The foreign exchange market is a light of hope in the dark tunnel. The market is ever volatile and changing every nanosecond. It is quick like neurons of the brain. The witness to its swiftness gets represented by the term forex. It is the portmanteau of foreign exchange and currency. The forex market is all about exchanging two currencies into each other. It is a process where one currency is sold against the other. To say that forex trading dominates all financial markets won’t be an exaggeration. And that’s why the clan of forex traders is bigger compared to others.
It is the most profound and popular market because no other market can find sustainability without currencies. It is the money that helps in every trading that takes place worldwide. And the total value of the forex industry worldwide is $2.409 quadrillion (as per the 2019 report). That means it covers all economies of the world. The numbers are huge that go beyond anyone’s imagination. However, accounting for that figure, even supercomputers will take some time. Moreover, currency notes will take decades for counting.
The forex industry’s value took a big leap from $1.934 quadrillion in 2016. So, investment in the market is huge and getting bigger by the day. It is pouring from every country. So, the volumes that you see are surging at a rapid pace. And the market is always lively in every situation. As per 2019 figures, the daily transaction of the forex market was USD 6.6 trillion. It’s been two years, and the data has gotten bigger. These are the numbers before the pandemic struck.
PS: These are triennial reports from the Bank for International Settlements.
Now, several people have turned toward trading forex after losing their jobs. Moreover, it has proved to be the best career option or alternatives for revenues.
Some forex trading statistics
The forex market is inarguably the biggest financial market in the world, and there are reasons for that. So, if you want to start trading, the following fx trading statistics will help you. Here are some known and unknown stats that may surprise you:-
- Women outperform men when it comes to trading in the forex market. Female forex traders are 1.8 per cent more than their male counterparts during investments.
- The US dollar is the reckoning force in forex trading. It accounts for more than 88 per cent of total foreign exchange trading that takes place globally.
- There are around 170 countries worldwide that are dealing in currency pairs trading. So, almost every small and big nation is a part of it.
- Interestingly, it is the financial market that works 24 hours a day. So, traders across the world can stay connected any time of the day to check their bidding and trade as per their convenience.
- Around 54 percent of online traders are using MetaTrader4 and MetaTrader5 for trading. These are among the top trading platforms that come with excellent features and characteristics for exalting the trading of retail investor accounts. Most of the brokers are compatible with these platforms.
- Seven major currency pairs make for 68 per cent of forex trading volumes. The numbers are incredible for traders.
- The forex market has been facing tough competition from the cryptocurrency market since 2009. There are more than 4000 cryptocurrencies existing in the market, and the numbers are growing rapidly. Even China has launched its centralised cryptocurrency, digital yuan, in June 2021.
- Forex markets are available as options, futures, derivatives, spot, and currency swaps. So, traders have plenty of ways for investing their money in them.
- The forex market is also denoted as FX, and it is the largest market in the world for exchanging national currencies.
- The Forex market is the biggest liquid financial market worldwide. Thus, it has the most liquid assets compared to other sectors.
Know about the forex market
Foreign exchange markets are a place where currencies of different nations are either exchanged for making payments during a trade or exchanging generally while touring some other nation. Exchanging currencies is crucial because they enable buyers to purchase services and goods from other countries. That is not possible if the exchange is banned or terminated. So, forex trade is so important for not just governments or industrialists but someone who’s trying to get the best products from outside their nation.
So, for running foreign businesses and trade smoothly, guidelines of exchanges have to be followed. Trading currencies is overseen by economists and experts and they collect the data to check up on the GDP. Any country with the highest forex reserves has great GDP strength for showcasing.
The buying and selling through forex can be understood by the following illustration. If you are living in Britain and looking to buy a cycle from Switzerland, in that case, you’ll have to make the payment to that bike dealer in either Swiss Franc or Euro. Since, after Brexit, Pound Sterling is the mere currency that is acceptable in Britain, it is imperative to initiate the exchange for buying it(The British government is no longer a part of the European Union).
So, the exchange of currencies as per the current pricing has to be traded. Once that’s done, the product gets booked immediately and served at the address provided by the consumer. Such sales help in raising foreign funds for a country and strengthen its economy.
Thus, in case of a cycle purchase, the client will have to pay equivalent funds per the Swiss Franc cost. Moreover, the importer might even have to pay taxes as per the norms. It is one of a kind trading journey.
Over the counter forex trading
The uniqueness of this market is that there’s no central marketplace or controlled by any central authority. So, it makes it a decentralised entity to an extent. Forex trading or fx trade happens digitally or electronically. There’s a network of computers that enables these tradings smoothly. OTC in the forex market happens between two traders. Thus, it does not happen merely on centralised exchanges.
