You might have heard the word forex trading before but have no idea what it is all about. Sit back and relax as this article is geared towards providing you with effective tips and tools to help you as a trader make all the right moves in the forex market.
Foreign exchange trading better known as forex trading is the trade that is carried out on currency markets all over the world. Currency exchange mostly occurs at airports, banks or selected currency exchange bureau. For a beginner to trade in currency markets, three elements need to be present.
1. Forex Broker
Finding a broker is the first step in forex trading as they offer assistance in opening of the trading account and manage your trading transactions. There are many brokers available in the market and it is essential to consider factors such as trading fees, transaction execution timeline, commission and spread levels as well as the risk management tools of every broker before making a decision on your broker of choice. These factors differ from broker to broker and hence the need for an in-depth research prior to starting trading.
2. Forex trading platform
Forex trading platforms vary in terms of the services they provide but most of the will offer you a market analysis and charting, access to historical data as well as the functionality of the market.
3. Forex trading strategy
For one to be successful in forex trading, they need to maintain high discipline levels and one of the most effective ways of achieving this is by choosing a strategy to follow. It is hard to judge the effectiveness of a certain strategy by a mere look. Experimentation is therefore the best way to find out what works best for you. Some of the top strategies for forex trading in 2018 are;
These are trades that are held for short period-few minutes, by a trader looking to gather a little profit before close of trading.
· Day trading
As the name puts across, these are trades that are held only for a day. This strategy ensures that the trader will not be affected by any large moves that happen overnight, especially if they are adverse effects.
· Swing trading
Under the swing trading strategy, trades are held for a number of days as the trader studies the market in the hopes of making a profit from the varying price patterns.
· Positional trading
Trades are held for a long time with the hopes of major movements in prices. Intensive trend-following and end-of-day charts analysis is involved in this strategy.
How does forex trading really work?
Traders are required to choose a pair of currencies that they wish to trade. There is a rate display which shows the number of one currency that one can trade against the other currency and this rate is what brokers use to determine the most optimal time to sell or buy your currency. If for example you are trading on forex Australia, you can buy US dollars and make more money when the value of the USD rises when compared to the Australian dollar.
Benefits of Forex Trading
- Currency trading tends to be cheaper than trading in other monetary instruments such as stocks.
- With forex trading you get more opportunities to trade any significant changes in the worldwide economy. Trading platforms track all developmental changes that occur or expected to occur and analyze the effect of these changes on the currency value.
- Forex trading offers the most liquidity among many money markets as one can trade in large sums of money with less bureaucratic procedures.
- Currency trading provides you with a 24 hour access to the market allowing you trade at your own convenience.
Disadvantages of forex trading
- There is a risk of dealing with unregulated brokers.
- Leverage amounts paid helps a trader to gain profit but can also be catastrophic and cost you a lot of your money.
- The prices are always changing fast and unpredictably and failure to read the market trends well may lead to a loss.