So, you’re curious about what makes up a sound market, right? A market that has been trading steadily for decades and whose fortunes are clearly influenced by factors like inflation, interest rates, supply and demand, economic growth, and geopolitical shifts.
But don’t worry if your answer isn’t obvious; there’s more nuance to the forex market than meets the eye. And while there is much that can be said about the financial markets in general, this article will cover the FX market specifically. There are many ways to look at the forex market, from looking at fundamental analysis or technical indicators (like moving averages) to just trying to buy and sell currencies the way most people would.
The purpose of the FX market is to help bring an economy together through the trade of currencies between different countries using derivatives. This includes currency swaps, forward contracts, spot foreign exchange (forex), forward-rate futures, derivative trading systems, and forwards and options on futures contracts. In short, a trader works with currency pairs, known as “currency pairs.” For example, EUR/USD is one currency pair.
There’s almost no other asset class where traders will spend much time analyzing technical data such as moving averages, candlesticks or simple price charts. With the lack of such tools on offer, they’re unlikely to be able to gain a full understanding of the trends taking place or predict future movements in prices for major currency pairs. But trading forex does come with its own set of risks. As the name suggests – trading currency pairs involves buying and selling currencies in order to profit out of fluctuations in their value or risk losing money due to high volatility.
If you are new to the realm of trading or have not had any exposure to currency pairs before, then a lot will change when you start using forex trading platforms. Some brokers will let you download their mobile applications to make their services easier to navigate. While it might take some learning initially and practice to become successful, once you get used to operating your chosen platform, you can make good money as long as you know how to read the information provided to you. Most brokerages also provide access to live chat support, which lets you deal directly with customer service representatives and learn more about their products and potential problems. It’s likely that a lot of this knowledge will be gained while reading your trading account’s daily report, which gives both historical and current account statistics. These accounts can be very helpful as they give insight into how profitable certain trades have been over time, as well as any unusual trading activity and patterns that might indicate something untoward. Not only can these reports tell you about the liquidity of your account, but they can also show you if you may need to raise your deposit limit. All in all, it’s important to know how to read the information and act accordingly.
Trading Currency Pairs [1]
A standard step-by-step guide to trading currency pairs might still include lots to be learned about each individual category, but with so many features available, it’s worth spending some time making sure things aren’t too overwhelming. Here are five topics I strongly recommend spending more time studying before getting started with forex trading:
Understanding Key Terms [2]
The first thing to note is that the key terms used in forex trading don’t always apply to every single term, as the names and abbreviations vary depending on the country and exchange. To keep things simple, here’s an overview of those key terms:
Currency Exchange Rate – the rate at which one currency can be exchanged for another currency. Often referred to as “foreign currency parity,” this metric is not always equal to the conversion price. Sometimes this exchange rate is quoted in USD to GBP, GBP to JPY or any other common exchange rate used between those three currencies.
Forex Brokerage Platforms [3]
These are websites that allow users to access currency pairs, such as stocks or bonds, from anywhere in the world, as a browser. They also facilitate the purchase of physical currency from bank ATMs, cash machines at airports, and other places where fiat currency is accepted. Once a user has accessed the system via a broker’s website, a specific client ID is assigned that provides specific identification details for the person who is using the site. On top of this, a subscription fee is charged; with fees changing depending on volume. Depending on the size of the trade, costs could be higher. For example, EUR/USD is currently priced at around +200 pips (~$2.70) per trade and $1.50/month. However, brokers often have different pricing strategies they follow in order to attract and retain clients.
FX Trading Platforms [4]
These systems enable users to access the FX markets online using either their desktop computer or using cloud computing services. They offer various features, including advanced charting, trading algorithms, analytical tools, news feeds, price quotes, real-time reporting, live video streaming for news and market updates. Many have their own proprietary trading platforms, some offering more advanced functionality like algorithmic trading, which uses computers to automatically perform price recommendations based on past prices or movement.
Cryptocurrency Trading [5]
Because cryptocurrency markets are volatile, they present additional risks for a new trader entering the field. Crypto trading offers several advantages, however, as it’s very accessible and low-cost compared with traditional investments, trading crypto currencies requires little investment capital. That said, digital currency markets can also go down in value quickly, leading to losses. If you are planning on investing in cryptocurrencies like Bitcoin, Litecoin, Dogecoin and others, being prepared is essential. Cryptocurrencies and decentralized finance (DeFi) have attracted many investors and speculators, who find them appealing because they hold vast amounts of power and influence without having any central authorities or regulations of state entities to abide by. One such case was BitMEX, an Indonesian cryptocurrency exchange, whose collapse cost billions of dollars and left millions jobless.
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