Notably, the forex market, unlike the stock market, remains open for five and a half days a week and operates twenty-four hours a day. The forex market is known for its incessant price movements. So, investors have a chance to make the most of the fluctuations that they witness while investing funds.
Moreover, the global forex market is in reach of every trader with the use of the right brokers like Global TradeATF, TradedWell, IGM Fx and others.
The major financial centres that enjoy the reputation of the best currencies are Zurich, Frankfurt, London, Sydney, Paris, Singapore, Hong Kong, Tokyo and New York. Thus, the spread of forex trading is across various time zones. Thus, the forex trading journey becomes inevitably exciting for investors, who are interested in yearning for huge returns with minimal risk percentage.
So, when the market of London gets into hibernation mode, the market of New York takes over and the cycle continues uninterruptedly. Thus, the market remains superlative active for traders. You can buy and sell currencies at your will and invest money or bid price for a forex pair.
However, trading experience comes in handy in these situations to mitigate the risks involved. The global marketplace. With the help of experience, you can indulge in trading with complex instruments.
Why trade forex?
Trading in the forex market comes with plenty of perks that are known by everyone who invests their money in the market. It renders the opportunity of optimal trading with conditions always in favour of traders provided they’ve studied the market inside out. There are a million reasons that draw people to take up forex trading. Every good forex broker ensures a great trading account and trading platform strategy that suits the trading style of clients.
Accommodating trading strategy
If you are a new trader and looking to make a mark or create a milestone either by earning big revenues or by breaking into the crux of the foreign currency exchange market, the forex marketplace allows that. It welcomes every trader with an open heart and mindedness. So, even if you have meagre funds backed by a trading strategy, every forex trading platform will support your cause when you buy even a single currency pair.
So, every trader gets a chance to try and test different strategies in forex minors, forex majors and exotic currency pairs. Every time a trader tries to configure a trading strategy, they learn forex trading while investing money. And it is a forex trading strategy that clinches profits even when the currency pairs are not performing up to the mark. That’s the difference between a veteran forex trader and a fledgling one. Keeping the head calm and eyes focused on the market gets them the desired result.
Beginners forex trading, if they go by strategies, can make huge revenues even at the start of their career. It is possible because the forex market does not discriminate when it comes to applying any strategy. When the bull market or bear market situation happens a strategy exceeds the chances of benefits for traders.
Highest liquidity in the forex market
The liquidity factor is way more than any financial market. So, people investing in it know that the returns would come if not now then someday due to the flow of cash. Moreover, market players can take the physical delivery of their currencies. Also, the volumes are forever high for traders to sell, buy and bid forex currencies and pairs. It happens because there’s no dearth of sellers and buyers in the world. Millions of people are online purchasing and selling their currencies every second.
The transaction of USD 6.6 trillion on average says a lot about the fact. Also, it is more than the GDPs of several countries combined globally. The conversion of currencies involves individuals, banks and companies coming together to deal in the liquidity market. Traders have options to continue with their trading.
Earn Interest by trading forex
The best part of trading forex is that people who have currencies can draw interest over them even if they choose to not sell them until a good price arrives. So, as long as they hold that currency, they get paid interests just like a bank provides to their customers. So, that’s one of the biggest pluses. People can simply buy major currency pairs or currencies and sit back and accumulate good interests. Also, as the prices increase, the interest rate surges in the same proportion.
Someone, who does not want to trade anymore can be the beneficiary of profits stuffed by waiting in the forex market. So, you gain in the forex market. However, the same cannot be said for commodities, stocks or any other financial market.
Hedging is available in forex
When the market makes a free fall or goes low beyond your expectations, hedging helps as a superhero. The forex market allows you to use the advantage and make merry out of it by acknowledging tremendous benefits. You can average and buy currency pairs or currencies as the bear market strikes. It assists in mitigating losing money rapidly. It is one of the greatest forex trading strategies that give cushioning to people when they are pitted in a situation of no man’s land.
Hedging is used to negate the influence of unwanted moves that may happen when forex traders trade during a bearish market. It leads to opening multiple positions for applying strategies. Hedging with multiple currency pairs is the best strategy that an astute trader can place for reaping rewards.
Once you pick up the positively correlated currency pairs for the hedging, like EUR/USD or GBP/USD and take contrary positions can help you minimise the risk posed by the market spiralling downwards.
Volatility in the forex market
The high volume factors into profit for people trading in the market. For trading during such circumstances, you can seek independent advice. When the market is fluctuating incessantly, it is time for fundamental traders to make the best of what currency pairs offer. Scalping in the forex market plays a crucial role when currencies fluctuate more than usual. So, traders can buy and sell during this unflinching volatility and earn lots of money in a short period.
