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Forex Trading

14.08.2020

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Forex trading will quickly increase a trader’s income

The Forex market has been around for many years. In this article, we will get to know it in detail: we will learn about its history, principles of work, about existing indicators and trading strategies, which of them are preferable for an inexperienced trader. We will reveal information about the basic concepts, participants, and find out how best to make money. But before getting acquainted with the basic information about the Forex market, let’s turn to the theory and consider the information about the exchanges.

Types of exchanges and Forex history

There are several types of exchanges. The very first ones appeared many centuries ago. Historians claim that the beginnings of exchanges originated in Japan, where there was an active trade in rice. Although they were more like an ordinary bazaar, nevertheless, some elements that were present at that time can be seen in modern exchanges. Since then, something similar has arisen in medieval Europe, the financial market has improved over time, and as a result, at the present stage, we have come to several types of exchanges: commodity, stock and currency.

Commodity exchange

As the name suggests exchange trading underway. First of all, the characteristics of the goods that are present in all types of exchanges are interesting here. Commodities have several characteristics.

Firstly, there should be a lot of goods and it should be in constant demand. An example is agricultural products, no person can live without food, therefore it is always in demand. Another example is oil and its refined products, people drive cars, fly on airplanes, so there is always a need for fuel.

Secondly, any product must be unified and its units of measurement must be clear to all market participants. If we are talking about gold, then what are ounces, if about oil, then it is measured in barrels, etc.

Thirdly, the number of goods must be standard. On the commodity exchange, the concept of a lot is used. One lot is equal to the minimum value of the goods traded on the exchange.

Fourthly, it is important to understand that the cost of a lot always varies, it is not constant, and it is influenced by factors such as supply and demand.

Stock Exchange

Shares of companies and corporations are traded on stock exchanges. The owner of the share is the owner of the company, also owning a certain part of it. Surely everyone has heard the concept – a controlling stake. It is 50% plus one share, the owner of the controlling stake can decide on the fate of the company. However, even if you own one share, you are also considered the owner.

Stocks are different from products because they are abstract. On the one hand, these are ordinary securities, but the concept of securities is inherent in them in the financial market. Some people buy them in the hope of making a profit from the value of the company and receiving dividends. For example, the capitalization of Microsoft corporation can grow every year, therefore, the share price grows. Others seek to sell them at higher prices when the value of shares rises.

Market participants in this case are called speculators. It is worth making a remark that market speculation is a normal phenomenon, and the word itself is not derogatory.

Currency exchange

The currency exchange is essentially the Forex market. The Forex designation also comes from the English language and combines the first two letters of the phrase “foreign exchange” – foreign exchange. Let’s try to figure out how this market originated and when it became popular.

The history of the Forex market

Compared to commodity and stock, Forex trading is very young and is only about 50 years old. The market emerged in the early 70s of the last century. This was preceded by a series of events in international economics and politics. The Second World War was of great importance, its results led to the fact that the United States of America was in the most advantageous position in comparison with other countries.

The main hostilities took place on the territory of Europe, and the countries participating in the war needed to restore their way of life – there was a need for industrial equipment and food. Only the United States could offer this and sell for dollars, but with such a stir, the value of the currency could rise sharply and economic problems could arise within the United States. Countries have agreed that the value of the dollar will be pegged to gold, one ounce will be equal to $ 30. In turn, the British pound sterling and the currencies of European countries were pegged to the dollar.

About 20 years later, the economies of European countries recovered, and the fixed exchange rate slowed down the development of the economy. As a result, it was decided to cancel the fixation, and the exchange rates had to depend only on the supply and demand for them. This situation formed the basis of Forex. Since the beginning of the 70s of the last century, Forex trading has managed to take a leading position in the world of finance. In terms of trading volumes, it was dozens of times ahead of the stock market. According to various estimates, the daily trading volume on the market ranges from three to six trillion dollars.

What are the Forex market and its participants

Forex is a currency exchange in which brokers and traders take part. The market carries out foreign exchange, the main goal of which is to make money on the difference in rates. The profit is obtained as a result of the rise or fall in the price of national currencies and cryptocurrencies. Trades take place according to certain laws and rules, which are followed by all market participants.

