Currency Trading: An Introduction to Forex…………………………………..…..1
What Is Currency Trading In The Forex Market…………………………………..4
The Currency Trading Basics You Must Know Before You Start in Forex…….....7
Is Forex Investment Safe? The Pros and Cons…………………………………..…9
Spotting Trends For Forex Trade Profits………………………………………….12
How To Make Money On The Forex Market……………………………………..14
Forex Trading Strategies: 3 Golden Rules………………………………………...16
Five Forex Tips To Help You Make Money in Currency Trading………………..19
How The Economic Conditions Affect Forex Trading……………………………21 Foreign Currency Trading Software: How to Pick a Winner……………………...24
Simply put, Forex is the business of buying and selling money. Within your local area you can see how prevalent this business has become. From the malls, the streets, and around the commercial district areas, you can find these small booths that carry the label: Foreign Exchange. In places that never sleep such as the casinos and other entertainment hubs, foreign exchange trading can also be found.
Currency trading and Forex are two terms that mean the same thing and involve similar practices, which are the buying and selling of their main product: money. They are both over-thecounter markets that are trading money. Hence, they may fairly be used interchangeably.What is forex?
Forex means Foreign Exchange and it is also known as FX. In Forex trading, you are buying one kind of currency while selling another kind at the same time. This means that you are exchanging your money for the one that you are purchasing. The basic rule is that every currency has its corresponding value in another currency. Currency exchange rate is the term used for the value of a certain currency that is being exchanged for another.
In the Forex business, the different currencies are dealt with in pairs, such as Euro to US Dollar or US Dollar to the British Pound. Although this kind of trade can be said to be one of the largest and widest trading market in the world, you would be surprised to note that it is an unregulated kind of industry. More than $1.9 trillion are being traded every single day, as trading is being conducted throughout the entire twenty-four hours.
Foreign currency trading is the market that has the highest financial liquidity. The most common traders in this business are the banks, central banks of every country, investors in big2
financial institutions, currency speculators, governments, corporations, the small retail investors, and other financial institutions.
Like all the other corporations and business entities around the globe, Forex has also been growing and developing over time. Today, trading of currencies has become simpler and easier because of online forex currency trading. Buying and selling currencies can even be conducted through your computer.
There are at least three possible markets for a currency trader: the spot market, the forward market, and the futures market. In the spot market, the currencies are bought and sold based on the current price, while in the forward and futures market, contracts are involved regarding the exchange and their terms and conditions are set forth by the contracting parties.The purpose of foreign exchange trading
The currency trading system is not as complicated as it sounds. You only have to know the basics of the trade and understand the fundamentals of currency movements. Basically, the exchange rates fluctuate from time to time. This is caused by some economic factors, such as inflation, movements in industrial production, and certain geopolitical events. These are just some of the common aspects in the financial market that greatly influence buying and selling of currencies.The Forex market is the one responsible for the determination of the exchange rates of the different currencies.
Forex currency trading facilitates the conversion of one currency to another. This is the main purpose of foreign exchange to give aid to international trading and investment. If an investor or a certain entity has the right kind of money, business transactions become easier to pursue and to bring to a close.3
There are over a hundred currencies in the world. Some are tradable while others are not. From among all these moneys, a few of them are referred to as the Major Currencies. They are the Dollar of the United States, the Euro of the European Union members, the Yen of Japan, the Pound of Great Britain, the Franc of Switzerland, the Dollar of Canada, the Dollar of Australia, and the Dollar of New Zealand. In the Forex world, the currencies are indicated in three letters: the first two letters represents the country of origin of the currency and the last letter designates the name of the currency. To illustrate: the Great Britain Pound is identified as GBP.Foreign exchange trading is not for everyone
Foreign exchange may be a simple business, but it involves some different level of risk. This makes this kind of business not suitable for everyone. It involves a substantial amount of investment and you may lose at a certain point. Financial advisers would always warn: do not invest money which you cannot afford to lose. If hesitation sets in, you may need to back off before you start losing those hard-earned funds that are already in your hands. They may just be gone without you having enjoyed the same. Think of foreign exchange scams.
