Forex is an exciting market. It is always moving, and trading it can exploit even the smallest currency price shifts to generate profits, or of course, create losses.
Each time you trade Forex you are simultaneously buying a currency and selling another. Such is this currencies are always quoted in pairs, for example; EUR/USD or EUR/GBP.
The first currency in the pair is known as the base currency, and the second is the quote currency. The price quoted represents how much of the quote currency you can buy with one unit of the base currency.
For example, if the currency pair GBP/USD was quoted at 1.5500, then you can buy 1 British Pound for 1.5500 US Dollars. When trading Forex, you will always be quoted two prices for the currency pair. The first price is known as the Bid price, and the second price is known as the Ask, or Offer price. The Bid price represents the price given if you want to sell the pair, and the Ask price represents the price quoted if you want to Buy the pair. For example, for EUR/USD you may be quoted a Bid price of 1.5500 and an Ask price of 1.5502. The difference between the two is known as the spread. Forex traders profit by buying a pair at a low rate, and then selling at a higher rate, or selling the pair high, then buying the pair low.
An example in EUR/USD: When the US dollar weakens, the euro will rise. Therefore, if the US was facing higher unemployment rates, the US dollar may be inclined to weaken. If you wanted to profit from this scenario, you would Buy the euro (on the Ask price), expecting it to appreciate against the US dollar. You have created a Long (Buy) EUR/USD position. If you had sold the EUR/USD at the Bid price, 1.5500 you would have created a Short position.
Forex stands for Foreign Exchange, the buying and selling of foreign currencies. Trading Forex is an exciting way to trade the constantly moving global currency markets worldwide.
So what does it offer?
Accessibility: The Forex market carries over $3 trillion of transactions every day, it's the largest and most anonymous trading sector, often defined as a 'true' market. SVSFX account holders can be a part of this with just a computer and an internet connection.
Leverage: SVSFX provide leveraged trading for its clients of up to 1:400. This means that with just a small amount of capital traders can take much larger positions in the market. For example, with just $1000, a trader could buy $400,000 of contracts, meaning much bigger potential for profit is possible. Leverage amplifies your trading performance so you must remember that the opportunity of profit also brings the opportunity of losses.
24 Hour Market: The Forex market is open 24 hours a day, 5 days a week, enabling you to always open trades whenever the market moves. Liquidity: Forex is the biggest market in the world, with a daily turnover of $3 trillion. This is also one of its great advantages. Under normal market conditions there will always be enough activity to ensure that there are buyers when traders want to sell and sellers when traders want to buy.
No Commission: Unlike many financial products, there is no commission charged on Forex trading with SVSFX. Brokers earn from the spread price, the difference between the buy and sell price.
One of the key factors in successful Forex trading is money management, and using knowledge and skill to manage your account. There are a few basic money management principles which can minimise your risk and maximise your profit.
Practise first. SVSFX offers a free demo account which uses real time rates on the same platform as the live version with no risk involved.
Consider carefully your deal sizes in relation to your equity deposit, and how much you are prepared to risk on each trade.
Manage your positions with Stop Loss, Take Profit orders and calculate a potential worst-case scenario. What will happen if you make ten losing trades in a row?
Never trade with funds you cannot afford to Lose; Forex trading is an extremely high risk activity which is multiplied with the application of leverage.
Before starting to trade, it is crucial that Forex traders formulate a strategy. A good trading plan which is not deviated from is a prudent way of minimising loss as well as maximising profits. As well as a good trading plan, it is important to have a good attitude towards trading. The two major ways of formulating a trading strategy are through fundamental analysis or technical analysis.
Fundamental analysis is a way of looking at the market in terms of economic, social and political forces that may affect supply and demand for currencies. For example, if the US was currently seeing high employment, higher interest rates to control inflation, then the value of the US dollar might be likely to increase. So a trader using fundamental analysis would pick up on this and buy the US dollar against another currency such as euro. The EUR/USD is the most popular traded currency pair in the Forex market.
Technical analysis is the study of price movement using charts, historical price trends and using this information to determine where the price will be forecast to go next. Technical analysis often encourages you to trade in the same direction as a trend. In addition to charts, technical analysis includes a sophisticated range of charts, oscillators and indicators. Technical analysis is a complicated skill and can require many months of study, though the very basics can be understood in weeks given the correct application.
Often traders will include a mix of both fundamental and technical analysis. Trend analysis is based on the idea that was has happened in the past gives an idea into what is likely to happen in the future. Forex can be based heavily on trends, and the ability to identify them and exploit them can significantly increase profit.
If you have identified an uptrend, then buying the currency pair will give you a better chance of profit. If it's a downtrend, selling the currency pair will give you a better chance of profit. Traders can identify a trend through distinct patterns that the price forms. When a trend is taking place in a currency pair, peaks and valleys will begin to form. In an uptrend a trader will see a series of peaks and valleys which are generally moving upwards. These are known as higher highs and higher lows.
Some days trends are harder to spot than others, and some days may see no trend, but instead a trading range. It is easy to make predictions with a trend than with a trading range, which can be unpredictable. In a range, some traders stay out of the market, jumping back in when a trend forms again.
As a general rule, it is best to trade with the trend rather than against it and relying on the trend going in the opposite direction.
It could be said that there are better times than others in the Forex markets to make a profit. The market is open 24 hours as it is made up of different sessions all around the globe. The more markets that are active at the same time, the more trades that are being executed. This means the market is more liquid and liquid markets are considered more 'true'.
• London: 8am to 5pm
• New York: 1pm to 10pm
• Sydney: 10pm to 7am
• Tokyo: 12pm to 9am
The London session overlaps with most other sessions, and is therefore the busiest out of the four with greatest liquidity and trade volume. Release times of major economical data can provide trading opportunity, but also times to be careful because volatility will be high. Many profitable trades are made around economic announcements such as employment data, economic growth and inflation reports. Huge gains can be made but also huge losses so care is needed. As traders react to the news, at these times market sentiment becomes crucial.
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