Forex is a decentralized world market for trading currencies. Forex dealers exchange one currency for another.
Learning how forex trading works and what factors influence the price of currencies is paramount to ensuring you don’t fail. Go slow, learn the basics and take it from there.
Understanding the Basics
Due to the high risk involved, foreign exchange is not suitable for all investors. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience and risk appetite. There is a possibility that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risk associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
If you’re a beginner, you can paper-trade and hone your trading strategies with a demo account, which can be opened with a reputable broker that provides a lot of quality education and a safe environment to test your trading strategies.
With CFD trading, you are making a bet on the price movement of a financial instrument without taking ownership of, or trading the underlying asset, such as a currency pairing (one of the most common financial instruments traded as a CFD). Bought EUR/USD you hope the value will increase in comparison to US dollars; sold EUR/USD you expect the value of the Euro will decrease relative to US Dollar.
Understanding the Charts
Chart-reading is a master-skill on which every trader will rely. Be active in the foreign exchange (Forex) markets or in trading stocks and shares. Reading charts correctly can give you indications of trends and present openings for your next trade.
On both charts we can see two dimensions of indicators that track two assets on a specific period. The x-axis represents periods of time – which might be a tick (single price change) or even years – and the y-axis represents the prices of currency pairs in currency.
All three are equally effective and able to help to make trading calls. In candlestick charts, in a single dimension, the price opening and closing as well as the highest and the lowest price are recorded, which could help traders observe the long-term trends as well as the support and resistance levels.
Understanding the Market
Forex stands for foreign exchange, and refers to the simultaneous buying and selling of currencies from around the world. What makes currencies fluctuate are geopolitical events and economic news; predicting that, say, the Euro will appreciate against the U.S. Dollar, means that you could buy euros and sell dollars, and if your prediction turns out to be right, you’ll make money – because currencies always trade in pairs; the market price indicates how many dollars you need to buy one euro.
With its constant 24-hour trading and trillions of dollars’ worth being traded daily in an extraordinarily liquid environment, it’s one of the economy’s most accessible markets for those willing to invest a small amount of money with less restrictive transaction costs.
Forex trading won’t happen overnight, and it’s also not free. If you are interested in getting into the forex market, expect to spend some time learning how it works: you need to have a strategy (with a risk-management policy) in place before you start trading – and there’s nothing wrong with running your strategy on a demo account first, while you’re learning the dynamics of the market.
Understanding the Leverage
Forex trading is a global market in which currencies are bought and sold around the clock at variable prices, which can be impacted by factors including economic news and world affairs, at different times of the day and night.
Leverage is a trading mechanism that helps traders get bigger positions than they normally would with the capital they have, which can be very profitable; but traders should understand the risks attached to leverage before leveraging effectively.
By combining the proper skillset of technical analysis, knowledge of the market and economy as well as risk and money management, forex trading could be as equally exciting and rewarding as it appears. In addition to that, knowledge of the market news and the economic data that can potentially affect the currency pairs prices.