Thus, you have a plate loaded with ample opportunities. However, it may work as a double edged sword if you do not apply strategies while buying and selling. One needs to be clever while bidding because placing high orders or bigger gains might not work when the market is too volatile. The chances of a bigger leap are quite less in these scenarios.
If you can speculate the market accurately with all tools and trading charts, you can win unimaginable money. However, one wrong decision can also derail your objective as a trader. Trading guides, trading signals, forex basics and trading knowledge everything works in tandem when you are putting your money during volatility.
For successful trading, along with a trading plan you need to know about the power of leverage. It is synonymous with forex trading. An fx broker will always present you the benefit by passing the leverage discourse while you register with that. Depending on the type of broker and conditions of a country, leverage can go beyond 1:1000.
It means by spending USD 100, you can bid in the market for 100000. Yes, a thousand times. Your profits can grow exponentially. But one precaution that must be followed is that you should see the market closely, otherwise, losses can curb all your past gains in one click. The losses and profits will be blocked at the end where the position gets closed.
However, by investing a little, you can dream of making bigger gains in quick succession. It is also called trading in the margin. The amplification of the loss has to be manned by putting up proper strategy and sticking to not get lured by greed. The rest of the things are managed by your broker if that is good.
Wide range of currency pairs in the market
Trading in the forex market opens limitless opportunities and set a narrative of liberty. A variety of currency pairs are there in the fx market for traders. They are classified as per their valuation in the trading world and usage.
Major currency pairs:
These have the inclusion of USD with every pair. USD/JPY, CHF/USD, GBP/USD and EUR/USD are some of the top illustrations.
These are the currency pairs that are not traded widely in the currency market and do not enjoy bigger trading volumes compared to the major ones or other currency pairs. They are illiquid and do not have any market depth. Exotic currencies and pairs include USD/MXN, EUR/ CZK and TRY/JPY.
These currency pairs do not include USD for trading. Thus, they are not massively liquids compared to major currency pairs. For example EUR/CHF, CAD/CHF and GBP/AUD.
Emerging currency pairs:
Any country that is emerging in the market better, their currencies would likely be more acceptable. Thus emerging currency pairs stem from there. For example, USD/CNH, AUD/CNH and EUR/RUB.
24 hours trading in the forex market
The foreign currency market is running non-stop barring the weekends. You can trade anytime during the working days and decide when to bid and sell your favourite currencies and pairs through any device. The long hours of trading are in the favour of traders. Even when they are moving abroad, training becomes conducive because most online brokers run twenty-four hours a day.
The transactions here get completed over the counter without interference from a central exchange body.
Go long or short
When you are trading forex currency, going low and short inevitably for a trader. It is a way of investing in the market and staying away from perils sprouted from unforeseen situations. You can use derivative products like CFDs, ETFs and speculate the market for going long and short. Both have respective benefits. When the market is slipping, there’s no better technique than going short and buying again at a specific rate.
For example, if you are dealing in the currency pair GBP/USD and know that the pair is going downwards, in that case, you’ll go short, which means sell it. However, when you can speculate the increment in the pair, you’ll buy it, it means going long.
History of forex trading
The history of forex trading goes back several centuries ago. The writings of Talmudic mention people who assisted in transactions of currencies back then. So, it is well documented. The forex trading platforms may be of different types and the market price was calculated distinctively. But if we connect the dots, the moot point for currency exchange was for the same intent.
In earlier days, there were people who charged commission in the lieu of commissions. Now, such types of machinery of people working as mediators are known as brokers today.
Over the years, the concept of currency trading has evolved immensely keeping in mind the interests of people. Knowing about the history of currency trading and exchange is interesting and important at the same time that connects you with the necessity of financial instruments. It helps in knowing the underlying dynamics of various trading types existing in the market. Moreover, commodities and forex trading seem all the more interrelated. It looks like they are trading partners for each other.
Almost all civilizations that existed in the past had the money for trading and the concept evolved everywhere with elapse of time. Interestingly, in the earlier days, money and currency were two distinct things. Today, these are used interchangeably. It started some couple of centuries ago. The gold standard was the monetary system before that due to the scarcity of precious yellow metal.
Forex market history
The market conditions in 500 BC, during the Egyptian and Greek eras, were different. People from these countries traded currencies and goods made up of molten gold and silver. The determination of their values happened through the size and weight of metals. Five hundred years later, during the Roman reign, the other decentralised currencies were centralised. The minting started happening under the supervision of jurisdiction.
The government’s monopoly was also established during trading currencies. Even today, in all nations and economies it is the central government that decides with the help of a Central Bank, how and when to mint currency notes. It has been continuing for two thousand years. Monetary policies are dictated by them.
