How to trade forex

Forex is the world’s largest and most liquid market, with a daily trading volume of over $3.2 trillion. Governments, banks, international corporations, hedge funds, and individual traders trade fx 24 hours a day.

Professional fx traders take advantage of fluctuations in currency prices to make a profit. They analyse the market to work out whether a forex pair will go up, down or sideways, and place trades accordingly.

This trading guide covers the important topics and principles you need to understand in order to trade fx

Forex trading with leverage

Most forex traders use leverage, also known as margin trading, to maximise their capital. When trading on margin, the fx trader places a deposit, or margin payment, with their broker, in return for greater market exposure. This is useful when trading fx because currencies generally only fluctuate by very small amounts. In order to make large profits, forex traders need to open large positions.

The amount of margin required depends on the broker and the size of the position. Typical leverage ratios include 50:1, 100:1 or 200:1. For example, to trade forex valuing $100,000 with a leverage ratio of 100:1, the trader puts up 1% of the total trade value, or $1,000, as margin. This gives the trader full exposure to any profits or losses on the trade

 

FX currency pairs

All successful forex traders need a solid foundation of knowledge and research upon which to build. One of the most important aspects of this is an understanding of forex pairs and how you will use them in your trading.

Fx trading means exchanging one currency for another – and for this reason, all currencies are quoted pairs. Every forex pair has a base currency, which is listed first, and a quote currency (which is listed second. An fx quote shows you how much of the quote currency you need to purchase one unit of the base currency. For example, the GBP/USD exchange rate indicates how many US dollars can purchase one British pound, or vice versa. If you see the quotation GBP/USD 1.5727. This means that that one British pound is worth 1.5727 US dollars.

There are several types of currency pair, including majors, minors and crosses.

The majors are the most traded currency pairs in the world:

1.     EUR/USD – Euro vs. US dollar
2.     USD/JPY – US dollar vs. Japanese yen
3.     GBP/USD – British pound vs. US dollar
4.     AUD/USD – Australian dollar vs. US dollar
5.     USD/CHF – US dollar vs. Swiss franc
6.     USD/CAD – US dollar vs. Canadian dollar

 .The minors are less frequently traded currencies pairs, often involving the USD and a currency from a developing economy.

Crosses are currency pairs that do not include the US dollar, including:

1.     EUR/CHF – Euro vs. the Swiss franc
2.     EUR/JPY – Euro vs. the Japanese yen
3.     EUR/GBP – Euro vs. the British pound
4.     EUR/CAD – Euro vs. the Canadian dollar
5.     EUR/AUD – Euro vs. the Australian dollar
6.     EUR/NZD – Euro vs. the New Zealand dollar
7.     GBP/CHF – British pound vs. the Swiss franc
8.     GBP/JPY – British pound vs. the Japanese yen
9.     CHF/JPY – Swiss franc vs. the Japanese yen

Fundamentals

To trade fx successfully, you need to develop an understanding of the fundamentals that make currency prices fluctuate. Currency values are closely related to the economic welfare of the countries that issue them. For example, if the economic forecast for the United States is improving, it’s likely that the U.S. dollar (USD) will strengthen as forex traders purchase dollars. However, if U.S economic fundamentals in the United States are declining, the U.S. dollar is likely to weaken as forex traders sell their dollars.

There are three groups of important fundamental economic indicators:

    Interest rates – the interest rates set by a country’s central bank dictate a currency’s yield, and its attractiveness to investors
    Economic strength - the stronger the economy, the higher the interest rates and the more attractive its currency becomes to investors
    Capital and trade flow – trade flow dictates whether foreign companies need to purchase a currency in order to conduct business transactions

By watching these economic indicators closely and comparing them across currencies, you will be able to make informed decisions about which currency pairs to trade.
Technical analysis

Once you have selected the currency pair you wish to trade, technical analysis will help you decide whether it is time to buy or sell. There are many different kinds of technical analysis, but the most important are:
Trends

Trends tell you where prices will most likely be going in the future. You can use the charting package in your trading platform to examine previous trends and identify highs and lows. This will help you decide whether to buy or sell your currency pair.
Support and resistance

These are areas where prices may stop and turn around in the future. Knowing support and resistance levels helps you enter and exit trades at the most profitable times.

    Support is the price level at which a forex pair tends to stop moving down before turning around to start moving back up.
    Resistance is a price level at which a forex pair tends to stop moving up and before turning around to start moving back down.

Online and mobile trading platforms

Most forex traders opt for online trading platforms, such as MT4.

You can download MT4 for free and start your forex trading immediately. MT4 is one of the best-known trading platforms in the world, and is recognised for its advanced charting package and user-friendly interface. It is particularly well-suited to fx trading as it allows you to download raw data, indicators, and charts. You can also integrate quotes into Excel, range bars, databases and custom charts/indicators.

Another increasingly popular way of trading is mobile trading. You can download an MT4 app onto your mobile phone and trade fx wherever you are.
Placing a forex trade

Placing a trade in the foreign exchange market is simple: once you have done your research and decided whether you expect your chosen currency pair to rise or fall, you simply log on to your web trader and select the currency you wish to trade.

You will notice that all forex quotes are quoted with two prices: the bid and ask. The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency. The ask is the price at which your broker will sell the base currency in exchange for the quote currency.

