In the forex market, people do buying; selling and converting currencies that also displays the exchange rates for different currencies. Foreign Exchange Market or forex market is the most liquid market due to the vast trading volumes which reach more than trillion dollars on daily basis and it also operates 24 hours a day except weekends thus easing the process of trading across the world.
There are many people snooping how to make money trading forex. Fortunately, the basics behind forex trading are not simple but quite straight forward. If you think the value of a currency is going to up, you buy the currency. This is called as going “LONG”. Whereas if you feel the currency is going to go down you sell that currency this is called as going “SHORT”.
The Structure of Forex Markets
The structure of the forex market is slightly unique because major volumes of transactions are done in Over-The-Counter (OTC) market which is independent of any unified system as in the case of stock markets.
Following are the major participants in the foreign exchange market, they are:
Well there are two types of traders in the foreign exchange market:
Hedgers are always looking to avoid exciting movements in the exchange rate. Think of big businesses after that they have reduced their exposure to foreign currency movements.
Speculators or risk-takers are always seeking risk and always looking for volatility in exchange rates to take advantage of. These include large trading desks at the big banks and retail traders.
Forex traders are needed to understand how to read a forex quote as how to determine the price you enter and exit the trade. Just looking at the currency quote below, the first currency in the EUR/USD pair is termed as the base currency, which is the Euro, while the second currency in this pair the USD is known as the variable or quote currency.
In forex trading, the values of currencies are quoted in pairs, also known as currency pairs, which reveal the value of a currency against the value of another currency. Some of the most widely traded currency pairs are as follows:
Suppose, you are willing to buy EUROS and if you are expect to sell Euros, you would be able to do so at a price of USD 1.1536 per Euro is called bid price.
Suppose you are a broker and willing to sell Euros. You can choose to buy Euros from the broker at a price of USD 1.1567 per Euro whatever values have that time.
The difference between ask and bid price is known as Bid-Ask Spread.
So however, Bid-Ask Spread = Ask Price – Bid Price
Suppose EUR/USD = 1.1655, in this case, 1.1655 denotes the price at which the pair was last traded. Here, 1 Euro is equivalent to 1.1655 USD means you have to pay 1.1655 USD to buy 1 Euro very clear.
In forex, Pip represents the smallest change in a value that is quoted up to the fourth decimal place. Example, EUR/USD = 1.1655. Here 5 is the Pip value.
Leverage is widely used in forex trading strategies and in the forex market to maximize the profits even with little change in the pair value. As we know, the forex values don’t undergo radical changes in value which in turn requires us to invest a higher amount so as to maximize profits from our trades. But, investing such a high amount in the market isn’t always reasonable and that’s where leverage comes into the picture. Leverage allows you to place large amounts of trade even with a smaller amount and they are often denoted as a ratio. For example, a 30:1 leverage ratio will let you place a trade for $30000 by only investing $1000.
As a forex trader everyone should know about forex charting such as tick charts, bar charts, line charts and candlelight charts etc. Click here to know more
Start with slow
This is always better to start slow and with a less money and don’t expect
or think that your first trade will be like a jackpot. Always do work as planned and don’t try to show over-confidence, otherwise you will do over-trading and loose most of what you gain.
Minimize your losses
Ensure that you should have an exit plan before you enter any trade. In case trade not going in your favor stop there. If your trade is with the trend, you should readjust your stop losses and hold onto your profit. As a trader you need to follow strict stop loss and exit the trade in case of losing trades before they turn into natural calamities or disasters.
Grip on to your profits
Many traders have no problem cutting losses but they also insist on exiting trades at the first sign of profits and the strategy here should be cut your losses and hold against your gains.
Required good trading strategy
As a successful trader you need to follow up a good trading strategy which is required. Management of your funds or money is also very important and ensures that your trade risk should not be more than 2% of your account in each trade.
Keep an eye on the charts
Charts are the technical indicators to signify and follow up the market flow and price as well as volume reflected there when it comes to technical analysis.