During the middle ages, that is some thousand years ago, copper began as the most acceptable metal and currencies were carved out of them for trading. The currency price, trading and minting started happening with a slightly different approach. So, coins with lower value started coming into the market for buying and selling goods and services. These coins represented lower values. Notably, 1 one-cent coin in the US has 97.5 zinc and 2.5 per cent copper in it.
Interestingly, the world’s oldest bank Monte Dei Paschi was built in Italy in 1472. It was established with an intent to transact currencies and spread them across the nation. It was accepted during that era and worked wonderfully. The concept was later copied by other nations. The banking systems that we see today are all because of that one prototype aeons ago.
The Italian bank facilitated common people in transactions. It paved the way to make it give and take money smoothly.
First forex market
Likewise, the first-ever forex market was established in Amsterdam, roughly five hundred years ago. The forex terminology that we read today roots from there. The seed of trading psychology of the foreign exchange market was sown during that time. The financial services and the maiden memories of financial products come from that period and place in Amsterdam.
When currencies were allowed to freely trade or exchange currencies, it brought stability to the economies of several nations. It stabilised the destabilised countries and those suffering from monetary crises. The entire world learned the trick. The information and knowledge were well accepted.
It was in 1875 ago, around 250 years back when the Gold Standard was introduced in the financial market. As per the regulation, any country was allowed to mint currencies in accordance with the gold reserves in their capacity. The purpose of the Gold Standard was to provide value to currency notes or coins that were minted. It was the guarantee of the currencies that were prevalent back then.
When World War II happened, more currencies had to be minted for meeting the expenses. They happened to be more than the gold reserve held by a nation. Thus, it diminished the role of the Gold Standard.
In London alone, in 1913, forex trading firms rose to 71 from 3 in a span of ten years. That was a huge jump and a step toward economic revolution globally.
More than fifty percent of transactions started to happen in Pound Sterling. Notably, as per the records of 2013, the Pound became the most trusted and prevalent currency after the US dollar, Euro and Japanese Yen across the world. It is when Britain is not the biggest populated country.
It was during the period of World War II, the Bretton Woods system came into the light of existence. It succeeded the Gold Standard.
Expansion of paper money currency
In the seventeenth century, gold was the mere currency for exchange across the globe. The yellow metal was accepted as the prevalent currency and enjoyed recognition among common masses to monarchs and everybody else.
When it became difficult for people to carry so much metal or gold from one place to the other, paper currencies started gaining momentum in the 18th and 19th centuries as they were easy to carry and commute with. However, it was considered merely a receipt for the currency of gold and not a currency in itself. The paper represented the value of gold.
Additionally, several experts and fundamental analysts had agreed that Gold Standard was the fitting way of managing currencies and economies.
Functions of gold as currency
Gold functioned like a knife on butter when it came to channelising and exchanging for goods. It was the reminisce of the old barter system. On national and individual levels, it normalised exchanges. From industries to small scale businesses, everyone accepted it for trading. The currency prices were fixed.
For example, if the worth of the US dollar was 1.5 ounces of gold against the Euro 1 ounce, the difference could be worked out mathematically while exchanging both currencies in the trading market. It would be the de-facto exchange rate between the two.
The pre-determined rate of gold was assigned as per the Gold Standard by governments across the world.
The efficiency of gold as currency
Gold was considered quite efficient in more than one way during those days. It negated imbalances that may have triggered issues during transactions. For example, if any country were to import a lot of products from another nation, they would be required to pay a tremendous amount of gold in return.
In that case, the importer country would suffer from the deficiency of gold and that might create an imbalance in their economy. There may be a situation of deflation. Thus, the prices would go lower automatically and the imports would look like a costlier purchase.
Similarly, the exporter country would have heaps of gold inflow from the importer nation. So, the increased gold will trigger inflation in the country. Thus, it will make exports expensive. So, in both cases, it was not good for both parties. So, Gold Standard would put a bar on such unhealthy or excessive trading that may create stockpiles in one nation.
The government could not manipulate currencies and the money supply as per their policies which may sometimes be borderline corruption. The supply of money is fixed as per the Gold Standard. Hence, the interest of people remained above and paramount. Therefore, the level of prices and money would always remain the same.
What’s Nixon’s shock?
The Gold Standard continued until 1970. It had witnessed several enhancements and changes over a period and renewed subsequently with changing time. In 1971, the then President of the United States Richard Nixon ransacked the window of Gold Standard. Thus, the currency notes that were redeemable as per the Gold Standard as per the fixed weight of gold ceased to happen. There was no valuation added to them. Such a step was called Nixon shock. It stunned everyone, from experts to top economists. The move was not anticipated by anyone.
