There is a lot of mystique about foreign exchange trading. And probably rightly so too, it is afterall one of the riskiest financial markets you can trade in. In this article, we will take you through the reasons this market is so risky and hopefully to some extent, take the mystery out of the market. Firstly, what is the Foreign Exchange market anyway? What are we trading? Its simple really, we are trading money from different countries. We buy money (which is called currency) in one country by selling currency from a different country. Its an extremely important market for the proper functioning of the global economy. You may not be aware of this, but as a consumer, you have almost definately participated in this market either directly or indirectly, and probably do so every day. If you have ever gone overseas on a holiday or for business, you would have needed to obtain currency in the country you visited. It doesnt matter if you used travellers cheques, credit card or cash, by functioning as a consumer overseas you would have needed to buy some local currency with the money you earned at home.
Thats the simple answer.
It is this transaction that had you participating directly in the FX Market as a consumer. An example of indirect participation is when you buy imported products in your home country. Products made overseas are usually sold in the currency of the country they were made. Why do the value of particular currencies change? The basic reason why the price of a currency changes is simple, its supply and demand. When there are more people who want to buy a specific currency than there are people who want to sell it, the price goes up. Conversely, When there are more people who want to sell a specific currency than there are people who want to buy it, the price goes down. Thats the simple answer. The really tough question though is what makes supply and demand change? This is the 1 question which makes trading in the FX market so difficult.
Basically, no-one knows exactly what all the factors are that cause supply and demand to change in these markets. Many traders have a good idea of the major influences, but there are so many things which impact currencies that it is nigh on impossible to formularise the exact reasons currencies change price. Currency prices are a measure of one countries “economic value” as compared against another countries “economic value”. If you think about the myriad of factors which impact peoples perceptions of the economy of the country you live in, you can start to understand why predicting FX price movements is difficult. But your countrieseconomy is only half the equation. We are not measuring the value of your economy alone, rather comparing it against the economy of a different country. Therefore, even if you have a really good understanding of your own economy, you need the same understanding of the other countries economy also. And your currency trades against all the currencies in the world.
It doesnt care which way the traded currencies move, it makes money in both directions.
So you need to know exactly how each individual economy is going, to compare it against your economy before making a judgement call about whether you think the exchange rate will go up or down. And if you manage to get all your analysis correct, you then need to hope everyone else does too. Currencies can move on investors opinions, expectations met or expectations not met, global sentiments of what is likely to happen as much as global opinion of what has happened. There are fundamental traders (who look at information such as the above to make their decisions) and technical traders (who just follow graphs and dont care why) both of which can impact the price. There are even people who buy currencies months and years in advance to lock in a price, to help support business activities unrelated to FX trading. This also impacts price. So you can start to see what a complex equation this can become. Fortunately, we have reviewed a FX trading strategy which doesnt need to predict if a currency is going to go up or down. It doesnt care which way the traded currencies move, it makes money in both directions. It certainly has saved me many headaches, I just follow the strategy and make money week in and week out and watch my trading account balance go up every month. Read our review it the following link and see what you think: Currency Trading Strategy Reviewed It is certainly worth setting up a demo account and trialling without putting any money down. I hope this helps take the mystery out of the FOREX market.
Every Foreign Exchange trader wants to make money trading currency. Whether you trade currency online or you do your trading conventionally, there are steps you can perform to up your chances to profit from Forex. Tip Number One: Get to know the basics first. You have to understand the jargon used in the market, what the different processes in the FX market are, how you can open an account, and so on. Do not ever consider yourself a Foreign Exchange trader or even try to make a move if you have no idea about the basics. When you plan to trade currency online, for instance, do not think that just because you only have to make a few clicks that means youre ‘good to go. Youre not. The only thing thats ‘going is the money youll surely be losing if you dont get educated first not only on the basics but also on the strategies on how you can profit from Forex. Tip Number Two: To make money trading currency, you should also make certain that youll work with a good broker.
There are so many brokers nowadays but not all of them are legitimate or can really help you. Some may even try to pocket your earnings. As a Foreign Exchange trader, you have to check for several things before you go with a broker. First, test how fast the help desk replies to you. If it takes several days, or worse, weeks, forget it. You also have to research whether the broker offers you spreads that are competitive or not. Whether youll trade currency online or do it over the phone, remember to ensure too that your chosen broker is regulated. Tip Number Three: To profit from Forex, you also have to avoid over leveraging. True, high leverage can be your stepping stone to higher earnings in the market, but, it can also cause you to lose everything if youre not careful. Bear in mind too that you should not trade with cash that you cant even afford to lose – see how this is connected with the advice on over leveraging? You can make money trading currency when you apply the techniques shared above.
