Frequently Asked Questions on Trading with Leveraged Tokens
What are the spreads on FREE2EX?
The bid-ask spread is the difference between the lowest price asked for an asset and the highest bid price.
The FREE2EX platform has floating spreads, the size of which depends on the current price on the market. They can be found on the platform in the “Market Watch” or in the market order book.
How long can positions remain open?
What are Stop Loss and Take Profit, what are they for?
Calculation of the amount of collateral (collateral requirements)
The size of the collateral gives an idea of how much funds a trader needs in order to open the desired volume of a position with leverage.
Let's calculate the amount of collateral using the EUR/USD currency pair as an example.
Let's assume that a trader has 400 USD in his account. He wants to open a buy position on the EUR/USD pair in the amount of 10,000 units. The leverage for this pair is 1:100, the rate for the EUR/USD pair is 1.35.
We calculate using the formula:
Collateral size = (Lot size × Rate) / Leverage = (10,000 EUR × 1.35) / 100 = 135 USD
Thus, in order to open a position to buy euros for dollars in the amount of 10,000 units with a leverage of 1:100, a trader will need 135 USD. These funds will be reserved for an open position; the trader can use the free funds (400USD - 135USD = 265 USD) in further trading.
What is a lot?
Lot is the volume of currency that is used to carry out transactions for the purchase or sale of assets using leverage (financial leverage).
A standard lot is 100,000 units of the base currency.
For example, 1 lot in the EUR/USD pair is equal to 100,000 euros, and in the USD/RUB currency pair, 1 lot is equal to 100,000 dollars.
For the convenience of trading, some brokers, including the FREE2EX crypto exchange, have the opportunity to trade parts of a lot: 0.1 lot - 10,000 units of currency and 0.01 lot - 1000 units of currency. This approach allows investors to minimize their risks in trading, but at the same time, it significantly reduces the profit on transactions.
What are points and how to count them?
A point is a structural unit of a quotation that reflects the amount of price change.
There are so-called four-digit and five-digit brokers. The former have 4 decimal places in their quotes, the latter have 5, respectively. The decimal point is always a ten-thousandth part.
In quotes that are presented with 5 decimal places, the point is the penultimate digit (ten-thousandth part).
The euro to dollar pair is EUR/USD, the quote for which is, for example, 1.23545 - here the point will be a ten-thousandth part, and the last digit in a five-digit quote is called a pip.
A pip is a tenth of a point.
Also, there are currency pairs where there are only three decimal places, for example, the dollar versus yen pair - USD/JPY, which looks like this: 110.342. In this case, the thousandth part, rather than the ten thousandth part, acts as a point.
How to calculate the change in quotes in points?
Everything is very simple! To calculate how many points the quote has changed, we do the usual subtraction. Let's look at an example using the euro to dollar pair:
You have opened a position on the EUR/USD pair at a price of 1.23500. Two hours later the quote became 1.24651. The difference was 0.01151 (Remember that the fifth digit after the decimal point is a pip). It turns out that the price of the instrument increased by 115 points.
What are base and quote currencies?
Base currency - in a specific currency pair, the unit price of which is always measured in units of another (quoted) currency. It is the first one in a currency pair.
Quote currency is a currency in whose units the price of a unit of the base currency is expressed. The quoted currency is placed second.
For example, in the EUR/USD pair, EUR is the base currency, that is, we will buy or sell it for the quoted currency - USD.
What is leverage and collateral?
Collateral is a sum that is blocked in a trader’s account when he opens a trade.
The greater the financial leverage, the less collateral will be, which will be frozen in the trader’s account.
Leverage is the provision of additional capital to the client (trader) to carry out transactions on the trading platform. The amount of leverage is a coefficient that shows the relationship between the trader’s own funds and the amount of collateral. The leverage size can be 1x, 2x, 3x, 5x, 10x, 20x, 50x, 100x, 200x, 500x, 1000x.
Example: You have 500 XUSD in your account, and you want to open a deal to buy euros with these funds. The current exchange rate of the euro to the US dollar is 1.30. Those. for 500 dollars you can only "buy" 384.61 euros.
