Forex Trading Basics and Overview
Forex trading is one of the leading money making opportunities available mt4 trading online. Understanding it can help you make an additional income. Before you jump in and start trading, you should have a little understanding about it. Forex trading is the buying and selling of different world currencies. A forex deal occurs when one individual buys a single currency and sells a different currency at the same time. Trading is always done in pairs like USD/JPY, CHF/USD, Euro/USD and so forth. You will only make a profit when you buy at lower prices and sell the same for a higher price.
Overview of forex trading
The largest trading market in the word is the forex market. It has a daily average turnover yield of almost $2 trillion with a figure which is thirty times larger than the total volume of United States based equity trades. It is a very unique system since trading is done between two counterparts either through telephone connections or an electronic network. Unlike futures and stock markets, forex trading does not have a centralized location and trading is done round the clock. Trading starts when financial trade centers in Sydney begin their day and moves around the world to Tokyo, London and finally New York.
Before you start trading in forex, you must first learn how to read forex quotes. These quotes are always listed in pairs. For example, USD/JPY 108.3. The currency that is listed first is referred to as’base currency’, and has a constant value of a single unit. The other currency listed is referred to as ‘counter’. In the example given, you would come up with the understanding that one single United States dollar is equivalent to 108.3 Japanese Yen. In short, a quote will always show you the relative value of one currency to another.
There is another type of quote which is known as a two-sided quote. For example, EUR/USD 1.3452/1.3440, consisting of an ‘ask’ and a ‘bid’ is occasionally seen. The price at which you can buy the base currency is the ‘ask’, and the price you can sell the base currency is the ‘bid’. The ‘spread’ is the difference between the ‘bid’ and ‘ask’. In the example, you can buy 1 Euro with $1.3440 or sell it with $1.3452. Currency brokers are able to make a profit with these differences and that is how they are also able provide services to individual investors without charging commission fees.
Tools
As an individual, you will not need to have many tools to trade the forex market. Basically, you can get started with a forex account with a reputable foreign currency exchange broker, a computer that has Internet access and a trading system. To avoid the high risk of losing money, you may also need to have some charting knowledge.
A forex chart will assist you by providing a visual representation of the current exchange rates and their respective fluctuations. In forex trading, there are many variables that can affect the exchange rate. Some of these variables are time of day, geopolitics, bank policies and interest rates. Any individual or organization that has been successful in forex trading states that charting is a crucial tool in forex. 15-minute charts, hourly charts and daily charts are normally used when trading forex.
Charting is one of the technical methods used in forex trading. It is a vital tool as it will enable you to predict the future markets. Traders who use charts are able to evaluate the markets’ past performance to predict the market future. Different traders use different time frames to analyze the markets. For example, a trader might use a 6 month analysis while another may prefer using the past week.
Charts normally use indicators to show the trader trading directions. Some use as many as forty indicators while others use just a few indicators. The ones that use many indicators are reserved for skillful traders. A beginner should do charting with a few indicators to help them understand a system better. Examples of well-known indicators in charting are price, RSI range, RSI and MACD Divergence. The best way to learn trading is by practicing. Use a demo account to learn how to trade and practice until you have fully understood the basics of the trade. People who have lost money in forex trading have done so as a result of trading without practicing first.