stock income gains are dividends. A system in which a listed company returns part of its profits to shareholders, and is paid to shareholders on the closing date. There are no daily payments like swap points. Depending on the company's financial condition, dividends may not be paid.
Differences between Forex and investment trusts
A mutual fund is a product that combines various financial products into one product. The main differences between mutual funds and FX are as follows. It should be noted that investment trusts here are assumed to be public investment trusts, and other investment trusts are excluded.
Unlike FX, mutual funds cannot be traded in real-time. If the transaction date is the same, the transaction will be completed at the same price even if the order time is different. The final acceptance time for orders varies depending on the financial institution, but the latest is 15:00.
Also, unlike FX, leverage (details will be described later) cannot be applied. However, there are stocks where the investment trust itself is leveraged. For example, there are stocks that are designed to move several times higher than the Nikkei Stock Average, making it possible to effectively trade with leverage. The maximum leverage ratio for FX is as high as 25 times, and for investment trusts, it is about 4 to 5 times at the highest.
The direction of buying and selling is only buying, and trading from selling like FX is not possible. However, there are “inverse type” investment trusts in which the investment trust itself conducts selling transactions. For example, the Nikkei 225 inverse investment trust rises when the Nikkei 225 falls.
Investment trusts are managed with various financial products, but the performance of an investment is basically reflected in the price. However, among investment trusts, there are also stocks that distribute part of them to investors as "dividends." The pace of distributions varies by stock. Some issues are annual, bimonthly, quarterly, and even monthly.
What is Forex Leverage?
Forex leverage is a numerical value that indicates how many times you can trade with your own funds. If you can trade 25 times your own funds, it will be "leverage 25 times". It literally means "lever". In the same way that a small amount of force can produce a large effect on the principle of leverage, FX is a mechanism that allows you to trade a large amount with only a small amount of cash on hand.
The point is the “necessary margin”. It refers to the minimum amount that needs to be prepared for the FX transaction amount, which is 4% if the leverage is 25 times. If you want to trade 1,000,000 yen for FX, the required margin is 40,000 yen. It is necessary to prepare at least 40,000 yen or more of your own funds.
In addition, the maximum leverage that can be provided by FX companies in Japan is 25 times according to the provisions of the Financial Services Agency.
Many people misunderstand, but the FX leverage ratio cannot be changed directly. The FX leverage ratio is fixed for each trading course and currency pair. Leverage cannot be freely specified for each FX transaction.
Some FX companies have low leverage courses, but FX trading on those courses is always fixed at low leverage. Also, if you do not have a low leverage course, the leverage ratio is basically 25 times.
If you want to lower the leverage and trade FX, lower the transaction amount and adjust. For example, if you have 100,000 yen in your own funds, you can trade FX up to 2.5 million yen, but if you keep it at 1 million yen, you will have 10 times leverage.
The effective leverage ratio is called “effective leverage”.
Please note that it is the effective leverage that can be adjusted in Forex trading, not the leverage ratio or margin requirement amount applied to the trade.
Forex companies with low leverage courses
The main Forex companies that offer low leverage courses are summarized below. If you want to trade FX by directly lowering the leverage ratio, you can select any trading course at the following FX companies.
As mentioned above, even without directly changing the FX leverage ratio, it is possible to adjust the transaction amount and perform FX trading with substantially lower leverage. Even on a course with a leverage ratio of 25x, you can trade FX with effective leverage of 1x.
Conversely, in the 1x leverage course, you cannot trade FX with a leverage of more than 1x. In other words, the low leverage course is completely included in the 25x leverage course, and there is little rational reason to choose the low leverage course.
However, it will be an option for those who are worried about fund management, such as beginners in FX trading.
How much money do you need to trade $10,000 forex?
For example, when the exchange rate is 1 dollar = 100 yen, to deposit 10,000 dollars in a foreign currency deposit requires 100 yen x 10,000 dollars = 1 million yen as funds on hand. On the other hand, with FX, you can trade if you have a minimum of 40,000 yen.
