If you’re like most people, its probably not clear to you how the money market works, what are the differences between foreign currencies, and which currencies are historically better to trade than others. Well, you’re not alone. But; as long as you’re curious to learn how you can benefit from this lucrative trading market, it’s a very good sign that you’ll find information that can make you money.
Perhaps you’ve heard about Forex recently from a friend who’s making money and you want to find out more? If you are willing to learn more about this market and you are interested in finance, it is time to start your education about this rapidly trending investing option.
What is Forex all about?
The Forex Market is the largest global financial market for trading foreign currencies. It is a platform that allows the easy sale and purchase of foreign exchange contracts with the intention to profit from changes in currency prices.
The name itself is the combination of the two words: foreign and exchange.
Simply put, Forex is a currency trading market where contracts of one currency in relation to the value of another currency are traded by short-term, medium-term and long-term investors to make money.
This is one of the largest and most liquid financial markets, currently trading up to $5 Trillion US per day, in which banks, financial institutions, corporations, governments, insurance companies, and also individual investors participate.
In this market, each trader looks to make profits by buying and selling currencies at different exchange rates as the value is affected by various economic factors that strengthen or weaken each currency’s value.
What distinguishes forex from other stock exchanges is that forex doesn’t have its physical headquarters in any country, state or city. It exists only on the electronic network, which is available 24 hours a day 5 and a half days a week (no trading on weekends).
Although it is constantly moving, price cycles and trends based upon announcements made around the world stock exchange opens and closes, among which London and New York are the most important ones. Forex or FX is unique because of the large money turnover and market liquidity, but also global spread. Precisely because of this, Forex is the largest traded market in the world.
Currency pairs
As we have already mentioned, with FX one currency is converted into another at different prices. The price of one currency pair, for example, EUR/USD, can change value several times within one minute. When there is a period of intense trading, the change within one minute can be dozens or even hundreds of movements. If you really want to learn to trade Forex, we suggest you start by researching many online sources.
Candlestick charting
If you have decided to trade currencies using Forex, learning to read candlestick charts as a way to read the strength and potential upcoming price movements is a great first step. Candlesticks provide you with detailed information on currency price movements.
Many consistently profitable trading methods use candlesticks as the foundation of an accurate trade entry and exit strategy. Candlestick charting differs in many ways from the well-known bar charts or Renko charts.
At first glance, this chart may look difficult to read, but when you take the time to learn how to read the meaning of each candle and the patterns they form, you will find the accuracy of the charts highly valuable. Once you master this analysis method, you will be delighted with its simplicity, and you may find you can apply it to other financial markets.
Risk management
Accurate analysis to plan stronger trade entry opportunities, be aware of areas in price where price movement slows, stops or reverses is the best way to manage risk, lick in profits consistently and minimize the impact of unplanned losses. Generally, higher risk equates to a greater chance of better profit but also leads to a greater chance of loss.
For this reason, risk management where you find the strongest highest probability trades where you lock in more profit and the riskless per transaction is a key skill of every consistently profitable forex trader. The goal is clear: to protect your capital, reduce losses and increase profits.
Some of the risks that every trader must be well aware of are:
– currency risk is associated with a volatile fluctuation/change in currency prices;
– position cost risk, which is associated with a sharp rise or fall in transactional costs for each trade;
– liquidity risk is related to the inability to sell or buy positions quickly due to too many traders looking to trade in the same direction at the same time;
– leverage risk, risk of excessive loss due to the leveraged nature of the market (often times 30:1 or greater).
To be successful in any FX Trading, you need to know the proven profitable strategies, techniques and be able to analyze the market to preserve your capital, maximize your profits and minimize position losses. You need to be familiar with the status of your account and keep up with information and trends to be aware of all factors that affect currency values.
Also, just as important is the psychological aspect of the trade, managing emotions that can affect your ability to objectively read the market, avoiding trades where you are trading based upon what you want, not what the market is saying, and above all trading with focused discipline.