The global economic system was completely stirred with this initiative coming into play. And it was the starting of what we call fiat currency in the real sense. It was the phase that led to the trading currency pairs on to the next level for traders. Forex received its name true to its identity.
Rise of currency trading and foreign exchange
When President Nixon took such an extreme step, the world was taken aback as there was no formal information and alternative to give way for the outgoing Gold Standard way of trading. Economies did not have any gold backing suddenly.
So, calculations through arithmetic could not happen. So, there was no way one could calculate the exchange rate between currencies. Thus, the valuation of currencies started to depend on myriad factors. Governments over the world now could dictate their requirements as they had the baton of factors. In those initial days, the forex market required lots of funds for investment, and not everyone had such knowledge to excel.
But once the internet came into the market, things became easy for traders. From the remotest to the one in the forefront got chances to invest their money and increase revenues. Trading forex currencies became simple and under budget. It connected millions of users besides regular traders.
Such conditions requested for a market that could determine and accommodate currencies in real-time worldwide with the information flowing from other markets. Hence, all currencies became freely floating ones. The concept of an online trading platform was pioneered from such a need to provide currencies’ value against each other.
Importance of the internet in currency trading
When the internet was not there, managing the valuation of currencies was not an easy task. Mammoth calculations happened. The data transfer was one of the many issues faced by economists for settling prices and valuations. Individual investors had the most difficult time. The major currency traders included bigger firms and industries that had products to sell or receive from outside their country of operation.
High net worth individuals and hedge funds were among few others who had the luxury of trading in the volatile market. Trading tips were limited to a few sectors. Also, the trading volume was quite less. People did not have conducive trading skills to survive in the currency market back then. Moreover, there was no one to offer investment advice.
Top ways of trading forex
Learning forex trading is one way and doing it consistently is another. You need to know about sound concepts like opening price and closing price before an initial investment. Knowing about the most traded currency pairs is another important guideline that people need to follow for making money.
You can do trading through following ways:
A forwards market or contract is an agreement or deal between two distinct parties for buying a currency anywhere in the future, marking a pre-determined price in an over the counter market. In this market, contracts are bought and sold between two different parties on a given date as per their terms and conditions inked by them earlier or in the past.
Interestingly, the contract for the forwards market settles in cash for the holder. However, it depends on the date of expiry. However, there’s an opportunity to buy and sell the contract prior to the date of expiry. It also provides risk protection against losing money when trading currencies. Forex brokers have a guarding force in the name of forwards markets.
Futures markets seem quite similar to the forwards markets of contracts. It is a deal inked between two parties that agree on taking the delivery of currencies at a predetermined date and rate in the future. It’s a standardised agreement. So, no one can flout it. In the future markets, there’s no trading with the actual or real-time forex currencies. The selling and buying in the futures markets depend on settlement dates on public commodity markets and standard size.
It is also settled for cash similar to the forward contracts. Moreover, it also offers protection when trading forex currencies. It is also used for hedging against future exchange rate fluctuations. Notably, speculators take part in these markets and contracts for earning risk-free.
The spot market has been the biggest in terms of volumes and inflow of funds in the forex market. It deals in the largest underlying real asset market (forwards and futures).
Interestingly, in the previous days, the volumes of forwards and futures markets went ahead of the spot market. Once electronic or computerised trading came into the force, spot market forex trading took a leap and people started recognising its might more than before. It also marked the proliferation of forex brokers and firms.
So, the forex market has become akin to the spot market trading in forex. However, futures and forwards markets are popular among industrialists and those who indulge in hedge funds.
Process of spot market
Forex currencies and currency pairs are sold and bought here at different market prices as per their current values. Ths supply and demand are the rules that are applied here. The calculation depends on factors like economic performance, interest rates, sentiments of interest, political upheavals, perception of a currency’s future price against the other.
When the deal gets finalised, it is termed as the spot deal. However, the transaction is bilateral, where one currency pays the specific amount of currency at an agreed exchange rate and receives another currency at a specific rate and amount from the other party.
It is forex trading that takes place in the present. These transactions take around two days for the settlement.
How to begin forex trading
Forex trading for beginners is an essential tool to learn. It can help them from future losses if they pay attention to details that learning forex trading offers. Trading in the forex market is quite similar to other financial markets, but with additional cautions:-
Know about the forex market
Before you invest in a currency pair, learning about what it means is important. Many traders start investing in the market without giving a thought to the importance of forex trading strategy. Due to peer pressure or influence, they may lose their direction and that can become the reason to lose. Thus, it needs specialised information and knowledge before jumping into the market with some funds. Trade forex for beginners is not difficult but can be complex at times when lessons are not learnt properly.