Forex is structured so that you can start with fewer funds compared to foreign currency deposits, but the profits obtained from rate fluctuations are the same as foreign currency deposits.
For example, suppose the exchange rate fluctuates from 1 dollar = 100 yen to 1 dollar = 105 yen. In this case, a foreign exchange profit of 5 yen will be generated, so if you are trading 10,000 dollars (= 10,000 currency), you will have a foreign exchange profit of 5 yen x 10,000 dollars = 50,000 yen. .
Is Forex Investing Dangerous? Notes on leverage
Keep in mind that forex trading allows you to trade large amounts with a small amount of money, but there is also the risk of incurring relatively large losses. If you underestimate FX, there may be unexpected failures.
For example, if the exchange rate falls from 1 dollar = 100 yen to 1 dollar = 95 yen, contrary to the above example, if you are trading 10,000 dollars, both FX and foreign currency deposits will be "-5 yen × 10,000 dollars = -50,000 yen” loss.
What I want to point out is the difference in the amount of investment. Under the above conditions, the investment amount for a foreign currency deposit is 1 million yen, but for FX the minimum is 40,000 yen. Even with the same loss of 50,000 yen, it will be minus 5% for foreign currency deposits and up to 125% minus for FX.
50,000 yen loss Loss rate
Foreign currency deposit (investment amount 1 million yen): -5%
FX (investment amount 40,000 yen): ▲125%
The advantage of FX investment is that you can make large transactions with a small amount of money, but you should be aware of the disadvantages of losing more than the principal.
About the FX "loss cut" rule
It is necessary to learn about "loss cut" in FX investment. If a position has a valuation loss above a certain level, it is a measure to force liquidation so that the loss does not expand any further.
The “margin maintenance rate” is generally used as a loss cut judgment method. It is a numerical value that indicates “how much self-funds are prepared for the required margin” and is calculated as follows.
Margin Maintenance Rate = Effective Own Funds/Required Margin x 100 (%)
The available equity is the equity plus the valuation gains/losses on the positions. Even if you have 100,000 yen in your own funds, if the position has a valuation loss of 20,000 yen, your effective own funds will drop to 80,000 yen. Since the required margin is fixed at the time of new order if the valuation loss increases, only the numerator will decrease and the margin maintenance rate will decrease.
For reference, if you prepare your own funds of 100,000 yen and buy 10,000 US dollars at 1 dollar = 100 yen, the margin maintenance rate by rate is summarized below. Leverage is 25x (4% margin requirement).
1 dollar = 100 yen: Margin maintenance rate 250%
1 dollar = 94 yen: Margin maintenance rate 100%
1 dollar = 92 yen: Margin maintenance rate 50%
Loss cut standards differ depending on the Forex company
The level of the margin maintenance rate at which the loss cut is executed differs for each Forex company. The lower the level, the less likely it is to be cut, but the loss will be large if the loss is cut.
It is also necessary to pay attention to the time when the loss cut is judged. Rules that are judged at a specific time of the day are common, but there are Forex companies that are judged 24 hours a day.
Forex trading without checking the rules is dangerous. To avoid mistakes, check the rules before you start trading. Also, day-to-day cash management is important.
About Margin Margin Rules for FX
As with the loss cut, the necessary procedure is “margin” if the margin maintenance rate falls below a certain level. If the margin maintenance rate falls below 100%, it is necessary to make additional deposits or cancel the position until the margin maintenance rate recovers to 100%. Unlike loss cut, the margin maintenance rate is 100% for all Forex companies. The judgment time differs for each FX company.
In the case of a Forex company that cuts losses at a margin maintenance rate of 100%, margin calls do not occur theoretically. In the case of a Forex company whose loss cut standard is set at less than 100% of the margin maintenance rate, it is also necessary to pay attention to margin calls.