The foreign exchange market has a lot of liquidity. He made it possible to earn fortunes. One example of billionaire George Soros, who made millions from the exchange rate of the British pound against the German mark, attracts people who want to get rich trading currencies. George Soros is an exceptional example; nevertheless, anyone with even a small amount of money is able to buy and sell large amounts of currency and make a profit.

Forex trading differs from the stock one in that there is no one trading platform, the foreign exchange market has an international status and combines several trading sessions – European, Asian, and American. Thus, you can trade and earn money around the clock, except for Saturdays, Sundays, and holidays.

As a rule, in the stock market, trading occurs during the daytime, it is called a day session. In the Forex market, the trading session lasts a week. It opens in the capital of Japan Tokyo (Asian session) on Sunday at 23.00 GMT, and ends on Friday at 22.00 in Chicago, USA.

Forex trading: participants

You can understand the market participants by asking the question – who is interested in currency exchange? First of all, we will talk about central banks, they largely determine the monetary policy within their states. The exchange rate of the national currency depends on them, they determine the policy regarding the work of all banking institutions. The central bank by a volitional decision can lower or raise the rate of the national currency, therefore, this can have a great impact on the market and provoke changes in all rates. Especially if they are initiated by the US Federal Reserve since the dollar remains the most popular currency in the world.

We have already mentioned commercial banks, they also participate in the Forex market, carrying out speculative operations. According to some estimates, commercial banks receive three-quarters of their profits from foreign exchange transactions. It is not for nothing that there is such a concept that money must be in constant circulation and cannot lie dead.

The next step in this impromptu hierarchy is bank customers. They can be legal entities and individuals. Representatives of companies often need foreign currency due to production needs, if they need to purchase a certain product abroad. Another example – a person travels on a tourist voucher from Russia to Australia, he will need Australian dollars and he makes an exchange at a bank.

The following Forex participants are brokerage companies that provide services to traders. Many people strive to make money on the foreign exchange market, but not everyone knows how they do not have enough knowledge and skills. To the rescue of those who wish to become traders come brokers who provide a full range of services related to currency exchange: consulting support, analytical information, an overview of the foreign exchange market and much more is at the trader’s disposal.

Basic terminology in the Forex market

Before you start trading in the foreign exchange market, you need to familiarize yourself with the basic terms. As they develop, novice traders acquire more and more knowledge, but there are several basic terms.

  • Indicators. They are a computer program embedded in a platform. Indicators analyze the market and send certain forex trading signals about buying and selling, on their basis traders build their trading strategies.
  • Quotes, in other words, currency trading pairs are expressed in proportion to the value of the two currencies. For example, the US dollar and Australian dollar currency pair are designated USD / AUD. The first currency in the pair is considered to be the main currency; in the quotation, it is equal to one. In addition to the American dollar, which has not lost its leading value, the main Forex currencies are the euro (EUR), the British pound sterling (GBP), the Japanese yen (JPY), the Swiss franc (CHF), the Canadian dollar (CAD), the Australian dollar (AUD) and the New Zealand dollar (NZD). Most of the money transactions in the market involve these currencies.
  • Leverage is provided by brokerage companies, this is a very convenient tool that gives you the opportunity to earn serious money. If a trader has deposited an amount of $ 100, then depending on the leverage, for example, 1:50, a deal can be opened in the amount of $ 5,000.
  • The lot represents the ordinary size of the order, this is an exchange position. Most often, one lot is equal to 100 thousand dollars, but sophisticated traders trade in parts of the lot.
  • The timeframe or timeframe determines the steps of quotes on the trading platform. The segments can be different, from one minute to a day or even more. Accordingly, candles can be called a minute, hour, day. Experienced traders use several timeframes at the same time to assess the market situation most correctly.
  • The trading platform or terminal allows you to make deals. It is a computer program that a user can install on a desktop or download an application to a mobile phone. The platform allows you to monitor charts, analyze information, open and close trading positions. The MetaTrader 4 and MetaTrader 5 platforms are considered one of the most popular on the Forex market. Trading platforms became a great help to the trader, because previously, to open or close transactions, you had to use the phone and make a call to your broker.
  • A trade order is a specific position in the Forex market. Orders provide an opportunity to implement currency quotes.
  • Candlesticks from the basis of candlestick charts. They are also called Japanese candlesticks. They show the change in quotes over a certain time period. Candlesticks show the price at the time of opening and closing a trade.

