Investing money and gaining profit from it has been attracting human beings since ages, but the main question in modern time is where to invest and how? Forex is the prominent market for trading an array of currencies.
It is a leading financial market platform that has an average trade of 5 trillion dollars on an average trading day. So, it is essential to make forex trading strategies before starting trade in the forex market.
In the stock market, we trade in stocks, likewise in the forex market, we buy/sell currency pairs. In more simple words, we can say, exchanging one currency for another, depending on the exchange rate at the given time. Exchange rate keeps on fluctuating depending upon strength and valuation of each of these currencies, and this fluctuation helps to make money in the forex market. For instance, consider a currency pair EUR/USD, if the price of Euro rises, you will need more USD to exchange Euro, similarly, if the price of USD goes up you will need more Euro while exchanging.
Table of Contents
- 1 History of Forex
- 1.1 What is Currency Pair?
- 1.2 International Market
- 1.3 Forex Trading Education for Beginners at a Glance
- 1.4 Remember Before Trading
- 1.5 Advantages in Forex Market Trading
- 1.6 Challenges in Forex Market Trading
- 1.7 Bottom Line
History of Forex
Forex trading education started in middle age when currency trading was done through international banks. Soon, this currency trading became popular in Europe and the Middle East.
In 1875, the Gold Standard Monetary System began. Before this system, gold and silver were used as a means of international payment, but the system broke down during World War 1.
The agreement of Bretton Woods proved to be the turning point in the history of currency trading. US dollar was chosen as the primary standard of convertibility, replacing gold. Thus, the US dollar became a new standard unit in the financial market. This agreement also laid the foundation of the International Monetary Fund and World Bank, whose primary function was to bring monitory stability across the world by preventing free exchange.
As a result, in 1971, the Bretton Woods agreement broke down, leading to the birth of “modern foreign currency exchange” or the forex market, which we see today. Trading in forex rose from 70 billion dollars a day in the 1980s to 1.5 trillion a day, only 20 years later.
What is Currency Pair?
Combination of two currencies which defines the value of one currency against another is known as Currency Pair. EUR/USD is one of the most traded currency pairs; here, the Euro is the base currency, and the USD is the quote currency. Always remember that the base currency in this currency pair has value one.
There are more than 75 major currency pairs in the international market to deal with. Most traded pairs are mentioned below, which covers 85% of the exchange volume in the forex market.
USD/JPY, EUR/USD, AUD/USD, USD/CHF, GBP/USD
In the international market, trading is done electronically over the internet or computer.
Forex Trading Education for Beginners at a Glance
Some Financial Terms in forex:
The fractional change between the exchange rates of currency is known as PIP.
Suppose the EUR/USD has a current value of 110.90 and market goes up by 110.96, then PIP value for this will be 6.
2. Lot size
Lot size in international market is:
1.0 Standard Lot = 100000
.10 Mini Lot = 10000
.01 Micro Lot = 1000
Many traders face the problem of currency fluctuation while buying and selling goods outside the domestic market. Forex market helps to hedge this currency risk by fixing the rate at which transportation can carry out.
Brokers in the forex market give leverage or initial margin to traders so that they can control a large portion without investing a more substantial amount of money.
5. Day Trading
Day trading, one of the most popular forex trading strategies, involves running multiple trades throughout the day, and working to profit short-term price movements; usually, traders end this kind of trading at the end of the day. Day trading seems attractive, but there are high risk and uncertainty in day trading.
6. Swing Trading
Swing traders generally last three to four day. There is risk in swing trading too, especially overnight risk and weekend risk where the price can change unexpectedly with the start of a new session.
Understanding these keywords will help traders to build correct forex trading strategies while trading in the foreign exchange market.
Remember Before Trading
- Read books before trading.
- Understand the graphs.
- Build strategy.
- Don’t think emotionally.
- Follow trend
- Manage your trends wisely
- Be realistic
Advantages in Forex Market Trading
1) Forex is the largest volume market; this makes it easy to enter and exit in any currency trade within seconds.
2) In this market, an individual can trade in all the currencies used all over the world.
3) A trader can trade 24 hours a day and five days a week.
4) It covers significant countries like Singapore, London, New York etc.
Challenges in Forex Market Trading
1) The trader should have well worse knowledge of the advantages and the amount of leverage offered by brokers. Many traders have turned insolvent because of lack of forex trading education about margins.
2) Trading currencies in the forex market requires an understanding of economic fundamentals, charts, knowledge of graphs to have a clear picture of how the market works and exchange rates of various currencies to earn the desired profit. So, it is always advisable to take forex trading education or read forex trading tips before starting trade in the market.
So, investing in the forex market seems to be attractive just because of its larger volume and profit-maximizing capacity. Still, one should be very careful while trading because things which appear attractive carries risk along with it. To avoid uncertainty, one should keep two things in mind:
- First, properly read forex trading education tips.
- Choice of broker plays a vital role in trading. ETFinance is one of the leading firms which provides you with better platform and services. They have many award-winning trading platforms such as Web Trader and Meta Trader for better trading experience. Both these platform are easy to use and can be used either on a personal computer or mobile phone.
So, it is advisable to read and understand the trading strategy before investing in any trading market and choosing the correct trading service like ETFinance will add another feather to your trading experience.