Forex or foreign exchange is one of the largest trading markets in the world, with a daily trading volume of more than $4 trillion. With such a high volume, the market offers splendid opportunities to the traders to make profits son various types of trades.
Unlike other trading platforms, the foreign exchange is a decentralized market. It means, there is no single superior authority to control the reigns of the trades. Rather, the control is divided amongst the global trading centers where every day, millions of trade transactions are opened and settled. These trade centers operate on different time zones, and on that account, forex market is available for 24 hours a day.
Having said that, as a trader, it’s your responsibility to understand every fragment of the forex market and the trading attributes. This very article will introduce you to the fundamental inside story of how forex market is run, how the trades are made, the various currency pairs, several current trading strategies, and so on. For more information, you can visit https://buyshares.co.uk/forex/forex-apps/.
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Forex Market Categories
Before delving deep into the concerns of forex market, it’s better to have a blurb about the market types. There are three independent markets in foreign exchange where trades can be done.
Spot Market
Here, you can make quick trades since the time difference between the agreement and settlement of a transaction is hardly two days. The trades are instantaneous, providing high exposure to the market’s volatility.
Future Market
An agreement is formed between two signing parties which has preset terms about the future transaction, the rates, and also the time. The terms are so set that they can’t be bargained.
Forward Market
The forward market is almost similar to the future forex market type except the fact that the terms signed here are negotiable and can be bent as per the convenience of both the parties.
What Are Currency Pairs And How They Are Traded?
Forex market is all about buying and selling different international currencies at a fixed exchange rate. As currencies are bought and sold at the same time, pairs are used for a particular trade transaction in the forex market. Each pair has two currencies- a base currency which is the independent or the deciding currency and a quote currency. The exchange rate determines the worth of the base currency in terms of the quote currency.
Steps To Trade In The Forex Market
Even though forex market is quite lucrative and offers several benefits, making a successful trade is equally unnerving, if not more. A wrong assessment of the quoted price or opening a wrong position can put your investments in jeopardy. Even though several consensuses have proven that forex trading is associated with high losses, with a suitable strategy and in-depth knowledge about the same will help you steer away from such unfortunate deals.
- Choosing the trade medium: The first step of trading in the forex market is to choose the medium. You will have two options. First, you can handle the currencies physically through the CFD accounts where exchange will be done based on the difference between the price of position opening and closing times. And second, you can hire a forex broker who will provide you the quoted price but you won’t have to deal with the currencies on your own.
- Choosing currency pairs: the next thing you need to do is choose the currency pairs. This must be done in two steps- choosing from the category of the currency pair and then choosing a particular pair which seems to be volatile.
- Reading the quote prices: the next step in forex trading will be reading of the quote prices. It will consist of a bid price and an ask price of the currency pair. Based on the difference between these two prices, the spread will be calculated in PIP which will decide the transaction cost further.
- Opening the position: after understanding the quote price, your duty as a trader is to make the price movement forecast. The movement will depend on several factors affecting the supply and demand of the international monetary market. Long position needs to be opened when you are predicting a price increase in the current currency price while a short is opened when you are forecasting a decline in the price.
Top Forex Trading Strategies
Innumerable forex trading strategies are present which you can utilize to make decisions properly and indulge in successful trades.
Range Trading
Price ranges in forex trading are of two types: resistance is the top range where the increasing currency price stops, and suddenly starts to decline, and support is the lower range where the falling prices stops and after changing the direction, they begin to rise. Range forex traders buy the currency pairs during the support time while they sell the pairs during the resistance period.
Position Trading
In position trading, the trader buys a position and holds it until the price trend reaches the peak. It is only then the trader will close the position and settle the trade. This is a long-term strategy which does not count the small price fluctuations.
Day Trading Strategy
This is one of the quickest strategies where the trade has to be closed before the closing time of the market for that particular day. It doesn’t matter whether the trader is making a single or multiple transactions. All that matters is a short capital which a trader can use to get more success.
Swing Trading
According to this strategy, the trader deals in short or medium gains to ensure a consistent return. The time frame of the trade usually lasts for 3 to 4 weeks, starting with a few hours. With this strategy, the trader will have innumerable opportunities in the forex market.
Risks Involved In Forex Trading
Interest Rate Risks
Since a forex currency’s valuation is dependent on the country’s interest rates, there will be substantial fluctuations in the overall trades. If the interest rates are higher, influx in investments will strengthen the currency further in the pair, causing the pair value to increase. But, if the interest rates are lowered, it will cause a decline in currency price, and hence the pair price.
Transaction Risks
In a single day, trades are opened at one time while closed at another. This time different between the opening and settlement of the trade creates the transactional risks as the exchange rates can change right before you settle the transaction.
Final Verdict
Forex trading is a growing market in the international monetary industry. It of offering lucrative trade deals to the traders, allowing them to have consistent gains on their leverages. With a detailed fundamental and technical analysis of several trading factors, you will be able to make the trades successful.
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