Start trading on the foreign exchange market

In the end, the moment always comes when a person decides to become a trader in the Forex market. He got acquainted with the theory, studied various literature, read the information on special Internet resources. He considers himself ready. What’s next? Much depends on the broker.

Choosing a broker

An individual cannot personally register on the foreign exchange market and perform monetary transactions; a brokerage company is needed for this. How to choose a forex broker? When choosing, you should consider a number of factors:

  • Experience in the market. Most often, the choice must be made in favor of the company that has been on the market for at least five years. Carefully study the information about it, since here you can also find, Forex scammers whether there is a license for brokerage activity, whether it has been officially registered.
  • Rating. Reputable analytical sites provide data on Forex brokers. Try to pay attention to the ratings, this will help you not to make a mistake in your choice.
  • The minimum amount when opening an account. Brokerage companies provide different options for a trader when opening an account. Somewhere it takes $ 10 and in other cases several hundred dollars. You should not trust brokers who offer to open an account with a small amount.
  • The size of the commission or spread. Forex spread another new term in trade, it means the difference between the cost of buying and selling a currency, in other words, the commission charged by a broker for monetary transactions. It is logical that brokers with a lower commission will be attractive.
  • Acquaintance with the broker. There are different types of Forex brokers… Sometimes it is important to be meticulous, there is nothing wrong with that. If your choice fell on a certain broker, try to talk to the company’s employees, financial consultants, find out about the timing of the withdrawal of funds.

Choosing a financial instrument

Having installed a trading platform on your computer and mobile phone (brokers most often use Metatrader 4 and Metatrader 5), get to know it. There are a lot of instructions on the Internet, both in-text versions and as video tutorials. If you have questions that are not answered, then consult a broker.

Next, you should select the currency with which you intend to make trading operations. Previously, we introduced you to all popular Forex currencies. Start with the most popular pairs – EUR / USD or USD / GBP. After choosing a pair, start following the price movement on the chart, looking for a pattern. Having gained sufficient experience and knowledge, you can choose several currency pairs for trading.

DEMO account

In trading demo Forex account allows you to conduct a kind of training. It is better to choose the amount of opening an account that will later become real. Do not exceed the period of study, a week is considered optimal. During this time, you can start to understand the technique of trading, learn all the subtleties associated with the operation of the trading platform.

When working with a DEMO account, you need to forget about it and imagine that it is already real trading with real money. Do not think that in this case you can take risks and lose all your funds, because then this can happen in real currency trading. There is no need to immediately strive for big profits. You should watch your emotions, if everything works out when working with a DEMO account, it is not a fact that it will work in the future. First, you need to achieve a stable profit in the training regime.

Developing your own trading strategy

One of the main tasks of opening a DEMO account is trying to develop your own trading strategy. It involves the creation of special rules related to the opening and closing of transactions, the strategy should help in obtaining a stable income. The trader needs to determine the most suitable time frame for trading. Market participants act in different ways: one makes several transactions during the day, while the other has a transaction once a month. It is possible to make a profit in both cases, it is important to follow your strategy. There are three types of timeframes.

  • Short-term trading means transactions made within one day, there may be several of them. A trader monitors price fluctuations throughout the day and can make a profit. There is only one minus – the income is small, and the person spends a lot of time.
  • Average daily trading. In this case, one trade takes several days or one or two weeks. The trader is obliged to follow the graphical indicators and open several transactions at once to get a good profit.
  • Long-term trading. Here the time interval ranges from several weeks to one or two months. It is necessary to follow the global trend, to have a large amount on your account since the price fluctuates greatly over such long time periods. It is important to resort to technical or fundamental analysis.

