CFDs – Forex Academy

Introduction

EUR/JPY is among the most popular pairs in the international foreign exchange market. In fact, it indicated approximately 3% of the overall daily transaction. Moreover, it is indicated as the seventh-highest traded currency pairs in the forex market. Both traders and investors can leverage the potentials of the EUR/JPY currency pair as they both carry a high degree of volatility.

Best Time To Trade in EUR/JPY

Although you can trade EUR/JPY at any time of the day, to leverage the most benefit, you must trade when the pair is most volatile. Between 7:30 and 15:30 is the time when the currency pair trade is the busiest.

Factors Impacting EUR/JPY Rate

When it comes to making the most lucrative trade with this pair, it is important to understand what influences its rate.

Prominence Of EUR

Like many modern currencies, the prominent factors that impact the Euro price flow are financial, political, and economic. For instance, many trade decisions regarding the Euro are backed by the European Central Bank’s monthly reports.

These reports can influence the fluctuations in the Euro’s rates, and traders and investors promptly leverage the details as quickly as they are released to determine the flow of the Euro rates.

In economic terms, news releases focusing on employment can also play an important role in the fluctuations of euro rates. These details are easily accessible and offer vital insights into the economic condition of the Euro and the movement of Euro prices.

The Prominence of JPY

Japan’s economy has more factors that play an important role in determining the flow of currency. The basic health of the economy will play a significant role in involving a high rate of export and import trading. One uncommon factor that impacts the flow of the country’s currency is situations such as a natural disaster.

The Right Way To Trade EUR/JPY

In terms of speculative trading, CFDs provide traders and investors with easy access to a plethora of markets. They like to transact with CFDs as derivatives trading implies that buying the actual currency is unnecessary. When trading, investors and traders like to harness technical analysis and assess the EUR/JPY chart. This is done to determine the relationship of the pairing and forecast the highs and lows of the markets.

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What is CFD?

A contract for difference (CFD) is a form of derivative trading. CFD allows a trader to speculate on prices of global financial markets such as shares, indices, commodities, and of course, currencies. While trading CFDs, a trader gets to bet on both upside and downside movements of the market. The profit and loss for CFD are calculated by taking the difference between the entry and exit prices and multiplying it by the number of units. CFDs always comes with an expiration date, before which you need to close your position. Trading these CFDs may appear sophisticated and complex in the beginning, but once you start trading them, it becomes easy to handle.

Leverage trading CFDs

CFDs are a leveraged product, which means a trader needs to maintain an optimum level of capital in their trading account to execute a trade. As it is leverage/margin trading, this capital can only be a small percentage of the full position’s value. While margin trading allows a trader to magnify their returns, losses will also be more as a trader will lose leverage times the capital he is betting on. Hence it is always recommended to go for less leverage. If you are a novice trader, we suggest you not to go beyond 2X leverage. And obviously, the gains and losses will be based on the value of a CFD contract.

Costs involved while trading CFDs

There are three types of costs a trader may incur while trading CFDs. Each of them is explained below.

Holding cost – At the end of each trading day (mostly at 5 PM New York time), if the positions are open in your account, it will be subject to a charge called ‘holding cost.’ Holding costs will depend on the CFD, direction of the position, and the holding rate.

Spread – CFDs always come with a spread, which is the difference between the buy and sell price. This price is decided by the broker, and it varies from broker to broker. A trader will have to enter a buy trade at the buy price quoted by the broker, and exit using the broker quoted sell price. The narrower the spread, the less the price needs to move in trader’s favor for their profits to start. These spreads are extremely competitive across all the brokers.

Market data charges – For getting live market feed and accurate prices, a trader must pay the relevant market data subscription fees. However, this fee is mostly applicable to stock CDFs and varies from broker to broker.

Things to remember

Like any other market, there are high risks involved in trading CFDs as well. CFDs are complex in nature (at least for novice traders), they carry a high risk, so it is important to do your research before you start trading. Also, since CFDs are leveraged products, losses can easily exceed your total investment. In volatile markets, your account balance can drop down to zero or even to a negative balance in no time. Following best trading practices like proper applying risk management to your trades will increase the chances of profiting.

We hope you find this article informative. Let us know if you have any questions in the comments below. Cheers!