Before starting trading, one must learn technical analysis and see how the market works and what are its trigger points. People can find several online courses these days that teach how to start trading forex and a currency pair.
People should know what is the base currency and quote currency before beginning. These are the basics. One should know what are buy and sell prices in the forex market. How does swing trading impact the forex market? What is fundamental analysis in the currency trading market? true market makers would know A to Z about fx pairs and the requirement to trade that at the right time. So, people can use a demo account for practising their strategies before entering the foreign exchange market.
A beginner trader can choose brokers like IGM FX, Global TradeATF, TradedWell, ABInvesting, etc. to provide the facility of a practice account to traders. Moreover, they have the facility of educational courses, where they offer articles, course materials, VODs and many more ways to enhance traders’ information. It gives budding forex traders the idea for trading. One can learn forex from professional services.
Create a trading account
Any person who wants to trade in the fx market should get a trading account. Brokers like InvestLite, and HFTrading are among the best brokerage firms that have great account types for traders. Some accounts include Silver, Gold, Platinum, VIP, Professional and Islamic. Furthermore, traders get benefits from position trading, applying forex strategy, and trading instruments.
A good broker provides great trading platforms like MetaTrader4 and MetaTrader5. The facility of technical analysis and speculating price movements are also available to subscribers.
Additionally, these forex brokers do not charge any commission when you deposit money in their account and show a willingness to trade with them. There’s a sort of convenience that helps traders to form their strategy on point.
However, it is recommended to create a micro forex trading account. The set-up helps newly or novice traders to keep a tab on the market and invest astutely in the forex trading market.
Choosing a forex broker is equally vital here. People must see if that is regulated by financial authorities like FSCA (Financial Sector Conduct Authority), FCA (Financial Conduct Authority) CySEC(Cyprus Securities and Exchange Commission) and others. If you wish to excel in fx trading, then doing the right things at the right time is pivotal.
So, before you start trading, watching the currency price is essential, along with market conditions.
Maintaining emotional quotient
When you think of forex trades, you should not get too emotional because the market is too volatile and may not always give you what you desire. Losses turn to profits and vice-versa in split seconds here. So, making impulsive decisions can make you indulge in the wrong type of trading. You should keep calm as a trader all the time.
Initiating forex trades with proper strategies in place is the best way, instead of getting worried and losing it all at once. Also, whatever profits you make, be content with that. Do not overthink like if you had held the currencies for a bit longer, gains would have doubled. There are always ifs and buts, but they do not help and put pressure on your mind.
So, cultivating your emotional equilibrium is vital in the contest of not being too hard on the outcome because changes occurring in the market are not in an individual’s hands. So, one should focus on the fx market and try to predict the market and its theatrics.
Get a right trading strategy
All trading guides indicate the necessity of a right forex trading strategy because it is impossible to get the best prediction in time. But preparing with a trading strategy is in the hands of a trader. You must take into account your bank balance and the knowledge that you have regarding the trading market. Strategies prepare the roadmap for better investment for investors.
Practice before investment
It is preferable to practice your moves and strategies before outrightly investing in the forex market. Good brokers provide the opportunity of a demo account that has real-time situations for learning. You apply all your plans. You can trade combinations of different currency pairs and see the results they offer. Applying all your forex trading strategies is the primary motive of forex traders in the demo account.
Know your limitations while investing in forex
When you trade forex, knowing your limitations is an asset. You know how much you can afford to lose while you start trading forex. Moreover, investing with a limit proposes benefits and prevents a trader from wrong foreign exchange trading. You can set your leverage ratio
When you trade forex, never risk more than you can’t afford as a forex trader.
Use various tools
Forex for beginners can be successful who know about technical analysis, the importance of trading volume, bid price, closing price, Fibonacci Retracement, window charts, economic calendar, trading platforms, market price, exotic currency pairs, fundamental analysis, financial services, financial instruments etc.
Trade Forex for Beginners: Important Terminologies
It is also known as the transaction currency. It is the currency on the left side, one that appears first in the series of two currencies in a currency pair. For example, in the pair GBP/USD, GBP is the base currency.
It is also called the counter currency. It is the currency placed on the right side of a currency pair. It is listed adjacent to the base currency and determines the value of the base currency. For example in the currency pair EUR/USD, USD is the quoted currency.
Contract for difference helps in speculating the forex market. Trading CFDs does not require direct investment in the forex market. Instead, it enables a forex trader to not own the underlying asset. When a trader thinks the price of a currency pair would increase, he/she would buy CFDs for that pair.
Snipping and hunting:
For maximising the profits in the forex markets, currencies are sold and purchased at specific or predetermined points. However, it needs a network of other traders.