Foreign exchange trading is a constantly growing industry. It may be the right marketplace for you or it may not be. If you have the heart for it, it is not as difficult to engage in this kind of business. But if you have even an iota of doubt, then this may not be the right one for you. So be sure to tread carefully.
Forex or more specifically known as foreign exchange trading is a complex but profitable venture. This is because of the fact that the forex market is actually less volatile and more predictable than the stock market, which can crash due to economic mistakes.4
Simply put, this activity forwards the concept of currency trading, which means that the players within the industry are able to purchase currencies such as notes and other forms of denomination in exchange of another.
The way by which the system works is that the currencies are always quoted in pairs (Euro and the US Dollar, the Ringgit and the Rupiah) with the exchange rates fluctuating based on basic economic factors such as inflation, economy, and geopolitical relations. The value of the currency is then judged given the current political and economic condition of a particular country.
Take a look at the EUR/USD rate for example. The rate and ratio speculates the number of US dollars that every Euro can purchase. If you think that the currency of the European Union will be stronger and will increase its value against its American counterpart, the best strategy is to buy Euros with US Dollars. In the event that the exchange rate rises, you can sell the Euros back to the market with the profit being the difference between the rate you sell and the rate by which you purchased the currency. The forex is perhaps the biggest financial market on the planet given that the average amount of money that a daily trading volume gets is more or less $3.2 trillion, which is significantly higher than the New York Exchange which only has an average of $55 billion.
As mentioned above forex trading is an activity that is less risky than trading investment bonds and stocks. It does not mean, though, that there are no risks involved when it comes to trading. You can ask any of the markets forex brokers and he will tell you that it involves a lot of strategic planning, as well as being friends with the right people. And, by the term right people, it involves people who can provide you insider news within the market such as potential economic failures or successes. This means that you will have to do trading, buying, and selling currencies with the highest level of precision possible. Otherwise, you will end up paying for something with a market value that is significantly lower than what you have purchased it for.5
For example, this year's strongest currencies in the forex are the Australian Dollar and the Chinese Yuan. So, for people who have bought Australia's currency last year, the value of what they bought has increased by this time. The Yuan is a different case, though, as the Chinese government refuses to trade currencies given their strategy of artificially floating it. As of the moment, there are a lot of governmental efforts to make China open up its economy to the west
As an industry, the system revolves around the principle that you have to learn from the mistakes of others given that you cannot afford to commit any of them yourself. This is the reason why the forex market is considered to be one of the most expensive markets in the world. The reason behind this statement is that what you have to deal with in this industry is actually not individual people, but governments, central banks, corporations, and other big institutions.
Furthermore, the environment that surrounds this activity is actually so intense that people who miscalculate the value of a particular currency in just a single instance can actually lose big amounts of money in the end. Before you go on experimenting with strategies and markets, you should know that the forex is not for everyone. As a matter of fact, it is not for people who are weak in the heart and low in cash, considering all the risks that come with it.
So, if you plan on engaging the forex trading market, think of how much you are willing to invest and at the same time, think of strategies to cushion the losses, assuming that you experience any. Furthermore, you will have to remember that a lot of firms actually do not charge commissions but you will have to pay the bid or ask spreads. Compared to the stock market which only engages in business at certain hours, you will be glad to know that forex activities is available 24/7. There is also an online forex extension of the market for the ordinary person who would want6
to experience the intensity of the activity. At the end of it all, the forex while seemingly complicated, can be simplified given the right amount of information which will define the kind of strategy that you will take.
Some think of Forex or foreign exchange market as a risky grown-up gain that promises big rewards and devastating losses at the same time. There is something about currency trading that triggers an adrenaline rush in markets, even if it means sitting for long hours while waiting for the right time to make a move. When it's about forex trading, it's all about the timing. That's why traders keep themselves focused and updated constantly. There are many strategies to employ but based on analysis forex strategies will only work when employed at the right time.
The reason why successful forex traders are where they are right now is because they're closely following trends. The minute you stay out of the loop, your chances of earning goes down. It doesn't matter if the trends are falling or rising. The important thing is to stay tuned to the trends so that you know what move to make next. Watching the trends will let you determine what strategy to employ to your advantage.