As part of technical analysis, you need to study price charts, patterns, and levels. Fundamental analysis involves tracking the economic, and sometimes the political world situation, it is necessary to have knowledge of what is happening in different countries with which the trader’s transactions are associated, to follow the news.

Opening a real account

A real account can be opened when a trader has developed his own trading strategy, and he fully understands it. It is good if the brokerage company offers the opportunity to open a cent account. In this case, if there are any losses, they will be minimal, and you can gain good experience. Then you should open a dollar account. At first, it is recommended to trade carefully, you do not need to immediately invest a lot of money. Large deals can be started after consistent success. Do not be afraid of losses, statistics show that newcomers to the market at first lose more than win.

Lossless trading

The next step will be stable Forex trading with minimal or no losses. The trader acquires certain skills of breaking even trading. The main mistake of many newbies is that they want to make money quickly and a lot. You don’t need to think about it. At this stage, you need to regularly perform transactions, control risks, and avoid losses. When you manage to constantly avoid cons, move on to the next stage.

Getting the first profit

At this stage, the trader already shows everything he has learned, whether he has a certain talent for earning money in the Forex market. At the same time, one should not be surprised if the first profit is lost, these are all mistakes that also force you to learn. Recognized masters of trading are those who are constantly in the black. Professionals increase their capital not for a few transactions, but for tens and even hundreds, trading for months and years. All successful transactions are analyzed, and in the future, it helps to earn even more.

Capital increase

If a trader increases his account for a long time, and the profit remains not very large, then he should think about increasing his trading capital. In this case, you need to think in percentages. If you got a 10% profit from a thousand dollars, then from two thousand you should get the same percentage, therefore, the profit will be higher. With such regular success, the account needs to be increased several times, to make transactions for more serious amounts.

Obviously, the larger the amount, the higher the income. Forex trading does not tolerate irresponsibility and frivolity; you need to approach the market with the same standards as you do your own business. Forex trading is a job, not a hobby. Frivolity leads to the fact that you will never be successful.

Stable profit

The market participant has fulfilled all the previous conditions: trading on Forex goes without losses, the strategy is chosen correctly and gives a result, he has learned to control his emotions. It’s time to move into the category of serious traders, they also have losses, but, most importantly, the profit during the month is several times higher than these losses. At this stage, it is important to make sure that the total income covers the losses.

Let’s say a trader makes 50 transactions per month, 20 brought in income, and 30 turned out to be unprofitable. Within one transaction, the average profit is $ 50, which means that the income is $ 1000. Losing trades averaged $ 10, meaning the loss was $ 300. Simple math gives you a total monthly income of $ 700. Even if the commission is paid to the broker, the trader is still in the black. This behavior speaks of the professional level of the trader.

Tips to help you make money

Advice is used not only by newcomers to the market but also by sophisticated traders. A person learns throughout his life, so study and the right advice will also help you earn.

  1. Control your emotions. Trading on Forex does not recognize excitement; to open a deal, you need to clearly understand the market situation and analyze it. Let’s imagine slot machines. A person can win several times in a row, and it seems to him that now it will always be so. However, succumbing to emotions, he is disappointed, because a series of successes is followed by failures, and the player is left without money. At first, the companions of a novice trader will be fear and greed, these are his first enemies. Having overcome them, you can go further and earn consistently.
  2. Don’t deviate from your strategy. Many different strategies are presented in special literature or online resources dedicated to the Forex market, you can use them. It is better if the trader has developed his own trading strategy. No one knows your behavior better than you yourself – how much time do you prefer to spend on a deal, which currency pair you choose, etc.
  3. Manage your risks, in other words, do not play for all the money. Stop the trade as soon as you see a minus. Place a special order to force it to close. If your preconceived plan for some reason is not implemented, close the operation, do not wait for the result to turn into a plus.
  4. Practice constantly, attend seminars, lectures, and training, read literature. There is always something new on Forex, learn about it by visiting various resources. It is best if you find an experienced teacher who will warn you against possible mistakes.

Forex indicators and strategies

There is no single recipe that will allow you to get a stable income in the market. Any operation must be accompanied by a thoughtful analysis of existing information, this will reduce risks. We were already talking about technical and fundamental analysis. They are based on various indicators. Thus, Forex indicators are special programs that, using mathematical calculations of prices and volumes, help predict the exchange rate. Indicators allow you to make the right decision on opening and closing deals.

