What is forex trading?
Forex is also known as foreign exchange, FX or currency trading, where all the world’s currencies are traded. The forex market is the largest financial market in the world with an average daily trading volume more than $5 trillion. Forex trading involves the simultaneous buying and selling of the world’s currencies on this market.
The aim of forex trading is to forecast if one currency’s value will strengthen or weaken relative to another currency for a perticular time period. A forex capture the several trading opportunities every day, due to daily economic news releases.
Forex is always traded in currency pairs for example, EUR/USD. Here EUR is the Base currency and usd is the quote currency. You can predict on whether the price of one country’s currency will rise or fall against the price of another country, and buy or sell the currency according to forcast. If you yourprediction we be right, you would make a profit. If your prediction went against you, however, you would make a loss.
Forex traders can use trading strategies to guide their buying and selling activities. There are many trading strategies are available in internet. A forex trading signals can provide details of entry and exit point of a currency pair.
Forex trading signals can be determined by either manual or automated methods. Manual methods involve looking at chart patterns and averages to determine buy and sell of a perticular currency pairs. Automated trading signal methods use algorithms that determine the signals and execute trades based on several pre-set conditions.
Many forex traders create their own strategies by adopting elements from others’ trading strategies, using different forex indicators, using fundamental and technical analysis and candlestick patterns. Other traders trade based on live forex news.
What influences the forex markets?
You should trade the forex market with little awareness of the factors that influence the FX market can result in substantial losses. There are many factors that influence the forex market and they are given below.
Interest Rate
Every central bank changes interest rates from time to time. Changes in interest rate affect currency value and exchange rate with other currencies. Interest rates and inflation rates are correlated. Central banks control the interest rate as a measure to control inflation. If a central bank of any country wants to decrease inflation, it can increase interest rates in a bid to stop spending and lending. This generally increases the value of money.
These fluctuations in currency value are one of the reasons forex traders may look to trade on interest rate announcements from central banks, like the US Federal Reserve (FED), European central bank (ECB) the Bank of England (BOE).
Inflation Rates
Changes in market inflation cause changes in currency exchange rates with other currencies. A country with a lower inflation rate than another’s will see an appreciation in the value of its currency similarly with higher inflation rates usually see depreciation in the value of its .currency. The prices of goods and services increase at a slower rate where the inflation is low.
A country with a consistently lower inflation rate exhibits a rising currency value while a country with higher inflation typically sees depreciation in its currency and is usually accompanied by higher interest rates.
Current Account Deficits
A country’s current account reflects balance of trade and earnings on foreign investment. It consists of total number of transactions including its import & exports. The current account is the balance of trade between a country and its partners country. A deficit in the current account shows the country is spending more on foreign trade than it is earning, and that it is borrowing capital from foreign sources to make up the deficit.
Political Stability & Economic Performance
The political stability and economic performance of a country can affect its currency strength. A country with less risk in investing more attractive to foreign investors. Foreign investors want politicalstability to invest and make their transcation. Therefore, a stable and progressive government helps investors to get confidence while making an investment.
Speculation
To earn money on the forex trading is all about speculation and making an investment in currencies before increasing the value. If investors believe that the British Pound is going to gain its momentum against the US Dollar, the GBP/USD price will move higher even if there is not a solid reason behind the movement.
How to Trade Forex?
To be a successfull trader must requires a successful strategic plan. Your trading plan includes the details of trading about what you will trade and how you will trade it to get the success. Before trading we should follow these steps.
1. Select a currency pair
In forex trading first of all you have to decide which currency pair you wish to trade. There are many currency pairs major,minor and exotic and you have right to choose the best currency pair. We highly recommend that you take your time to understand the amount of price volatility associated with the currency pair to help manage your risk.
2. Analyze the market
Research and analysis is the foundation in forex trading. You should regularly look at current and historical charts, check economic calendarfor upcoming financial newa, check indicators, support and resistance other technical and fundamental analysis. After completing you research finally decide buy or sell the currency pair.
3. Enter Your Trade
The current price of major currency pair EUR/USD is 1.2750. If you predected after you reasearch & believe that the euro is bullish, so you have to enter a buy position at the current price 1.2750, similarly if you believe the EUR/USD pair is bearich the you should place sell order using risk management tools such as profit target and stop loss orders.