Forex is like gambling. Rewards are high when the risks are high. That's why people are always enticed to shell out all the cash. But when things turn sour, you have to pay the price and expect a lot of losses. Taking risks in Forex trading is always a calculated activity. The rule of thumb is to spend only the money you can afford to lose. Modesty is important at the start. You will learn to be aggressive later on, so don't worry. Modesty is required here because trends quickly change. They can rise as quickly as they fall. Don't put all your funds in one place. That way, you still have funds to invest when things don't go well on the first try. You have to know your limits. Your limit is your stop loss order.7
Your stop loss limit order is the order you buy that's nothing more than the price limit you have specified. This is important because this will give you control as a trader. It will give the trader a sense of discipline and good money management tactics. For your next trade, you can use up to 2% of your balance from the previous trade. You can exceed 2% but don't even think of going beyond 5%. Beginners should always protect their trading capital if they want to go far in trading.
A popular approach in this type of industry is to buy low and sell high. This is the strategy employed by those who take the long position. When you take the long position, you expect the market prices to increase. Those who take the short position, on the other hand, anticipate the market prices to go down. Their approach is to sell high and buy low. The second approach is selling high then buying low. A forex trader who opts for this strategy will take a short position. This approach is favored in times of decreasing market prices.
There are risks in both the long position and the short position. Forex traders who take the low position when prices are trending down will incur losses. Meanwhile, a trader who takes a short position will incur losses (unlimited, in fact). This is riskier than the long position because prices are supposed to increase theoretically. That's why stock traders are only allowed to sell short on an uptick or a zero-plus tick. This will prevent some scheming minds from bringing down the stock price.
One term that you should learn is 1 pip forex. A pip, or percentage in point, is the smallest price growth in currency trading. Always remember that in the trading market, prices go down and up starting with the fourth decimal point. The only currency that doesn't follow this principle is the Japanese Yen (JPY). JPY is quoted to the second decimal point.Many of you may have questions about automated forex. It promises to make trading easy for busy people but will it reap the8
same benefits? You can modify the settings of automated forex trading software - also known as forex robots - so it can do the trading while the real trader is away.
Unfortunately, nothing will replace the prowess of the human brain when it comes to trading. The robot won't make the same calculated judgments that humans do. Remember that trends are always changing rapidly. The robot will not be able to keep up with these changes. Programmers have yet to release a software that is as accurate as possible. In the end, you will still have to monitor the software closely. Strangers to Forex can try their hand in trading but they should remember not to risk all their funds at once. They shouldn't be fooled by the advertising that promises huge gains. The gains will only be huge if the brains behind it are smart enough.
Forex trading is more or less a game of hit-and-miss. But, of course, you want to make as many hits as possible for you. As trends can be fickle, it is very important then that you have a plan as you enter the world of Forex. But is trading really for you? You should know first and foremost what foreign exchange is all about.What it is
The Forex system is a system for trading that involves clients hedging against or speculating upon changes happening in the exchange rates of two sets of currencies. For instance, you can speculate on the activity of the EUR/USD market so you can take advantage of the profits arising from capturing the moment wherein the Euro appreciates against the US Dollar.The pros9
There is very minimum capital involved in Forex so it is an attractive system for more people compared to other kinds of trading. You don't need a lot and you can even set up a dummy account for you to practice on so you don't actually spend your funds as you are still learning the ropes of foreign exchange. It also doesn't hurt that while minimum capital is involved, fairly huge profits are still possible. This sets the foreign exchange system apart from other kinds of trading then in that the rewards are not proportional to the risks involved. Can't understand what Forex is all about? Don't worry. You don't actually have to do it yourself in order to take advantage of the rewards as you can enlist the help of a Forex trader to do the trading for you. And should you decide to give it a try and do trading yourself, there are Forex software available in the market to help you out as well.The cons
While there is minimum capital involved, reaping the rewards may not come as easily as losses are pegged at about 80% of the time you do Forex trading. You need a plan in order to make the most of the foreign exchange market but you can't really make a lot of plans when it comes to foreign exchange trading as it involves a short-term market. Foreign exchange rates fluctuate all the time so it will be very hard to take advantage of a certain situation for a long time. If you're one who thrives on stability and long-term planning, then joining the Forex market might not be the best idea for you.Making a decision
As with anything, you should take into consideration the pros and cons of taking part in the foreign exchange market in order to determine whether or not this kind of investment practice is suitable for you. Different people have different needs and interests so what could be attractive for you in trading might not be so much with others. And the same is true for others as well. Take note of the above mentioned pros and cons then assess how10 they figure in your lifestyle. If the pros outweigh the cons for you, then go ahead and try out Forex. Giving it a go