Using financial leverage (for example, 1:100), you get the opportunity to make transactions with currency and other assets in 100 times the amount. Those. Having the same 500 XUSD on your account, you, working with a leverage of 1:100, can “buy” not 384.61 euros, but already 38461 euros. And the capital on the account (500 XUSD) serves as collateral for maintaining open positions for the purchase or sale of any token asset.
Using leverage and having even a small capital, a trader has the opportunity to make money even on a slight price movement, however, it should be remembered that if the price moves against the trader, then the loss will also be increased by the size of the leverage.
The difference between spot trading and leveraged trading
Spot trading is trading of assets in which payment for the transaction is made immediately and the client actually owns the purchased asset. With spot trading, a trader can only manage the funds he actually has and can earn as much as his capital allows.
When trading with leverage, the situation changes. Trading with leverage allows the client to use borrowed funds from the broker and the nature of the transactions is speculative in nature (the trader receives only the difference in the opening and closing prices of the transaction). There is no delivery of the asset itself during margin trading, and borrowed funds allow the trader to make transactions many times larger than his capital allows.
Advantages of leverage trading:
- Obtaining a loan does not require prior approval or specific registration. - Using leverage when trading intraday is free. - The loan is secured by the client’s funds in the account. - You can make money not only on rising prices, but also on falling ones. - The ability to significantly increase the volume of transactions while maintaining the same capital. - With a small amount of capital, you can make money even on a small change in the price of the instrument. Flaws:
- Leverage increases not only the size of potential profit, but also loss.
- Often, when holding a position for more than a day using leverage, the broker charges a so-called fee. Usually this is a certain percentage, the size of which is based on interbank lending rates.
Trading with leverage - trading with the receipt of borrowed tokens
The peculiarity of trading with leverage on FREE2EX is that it is trading with the receipt of borrowed tokens.
Trading with the receipt of borrowed tokens allows clients to carry out transactions for the exchange of tokens using tokens provided to the client in ownership.
FREE2EX issues two types of tokens: tokens representing US dollars and tokens representing Euros. When transferring a currency (EUR or USD) internally from eWallet to a Leverage account, this currency will be exchanged for the corresponding token at a 1:1 rate. The names of tokens on the Leverage account are formulated as follows: the designation “X” followed by the name of the corresponding (represented) currency:
- XUSD is a token representing US dollars; - XEUR is a token representing the Euro.
Tokens have a value equal to the value of a unit of the represented currency, namely 1 US dollar = 1 XUSD; 1 Euro = 1 XEUR.
These tokens will be used for trading with leverage on the platform.
In order to withdraw funds (EUR or USD) after trading by bank transfer or to Visa or Matercard cards, you must make an internal transfer from the Leverage account of tokens to eWallet with the same exchange rate of 1:1. Next, you can withdraw currency from eWallet in your personal account.
How to use the World Markets Clocks feature?
On the FREE2EX platform it is possible to display world time on the panel. To do this, in the upper right corner, click the "World Markets Clocks" button. A field will appear above the chart showing the server time and the time of world exchanges:
В настройках можно отфильтровать часовые пояса, поставив/убрав галочку напротив города:
What is slippage?
Slippage in trading is the execution of an order at a price that differs from the one set by the trader in the trading order and from the current quote. As a rule, the transaction execution price will be “worse” than stated, but it can also be “better” (in favor of the trader). It depends on the direction of the trend and the type of position being opened.
Another reason for the occurrence of slippage is that during the processing of your trading order, even if it is a fraction of a second, the price changes, as a result, execution at the price set by the trader becomes impossible.
Thus, the transaction will be opened at the prices existing on the market, and if the market went in your favor, you will receive additional profit, if against you, the result of the order execution will be worse.
For each transaction, the market must have the required volume of opposing orders at the price required by the client. If the volume is not enough, then the balance will be executed at the “nearest” suitable quote - this is the “slippage” effect.
When placing orders on the trading platform, you can set the size of the maximum slippage. This means that if the price at the time of the expected opening of the transaction exceeds the slippage threshold you set, the order will not be executed.
For example: a trader wants to place a market order to buy Brent oil at the current market price of 70.03 USD, and sets the maximum slippage level to 10%. This means that if at the time of execution of his trading order the price of the instrument is greater than 77.03, his order will not be executed.
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