Forex market indicators

Fundamental analysis involves the study of information from the world financial market, and technical analysis is based on the observation of price changes. There are several groups of indicators.

  • Trend, in which the asset value line on the chart moves up for a long time, and then decreases for the same amount of time. With a chaotic price movement, it is better not to use this method.
  • Oscillators are just good for chaotic price movement when it falls and rises all the time. Otherwise, this situation is called a sideways price movement. Minus one – chaotic movement can change into a long trend.
  • Volumes, these indicators monitor the change in the trading volume on certain timeframes. They show the most favorable times for opening deals.

Over the years, various indicators have been identified in the Forex market. Let’s present some of them that traders consider the most popular.

  • Moving averages fall into the category of trend indicators. They calculate the average cost over a given period of time. When creating them, one line is used on the chart.
  • Bollinger Bands are another trend indicator that is used only in long-term trades. They show market volatility based on the distance between the upper and lower bands on the chart.
  • Stochastic belongs to oscillators. It shows the moment of closing a deal and opening a new one. Thanks to stochastics, a trader can also see a zone of strong currency revaluation.
  • Volumes are a volume indicator. Applying it, the trader sees the behavior of the majority of market participants – they buy or sell. Depending on their behavior, the trader follows the same course.
  • MACD includes elements of a trend indicator and a central oscillator. Thanks to him, the trader sees the direction of price movement, how strong it is, and whether a price reversal can occur.

Forex market strategies

Strategies have already been mentioned several times, but as a beginner, figure it out and choose the most correct one. The answer is simple – it all depends on the traders themselves, on how they want to trade, what amount, and time periods to use. The choice of suitable strategies is great. A trading strategy is a developed system of rules that must be followed in a certain sequence. It will help a trader to increase his income.

Choiceforex strategies occur according to several options: the time of holding an open position, market analysis, and chart analysis.

  • The first option is the time of holding an open position. In this case, strategies depend on the duration of transactions and can be short-term, medium-term, and long-term. The former is preferred by experienced traders, they open ten deals or more daily, sometimes it reaches a hundred. The latter implies a good knowledge of technical analysis, their duration is from 1 to 45 days. The third type provides that transactions can be open for several months.
  • The second option is market analysis. This requires fundamental and technical analysis. The first one examines the news of the world market, which may be the most important, important, and insignificant. They affect the movement of prices, sometimes dramatically change them. No strategy provides for rapid price changes, therefore fundamental analysis is very important. Technical analysis involves the use of indicators and charts, it is best used during short-term transactions.
  • The third option – chart analysis includes several methods.

One involves tracking the patterns on the chart. The patterns predict market reversals (head and shoulders, inverted head and shoulders, diamond, double bottom, double top, triple bottom) and suggest the duration of the trend (triangle, flag, pennant, wedge, rectangle).

Another method involves tracking indicators. You don’t need to use a lot, two or three are enough and the deal is worth making when everyone points to it.

The third method involves candlestick tracking. Their boundaries indicate the opening and closing prices. The lines show the minimum and maximum values ​​for a certain time period. A long lower shadow signals the start of a bull market, an elongated lower shadow indicates a bear market.

The bottom line – what makes the Forex market attractive

Forex trading is very voluminous and will take a lot of time to learn. On the one hand, the market is complex, on the other, it is very attractive. Several aspects indicate this.

  • Very well developed communications. With the availability of the Internet or satellite communications, you can open and close a deal from anywhere in the world.
  • The speed of transactions. With all the technical means, a financial transaction can be carried out in a matter of seconds.
  • Large trading volumes. They help to make forecasts easier, a large number of market participants exclude any collusion, knowledge of mass psychology helps to predict the behavior of traders, a large market can be analyzed using mathematical methods.
  • The market immediately reacts to events in world politics and economics, therefore, it is quite predictable.
  • Market opening hours are limited to weekends only.
  • Income can be received both from the rise in price and from the depreciation of the currency.

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