Given that Forex involves its own intricacies, you should have a guide first when you are starting out to ensure that you properly learn the ins and outs of trading with currencies. While you have to be ready to deal with losses, having as much practice as you can and having someone guide you throughout will help you manoeuver your way as much as possible towards profits.Where to get help
Your local bank is a good place to turn to for help as they employ professional traders who can guide you. It should be convenient for you to visit your bank as well. Another convenient spot for you to check out would be foreign exchange sites. Some will have professional traders you can enlist. Some will have a wealth of information you can check out to help you learn almost anything you will need as you enter the world of foreign exchange. The trading software you can practice on can also easily be acquired online. Since you can easily get help, you don't have to worry too much on how you will ever get to learn about the foreign exchange market.Taking the risk
There is hardly anything in life without risk. Going out of your home is a risk. Meeting someone new is a risk. So to a certain degree it would be pointless to say that you shouldn't give Forex a shot because it has risks. There will be risks even when you think there won't be so you might as well give it a shot. By arming yourself anyway with as much information and practice as you can, you can help soften the blows you will take along the way.11
The foreign exchange market is the most liquid of all financial markets in the world. Since the market deals with the trading of currencies, a forex trader must always be up-to-date about forex trends, as any shift in the market can earn or lose a trader a lot of money. The use of a forex chart is indispensable when it comes to identifying forex trends. The advent of the Internet has made it easier for traders to observe trends in the stock market, as they can observe their charts in the comfort of their own home. It is worth noting, however, that when it comes to the foreign exchange market, there is no single exchange rate, as the rate of particular currencies can significantly depend on the bank or market by which you are trading. Instead of observing rates, it is important to trade based on trends.
The process of observing trends is where forex charts come into play, as they indicate whether a particular currency pair is doing well or not. If you don't have forex chart software, you can simply use the ones that are readily available online. Once your forex chart is ready, you can then choose your currency pair and as well as prepare a timeframe for how long you want to trade within that particular market. In Forex trading, there are primarily two types of trends that you should pay attention to when identifying such factors; upward trends and downward trends. Knowing exactly what these trends indicate will make it easier for you to decide on your next step. Upward trends essentially indicate high lows and highs and conversely, downward trends indicate lower lows and highs.
Following forex trends can be rather complicated; especially for novice traders but those who have been trading for a long time can easily manage when it comes to spotting trends. Those who plan to go into long-term currency trading should make it a point to observe such trends to increase profit. Looking at forex weekly charts will make it easier for you to observe the market as a12 whole, instead of observing the particular currency pair that you are working with.
If you want to know future trends and rates, it would be useful to add moving averages to the chart so that you can see where current forex rates are going in the future. You should also decide how long you want your timeframe to be; it is ideal to opt for a period of 5 to 14 days for novice traders so that they can easily pullout. But for those who have had enough trading experience, it is ideal to opt for longer periods. When working with your currency charts, make sure to use different colors to be able to properly identify each line.
There are a lot of other methods that you can use when identifying trends. The easiest way is to just make a close observation of a particular currency pair and keep a close eye when it makes lower lows or higher highs. By keeping track of these observations, it would be easier for you to identify a particular trend; as such trends can be identified once there are several price changes. Another method employed by most people when it comes to observing forex trends is the breakout method.
Breakout trading is employed by buying breakouts. When market trends move up and down following the same movement, a breakout happens when the particular trend is broken. A trader seeks to earn more profit by buying breakouts with high odds. However, this kind of method may not be ideal for novice forex traders, especially since it is best to stick to obvious turns in the market before trading for high odds. The primary purpose of identifying such trends in forex is to find out when it is best to enter a market and how long a trader can ride on that trend within a particular timeframe, as indicated in the forex chart. However, it is important to keep in mind that the very nature of trading is risky. There are times when no amount of observation can keep you from losing. This is why it is important to know when to cut your losses.13
Trend spotting can significantly help when it comes to increasing the amount of potential profit you would earn from trading particular currency pairs but you still have to learn how to trust your basic instinct. You should also keep in mind that there are certain events that can affect market conditions and these consequences may often be negative. When it comes to forex trading, a great deal of the profit that a trader earns depends on market conditions and forex rates, which are in turn, determined by international parity conditions, economic policies, political conditions, and economic growth, among many other factors.
