Forex trading refers to the exchange of one currency with another in at least two opposing sequences in order to profit from the change in the rate of exchange between both currencies. When we say opposing sequences, it means that you must first be in possession of a currency of trade, use it to buy a certain amount of another currency, wait for the second currency to gain in value over the first currency held, then re-exchange the 2 nd currency for the first one, getting more of the first currency in the process.
In online forex trading, this process is performed using certain technology such as trading platforms, is highly automated and occurs very fast. The process is a mirror of what goes on in the offline currency exchange market. It is also done on a much larger scale, as this process includes all players in this market on a global scale.
Life is a journey and so are the many aspects of our lives including careers. Therefore, learning to trade Forex is a journey on itself that requires traders to take specific steps before finally launching their activity online. You cannot just wake and decide that today you are going to start trading online. As such, this implies the importance of learning to trade because traders must learn how to derive the strategies that suit them both personally and financially.
So what does a beginner who may have some faint idea as to how currencies are exchanged with a local Bureau de Change operator, have to know about the way the online spot forex market operates? Change in value of a currency is what makes forex trading, and is a continuous process which occurs minute by minute, and second by second when the market is very active. You cannot make any money if the value of a currency is static, such as is the case with fixed currencies.
Some governments either fix a set value for their currencies, or restrict its movements to a tight band. Various factors cause traders to have demand for a currency, or cause them to jettison it for others. Many of these factors are listed in the forex news calendar and form the basis of news trades.
The relationship between these factors and the change in value of currencies is complex and demands careful study from the beginner trader. Indeed, a beginner in forex should ideally not trade the news until these complex relationships are understood and mastered.
The forex market is a hour market. This is because there are three major trading hubs which do most trading activity over an 8 to 10 hour period. There are periods when the trading activity in at least two hubs will overlap, producing the periods of maximum market volatility.
A situation where we have one zone opening for business in a day Tokyo and Sydney- Asian session , followed by the London session European market and finally the New York session, gives an almost continuous state of forex trading activity over a hour period, commencing on Sunday 9pm GMT and ending on Friday 9pm GMT.
Currencies are traded in pairs and have two sets of prices. There is a bid price, and the ask price. So a typical quote for the Euro against the US Dollar will be displayed as follows:. Although the exchange rate price is determined by supply and demand, most of the volume of the market are attempting to preempt the direction of interest rates. A central banks decision on interest rate ultimately decides the money supply of that country.
If they decide to increase rates, that will ultimately leave less spending money in the pockets of consumers. The knock-on affect is often felt by mortgage repayments increasing and decreasing accordingly. If a market believes the central bank is likely to hike interest rates soon, that is seen as the central bank needing to cool the economy down because it is doing well. In turn this increases the value of the currency of that country. This speculation is a huge driver of currency prices and should be considered when taking a trade.
Access to the forex market is obtained through a forex trading account. Apart from a brokerage account, there are other requirements the trader must fulfill:. Mail will not be published required. Leave a Reply Click here to cancel reply. Practice Trading at eToro Now! Best Forex Brokers Benefits of Trading with our BO Indicator: Introduction to the Forex Beginners Course.
Setting up a Demo Account. Spread, Swap and Market Hours. Order Types and Placing Orders. Forex Pairs to Focus on and Avoid. Picking Entries, Stops and Targets.
Monitoring your Trading Statistics. Creating a Trading Plan.More...