(With additional margin) Forex company with loss cut standard of less than 100%
Below is a summary of Forex companies whose loss cut criteria are less than 100% margin maintenance rate. Even if the margin maintenance rate falls below 100%, the loss will not be cut immediately, but it is necessary to pay attention to the fact that there is a margin call system.
If a margin call occurs, the position can be maintained if the margin maintenance rate is restored to 100% by the specified date. However, if the margin maintenance rate cannot be recovered to 100%, it will be forcibly settled.
(No additional margin) Forex company with 100% loss cut standard
The main Forex companies that are cut at a margin maintenance rate of 100% are as follows. Since the loss is cut when the margin maintenance rate is less than 100%, margin calls will not occur theoretically.
LION FX (Hirose Trading)
JFX
Central Tanshi FX
Compared to foreign currency deposits, FX has a large number of “currency pairs” that can be handled.
For example, "SBI FX Trade" handles 34 currency pairs. On the other hand, “SBI Sumishin Net Bank” handles foreign currency deposits in 9 currency pairs.
A currency pair is a combination of the currencies of two countries. For example, when trading the US dollar and the yen, it is called "US dollar-yen", and when trading the euro and yen, it is called "Euro yen". In the case of Forex, a currency pair is one trading item.
In FX, you can also trade currency pairs "cross-currency" that do not include the Japanese yen, such as "Eurodollar". Compared to foreign currency deposits, which are based only on yen, the number of currency pairs that can be traded in FX is greater.
There are currency pairs with large price movements
The FX market has different price movements depending on the currency, so before choosing a currency pair to trade, you should understand its characteristics.
For example, the magnitude of price movements in a currency pair is represented by the word volatility. "High volatility" means large price fluctuations, and "low volatility" means small price fluctuations.
Among currency pairs with the Japanese yen, emerging country currencies such as the Turkish lira yen and the South African rand yen tend to have high volatility, while major developed country currencies such as the dollar-yen tend to have low volatility. One reason is trading volume. Currency pairs with poor trading tend to have large price movements.
Currency pairs with high volatility also come with risks. Until you get used to trading, it would be safer to choose a currency pair with high trading volume and low volatility.
List of currency pairs with high trading volume
When trading for the first time, it is said that currency pairs with low volatility are recommended. Introducing popular currency pairs with high trading volumes worldwide. According to IG Securities, the ranking of currency pairs with high trading volume in 2019 is as follows.
No. 1: “Euro US dollar” share 24%
2nd place: "US dollar-yen" share 13.2%
3rd place: “British pound dollar” share 9.6%
The top three currency pairs account for about half of global trading. It is suitable for beginners because the price movement tends to be relatively small. Of course, it is also a good idea to choose currency pairs with large price fluctuations according to your trading style.
Forex company recommended because there are many currency pairs
Forex companies that handle many currency pairs are as follows.
OANDA JAPAN (NY server) About 70 currency pairs
LION FX (Hirose Trading) 50 currency pairs
In FX, there are swap points that become income gains in addition to exchange gains that become capital gains. A swap point is an interest rate differential adjustment amount granted daily due to the interest rate differential between the two countries of the currency pair traded.
In the case of the US dollar-yen, the US dollar has a higher interest rate than the Japanese yen, so swap points are granted by buying the US dollar-yen and holding it for a day. Conversely, if you sell USD/JPY, it will be a negative swap and payment will occur, so be careful.
Swap points are set for each currency pair, and by buying a pair of high-interest rate currency and low-interest rate currency, the swap points given will increase. The swap points given by different Forex companies are different, and if you think about the medium- to long-term trading, there will be a big difference, so let's check it out. Also, be aware of the difference between whether you can receive swap points before closing a position or whether you can use the given swap points for trading as they are.
