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Forex Trading Basics For Beginners
High rate at which the internet is getting faster and better, many people have decided to utilize it and make good use of it.
In the current days, many people are earning a living through the use of internet.
So many businesses that have good returns have been started online.
Some of the advantages that the investors are enjoying by them conducting their businesses online are so many.
This makes many people to view it being more convenient than being employed.
Forex trading is one of the huge businesses that are taking place online with worth returns.
It is the act of one participating in the forex market with an aim in making profits.
Many people from different parts of the world have different names at which they use to refer to Forex trading.
Some call it foreign exchange, FX trading while others refer to it as currencies trading.
People trade currencies in this market. Most people conduct this business online, making it one of the largest and most liquid markets in the whole world.
In this market, trillions of dollars are being traded per day. All the world currencies are included and used in this market. This makes attract many people from different parts of the world.
How does forex trading work
In this kind of business, there is no specific market place where people meet to exchange currency.
This makes it universal and can be traded globally since the trade can be done over the counter.
It being done online makes it very easier for one to participate, hence attracting huge number of investors in this field.
This market is usually open for 24 hours in a day, and for five days a week. This makes it more convenient since one is free to trade at their convenient time.
It makes it more flexible, and one can be able to handle other things apart from Forex trading. However, there is no business conducted on holidays. The currencies are traded from all parts of the world.
There is no limitation for persons, country or firm who would like to take part in this market. It’s due to this reason that forex trading is the largest market in the world in total cash value traded terms.
Forex is an abbreviation of foreign exchange. Some people also refer to it as just “FX.” With it being the largest market in the world, the amount traded in a single day is in volumes of trillions of dollars in average.
This money is either transacted on forward basis or on a spot. Major financial centers such as Singapore, Tokyo, Sydney, Hong Kong, New York and London are where the largest Forex markets are found.
In this market, trading takes place through businesses’, individuals’ and banks’ global network from all the continents. Due to this reason, prices of different currencies are ever fluctuating in value constantly against each other.
It is this constant fluctuation that offers multiple opportunities to trade. The investor speculates on the direction at which the currency is most likely to take and either it will be a short or long position.
The period depends on one’s thinking about the currency value, on whether it will go down or up. Right speculations of the currency value and duration lead to the investor gaining high returns.
As a way of ensuring that one makes high returns on the capital invested on foreign exchange trading market, one should study the market to ensure they have the best combination of speculations that will lead to them making profits.
Steps involved in FX Trading.
Choose a currency pair.
The trader is first required to make a decision on the currency pair they would wish to trade. There being more than 65 currency pairs that one can choose from, it is very important for one to ensure that they takes the right combination.
The currencies being in variety, one has a lot of choice alternatives and therefore chances of getting a good combination are high.
Some research tools that are fundamental and technical, such as city index, can be used to choose a currency spot opportunity to trade that suits the trader’s style of trading.
The most important part of this step is investors taking their time to ensure that they have full understanding of the price volatility that is associated with the pair of currency chosen. This would help them manage the risk associated.
Making a decision on the type of FX trade
While using City Index, one can trade forex in three ways; CFD, Forex trades or Spread Betting. They all have different particular stake size. For instance, in spread betting, one trade pounds per point movement that takes place.
With CFD trading, one trades the quantities of CFDs found in the base currency unit. For example, when one trade GBP/USD, their stake is in pounds while one is trading in USD/JPY, their stake is in USD. With Forex trading, one buys a lot in the base currency units.
Making a decision on whether to buy or sell.
After deciding on which market to trade on, knowing the price at which it is trading at is the next most important things.
Forex quotations are all made in terms of one currency versus another. There is a “base” currency and “quote” currency in each pair. The base currency refers to the currency on the left while the quote currency refers to the currency on the right of the currency pair. When one is trading foreign currencies, one “Buys” a pair of the currency that they believe the base currency will gain strength against the quote currency. While “Selling”, one sells a pair of currency they believe that the value of the base currency will weaken against the value of the quote currency.
In this concept, the term order refers to an instruction to trade automatically in future when the prices will reach at a certain specific level that the investor predetermines.
Stop and limit orders can help one ensure that they lock in any profits. This would also help them minimize the risk involved when their respective profit or loss risk targets are attained. Although it is not compulsory for one to use the stop loss orders, it is essential. A stop loss order refers to an instruction to close a trade whose price worsens than the current level.
Monitor and close trade.
After watching the trade’s profit and loss fluctuate with the moves of the market price, one can see their unrealized loss/profit updates in good time. They can then add new trades or close the trades that already exist. By one closing a trade, the net profit or loss made immediately reflects on the investors cash balance.