Foreign Exchange Trading or Forex offers ample opportunities to make money. But, there is a condition - you should know the tips and tricks of the trade. Many investors, majority of them being beginners, lose money because they do not understand the mathematics of this speculative trade.
The aim of this article is not to alter your decision, but to make sure you take off on the right foot when it comes to Forex trading. Listed are tips to help you master Foreign Exchange Trading.
What is Forex Trading?
In this market, investors trade one currency for the other; that is buying and selling takes place simultaneously. Profit is earned as a result of fluctuations in the exchange rates of these currencies. Like every other trade, the principle of demand and supply forms the crux of this trading market too. Success depends on the ability of the investor to tell high performing currencies from the other. Institutions, business organizations and individual traders all participate in such currency deals.
The two currencies involved in the deal form a currency pair. The first is known as the base currency and the second the quote currency. In the labeling of a currency pair, the base currency comes first and then the quote currency. For example USD/EUR is a currency pair. USD is the base currency and EUR is the quote currency. You sell the quote currency to buy the base currency. The bid price represents the amount of the quote currency you need to buy the base currency.
Nature of the Market
The Forex market is quite flexible in the sense it allows traders to conduct trades to suit their convenience. You can place an order in short or long position. The short position enables you to make money when there is a decline in the exchange rate whereas the long position enables you to make money by selling the currency pair later at a higher price. When you place a market order you can also set a certain limit. This implies you can set the maximum or minimum price you are willing to pay for a currency pair.
The Forex market is also very volatile and hectic. There are constant changes in the value of currencies. Thus, you have to be quick to capitalize on an opportunity. It is operational 24 hours a day, 6 days a week; opens at 11p.m. GMT Sunday and closes at 11p.m GMT Friday.
Forex Demo Accounts
When you start trading at the Forex website, you will be given a demo account. The demo account is like a practice account to get you acquainted with trading skills. Understand the different trading terms. Research the economic and political trends of the countries whose currencies you wish to trade.
Forex Trading Strategies
There are several Forex strategies you can use to trade. Scalping, stop loss order, automated trading, Moving the Simple Average, Buying on Margin are some of the common strategies. Scalping is suggested as one of the best strategies for beginners but this is not fixed. Different strategies work differently for different people. You should experiment with varied options and find out which works the best for you. It will help to have a Forex broker to introduce you to trading strategies and guide you on their implementation.