Forex, or the Foreign Exchange market, is the largest financial market in the world in terms of daily turnover. Around $5 trillion is traded per day, which dwarfs all other financial markets, such as the stock or bond market.
Just like stock traders, Forex traders try to buy a currency cheap and sell it later at a higher price, making a profit from the difference in the buying and selling price. By learning how to invest in Forex, you’ll be able to do the same with some practice and experience.
Retail Forex traders don’t buy physical currencies to trade on the Forex market. Instead, they trade on a financial instrument called a CFD (Contracts for Difference). When trading CFDs, you don’t own the underlying asset, but are only exposed to its price movements. This has certain advantages, as trades are executed in a matter of milliseconds and you don’t have to actually store the underlying asset. Take Brent crude oil for example. With CFDs, you don’t have to store tons of Brent in your garage, but can still take advantage of positive price movements.
Another advantage of CFDs is the possibility to short-sell a currency pair. Basically, short-selling allows you to profit both from rising and falling prices. If you think that the exchange rate of EUR/USD (euro vs. US dollar) will fall, you could short-sell the pair and profit from the entry and exit price the same way as if you’re buying the pair and the price rises. If you want to learn how to trade in Forex exchange, you need to know what short-selling is early in your Forex learning process.
Learn How the Major Currencies Behave
Knowing how major currencies behave will have a great impact on your trading performance, and is one of the basics when learning how to use Forex trading. Let’s list the major currencies first, which include the US dollar, euro, British pound, Swiss franc, Japanese yen, Canadian dollar, Australian dollar and New Zealand dollar. If we expand this list to include all G10 currencies, then the Swedish krona and Norwegian krona are also part of the major currencies.
All those currencies have their own personalities, which means each of them behaves differently. The US dollar, Japanese yen and euro are major reserve currencies for example, held in central banks around the world. The US dollar and Japanese yen can also be considered as safe-havens which appreciate when investors are reluctant to take on risky trades such as in times of economic and political turmoil.
Commodity currencies, such as the Canadian, Australian and New Zealand dollar, are heavily linked to the price of commodities which make up a major share of exports of the respective countries. If you want to learn how to trade in Forex market successfully, knowing these details about the major currencies will help you a lot.
Another important aspect when trading currencies is their correlation. Currency pairs with high positive correlation ratios tend to move in the same direction, while currency pairs with high negative correlation ratios tend to move in the opposite direction most of the time. For example, EUR/USD and GBP/USD have a high positive correlation, so buying or selling both pairs at the same time would almost double your potential profit or loss.
Focus on Price-Action
In order to make a good trading decision, you need to analyze the Forex market. To do so, Forex traders pay attention to the price-chart and apply technical analysis on it, follow economic and market news and try to determine the supply/demand for a currency from a fundamental perspective, and check the market sentiment to see how other market participants feel about a certain currency pair.
Given the short-term trading horizon of most Forex traders, the best way to trade Forex online is by analyzing the market from a technical perspective and focusing on price-action.
Technical analysis involves the analysis of price-charts and historic price movements, in order to predict future price movements. To do so, traders use tools such as support and resistance zones, trendlines, channels, chart and candlestick patterns and technical indicators, to name the most important ones.
The following chart shows how support and resistance levels can provide profitable trading opportunities.
New traders often wonder how to deal in Forex trading and clutter their charts with too much technical indicators on very short timeframes, only to blow their account in a matter of days. You shouldn’t make the same mistakes. Technical indicators can be useful as confirmation signals to enter a trade, but your best bet is to immediately start to focus on price-action. Price-action is based on pure chart analysis and the behavior of the price, using simple technical tools like those mentioned above (except technical indicators). It has a proven track-record and will make a real difference to the way you play Forex online if you learn how to use it properly. The following chart shows the EUR/USD pair inside a channel, with consecutive touches of channel at points (1) and (2).
Market sentiment, on the other hand, tries to measure the confidence of market participants on a certain currency pair and determine whether they’re bullish or bearish. Again, market sentiment can be used to confirm a trend and trade setup, but shouldn’t be used on its own to trade the Forex market. Learn more how to play forex online here!
Tempat Berbagi Informasi Apa Saja Yang Berhubungan Dengan Dunia Forex
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