It is called price interest in point or percentage in point. It determines the least price move in the financial market, equivalent to four decimal points. One pip is 0.0001. Moreover, 100 pips make for 1 cent. When 10,000 pips come together, they are equal to a US dollar.
Forex currencies are sold and bought in standard sizes called lots. The common lot sizes that are used are micro, standard and mini. The micro lot sizes are equal to 1000 units, mini lots are equal to 10,000 units and standard lots sizes are equivalent to 100,000 units.
Forex trading strategies for beginners
Forex trading strategies help in determining the right time, intensity, funds and units o currency pairs required to purchase and sell for earning quick profits.
A lot goes into arriving at the decision to forex trading planning. A trader can base strategies on multiple parameters driving from fundamental analysis to technical analysis, observation of the foreign exchange market or news based inputs.
Oftenly, strategies are comprised of trading signals that assist in knowing how and when to trade forex pairs in the volatile market.
However, there is no compulsion that people have to depend on experts or the internet for knowing strategies, they can create their own. For that, they might have to depend on pieces of advice, experience and experiments.
Aim of forex trading strategies
The primary aim of forex trading is to acknowledge trading signals or confirm them during opening price or closing price. Automated or manual methods can be deployed during the exercise. In the manual system, a trader needs to spend time observing the market and chalk out the best preposition for initiating transactions in the market.
The interpretation consumes the entire day and you may not find any time for yourself to do anything else. In the automated trading signals, you deploy an algorithm that locates trading signals for you and automatically executes trades as per your requirements.
Most importantly, the automated system takes the practical approach and takes the emotional quotient out of the question that sometimes is the reason for losses in forex trading.
PS:- Traders should be wary of trading through off the shelf trading facilities. You cannot verify their track record as most of is kept in the secret.
How to create an effective forex strategy?
If you want to create an effective strategy for trading, it is better to start with a small or minor one. It helps in testing the initial effect. You can check how does a currency pair acts against a resistance level or rebound. Based on the outcome they may decide to add elements that can help in arriving to accurate trading signals.
Some of the components that may help in escalating forex trading strategies:-
- Selection of currency pairs: Selecting a currency pair and researching that relentlessly helps in making better decisions while selling and buying them. You get to know their fundamentals and key factors that impact their growth over time. A trader can become an expert in reading them accurately. For instance, if you choose currency pair EUR/USD, you would research the countries they are associated with them and reasons for their valuation of decreasing and increasing. Also, you’ll find out elements that push them up or down. So, knowing about a currency pair inside-out helps in the right decision making while trading.
- Size of position: Considering the market, a trader must acknowledge the amount of position size they are willing to invest their funds.And how can they control their risks using it. Every trade that commences needs the direction of a size of position because the market does not behave in a similar way all the time.
- Learning entry points: Traders should know when to go long or short while trading in a given currency pair. The rules must be developed by looking at the past performance and the current market situation. it helps in averting the market perils while trading in the forex.
- Exit points: The point of exit is the most important one for a trader as it determines the amount of profits you are going to accumulate in the forex market. You should know when to quit the gaining and losing position at the right moment.
- Tactics: Knowing about the method or developing one using technologies or tools is important for a trader. You must set your rules while purchasing a currency pair and know which currency pair to buy and when and what factors can induce gains.
If a trader is capable of developing trading systems in platforms or programs like MetaTrader. It can help in automating the trading. Moreover, traders can use them for backtesting their strategies before applying them in the market.
When to change strategies?
A forex trader cannot stick to the same strategy and think of achieving different and better results. There has to be a change in the stance every time they go into the field of currency trading. Methods have to change with time. It is a rule of the financial market to alter strategies. And the one who follows the rules and principles has the chance to make the most of every situation. Thus, observing the fluctuation or condition of the foreign exchange market becomes extremely important here.
Any strategy that is not rewarding the trader, needs alteration with time and that is mindfulness. Thus, that is also a part of strategies. Stationing proper planning or horses for courses. Trading strategies must be changed with each currency pair or forex trade that you initiate.
- Understanding strategy: The biggest fault traders do is copying others and not understanding the importance of creating their own strategies in committing foreign exchange trading. That triggers losing money rapidly in the market even while using major currency pairs for trading. Forex traders should know that if they do not know or have confidence in their strategy, then it won’t work in their favour. Thus, if a trader is not aware of forex trading strategies or how to trade forex, losses are inevitable.
- Trading style: Risk management is as crucial as trading style. If you know, trading forex requires a risk and reward ratio. If both go hand in hand, profits follow in retail investor accounts while using any forex trading platform. The global forex market follows the same phenomenon. The trading style needs to change with the trading volume of the fx market. For example, one cannot vet ripple with a similar technical analysis that is used to gauge bitcoin because both have different volumes.
