The World of Forex
Forex which stands for Foreign Exchange is the global, over-the-counter or OTC market for traders, investors, banks, and institutions where they can exchange, buy, and sell world currencies. An online channel called the Interbank Market is where trading is done 24 hours a day, five days a week. With an estimated $5 trillion US currency, forex is one of the largest trading markets.
With the emergence of the internet, even average investors are able to buy and sell currencies with ease just by the click of a button. They set up their own accounts which allow them to trade in various online brokerages. Daily currency fluctuations are usually very small in the forex market with most currency pairs moving less than one cent per day. That’s why those who speculate on currencies depend on the accessibility of very large leverage so they may increase the value of likely movements.
In the forex market, you can choose to open and close your position within minutes. You may also keep it open for months. Manipulating the forex market is almost impossible due to its reliance on impartial applications of supply and demand. Investors have many chances after they enter the forex markets. But it’s important to remember that in order to be successful in the field; you have to get familiar with the fundamentals behind currency movements.
How to Trade on the Forex Market
Now that you have an idea of what forex is, let’s look at how to use it.
In our everyday transactions, we see forex trading. If you are considering purchasing a product from a foreign country, you would pay with the local currency. The business where you are purchasing the product from imported it from that country. The local currency you used to purchase the product would be exchanged to the equal value of the foreign country’s local currency.
All forex transactions and conducted electronically over-the-counter or OTC. Traders from all over the world are connected through computer networks. This means the market is open 24 hours a day. You can conduct trading almost any time of the day in any time zone.
Styles and Strategies of Forex
Research is essential when trying to determine which style and strategy you want to use for your forex trading. Some are more effective than others. Below are a few examples.
• Day Trading Strategy: If you will be using this strategy, your trades will more than likely be exited prior to the end of the day. This ensures that you will be protected from any negative occurrences that could possibly happen overnight.
• Swing Trading Strategy: This strategy is generally used for your trades that extend through the period of one day to one week.
• Trend Trading Strategy: As the name implies, you are bound to follow the trend to make a determination as to what direction the prices have been taking.
If you will be using trading styles that depend on the time frame and holding periods for every trade, you may want to consider using intraday trading, position trading, fundamental trading, or technical trading.
Currency Pairs
A currency pair refers to the purchase of one currency and the sale of another on the forex market. One of the most widely traded currency pairs is the euro against the US dollar. On the forex market, it is shown as ERU/USD. The USD is referred to as the base currency and the EUR is the quote currency.
Once you decide to purchase a currency pair, you will be purchasing the base currency and selling the quoted currency. When you want to sell the currency pair, you will be selling the base currency and receiving the quote currency. Buying is referred to as the bid price. This tells you the amount of quote currency you will need to purchase the base currency. The sell price is called ask which refers to the amount of quote currency you will receive when you sell the base currency.
The three types of currency pairs are major, minor, and exotic. They are available worldwide.
• Major Currency Pairs: The US dollar is contained in all of these currency pairs either as the base or the quote currency. Known to be the most liquid, they also offer the lowest spread.
• Minor Currency Pairs: Often referred to as cross-currency pairs or simply crosses, they do not contain the US dollar. They have a little wider spread and are not as liquid as major currency pairs.
• Exotic Currency Pairs: They are usually made up of one from the major currency category and one from an emerging economy such as Mexico or Hong Kong. Exotic currency pairs also have a widespread.
Helpful Tips
Now that you understand what trading on the forex market is all about, here are some helpful tips to hopefully help you be successful.
• Make sure you have the finances to invest in forex trading and that you have a tolerance for risk-taking. Start with small investments. There are no guarantees in investing in the market.
• If you know someone who is an experienced forex trader, get them to give you some educational tips on trading. If not, find and study some online tutorials on forex trading.
• Do extensive research in finding a broker. It’s important to have someone who understands that you are a beginner and are going to work earnestly and honestly on your behalf.
• Just like you do research on finding a broker, do the same thing in finding good forex trades. Even though there are no guarantees, you still want to have as much information as possible before investing your money.
• Join one or more online forex forums so you can interact with other traders. This is another way to get useful tips as well as learning from other traders’ experiences.
There are more tips for beginners on forex trading. It is very important to be well prepared before investing your money. If you want to be successful at trading, you need to have self-discipline. Forex trading should never be considered a get-rich-quick plan. Forex trading should be viewed as a source of ongoing work with the potential of making money.
Forex trading is ideal for stay-at-home moms and dads, college students, and minimum wage employees. This is because forex trading requires very little startup capital. You will also need a computer and an internet connection. If you plan on using forex trading as a second income, you should make sure you have a well-practiced plan before investing your money. The library is also a great source for getting information on forex trading.
You may want to do your initial trading on paper before investing for real in the forex market. This way, you can work all the kinks out of your system before investing real money.
Here is a list of some tips for using forex trading as a second income.
• As stated previously, find a good broker and get the basic training from their site.
• Learn as much as you can with the goal of becoming an expert. In doing so, you will find money-making possibilities are unlimited.