Through the forex market, traders can have the best opportunity to make huge sums of money via online trading. Forex is probably one of the best money-making industries today. It offers a broad assortment of currency pairs that are set up to compliment the way you trade. Aside from this, the foreign exchange market is also open 24-7 for six days every week so no matter what time you intend to trade, you are guaranteed to do your trading without any hassle.
Today, there are two very popular trading styles that most forex traders prefer. These are scalping and swing trading. With scalping, a forex trader is given a good chance in making money fast and more efficiently. If you happen to be a very busy foreign exchange trader with a hectic trading schedule, you can open or close trades quickly without any problem. You will profit from even the smallest price movement in the market. In fact, you can easily seize the opportunity of making a killing on the foreign exchange trade business just before the market moves to its original value. In spite of the fact that scalping can be very risky for foreign exchange traders, those who are gutsy enough to try the challenge can reap enormous rewards in the form of huge profits.14
Swing trading, on the other hand, can offer you a big chance to amass huge profits courtesy of large market price movements. Albeit slower compared to the first trading style, swing trading is favored by corporate traders and large banking entities. This is due to the massive opportunities that swing trading offers to traders. The key here is correct timing. One must be keen on seizing the right entry points every time a currency pair retraces. Apart from this, swing trading is usually open for several days of the week. Indeed, there is no market that can match the opportunity offered by the foreign exchange market as forex rates tend to move in favor of the trader provided that you know how to play your cards well.
For beginners, Forex or foreign exchange market is an international exchange market. This is where currencies from all over the world are bought or sold. The origin of the foreign exchange market can be traced from the introduction of floating currencies and free exchange rates during the 1970s. The price of a certain currency relies heavily on the law of supply and demand. In a particular foreign exchange market, higher demand for a particular currency means higher rate or value. Compared to other markets, Forex is unique. One of the most common reasons for this is because the foreign exchange market, compared to other existing market, is free of external controls and influences. In theory, this makes the foreign exchange market impregnable from outer forces that can work on manipulating the trading process.
Aside from this, the foreign exchange market is also the biggest liquid financial market. Every day, foreign exchange trade reaches up to an average of one to 1.5 trillion US dollars. This makes it impossible for a sole trader to make a huge impact on the movement of the market price. Money moves very fast that a handful of traders are powerless to influence or control the market. And because the financial market is liquid, Foreign exchange traders can easily close or open positions in seconds.15
Another unique characteristic of the foreign exchange market is the variety of its players. There are different participants that take part in the market. Aside from this, the reason for entering the market also varies. There are investors, for instance, who want to work in the market for a longer time while others only join it for short term gains. Those who join the market for short term gains usually make use of the massive credit network that exists within the trading environment.
Now, you might ask, how does the foreign exchange market actually work? First off, the transactions in the foreign exchange market are facilitated via advanced telecommunication technology. Foreign currency transactions are never centralized on a particular exchange. Since trade is open 24-7, you can find active traders in any time zone all around the globe. Even if you need to trade at three in the morning, there is a dealer that would be very much willing to give you a quote of the entire major currencies around the world.
In investing in the foreign exchange trade, you have to grasp that there are some fundamental strategies to make you benefit more from the market. Through a fundamental trading analysis, you can efficiently analyze certain economic, political, and even social conditions of any country you wish to choose. Other factors such as a particular countries unemployment rate, tax policy, inflation rate, and other political, social, and economic indicators can be thoroughly analyzed by grasping the fundamental analysis strategies of the Forex market.
Forex is murky territory that's why you never ever venture forth blindly. Fortunately there are Forex trading strategies out there you can rely on. The problem though is that there are a lot of strategies to consider. There are probably as many strategies out there as there are potential scenarios and needs so that's a lot of16 strategies for you to go through. To help you get started th