- Condition of the market: If the market trend is different, trading tips tiptoe the market price in that scenario. You sell currencies or buy them as the bear market or bull market suggest. These thoughts and strategies mostly emerge from a trading experience. In this fx trading, position trading plays a vital role. Thus, if the market trend changes, a particular strategy does not fit effectively. Your trading plan has to be changed immediately for drawing benefits. That way it can help in tweaking or modification as per the current currency price of the currency market.
However, everything said and done, changing forex strategies quite often or without a reason or rhyme can cost you profits. So, always look upon market conditions, discuss it diligently with your fx broker and indulge in fundamental analysis for a perfect outlook.
Factors required for multiple strategies
A trader may need to work upon the understanding of forex terminology, market markers, forex minors, exotic currencies, trading guides and trading instruments. These are some of the peculiar factors that help in creating multiple strategies in the forex market. You can formulate strategies using the most traded currency pairs. They are effective in all forex trades.
Every forex trader has a different approach and resources for trading with an opening price or closing price in the global marketplace. Learning about national currencies is one of the essential factors for carving multiple strategies. So, it is important to acknowledge it while picking up suitable planning or strategy in the forex market trading.
The following criteria can help you learn forex trading in an effective manner and assist in knowing the suitability of strategies:-
- Time and resources needed for becoming successful
- Target distance in forex trades
- Frequency of trading chances
Trend trading strategy
This forex strategy is applicable to every trader irrespective of their experience in the trading market. It attempts to fetch maximum positive returns in a session. You can exploit the trend or the direction of the market when it moves in either direction.
Any trader who is able to predict the movement of trends can make the most of forex trading or currency pairs. The forex trading strategies depend on the length of trends, which may range between medium to long-term. A forex trader needs to be focused and check the length of fluctuations during the trends. Usage of technical analysis or frame analysis can be adopted while making full use of the trend.
For designating the entry points, forex traders can use oscillators like CCI, RSI and others. It makes for one of the finest forex trading strategies. Moreover, while finding the exit point, it is imperative to check the risk-reward ratio.
The position trading strategy is for those forex traders who have a long-term investment in time. Technical methods like Elliot Wave Theory can come in handy in it. However, minor fluctuations are not deemed fit in this strategy. So, that is not under consideration. The position trading works on all forex trading platforms and is acceptable in all foreign exchange markets.
For forecasting the trade ideas or plans, you should use major currency pairs in financial markets or forex markets. The outlook of the strategy is long. Thus, a trader has to wait for a week to around a year. However, during the period, they can earn money through accumulating interest on currency pairs.
For judging or utilising the entry or exit points, use technical analysis tools.
Day trading strategy in forex
The day trading strategies for currency pairs in forex markets are exemplary. However, a trader does not have much time to ponder upon and plan while making returns in a day using currencies. So, people can indulge in one or two forex trades on that day and earn money. The timing of the trades may be of a few minutes to the entire day, depending on investors and their quench for making money or profits.
However, the risks involved here are higher because as a forex trader you are devoting a little time to yourself. You are guaranteed a substantial trading opportunity.
Carry trade strategy for forex trading
If you are all for complex instruments and trading them in the light of market makers and financial services. It is different from other strategies. Here, you can borrow one currency (lower price) and invest in the other (high yielding price). It will trigger the trade to continue in a positive direction.
The length of trades here depend on the fluctuations of interests offered by currencies. So, you have what are your aspiration for deciding.
Price action trading strategy
Here, you need to study the historical prices and performance of the past. That helps in deducing how can you deduce a technical strategy. The price action trading strategy is in conjunction with different indicators. You can utilise the trading strategy for varying time periods. if you have the ability o use multiple timeframes in trading, this strategy becomes the most potent. The resistance and support levels that are utilised as exit and entry points include oscillators, indicators, trend identification, using candle wicks, and Fibonacci Retracements.
Any beginner who is thinking of trading in the forex market should have the quality of patience and risk-bearing capacity. You should have knowledge about line charts, bar charts, candlestick charts, swing trading and CFDs trading while entering the market. Also, selecting the right broker is paramount for traders. Knowing about which market price or bid price to buy and sell is a pivotal aspect of cryptocurrency trading.
Which are the major currencies in the forex market?
Major currencies include US dollar (EUR), Japanese Yen (JPY), British Pound (GBP), Euro (EUR), Swiss Franc (CHF), Australian dollar (AUD), and Canadian dollar (CAD).
How to start trading the forex market?
For initial trading, one must not indulge in the market without knowledge. So the accumulation of information about the foreign exchange market is the essential thing before initiating the trading.