• Set up a demo account so you can practice forex trading. You will be gaining knowledge without losing any money. However, if you want to speed up the learning process, invest a small amount of your own money.
Trends
The trend can be defined as a tendency for prices to move in a particular direction over a period. They can be long term or short term. Trends can move upward, downward, and even sideways. In relation to the forex market, success is tied to the investor’s talent to pinpoint trends and place themselves for profitable entry and exit points.
Trends are easier to spot when you are equipped with the right tools. That is why you need the Forex Trend Rider. This is an automated system as a trend analyzer; it enables the trader to see the right formations. This definitely makes a positive difference helping you see the right formations which lead to building your wealth.
Trend Rider is an automated system that was created to help you be a successful investor. It does this by identifying where the markets are going or changing thus finding the right trends for you. Trend Rider also tells you where to enter and exit as the market changes by using technical analysis. This method consists of the core data used by investors to take directly from price charts.
The following key points will help you have a better understanding of Forex Trend Rider so you can maximize your trading experience.
• Learning how to invest in a rapid market: Education is a major factor for success. Working with Trend Finder gets you into the routine of responding when the market is perfectly situated.
• Activating Entries at Lightning Speeds: When your money is on the line, time cannot be wasted. The sooner you get into a moving trend, the more you will be able to get as price extends up or down.
• Organizing with the Economic Calendar: It is always a good idea to check the economic calendar before trading. Trend Rider will line up your price moves with specific times on the calendar for you. You will always be informed of the current bank meetings and when they are ready to release new interest or bond rates. You will have no more surprise experiences.
• Figuring Additional Data: Your most valuable tools you will get from your technical analysis are pivot points and trend signals. It’s easy to be fooled regarding price moves that don’t actually work out. This is the benefit of pivot signals. Identifying a trend under the right conditions is important. Trend signals provide an easy-to-read format pinpointing when trends change, form, or will keep going with their trajectory.
• Measuring Market Retracements: Retracements will almost always occur no matter how high or low prices go. If you can’t identify retraced patterns, you will miss out on profitable trends. Forex Trend Rider will mark out likely retracing points enabling you to hold your ground when needed. False price moves will be more easily detected.
• Following Your Stops for Increased Profits: The final step is to protect the profits you’ve gained by locking them in. By using Forex Trend Rider, you can relax and watch prices go up without worrying about losing what you earned in the market. This software will automatically adjust your stop loss to secure a particular distance from the current price.
Bull and Bear Markets
The bull market is when the prices are going up and the bear market is when prices are heading down. Let’s look at each one.
The bull market gives people the confidence to invest their money without being concerned with the risk factor. In the forex market, this leads to a rise in various currencies such as the Australian dollar (AUD), Canadian dollar (CAD), New Zealand dollar (NZD), and other emerging market currencies. But bull markets lead to a decline in currencies such as the Japanese yen (JPY), the Swiss franc (CHF), and sometimes even the US dollar (USD).
Because forex trading is always done in pairs, traders are offered both bull and bear markets. This is a key benefit. As an investor, you can take advantage of rising and falling markets because when one currency is weakening, the other is gaining strength. Bull and bear markets can determine current market trends. It is important to pay attention to market trends so you can make the best decisions on how to manage risks and determine when it is best to enter and exit your trades.
In the bear market, investors sell riskier assets like their stocks and less-liquid currencies such as those from emerging markets. Because the US dollar and the Japanese yen are considered safe-haven currencies in forex trading, they tend to get stronger in a bear market because they are more in demand.
Traders in the bear market are looking to enter when prices are falling so they can purchase once they think the market has reached its peak.
Forex Terms
Listed below are some of the key forex terms used.
• Pip: A pip is the base unit in the price of currency pairs or 0.0001 of the quoted price. So when the bid price for the EUR/USD pair goes from 1.16667 to 1.16677 that represents a pip change of one.
• Spread: The spread is the difference between a currency pair’s bid and the asking price. Currency pairs that are considered most popular have a spread that is often low. In some cases, the spread will be less than a pip. Pairs that are not traded as often, tend to have a spread that is much higher.
• Margin: Margin is the money in a trader’s account. The average retail forex trader does not possess the margin needed to trade a high enough volume to make a good profit. Therefore, many forex brokers offer their clients access to leverage.
• Leverage: Leverage is capital provided by a forex broker to strengthen their client’s trading volume. For example, if you use a 1:10 rate of leverage and have $1,000 in your trading account, you can trade $10,000 worth of a currency pair. If the trade is successful, leverage will maximize your profits by a factor of 10. However, using leverage can also increase your losses to the same degree. If your account balance falls below $0, it could ultimately cause the trade to be closed.
Conclusion
Forex investing can be very rewarding and profitable. There are risks that come with the territory. That holds true with all investment markets. However, if you do careful research, plan ahead, and get a good broker, you will certainly minimize your risks. Also, stay current with the forex market by subscribing to online newsletters and joining forex chat rooms. Getting information from other investors ’experiences will be very beneficial to you. Knowing that there are other investors going through what you are going through will give you a lot of encouragement and peace of mind.
