If you’re thinking about trading the forex it’s vital you understand the playing field and take the time to learn currency trading. Today, the foreign exchange market, or FOREX, is the largest and most liquid financial market in the world. While many small retail traders participate in the forex, it’s the “Big Boys” that move that market.
Know the Players
In order to become and stay profitable, all while limiting your losses, you must familiarize yourself with the market and how the whole system works. In the forex, the big players are large Commercial Banks, Central Banks, international corporations, investment funds, broker companies and private individuals trading large amounts of capital.
While it’s difficult to have 100% current information on the moves of the big players, you still can keep tabs on the “Big Boys” by staying tuned to news releases and staying up to date with world events.
Know the Language & the Basics
The Forex does not have a central exchange nor one set time it trades. The bulk of forex transactions take place in the major financial centers around the world including Tokyo, Singapore, London and New York.
Trading is really done around the clock depending on which country is awake and at work. As you learn currency trading, it is to your advantage to pay extra attention to when is the best time for you to trade with respect to volatility, news and time of day.
In the spot forex, trading is done in pairs. The most commonly traded currency crosses are the Majors, the EUR/USD, GBP/USD, USD/JPY and USD/CHF. Other commonly traded pairs include the USD/CAD, AUD/USD, NZD/USD, EUR/JPY, GBP/JPY and the EUR/GBP.
Currency pairs are traded in lots. You can choose to trade standard lots (1 lot = $100,000), mini lots (1 lot = $10,000) or even micro lots (1 lot = $1,000), depending on what your broker offers and what it is that you want. The degree of movement of a currency pair is expressed in units, called pips. A pip (point of price change) is the smallest unit of price change of a currency pair.
Fundamental and Technical Analysis
If you are to survive in the forex you need to have a basic understand of both fundamental and technical analysis. Fundamental analysis looks at economic data and draws conclusions as to how the current and future economics might impact the markets.
While fundamental analysis is vital for long term trading, it should not be neglected for shorter term trading approaches. Governments release economic data on a predefined schedule. Know when important economic data will come into the market and prepare accordingly regardless which time frame you trade.
Technical Analysis looks at representation of price in the form of charts and draws conclusions based on that. Traders using technical analysis believe that all price information is contained within the chart.
While it has not always been the case, today, technical analysis is widely used in trading all types of markets, including the forex. To be successful in trading the forex you must have an understanding of technical analysis.
Develop a sound trading strategy
Your trading strategy will depend on what kind of trader you are. As you develop as a trader and learn currency trading this will become clearer to you.
Are you more of a short term trader or do you prefer more of a long term approach? What trading approach are you more comfortable with and which approach best fits your life style and circumstances? How comfortable are you with risk, with taking losses and with being wrong?
Choose the trading strategy that fits into your life and suits your personality rather than changing your life based on a trading approach. You will find that you’ll be happier and more successful in the long run!
Walk before you run
Open up a demo account with a broker. Next, practice your trading strategy until you can proof to yourself that you can trade it successfully over a number of trades. To reach long term success you want to be profitable in demo mode before you commit your hard earned cash. To really learn currency trading, you need to practice, practice & practice!
Know your broker’s platform inside and out. Once you go live and are in a trade, you won’t have time to figure out how to move a trailing stop or enter a limit order. Demo trading will allow you to familiarize yourself with all aspect of your trading platform before you start real trading.
Trading may seem easy and manageable when in demo mode. However minor, to some degree it will prepare you for the emotional stress and demands the life market will place on you once you leave demo mode. By spending the time to learn currency trading you’re putting the odds in your favor!