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Forex trading is a decentralized market in which currency pairs are exchanged, one against the other such as the euro against the U.S. dollar (EURUSD). And other currencies take advantage of their price movements and make money from the spread, which is done via spot forex or CFDs.
The Forex market is an over-the-counter (OTC), the most liquid financial market, with a daily trading volume in 2022 reaching 6.6 trillion. In other words, in one day, more cash will be traded in the Forex markets than the value of Japan’s GDPR! In addition, US$254 billion is sold through CFDs and other derivative financial instruments.
Forex Trading Education
Knowing the terminology used by investors and Forex brokers won’t make you a successful trader, but it’s the first step towards that! Therefore, it is essential to know the fundamentals of Forex to become a trader at first.
Here are some of the most significant Forex basics:
Spreads & Points
Starting with a demo trading account is an excellent way to learn and understand what Forex is.
What are the Most Prevalent Forex Trading Currency Pairs?
The primary and most traded currencies are:
U.S. Dollar (USD)
Japanese Yen (JPY)
British Pound Sterling (GBP)
Hence, the most popular money pairs (also known as significant currencies) are the most traded, namely:
Euro vs U.S. Dollar (EURUSD)
British Pound To U.S. Dollar (GBPUSD)
U.S. Dollar vs Japanese Yen (USDJPY)
U.S. Dollar vs Swiss Franc (USDCHF)
Three other currencies are trendy in Forex trading:
New Zealand Dollar (NZD)
Australian Dollar (AUD)
Canadian Dollar (CAD)
How does the Forex Market Work?
When it comes to the economy, the price of supply and demand drives market prices. This principle also applies to the foreign exchange (Forex) market.
When a currency is bought, its demand increases, pushing its price upwards. Similarly, every time a coin is sold, the supply increases, resulting in a drop in its price. The impact of each buy and sell in the Forex market is directly proportional to the trade size for each trade.
Most of the economic news and events that occur around the world have an impact on the Forex market. Therefore, understanding what drives prices is key to becoming a good Forex trader.
What are the Factors Influencing Forex?
Forex or different currency pairs are affected by several primary factors:
Political and Economic News
Gross Domestic Product (GDP)
Supply and demand
You can always check the latest news on the economic calendar that shows the most critical information for the day and week and how it affects the associated financial instrument.
Advantages of Forex Trading
There are many benefits and advantages to Forex trading and investing in the exchange market, such as:
- The Forex market is open 24 hours a day, five days a week.
- It’s the most liquid market in the world.
- You can trade from anywhere; you only need a computer and an internet connection.
How to Trade Forex
Forex trading is entirely based on logic. Moreover, we trader buys a currency pair when he expects its value to rise and sells it when he expects its value to fall.
When looking in detail at how to trade Forex, realize that it’s more than just putting orders on the chart.
Once a trader has identified market tendencies or the primary trend of a forex currency pair such as EURUSD, they will have to set entry levels to open the desired trades.
Fundamental and technical analyses are necessary to determine the entry and exit levels of the trade. Before opening a position, we can start with several important things:
You can open the position when you are sure that you have done all this. Otherwise, the risk ratio in the trade will be high!
For example, let’s say that the exchange rate of EURUSD is 1.1450. And your analysis makes you think that the exchange rate will rise. And I opened an extended position. The next day, the EURUSD exchange rate became 1.1470, and I closed the place with 20 pips. So the profit can be $0.50 and $50,000, depending on the size of the open lots.
Again, good analysis is the key to success in Forex trading. It can be compared to a business plan for an entrepreneur seeking to start a professional activity. And also the ability to analyze and compile information is also essential for success in Forex trading.
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