The high-interest currencies handled by GMO Click Securities, which has ranked No. 1 in FX trading volume for eight consecutive years, are the Turkish lira, the Mexican peso, and the South African rand. If you buy 100,000 South African rand yen on October 23, 2020, you will be given a swap point of 60 yen per day. Note that swap points are not constant and are updated daily, so check before trading.
The timing of granting or paying swap points differs depending on the FX company, but with GMO Click Securities, the points are fixed by carrying over until the closing of the New York market the next morning without closing the held position.
The price of the South African rand yen in October 2020 is about 6 yen. The margin required to trade 100,000 South African Rand yen is 6 yen x 100,000 currency ÷ leverage 25 times = about 24,000 yen. The margin is lower than the margin required for trading USD/JPY 10,000, and the swap point is large.
If you continue to hold 100,000 South African rand yen for 365 days, you will be able to receive 21,900 yen swap points. That's about a 90% profit on the margin requirement.
However, if the losses from price fluctuations exceed the gains from swap points, the total will be negative. When holding for a long time, the range of price fluctuations will be large, so be careful of profit and loss, margin amount, and transaction volume due to price movements.
Forex companies that can/cannot receive swap points before position settlement
The timing at which swap points can be received differs depending on the FX company. Like stock dividends, there are Forex companies that can only receive swap points even before the position is closed, and there are also Forex companies that cannot receive swap points until the position is closed.
For those who value swap points, it would be more convenient to receive swap points regardless of the settlement of the position. The main Forex companies that can receive only swap points even before position settlement are summarized below.
Major Forex companies that can receive swap points before position settlement
DMM FX
LION FX (Hirose Trading)
FX Broadnet
Also, with the following Forex companies, swap points cannot be received before position settlement.
Major Forex companies that cannot receive swap points before position settlement
Monex FX
au Kabucom Securities
FX Prime by GMO
SBI FX Trade “Accumulated FX” can be operated with compound interest with the swap point reinvestment function
SBI FX TRADE offers a service called "Accumulated FX", in which foreign currencies are accumulated little by little like a foreign currency deposit. The service has a "reinvestment function" that allows you to reinvest swap points every business day and operate compound interest.
Compound interest is an operation method that reinvests the received income gain into the principal and continues to increase the income gain from the next time onwards. You can increase your swap points more efficiently than simply receiving them.
In the case of foreign currency deposits, profits cannot be made unless the yen depreciates compared to when the foreign currency was deposited.
On the other hand, in the case of FX, it is possible to start trading with “selling” first and settle “buying” later, so you can aim for profit even when the yen appreciates.
Let me explain in what cases a transaction entering from "sell" is effective. For example, let's say that in the situation where 1 dollar = 105 yen, you think that the yen will appreciate 100 yen in the future. It is effective to start trading from "Sell" when you expect that "the value of the currency will fall". If you can “sell” at the 1 dollar = 105 yen phase and “buy” at the time when 1 dollar = 100 yen as expected, the result will be “buy at 100 yen and sell at 105 yen”. As a result, the company will receive a foreign exchange gain of ¥5.
Based on this theory, if you sell $10,000 at a price of $1 = ¥100, and the price drops by ¥1 to $1 = ¥99, you will make a profit of ¥10,000. Conversely, if the exchange rate rises by 1 yen to 101 yen to the dollar, the loss will be 10,000 yen.
If this is a foreign currency deposit, you cannot start trading from "selling", so if you predict that "1 dollar = 105 yen in the future, 1 dollar = 100 yen", there is no opportunity to create a gain. .
Many forex companies offer trading tools for free. "Technical analysis" that can analyze charts with various indicators is attractive. In some cases, basic functions such as transactions and deposits from banks are provided, saving you the trouble of logging in from the web page each time you make a transaction.
Many of the major trading tools are for PC. There is an "installation type" that is installed on a PC and used, and a "browser type" that runs on a browser such as Chrome or Safari.
