USD/HUF Trading Tutorial

USD/HUF stands for the USD and the Hungarian forint currency pair in the forex market. The value quoted on this pair shows you how much forint is required to buy 1 US dollar. 

This forex pair is becoming one of the preferred exotic pairs for traders because of several reasons.

In some emerging market countries, news and information are hardly reliable nor easy to come by, due to a closed/authoritarian political system. But this is not the case with Hungary. The country is democratic and a member of the EU, with strong ties with the US. Investors/traders find this appealing.

Indeed, many traders shy away from this currency pair because of the high risk. But others see a potential to make a profit here. That is because the forint is paired with a strong currency($), and the Hungarian economy has thrived in the last 10years. Another reason for the appeal is its seeming predictability; looking at the price history and chart of the USDHUF pair, you can spot a fairly consistent bullish(upward) move. It tells us that it will be easy to identify patterns with this pair.

Why should you consider trading USDHUF, what opportunities and risks exist in this market, and how can you take advantage of it. Let us examine these points together, including some trading strategies for this exotic pair.

Why you should consider trading the USDHUF pair

Traders find it scary to invest in the USDHUF currency pair but the opportunities abound, and some are making a profit from this trade. Here are 2-main reasons why some traders venture into this market:

I. Expand your options

We all know that many traders in the market focus on major forex pairs, some traders are starting to see the need to diversify. Trading the USDHUF allows you to expand your trading options.

II. Opportunity for higher profits

Traders are realizing that once you can analyze and fully understand the trend, you can make good predictions, thereby making a higher profit. Though, an opportunity for higher profit also means a chance for greater losses.

Therefore, when trading exotic pairs such as this, it is necessary to stay abreast of business news (fundamental analysis). Economic situations for emerging countries change quite often, which affects the exchange rates. Staying informed on Hungarian government policies can help you make good decisions in your trading.

Pros and Cons of trading USDHUF

Every asset and every market has its advantages and disadvantages. Here is a list of a few for this forex pair.

Pros:

1. Interest rates 

Traders can enjoy nearly 2% interest rates on the forint, especially if they carry the trade.

2. Relatively predictable prices

Some traders have claimed that price movements are more easily predicted for exotic currency pairs which involve the USD. They believe that a good understanding of the dollar can help you accurately foretell the direction of the quoted price.

3. High volatility

You read that right. Some traders see this as an advantage because higher risk means potential for a higher profit. 

Cons:

1. Low trading volume

This asset is not as liquid as the major/minor forex pairs. The reason is there are not many buyers and sellers in this market, so entering and exiting a trade might be difficult.

2. High Volatility

Your capital is at higher risk when you trade this pair. Price can suddenly move in the opposite direction, thereby leading to loss.

3. High cost of trading

Because exotic currencies carry higher risks, some brokers avoid them. The brokers who offer this trading opportunity usually place a wider spread on the price to protect themselves from loss. This will, in turn, lead to higher costs on the trader’s part.

How to start trading USDHUF

Below, I will explain how you can start trading this forex pair, how to find a good broker, the required analysis to be done, and a step-by-step guide to place your first trade.

The First step to trading USDHUF is to find a good broker. Brokers serve as middlemen between you and the foreign exchange markets.

There are many brokers online, but you need to do careful research before choosing one. Some brokers do not operate in every country or do not offer USDHUF trading options. Others have too many negative reviews, which you may want to avoid. Some may not have all the required licenses.

What to look out for when choosing a broker

Before selecting a broker, first, ensure they offer the opportunity to trade USDHUF. Then check on the following criteria:

1Regulation and licenses: Make sure the broker is reputable and has all the required licenses from the appropriate regulatory bodies.

2. Customer service: These days, a lot of brokers offer multilingual customer service. If English is not your first language, you should consider such brokers. Also, ensure that support is readily available, so look out for 24-5 customer service.

3. Fees: Some traders spend more money trading with brokers who charge higher fees. It is good to compare commissions, spreads, and any other fees before choosing a broker.

4. Awards: This will be proof that the broker has been recognized for excellence and trustworthiness. 

5. Payment options: A good broker should have several options for deposits and withdrawals in a trading account. Skrill, Mastercard, Visa, direct bank transfers are all good payment options that work in most countries. You should be able to fund your accounts and withdraw your profits with ease.

6. Free demo accounts: Nowadays, brokers offer free demo accounts, credited with virtual money, to help newcomers understand their trading platforms before they sign up. It is vital to test the broker’s platform with a demo opening a trading account with them.

