Just joining the Forex Market? Pointers and tips
There is the first time for everything, including forex trading. Whatever your inspiration for joining the industry, at the end of the day, a trader wants more ups than lows. The terms used in this significant part of the market may sound a little scary at first, but it is not as difficult as it sounds. All you need is guts, reason and a trading account.
Forest market, also known as Currency or FX market, is changing your currency into another country’s currency. Foreign-currency-trade is exciting most of the time proving to be a hobby to some people and a source of income for others. Trillions of dollars are traded every day on the currency market, making it the world’s largest market.
Currency trading has a beautiful nature of geographical scattering and use of leverage for profit and loss margins, making it even more popular among FX traders. The Forex market is good for large companies that have employees to pay abroad.
Standard terms in forex trading
Base currency. The currency that a trader is trying to quit off.
Quote currency. The currency that an investor wants to buy.
Exchange rate. The value of a specified currency for the purpose of converting to another.
A short position. In this case, the trader buys the quote currency and sells the base currency.
A long position. The investor purchases the base currency and sells the quote currency.
A spread. This is the difference between the bid price and the ask price.
Bid price. Price at which the investor is willing to buy base currency during the exchange for quote currency.
The ask/offer price. The price at which the trader sells base currency to get quote currency.
The Forex market has levels of access, and at the highest level are the largest commercial banks in the world and security traders. Smaller banks and financial institutions account for about 49 percent of all transactions, leaving the rest, 51% to the giant banks.
Before executing any trades, decide on which currency you want to buy and sell. Take time to analyse and evaluate things that are likely to affect the currency’s value. Factors to consider when making the decision are: The country’s political situation. In most cases, if there is an ongoing primary election, the currency will be affected. Economic rules and laws. If the government does not press on economic regulations, the value of the coin will increase.
Economic reports. Take a look at the country’s Gross Domestic Product (GDP), inflation and employment versus unemployment rates.
Predictions by professionals. Getting caught off guard can turn dramatically turn market tables around. If there are solid prospects of a currency dropping, it is only natural for an investor to want to sell them for a stronger currency. According to analysts, the best way to avoid losses from the miscalculation of profits and losses is by making records and entries and doing currency math without any mistakes.
A ‘pip’ is the measuring unit for currencies. It indicates the difference in value between two currencies. A difference in value equals 0.0001 pip. From multiplying the exchange rate by the number of pips that a certain account has changed, a trader can tell by how much value the account has either increased or decreased.
Once an investor familiarises themselves with the above basics, they can go ahead and open an online Forex brokerage account in a reliable brokerage firm like CMC Markets. While choosing the firm to work with, factors like years of experience, work ethics, any past cases of frauds and costs should be considered. Beginners are encouraged to practice using the demo accounts before using real money.
Before you can jump into the buying and selling of currencies, design a strategy from market data. The main types of market analysis are; fundamental, technical and sentiment analysis. Once the margin is determined, one can start trading. However, being a new trader, one should be cautious about executing too many trades, getting too excited, lacking a detailed plan and setting a stop loss.