The installed type tends to be more functional, but it is necessary to manage installation and updates. In addition, since installation is required, there is a disadvantage that it is difficult to trade on the go. The browser type allows you to log in immediately from the web, so you can trade from your tablet or smartphone even when you are away from home.
In addition to PCs, trading tools are often provided as smartphone apps. If office workers trade on weekdays, the smartphone app version would be better.
Automatic trading (Sister) is also possible
Some Forex companies offer "System Trade (Sister)" tools. It is a method of automatically trading continuously during the operation period according to the set trading conditions. It has a function to automatically process new orders and settlements, so you can aim for profit even if you neglect it.
The trick to automated trading is to not let it go too far. The basic usage is to check market trends and win/loss of trading conditions and change the investment policy according to the situation.
Experience with demo trading
Forex companies may offer demo versions of their trading tools. It is recommended to use demo trading before opening an account because it is easy to understand the function of the tool and to get an idea of the trading.
When using demo trading, simple registration such as e-mail address is performed. Register according to the information on the website of the FX company you want to use. Also, be aware that there are many cases where you can use it for a limited period of time.
Forex can be traded at lower costs than foreign currency deposits.
Spread
"Spread" represents the discrepancy between the "selling price" and the "buying price" of the business.
For example, if the "selling rate" of the dollar-yen is 110 yen and the "buying rate" is 109.08 yen, the "spread" is 2 sen (0.02 yen).
FX spreads are lower than foreign currency deposits, and you can start trading at a lower cost.
For example, the dollar-yen spread at SBI FX Trade is 0.2 sen, but the dollar-yen spread for foreign currency deposits at SBI Sumishin Net Bank is 8 sen (4 sen one way. New orders and settlements total 8 sen. ).
In principle, the spreads set by FX companies are fixed, but spreads may widen greatly in the early morning when liquidity is low or when the price fluctuates greatly due to the announcement of important economic indicators.
Also, the spread setting differs depending on the currency pair and FX company. If you want to keep costs down and trade, choose currency pairs and companies with tight spreads.
Forex company recommended for narrow spreads
Specifically, I will introduce two Forex companies with narrow spreads of “US dollar-yen”.
SBI Neo Mobile Securities
"SBI Neo Mobile Securities" offers free spreads up to US$1,000. If the order quantity is 1,000 USD or less, it can be traded at zero cost. It is suitable for beginners and those who aim for profits steadily with a small amount of money. It is 0.2 sen for over US$1,000 and 0.3 sen for between US$10,000 and US$3 million.
The point to note is that a usage fee of 220 yen will be charged even in months when you do not trade FX. If you trade stocks, it will rise further, but if you only trade FX, it will remain at 220 yen.
FX Financial Trade (Goldenway Japan)
In "FX Financial Trade", the spread of USD/JPY is fixed at 0.1 sen in principle. There is no free setting like SBI Neo Mobile Securities, but if the trading volume is over 1,000 US dollars, the FX financial trade has a lower spread.
If you trade a certain amount in one order, FX financial trading will be more advantageous.
In the case of foreign currency deposits, you can receive the deposited foreign currency in cash by specifying the withdrawal destination of the foreign currency. For example, if you have US$1,000 in your account, you can withdraw US$1,000 in cash.
On the other hand, in the case of FX, in principle, it is not possible to receive the purchased foreign currency "in cash in foreign currency". It is due to the fact that it is a financial derivative product that does not exchange funds and products called "derivative transactions".
However, some FX companies such as foreign currency ex by GMO can withdraw in foreign currency.
Forex company recommended for foreign currency withdrawal
Some examples of FX companies that support foreign currency withdrawals are summarized below.
Central Tanshi FX
Gaitame.com
Learn FX with videos (example of FX video by Matsui Securities)
For example, Matsui Securities, which operates "MATSUI FX" (the service content was renewed in February 2021, including the addition of currency pairs and the introduction of single currency unit transactions for the first time in major online securities), explains the FX in the video below. We have prepared a series to
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