The Second step 

It is paramount to do the correct analysis before you start to trade. There are 2-major kinds of Analysis in forex trading:

Fundamental analysis: involves listening to business news and reports on the stock markets. Economic news which influences forex market activities is also beneficial. Some brokers provide live news feeds on their platforms, which keeps traders informed.

Technical analysis: most platforms come with special tools called indicators. These tools help spot patterns and keep track of new market trends. Some come with free triggers called Trade signals. The trade signal sends you a trigger whenever there is a new trend. These triggers may not necessarily mean it is the best time to place a trade. But traders use them to analyze opportunities before they take action.

You should also be aware of the different risk management tools. Traders in this market are advised to always use the STOP LOSS and/or TAKE PROFIT orders to manage the risk.

Stop-loss orders automatically close your position if the price moves in the opposite direction. It reduces risks and protects a part of your profit.

For example, if you enter an order to buy USDHUF at 2.504. Placing a stop-loss order at 2.490 will reduce your risk of losing the trade to 14pips.

When you make a profit on the trade, you can move the stop-loss order to protect a portion of the profit. Using the example above, let’s say the price goes up from 2.504 to 2.520. You can move the stop-loss order to 2.515, thereby protecting a part of your profit.

How to trade USD/HUF forex pairs.

We have explained the steps to take before opening your first trade. Now, we will show you how to trade USD/HUF currency pairs.

Step1: Choose the USD/HUF currency pair 

The first step is to select the USD/HUF currency pair. Bear in mind that forex trading is about swapping one currency for another. So for USD/HUF, you will be buying the USD and selling the HUF.

Step2: Check the quote

At this stage, you would have analyzed the market. Look at the quote to determine your risks and profit. 

You will often find 2-prices. The BUY price is always higher and is the price at which you buy the currency pair. If you subtract the SELL from the BUY price, the difference is called the SPREAD. That is the broker’s fee for that trade. 

Step3: choose a position.

There are 2-positions:

1. The BUY position

2. The SELL position

In the BUY position, you expect the value of USD(the base currency) to increase. That is, you believe the USD will be bullish. 

In the SELL position, you believe the value of the USD will weaken. That is, the USD will be bearish.

Trading at a buy position

For illustration, assuming you pick a BUY position. Assuming your broker gives you this quote 309.2000/309.2011. You believe that the value of the USD will increase(bullish), so you enter the trade at this price 309.2011.

A few hours later, you check your position, and the USD/HUF is quoted 309.2053/309.2064. It means you have gained 53pips. You can decide to exit this position at the SELL price of 309.2053 and take profit.

Trading at a sell position

If you choose a SELL position, it means you believe that the USD is bearish. So you enter the trade at the SELL price of 309.2000.

If, after a few hours, you check and find the quote above – 309.2053/309.2064, it means you have lost 53pips. You can decide to close your position and try again anytime.

USD/HUF trading strategies.

There are many different strategies used in forex trading. But not all of them are suitable for all the currency pairs, timeframes, or trading styles. The forex market is dynamic, so you must be ready to adopt a better strategy when necessary. What worked for you yesterday may not work today, so continuous learning is essential while trading. Fundamental analysis is great, but experienced traders tend to use more strategies that involve technical analysis for currency pairs like this one. 

Below, I will explain some strategies which traders use when trading the USDHUF.

1. Trend trading

This strategy is popular with exotic pairs trading. It relies on the use of technical analysis to spot price movement patterns. Through the use of indicators to analyze previous trends and price movements, the trader could accurately predict the next price move. Once this is done, they can then place a trade, depending on the trend identified. 

How to use this strategy

There are 3types of trend

  • Uptrend 
  • Downtrend
  • Sideways

When the USDHUF price keeps increasing in value, this is an uptrend. You can use this to your advantage by entering a BUY position (Go long). If it is decreasing, this is a downtrend and the best time to enter the market on a SELL position (Go short).

2. Breakout 

This is a rather simple trading strategy, which makes it a good choice for beginners. It involves entering a trade when a new trend might be forming.

Some experts believe it’s best to pick a position the moment the prices move to a support or resistance level. Others think it is best to wait a little longer. 

What is a support and resistance level?

On a support level, the price stops its downtrend and begins to rise. Before now, the price had been falling.

Resistance level refers to that level where a price stops rising and begins to fall.

3. Range-trading strategy

This strategy is best used when the market has no clear direction. When bulls and bears are not stable enough to start a trend, traders expect the price to return to support and resistance level several times. This type of trend is called the sideways trend.

How to use this strategy

Your goal is to benefit from the constant price movements. First, find the support and resistance level. By looking at the previous highs and lows in the chart, you can find both levels on the chart. Pick the BUY position when the price hits support level, and SELL, when it reaches resistance. 

