Congratulations! You have taken your first step towards becoming a Forex trader.
In this article, we are going to teach you the Forex market, explain the history of Forex and give you some great tips and strategies for trading successfully.- WealthTradex
(This article is grouped in five parts. Lets start, good luck...)
(PART ONE) INTRODUCTION TO FOREX
What is the Forex market?
The Forex market is the world’s most exciting and dynamic market. With $4 trillion traded every day, it is also the largest financial market in the world.
The Forex market is an over-the-counter (or OTC) market which means that trading takes place directly between two parties without dealing through an exchange.
This means you can conveniently access the virtual market online anywhere in the world.
The Forex market is an over-the-counter (or OTC) market which means that trading takes place directly between two parties without dealing through an exchange.
This means you can conveniently access the virtual market online anywhere in the world.
Forex (or FX) simply means ‘foreign exchange’which a traveler will know as the currency that you buy when visiting another country.
For example, you may sell euros and buy dollars for your trip to the USA.
The online Forex market is, however, 90% speculative, which means that you don’t take possession of the actual, physical currency.
Rather, you open and close deals and make either a profit or loss which gets reflected in your online account.
What do you trade?
In Forex trading you mainly trade currencies, which are always traded in pairs.There are four major currency pairs (called the majors) which are mostly traded against the US dollar.
They are the euro/dollar (EUR /USD), the British pound/dollar (GBP/USD), the Japanese yen/dollar (JPY/USD) and the Swiss franc/ dollar (CHF/USD).
Trading in the four major pairs makes up the majority of the market and the most commonly traded currency pair is the euro/dollar (EUR/USD).
You can also trade hundreds of other currencies against each other (called cross currencies because the exchange rate is calculated via the US dollar), but remember that the majors are the most liquid.
Base/Counter: The first currency that starts in a pair is called the ‘base’ currency and the second is called the ‘counter’ currency.
When you buy a currency pair you are always buying the base currency and selling the counter currency. Conversely, when you sell the pair, you always sell the base and buy the counter.
For example if the exchange rate of the euro/dollar currency pair is 1.4300 this means that you need 1.43 US dollars to buy 1 euro.
This also means that if you sell 1 euro you will get 1.4300 US dollars.
Assuming you bought 10,000 euros against the US dollar at an exchange rate of 1.4100 this means you would pay €14,100 (1 euro = $1.41, therefore €10,000 = $14,100).
The next day the euro rises against the dollar and the exchange rate goes to 1.4200.
This means that for every euro that you bought, you have earned 1 cent, which in this case means you would have profited by $100 ($14,200 minus $14,100).
If you had decided to trade in the opposite direction by selling the currency pair,this means you would have sold the euro to buy the dollar and in our example the dollar then decreased in value against the euro.
You sold 10,000 euros at 1.41, which means that for every euro that you sold you would have lost 1 cent. For a trade valued at 10,000 euros that would have been a loss of $100($14,200 minus $14,100).
Who trades?
There are two parties involved in an online Forex deal: you as the trader and the market maker, for example, A market maker is a company that facilitates trading by offering an ask and bid price on a currency, literally making the market for traders to trade in.Individual Forex traders like you make up the fastest-growing segment of the global Forex market.
The other players include the inter-bank market which is mostly made up of the largest commercial banks and securities dealers, after which you have the smaller banks, multi-national corporations and hedge funds.
When to trade-because Forex is a truly global market, you can trade 24 hours a day, five days a week.
As on region’s market day ends, the next region’s market day begins.
This means you can trade on any region’s news as developments take place.
The Forex market is open 24 hours a day from the Monday morning open in Sydney to the close on Friday evening in New York.
Each trading day can be broken down into three sessions: the Asian, the European (EU) and the US.Generally these are referred to as the Tokyo, London and New York sessions.
The Asian session opens around 21:00 GMT (summer hours) and closes around 08:00 GMT.
This overlaps with the EU session which opens around 06:00 GMT and closes around 16:00 GMT.Then the US session, which overlaps with the EU session, opens around 13:30 GMT and closes around 21:00 GMT.
Then the cycle starts over again with the Asian open.This means you can theoretically trade forex non-stop from 21:00 Sunday GMT(summer hours) until 21:00 GMT Friday!
The times when two sessions overlap are the most exciting as it is then that you will find high volumes being traded and maximum volatility which presents opportunities.
The European session has the most volume traded since it is sandwiched between the Asian and the US sessions. Approximately 50% of the daily Forex volume goes through the EU session.
Where can I trade?
Online, anywhere, anytime, on the device of your choice. You have full control to monitor the status of your trades, modify the terms of your open deals, close deals, or withdraw profits.All you need is an internet connection and a computer, laptop, phone , etc...The ability to access your deals 24/7 is a great benefit of online trading.
===> click here to open a trading account now!
How do I profit from Forex?
You can profit from Forex trading by correctly determining whether one currency in a currency pair will go up (strengthen) or go down (weaken) relative to the other currency in the pair.With Forex, you can profit whether the market is rising or falling.This is because currencies are traded in pairs.
The key is to buy when a currency is low and sell it back once it is high.
Traders develop trading strategies based on technical and fundamental analysis.
Technical analysis is the use of charts and other statistical measures to predict future price movements based on past prices, while Fundamental analysis looks at how macro-economic data releases, news announcements and other reports may cause rates to change.
What drives Forex prices?
As with any marketplace, the main factor behind changes in exchange rates is supply and demand. In the Forex market there are however many other factors that cause prices to fluctuate as well.These factors may be of an economic, political or geographical nature.
Fundamental analysis explains how you can use these factors to forecast currency rate movements. A number of economic indicators affect currency prices, ranging from unemployment to Gross Domestic Product (GDP) to retail sales data.
One of the most influential indicators is interest rates. A change in interest rates in one country can have an impact on many other exchange rates at the same time.
For example, when the Federal Reserve Bank (Fed) of the United States announces a change in the interest rate at which it loans to banks, this influences the value of the US dollar, which is involved in nearly 90% of all Forex transactions.
Politics are closely related to economics and so it is natural for changes in government or policy to also play a role in currency price fluctuation. Finally, geography can play an important role.
Can Forex trading be risky?
While Forex trading is risky, the risk can be minimized through the use of various controls you can put in place.For example, through setting a stop loss, you ensure that you cannot lose more than the amount you decide to risk on a trade (also called your ‘margin’).
In this way, your loss is capped while your potential profit is unlimited.
(Note: You are strongly advised never to risk more than you can afford to lose.)
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Interesting content.
ReplyDeleteGreat work, Mr. Benjamin