What is Real-Time Forex Trading?

Real-time forex trading is a form of speculation in which a trader bets on the movement in the exchange rates of foreign currency pairs. This type of trading involves placing an order to buy or sell a specific currency pair at the current exchange rate. Stop or limit orders may also be used, but typically in close proximity to the current exchange rate. Real-time forex trading requires the use of real-time forex charting software. This style of trading is typically associated with short-term traders using technical trading methods.

Key Takeaways

  • Real-time forex trading is taking trades based on real-time price quotes or price charts.
  • Real-time forex traders are typically short-term traders, although anyone can buy or sell based on real-time prices. Longer-term traders are less concerned with the by-the-second price changes.
  • Real-time forex traders rely on accurate pricing information, rapid execution, and often some sort of technical analysis-based trading system or strategy.

Understanding Real-Time Forex Trading

Forex currency traders perform real-time forex trading on the foreign exchange market. To do this, they use analysis based on technical and fundamental indicators, which help them forecast the movement of the currency pair traded. Because real-time currency trading is wholly electronic, execution speeds are extremely fast, allowing the trader to quickly buy and sell currencies in an attempt to cut losses and take profit.

The potential for significant losses is a reality with forex trading. Because of this, the ability to access information in real-time, or ensure that buying and selling occur without any significant lag time, is of utmost importance to traders. Even with timely price quotes and rapid execution, it is still possible for traders to face larger than expected losses if the price gaps through their intended exit point. This is common during major news announcements, when liquidity may dry up resulting in larger losses (or profits) than initially anticipated.

The Composition of Forex Trades

On the forex market, the largest market in the world, traders buy and sell various currencies around the globe. Forex trading involves the purchase and sale of currency pairs. Currency pairs are the national currencies from two countries or zones coupled for trading on the FX marketplace. The exchange rate of the pair is the rate at which one currency can be exchanged for the other.

The calculation for the rates of exchange between foreign currency pairs is a factor of the base currency. A typical currency pair listing may appear as, EUR/USD 1.3045. In this example, the euro (EUR) is the base currency, and the U.S. dollar (USD) is the quote currency

This rate means it costs $1.3045 to buy one euro. Buying this pair means buying the euro and selling the USD. Selling this pair would mean selling the EUR and buying the USD. This happens with the click of a buy or sell button related to the EUR/USD pair.

Real-Time Forex Trading Accounts

Trades pass through a broker where an individual holds a standard, mini, or micro account. Standard forex accounts trade in lots of 100,000 base units, Mini accounts allow 10,000 unit trades, and Micro accounts allow 1,000 base unit trades. Also, Standard accounts enter orders in multiples of 100,000, whereas mini account holders place them in multiples of 10,000. Micro accounts may use any multiple of 1,000.

The forex market is open for 24 hours, five days per week. With buying and selling among traders scattered across different time zones around the globe real-time forex trading can occur at any time of day, fitting into any schedule.

Forex brokerages offer real-time forex trading charts to clients. Websites that offer free trading charts may not guarantee the information is accurate or timely. Also, because each broker may have different traders and banks providing liquidity, rates sometimes vary slightly between brokers and/or charts available online.

Real-Time Forex Trading Tactics

While any style of trader can use real-time charts to make trading decisions, short-term traders rely on real-time charts the most. An investor, for example, isn't as concerned with the by-the-second fluctuations of a currency pair.

Short-term traders include day traders and swing traders. Day traders hold positions for seconds, minutes, or maybe hours. Swing traders typically hold positions for days or weeks.

Some of these traders utilize trend trading as their primary trading method. Trend trading is attempting to capitalize when the price is moving in one sustained direction for a given period of time.

Other traders prefer to capitalize on ranging price movements. Ranging price movements are more common when major markets for a currency pair are closed. For example, the GBP/USD will tend to be calmer and rangier when European and US markets are closed.

Trading chart patterns, such as triangles, flags, or head and shoulders, is also common.

Real-World Example of Real-Time Forex Trading

A day trader may use a one-minute forex chart to trade any number of currency pairs. The following chart is a one-minute chart of the USD/CAD, which shows the fluctuating exchange rate between the U.S. dollar and the Canadian dollar. While a new price bar or candle is created each minute, during that minute the price on the left axis shows the current bid price. Each completed bar or candle shows the open, high, low, and close price for that one-minute period.

USDCAD forex real time trading example

The chart, which reflects Eastern Standard time, shows how the currency pair acted over several hours of the trading day, including the opening of major markets in Canada and the U.S., including Toronto and New York.

Earlier on in the session, there is more trending price action, where the price makes some sustained moves both higher and then lower. After 11 a.m. the price takes on a more ranging tone, which would benefit those looking to use fading strategies or range-bound trading strategies.

Of note is that after 11 a.m. there is only about 10 pips between the swing highs and lows. Day traders will determine whether this is enough volatility to warrant trading when taking into consideration the bid/ask spread and/or commissions.