What Is Forex Trading?
Forex trading is a systematic arrangement of sales and purchase of currencies in an over-the-counter market to make profits. The forex market is known to have higher liquidity than any other financial market in the world. As per an estimate, the daily trading volume of the forex market is more than 6 Trillion U.S. Dollars. As far as forex trading in Canada is concerned, the country has been a favorite investment market for traders all over the world.
How Does it Work?
Forex trading involves three major participants, including investors, brokers, and liquidity providers (market participants). Brokers serve as a platform to connect investors to the market.
Even though the forex market is decentralized, still it has some rules to follow while trading currencies.
- Currencies need to be traded in pairs.
- Quote currency always appears after the base currency.
- Currencies are denominated using a three-letter code. i-e, GBP, CAD, USD, etc.
The prices of currencies are subject to vary owing to different economic and political factors. The fluctuation in the prices of currencies enables traders to make profits.
If the market value of a currency appreciates over time, it brings profits with a buy trade. On the other hand, if a currency pair loses its worth, it can lead to losses. That’s how forex traders managed to make profits in both rising as well as falling markets.
Let’s try to understand the concept of forex trading with a numerical example;
Suppose you wish to trade USD/CAD and your broker quotes the current market price for USD/CAD at 1.27. At the given price, 1 U.S. Dollar is equal to 1.27 Canadian Dollars.
If you wish to buy 100 USD with CAD, then you will need to spend 127 CAD to buy the required quantity.
Now suppose, if your trading analysis indicates that the U.S. Dollar might lose its value in a week from 1.27 to 1.15, then you may wish to wait for a week to let the USD drop. After one week, you might buy the same quantity of USD for only 115 CAD. Hence, there is an opportunity to make profit. i-e, 127-115=12 CAD. In simple words, you can also sell USD at the current market price and buy back after one week at a cheap rate. That’s how forex traders make profits.
Pros And Cons of Forex Trading
Forex trading can help traders to make lucrative returns, but it doesn’t suit everyone. Listed below are some main pros and cons that might help you to decide whether it is suitable for you or not;
- Leverage – Leverage is a crucial element in forex trading. Even with limited funds, it enables traders to trade bigger trading positions. Generally, regulated brokers offer a leverage up to 1:30 which means you can trade 30 times more volume with your investment.
- .Market Decentralization – The forex market is a decentralized market with no central authority controlling it. Therefore, there are no hard and fast rules that govern the forex market. Also, the chances of price manipulation, as opposed to stock and equity markets, are minimal.
- Low Cost – Because forex trading is not very expensive, hence is affordable for everyone. Whether it be spread charges or swap fee, the overall cash outflow is way lower than any other investment market.
- Tax Relief – Forex earnings might be tax-free in many countries. However, tax exemption doesn’t apply on CFD trading.
- Accessibility – Traders can access the forex market round the clock, five days a week. The forex market remains open in four trading sessions, including Sydney, Tokyo, London, and New York. Each trading session runs parallel to the upcoming session for a few hours, allowing the forex market to remain open round the clock.
- Liquidity – Unlike other investment markets where liquidation of assets take time, the forex market is highly liquid. Therefore, it enables traders to fill up their trading positions in no time.
- Key Players Dominance – As major players dominate the forex market with privileged access to information and technology, the small-scale traders may suffer.
- Regulatory limitations – The absence of regulation of the forex market can sometimes prove disastrous, particularly when we see a crash like trend after a major economic or political event.
- Volatility – Besides being highly liquid, the forex market also has higher volatility levels. Along with leverage, the volatility becomes even more dangerous for both newbies and experienced traders.
How To Start Trading Forex in Canada
Forex trading in Canada is a popular investment practice to generate passive income. Therefore, it is easy to start forex trading in Canada.
Listed below are a few requirements you need to fulfill before you begin your forex trading journey;
1) Funded account
2) Trading platform
3) Identity verification documents
In compliance with directives of anti-money laundering agencies, brokers need to follow the KYC parameters. The KYC means “Know Your Customer”. It’s a process through which brokers verify the identity of their clients. You need to submit your national ID card, passport, or driving license to verify your identity. You may also need to provide your bank statement or a copy of utility bills to verify your residential address.
Once you have completed the KYC process, you can fund your account using various payment methods offered by your broker. Generally, brokers accept bank transfers and credit card payments. After depositing funds in your account, you can access the market using a trading platform.
Forex Trading Communities, Forums, and Discussion Groups in Canada
#1 Canadian Money Forum
Canadian Money Forum is a general discussion forum. It features discussion threads on multiple investment markets, including stock, bonds, real estate, forex, and commodities, etc. The forum has been around for more than a decade. It has over 161K registered members and more than 539K posts.
#2 Forex In Canada
Forex In Canada is a Facebook page created to connect forex traders from all over Canada. With more than 2.7K members and multiple posts hitting the page every hour, it seems to be an active community of forex traders based in Canada.
#3 FXGears Trading Community
FXGears is a trading community of professional forex traders from Canada. With a frequency of five posts per week, the group focuses on systematic and discretionary trading strategies.
Forex Influencers to Follow in Canada
# 1 Raman Gill
Raman Gill is a forex expert and technical analysis specialist. With her 07 years of trading experience, she offers coaching services to the forex aspirants. Clients can subscribe to her forex courses under various payment plans.
# 2 Diego Iga
Diego Iga is a forex trader and investment specialist residing in Canada. He provides mentorship to traders who wish to learn forex. Diego has posted hundreds of videos on his youtube channel, covering a wide range of discussion on various investment markets such as bonds, forex, and equity markets.
Frequently Asked Questions (FAQs)
Is forex trading legal in Canada?
Yes, forex trading is legal in Canada. The Investment Industry Organization of Canada (IIOC) is the chief regulatory body that regulates forex brokers and other financial companies related to forex trading.
What is the best time to trade forex in Canada?
The forex market is known to have maximum liquidity at times when two trading sessions overlap. You can follow the given below time slabs to know when the forex market is highly volatile across different trading sessions. Please note that these timings are in Canadian Standard Time;
- US/London Overlap: 1:00 AM to 5:00 AM
- Sydney/Tokyo Overlap: 07:00 PM to 09:00 PM
- London/Tokyo Overlap: 08:00 PM to 09:00 PM
Is Forex Trading taxable in Canada?
Yes, earnings from forex trading are taxable in Canada. However, forex profits fall under the category of capital gains that means you need to pay taxes on 50% of your forex earnings.
Can you make money trading Forex in Canada?
Yes, you can generate some decent profits with forex trading. However, you need to follow an effective trading plan and disciplined trading approach.