If yes, then that is a good sign.
But how trustworthy are the claims of these companies whom offer Forex training products? How can you tell which systems are reliable and which systems are little more than marketing hype? In this article we will go through a step by step checklist to help you identify quality Forex training systems, and separate them from the over hyped products. If each of the following points are ticked off, then the particular product is likely to be worth pursuing further. However, if just one of these requirements is not met, then you should seriously think about looking elsewhere. Contact Details - Does the website include a contact email address, as well as a phone number and a physical address? If yes, then that is a good sign. Poor quality training providers are likely to make their contact details widely available on the internet. Customer Service - A good Forex training company will have high standards for customer service.
Not just in the initial sales process, but in providing after sales support. A good idea to test out the customer service is to send the company an email and ask a few questions about the product. If they reply in a timely fashion and with a helpful answer, then they are most likely a reliable service provider. If you do not receive a reply, or if the reply is poorly constructed, then that is a warning sign. Testimonials - A quality training guide will have a proven track record of providing a high stand of training to past customers. You should therefore look out for testimonials to validate the claims that a company makes. However, testimonials should always be taken with a pinch of salt. Carefully examine the testimonials to ensure that they appear genuine and have not been fabricated. Genuine testimonials tend to be realistic in nature and to not exaggerate the claims or promise instant riches. Free Sample - A common marketing technique is for a company to let users try out their system for a free trial, or to gain access to a free sample chapter of the training material. This is a good opportunity to get to take a look at the quality of the content before parting with any money. A company that is proud to show off their content as part of a free sample is likely to offer a reliable service. If a free sample is not available, you will need to ask yourself why this is and is it because the product owners do not fully believe in their system. The above points should act as your "mental checklist" for when deciding on which Forex training guide to go for. Even if all the points are ticked off, you should thoroughly conduct your research to ensure that you purchase the best possible guide.
The main idea of forex arbitrage is to simultaneously open multidirectional positions on the same currency pair. The main advantage of this trading strategy is that the risk of the operation is zero. The idea of trading is as follows: imagine that we have two MetaTrader 4/5 terminals from different dealers/brokers. Comparing quotes in real time, we will most likely find that they sometimes differ slightly. At the same time, we will see that data from one terminal often slows down a little, come later than from the other. Thus, using a fast terminal as a guide, we can know what price will be in a split second on another terminal. And if the price difference in the terminals is greater than the spread, then you can open a position on the "braking" terminal. As practice shows, the greater the difference in prices in terminals, the more difficult / less frequent the opening of transactions due to requotes. To be precise, such a trading strategy is called one-legged or statistical arbitrage. Unlike classical arbitrage, in this case the second "leg" is not used, but instead is based on statistics.
Welcome to the biggest and fastest moving market in the world. If you have traded stocks, futures or options, it won’t be long before you are asking ‘What is Forex Trading? You know, the market that never sleeps (except on weekends). The Forex market is often referred to as the FX market, the Foreign Exchange Market, Spot FX or the currency market. Under any name, the FX markets represent one of the best opportunities for savvy investors and traders to earn a return on their investment dollars. What is Forex trading in a nutshell? Forex trading is the simultaneous buying of one currency and the selling of another currency in order to profit from the difference between your entry and exit price. 5 trillion is transacted every day around the world. Traditionally, Forex was the domain of large institutions and global organisations. But with today’s impressive trading platforms, retail traders now make up a growing percentage of the overall market volume.
For non-traders, the first taste of trading Forex happens when you make your first trip overseas. You have to change your local denominated currency into the FX rate of the place you are going. Let’s say you are travelling from Sydney to New York. This means you need to change your local Aussie Dollars to US Dollars. So you need to sell your Aussie Dollars and buy US Dollars. This brings us to the next point of Forex exchange rates. When you go to your local bank to change your currency, they provide a rate to exchange your dollars. The difference between the two rates is known as the spread. In an ideal world, anytime you make an FX trade, you want to have the spread as low as possible. Forex trading basics - How does the exchange rate work? All forex trades involve buying one currency pair and selling the other. When you see the FX pair quoted, the first currency is the base currency and the second quoted-pair is the counter currency.
If it falls, then you will likely have to close your position at a loss.
