What is Forex?
Forex, also known as FX or the foreign exchange is a financial market in the world where international currencies are traded. The forex market is the largest financial market in the world, with an average turnover of $5 trillion daily. Forex is very popular as the majority of forex transactions are executed by banks, large multinational trade organisations and private investors.
Unlike other markets, anyone can trade the forex market just by opening an account with a broker and trade 24 hours a day, 5 days a week. You can trade anywhere on your device or pc at your convenience.
Availability and accessibility
Major Banks such as CitiBank, Bank of America, HSBC, JP Morgan and even smaller banks are one of the main participants in the forex market. Others include financial companies, large MNCs or Insurance companies and individuals or traders of all levels.
Trading forex could generate potential profits in a matter of seconds as the market reacts according to your prediction. However, along with profits, there are many risks involved while trading as the market can be very volatile at times.
Simple rule of Forex – Buy & Sell
While trading forex, you do not possess the asset physically but instead forex trading allows you to speculate on changes in currency pairs. As such, traders simply need to speculate on currencies, that is, whether its value will increase or decrease on the market simply by opting for BUY or SELL to place a trade.
Forex is always quoted in pairs, in terms of one currency versus the other. For instance, if you trade on USD/JPY, you are predicting whether the U.S. dollar will rise or fall against the Japanese yen on the market. Here, ‘USD’ is seen as the ‘Base Currency,’ while JPY stands for the “Quote Currency.”
While trading any currency pair, a trader can make profits in two ways, either by opting for BUY or SELL. For example, you can buy a currency pair, with the aim of making profits if you sell it later for a higher price. As such, you make profits when you sell a currency pair when the price falls.
Now that you know what is forex and why you should trade, it is now time to see when you can trade.
The Forex market can be traded into four major trading sessions.
Even though the market is open 24 hours a day, it is advisable to trade currency pairs during their respective sessions as the assets tend to move more on the market. For example when Sydney market is open, the AUD tends to move more on the forex market than other currency pairs.
American Session (New York – USD)
12:00 – 20:00 GMT
Asian Session (Tokyo – JPY)
21:00 – 07:00 GMT
European Session (London – GBP, CHF, EUR)
07:00 – 16:00 GMT
Sydney Session (AUD)
22 .00 – 7.00 GMT
Forex trading is the simultaneous buying of one currency and selling another through a broker. There are 3 categories of currency pairs in forex trading – Major Pairs, Minor Pairs & Exotic Pairs. Find example below:
|Major Pairs||Minor Pairs||Exotic Pairs|
In this table, we notice that the US dollar is the most traded currency and it is quoted with most of the currencies – major pairs. According to the International Monetary Fund (IMF), the US dollar comprises around 64% of the world’s official exchange reserves. Furthermore, the United States has the most liquid financial markets around the globe and it is also the largest economy in the world.
Strategies to adapt while trading forex:
If you want to trade the EUR/USD, you need to see if the US economy is doing well or is it weakening. You can also check if the last interest rate decision or the upcoming one and economists expectations. This will help you analyse the trend of the asset more effectively on the market, and you can thus place your trade accordingly.
Stay updated with financial news
This refers to the study of price movements of assets’ charts – traders can analyse these charts directly on the trading platform. Traders can use indicators or can even get advice from expert traders to help you make an analysis. The time internals can be also changed, starting from 1 minute to 1 day to see the difference as the asset moves on the market. This will definitely help traders understand the trend of anasset better before placing a trade.
Scalping is when traders make a large number of trades that can produce small profits individually but these trades are very short-lived. It is normally for a short period and it will allow traders get short profits only but this is definitely the best strategy for newbies.
Try forex scalping strategy
This refers to the analysis of economic, social and political forces that could impact the demand and supply of assets. As such, traders are advised to consider major economic events that may affect the forex market and currency pairs. Some examples include: Central bank interest rate decisions, GDP, speeches by influential personalities – bank governors, presidents or prime ministers, Retail Sales. Read more here.
Overall, the journey of a forex trader is quite interesting but if you wish to succeed you need lots of patience and you need to go step by step instead of rushing. Every day is a new opportunity to learn and earn more, along with rewards involve many risks and you should always be ready for new challenges.