4. Moving average strategy 

As the name suggests, Moving Average shows the average closing price over a specific time. You can compute this by adding your USD/HUF prices over a period and dividing the sum by the number of days in question. 

Let’s say you want to calculate the moving average for USD/HUF by looking at the highs for 10days. Assuming the closing prices for this 10days are 300Ft, 301Ft, 302Ft, 304Ft, 305Ft, 306Ft, 307Ft, 308Ft, 309Ft, 310Ft. The moving average will be 305.5Ft.

5. Price-Action trading strategy: 

This involves looking at past historical prices and comparing them with recent prices to predict the next move in the market. This strategy does not use fundamental analysis or technical indicators. Instead, it involves the study of price bars in the chart, which shows the prices’ highs and lows during a specific period.

Traders who use this strategy believe that price-action reflects all the necessary variables that influence a market such as economy, technical analysis data, news, etc. So they focus solely on price moves.

Using the candlesticks as an indicator, you can see the opening and closing, plus the high and low price levels in any specified period.

The most important element in this strategy is the PRICE ACTION SIGNAL. This signal gives traders a strong hint of where the price could move next.

3-steps to finding a price-action signal:

1. First, make sure your chart is bare with no indicators, just the price bars. Then Identify your support and resistance levels.

2. Wait for the daily trading session to close. If your broker uses the European trading session, the closing time will be 4 pm GMT +1(London time).

3. Look out for price action BUY or SELL signal. 

The PIN-BAR is a long wick that sticks out from below or above the price action. It is a signal that indicates a sharp rejection of a particular price, either higher(bearish) or lower (bullish) price. It hints that the price may continue to move in the opposite direction. Traders will use this to decide to enter on a BUY or SELL position.

How to trade using a PIN-BAR Price-Action strategy: 

If a pin bar occurs at resistance level, it means the market is bullish, pick a LONG position. If it occurs at the support level, it is bearish and a good time to enter a SHORT trade.

There are several other PRICE ACTION signals worth researching, but the Pin bar strategy is the most common among forex traders. 

6. Carry trade strategy.

Carry trading in forex means holding your position on a trade when one of the currencies has a higher interest rate than the other. As long as your position stays open, you will continue to receive interest from your broker if that trade favors the higher interest currency. 

For example, if you go short and hold your position on USDHUF for a specific period, apart from your profit you can earn interest on that trade. This strategy carries great risk for this pair and must be used with caution. Traders use this strategy when they foresee a downtrend in the value of the currency pair.

There is no best strategy with a 100% success rate. Experienced traders use a combination of strategies. Having a full understanding of the strategy you choose is vital. Using your risk management tools is always essential. 

The cost of trading USDHUF

This cost refers to some fees you may have to pay to your broker while trading forex. There will be optional costs and mandatory costs.

The optional costs will include fees for some content on the platform which are not free. But which you can do without. You may incur (optional) costs on things like:

● Educational contents. For instance, forex courses.

● Special technical analysis tools.

● News services

The mandatory costs will include trading fees such as spreads and commissions. These fees are not fixed. And will vary from broker to broker.

Spreads

This is the fee your broker charges for every trade you place.

The broker will give you 2-prices when you place a trade; the BUY(ask) price and the SELL(bid) price. The difference in the price is the spread.

Let’s say, for instance, you place a trade for USDHUF, and the price chart shows 2.500. The broker will quote 2-prices. That’s 2.500 ask price and 2.502 bid price. It means you are being charged 2pips for this trade.

Note that, as an exotic pair, the spread on this is relatively high. The fees also change sometimes, depending on market activities.

Some brokers charge commission for the execution of the trade. 

Mistakes to avoid 

The foreign exchange market is the most famous market among new investors for obvious reasons.

It’s highly liquid, with the largest number of buyers and sellers, trading more than $5trillion every day. Brokers have the confidence to offer huge leverages, which increases the potential for huge profits. 

However, the market is highly complex, and rushing in head first can lead to costly mistakes.

Here are some mistakes beginners can avoid:

1. Not doing enough research before they start.

2. Trading at high costs. It happens if you don’t choose a good broker. 

3. Trading at the wrong time of the day. For instance, some currency pairs are better traded during the day. Trading at night on these currency pairs can lead to losses.

4. Not staying up to date on business news, and ignoring economic data.

Conclusion

Trading forex, like all other investments, is a risky business. Trading exotic currency pairs are riskier. But the potential rewards are worth it. Being aware and staying informed, learning from other traders, and avoiding common mistakes can help increase your chances of making a profit and minimize errors.

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