ONLINE TRADING EDUCATION
‘Forex’ is short for foreign exchange, also known as FX or the currency market. It is the world’s largest form of exchange, trading around $4 trillion every day, and it is open to major institutions and individual investors alike.
Forex trading is simple. You want to buy a currency at one price and sell it at higher price (or sell a currency at one price and buy it at a lower price) in order to make a profit.
Without knowing it, you have probably already participated in the foreign exchange market by ordering imported shoes, or more obviously, buying foreign currency when on vacation. Traders are drawn to forex for several reasons, including:
- The size of the FX market
- A wide variety of currencies to trade
- Differing levels of volatility
- Low transaction costs
- 24 hour a day trading during the week
The forex market consists of a range of forex pairs. Each pair represents the exchange of one named currency into another named currency. For example, the pair GBP/USD represents an exchange of sterling into US dollars. Currency values are always relative, as the price of one currency can only be determined in another currency.
If you’re new to forex trading, the forex pairs you’ll probably pay most attention to are EUR/USD, GBP/USD, USD/JPY, EUR/GBP and other so-called ‘major’ pairs. These are typically the most heavily traded pairs, although there are also a large variety of ‘minor’ or ‘exotic’ pairs allowing you to speculate on the strength of currencies such as the South African rand or the Hungarian forint.
Every trading day around $4 trillion is traded in foreign exchange, making forex the world’s largest market. Because of this exceptional volume, particularly in the major currency pairs, the forex market tends to be highly efficient: you can fill trades at larger sizes and dealing spreads stay competitive with many traders on either side.
The high number of participants in the forex market also tends to ensure that there is always some price activity, always something happening in the market. Dramatic price movements are not uncommon, though you should note that this presents risk as well as opportunity.
And because the forex market is truly global, you can trade right around the clock throughout the trading week (Sunday 23:00 to Friday 21:15). It’s the market that never sleeps.
A currency pair is a quotation for two different currencies. It is the amount you would pay in one currency for a unit of another currency. For instance, when a trader is quoted EUR/USD 1.13 it means that the trader can exchange 1 Euro and receive 1.13 US Dollars.
When a currency’s value changes, it changes relative to another currency. If the EUR/USD quotation goes from 1.13 today to 1.15 tomorrow it means that the Euro has appreciated relative to the US dollar, or that the US dollar has depreciated relative to the Euro because it will cost more
US dollars to purchase 1 Euro.
The definition of ‘major currency pairs will differ among traders, but most will include the four most popular pairs to trade – EUR/USD, USD/JPY, GBP/USD and USD/CHF. ‘Commodity currencies’ and ‘cross pairs’ are also categorized as majors.
Major currency pairs
The most traded currency pairs are listed below. They represent some of the world’s largest economies and are traded in high volumes. Higher volumes tend to lead to smaller spreads.
- EUR/USD – Euro Dollar
- USD/JPY – Dollar Yen
- GBP/USD – Pound Dollar
- USD/CHF – Dollar Swiss Franc
WHAT AFFECTS THE RATES OF MAJOR CURRENCY PAIRS?
The main fundamentals that affect currency pairs are changes in overnight interest rates by central banks, economic data and politics.
Economic Data – Economic releases are reports that give traders a glimpse into the performance of a nation’s economy. Important economic data that influences currency rates include CPI (inflation)
data, Nonfarm payrolls (employment data), gross domestic product (GDP), retails sales, purchasing managers index (PMI) and others.
Politics – Trade wars, elections, corruption scandals and changes in policies introduce instability which reflects in the forex market. The government has the power to affect the economy which can
boost or depreciate a currency’s relative value.
Volatility – Traders usually take smaller positions on the more volatile currencies and bigger positions on less volatile positions. Volatility can strike any of these pairs at any time due to abrupt changes in interest rates, drastic changes to the economic outlook, or political instability. It is important to follow these markets dedicated pages above for up to date news and analysis.
TIPS FOR TRADING CURRENCY PAIRS
Forex traders utilize discipline and consistency in their trading. Here’s some expert tips to kickstart your forex trading:
- If you’re new to forex trading, choose liquid currency pairs like the EUR/USD or the USD/JPY. Then analyze the fundamentals and the technicals until you are familiar with what moves the currency pairs.
- Determining the appropriate leverage is of key importance when trading currencies. Many beginners in forex trading wipe out their accounts because they use excess leverage.
- A forex trading strategy can help to ensure traders are consistent and disciplined. This can lead to profitability and deter loss causing behavior
- Choose the best trading time frame to suit your needs. You can choose from swing-trading, day-trading or scalping depending on which one appeals to you most.
- Use our free trading forecasts on major currencies to stay ahead of the forex market.
WHAT IS FOREX TRADING AND HOW DOES IT WORK?
Many people wonder how to make money trading forex. Fortunately, the basics behind forex trading are quite straight forward. If you think the value of a currency is going to go up (appreciate), you buy the currency. This is known as going “long”. If you feel the currency is going to go down (depreciate), you sell that currency. This is known as going “short”.
WHY TRADE FOREX?
Trading forex has many advantages over other markets as explained below:
Low transaction costs: Typically, forex brokers make their money on the spread provided the trade is opened and closed before any overnight funding charges are applied. Therefore, forex trading is cost effective when weighed up against a market like equities, which attracts a commission charge.
Low spreads: Bid/Ask spreads are extremely low for major FX pairs due to their liquidity. When trading, the spread is the initial hurdle that needs to be overcome when the market moves in your favor. Any additional pips that move in your favor is pure profit.
More opportunities to profit: Forex trading allows traders to take speculative positions on currencies going up (appreciating) and going down (depreciating). Furthermore, there are
many different forex pairs for traders to spot profitable trades.
Leverage trading: Trading forex involves the use of leverage. This means that a trader need not pay the full cost of the trade but instead only put down a fraction of the cost. This has the potential to magnify your profits but also your losses. At DailyFX we suggest a disciplined approach to risk management by restricting your effective leverage to 10 to one or less.
LET’S GET STARTED!
From any device, any time, with a high level of security. Our live educators and analyses will help you. Choose your basic asset, choose trade amount, decide on price direction, trade with profit. For working and earning from home, Forex trading is one of the best options. Starting Forex trading from home needs no heavy investments other than a computer, smart phone or tablet with the internet connection.
You have to start with some money. But knowing the Forex market and the basic things about trading are more important than the investment.
Initially, you can practice trading by using the demo account, which exactly resembles the actual trading. You won’t lose your money and will know the trading by yourself. It’s a 24-hour market and the market never sleeps. No need to wait for the starting bell as in stock trading. It is international and huge, no one can influence the market. It is free of manipulations. No fixed lot size is required to start or do the trading.
Very small amount of money is enough to
start the trading. The absence of commissions and middlemen in Forex Trading is a worthy factor to be appreciated. With the proper knowledge about Forex and with the proper tools and techniques, you can earn a lot in the Forex market and there is no limit for your earning.