The other key thing to note is all Forex transactions are traded in pairs. The performance of a currency pair can give you an excellent idea of how one country’s economy is doing relative to the other. The EUR/USD is the Eurodollar vs the US Dollar. The Eurodollar is the base currency and the US Dollar is the counter currency. The EUR/USD is nearly always called the Euro or Eurodollar. Now is the time to make a call. Do you think the Euro will rise against the US dollar or fall? If you think it will rise, then you need to buy the EUR/USD pair. This means you are buying the Euro and simultaneously selling the US dollar. If the market (the EUR/USD pair) rises, then you will make a profit. If it falls, then you will likely have to close your position at a loss. But if you think the Euro will fall against the Euro, then you will need to short the Euro and buy the US dollar. If the market falls in value then you will be in profit and if it rises then you will make a loss.
The good news is you can make money in both rising or falling markets. To profit as the market is rising, you will be buying the base currency. To make money as the Forex market is falling, you will sell the base currency first. The Forex market exists to facilitate international trade and investment from one country to another. While you and I may get excited about our recent win trading the Aussie vs US dollar pair, we make up a tiny fraction of the global trading volume. 5 trillion a day thanks to mum and dad investors but instead, the bulk of trades are done at a government and institutional level. Who are the biggest players in the Forex market? Known as the market that never sleeps, you may like to know there are three main Forex timezones you must keep an eye on. The most amount of trading volume goes through at the open of each of these sessions, with the biggest being the crossover between London and New York. When it comes to trading any market, liquidity is king.
One of the reasons stock market traders move to the Forex markets is due to liquidity. Stocks have a tendency to gap. When stocks gap down and you are long, the loss you take on the day can be severe. As a result, many stock traders move to the FX markets in order to virtually eliminate gapping (FX markets rarely gap) plus the benefit of massive liquidity. Getting in and out of the Currency markets is a breeze. Liquidity is not a problem. Having said that, you may still want to trade around the busiest trading sessions such as from the London to New York open. The FX market opens daily in New Zealand and then a few hours later in Australia but the trading volumes are low. Be aware of this when placing your trades. 1. All Forex trades are transacted in pairs. 2. 1 pip is the smallest price the markets trade in.
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When the forex market on the EUR/USD moves from say 1.2300 to 1.2301, it is said to have moved 1 pip. 3. FX currency rates are quoted to 5 decimal places. You will see the EUR/USD pair as quoted as 1.23101 on most FX platforms. 4. The 4th decimal place is the equivalent of 1 pip. Most people refer to currency pairs going up and down by so many pips. 5. A big figure is 1 full cent movement. So if the Aussie Dollar moved from 0.7800 to 0.7900 you would say it has moved 1 big figure. 7. On January 15, 2015, the Swiss National Bank unpegged the Swiss France to the Euro causing mayhem and bankrupting a number of Forex brokerage firms. 10. Forex markets are decentralised. Majors, Minors, Crosses and Exotics - What are they? You may have heard the terms above when traders discuss the FX Markets.
So let’s get some clarity on what they mean. The FX majors, or major currency pairs, are the ones involving the US dollar on one side of the quote. That is a very interesting question. Bitcoin has taken the world by storm by late 2017. You can see the incredible price move from September 2017 to December 2017, with Bitcoin rising an astonishing 464 percent in 66 trading days. But as you can see (as of March 15, 2018), the price has broken a key support level. Only time will tell what happens next. Firstly, Bitcoin is not a major FX pair. That is for certain. But in terms of being a Forex pair, traders aren’t too worried as to what it is called. This is due to it being a Bitcoin CFD, which trades just like an FX pair. For ease of purpose, most Forex brokers refer to it as BTC/USD or Bitcoin vs US dollar.
Exactly like Gold (XAU/USD). These are the FX pairs without the USD on the base or counter currency. What are Exotic Forex pairs? Exotic Forex pairs are those currency pairs which are thinly traded and low in volume. But they are also pairs that can have the most volatility. As they are not as liquid, bigger traders can push them around and run stops. Some people may love history but the reality is you likely want to get involved in trading. You know, the exciting part about Forex trading. So let me bullet point the key historical facts people love to know about the Forex market. Back in 1875, the Gold standard was introduced. This meant for the first time in history, a currency was created that was backed by Gold. Prior to this, people commonly traded Gold and Silver coins in exchange for goods and services. And of course, we cannot forget the barter system. The problem with the Gold standard was governments had to store a lot of Gold.
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Topic title: Foreign Exchange Trading Demystified
Topic covered: about forex market, day trading currency, expert advisor, forex basics, forex kontakt