So, how do you know whether to buy or sell? Well, if you believe the base currency will strengthen in relation to the quote currency, you should buy. This is also known as taking a “long” position. If you think the base currency will weaken relative to the quote currency, then you should sell. This is also known as taking a “short” position.
Using stop-losses

When trading forex on margin, you are exposed to both large profits and losses. To minimise the effects when the market moves against them, experience forex traders use stop-losses. A stop-loss is an order that exits your trade if the forex pair reaches a specified price point, protecting you if the market moves any further against you.

For example, if you buy an fx pair, placing a stop-loss order somewhere below the current price will protect you in the event the forex pair starts moving lower. If you sell a forex pair, placing a stop-loss order somewhere above the current price will protect you if it starts moving higher.

Forex Trading Indicators and the Ever Changing Market Conditions

 Once you enter the Forex trading world you will immediately notice the need of using technical analysis in order to find trends when looking at the forex charts and also the importance of being aware of when they first develop so you can ride the trend until it ends. The foreign exchange market is a very strong trending market, lots of ups and downs in short periods of time, and it's, therefore, a place where technical analysis can be very effective.

But you should always remember that the indicators are only giving you a high probability behavior the markets may show when you are trading, but will never tell you the behavior of the currency prices with total certainty.

If you want to become a profitable forex trader you will need to use as many technical indicators as you can, or create a personalized trading strategy based on a combination of these indicators, to recognize with the best accuracy possible the trend. In other words, a professional forex trader will try to identify the major trend, the intermediate trend, and the short-term trend and then construct his trades in that direction based on how long their rules allow him to hold a position.

The forex markets are always changing, that's why you should always have an open criterion when using your technical indicators. Markets will be changing and different combinations of indicators may be required with time in order to have the most accurate, highest probability, prediction of future currency price behaviors.

If the action of the market shows your judgment to be correct, then you must consider staying with the market' and look for the maximum profit on each trade, according to your risk-to-reward/equity management rules. If you happen to be in a bad day and the market goes against you, the smart trader will take profits and get out of that trade. In a narrow market, when prices are not going anywhere, but move within a narrow range, there is no sense in trying to anticipate when the next big movement is going to be.

So, you must always be alert and open to use as many and as different indicators in order to stay tuned with the market and become a profitable trader at the end of the day.

by Martin Redhead

http://www.forexmentor.com

Advantages of the Forex Market

 What are the advantages of the Forex Market over other types of investments

When thinking about various investments, there is one investment vehicle that comes to mind. The Forex or Foreign Currency Market has many advantages over other types of investments. The Forex market is open 24 hrs a day, unlike the regular stock markets. Most investments require a substantial amount of capital before you can take advantage of an investment opportunity. To trade Forex, you only need a small amount of capital. Anyone can enter the market with as little as $300 USD to trade a "mini account", which allows you to trade lots of 10,000 units. One lot of 10,000 units of currency is equal to 1 contract. Each "pip" or move up or down in the currency pair is worth a $1 gain or loss, depending on which side of the market you are on. A standard account gives you control over 100,000 units of currency and a pip is worth $10.

The Forex market is also very liquid. When trading Forex you have full control of your capital.

Many other types of investments require holding your money up for long periods of time. This is a disadvantage because if you need to use the capital it can be difficult to access to it without taking a huge loss. Also, with a small amount of money, you can control

Forex traders can be profitable in bullish or bearish market conditions. Stock market traders need stock prices to rise in order to take a profit. Forex traders can make a profit during up trends and downtrends. Forex Trading can be risky, but with having the ability to have a good system to follow, good money management skills, and possessing self discipline, Forex trading can be a relatively low risk investment.

The Forex market can be traded anytime, anywhere. As long as you have access to a computer, you have the ability to trade the Forex market. An important thing to remember is before jumping into trading currencies, is it wise to practice with "paper money", or "fake money." Most brokers have demo accounts where you can download their trading station and practice real time with fake money. While this is no guarantee of your performance with real money, practicing can give you a huge advantage to become better prepared when you trade with your real, hard earned money. There are also many Forex courses on the internet, just be careful when choosing which ones to purchase.

by Heather Redmond

How can I start trading Forex?

How can I start trading Forex

You'll need to register a trading account with a Forex broker, such as AGEA. Then you can begin using their Forex client program to buy and sell currencies. This will take less than 5 minutes of your time!


Who owns Forex and where is it located

    It's not owned by anyone in particular. Forex is an interbank market, meaning that its transactions are conducted only between two participants — seller and the buyer. So as long as the current banking system will exist, Forex will be here. It's not connected to any specific country or government organization.


What are the working hours of Forex market

    Forex market is open from 22:00 GMT Sunday (opening of Australia trading session) till 22:00 GMT Friday (closing of USA trading session).


What is margin

    Margin is money you need to have in your broker account to secure your open position. Different brokers require different amount of margin money to keep your positions open.



What are the "long" and "short" positions

    Long position is a "buy" position, meaning that this position will be in profit if price goes up. Short position is a "sell" position, meaning that this position will be in profit if price goes down.


What is the best Forex trading strategy

    There is none. You should constantly develop your own strategies for every possible market situation, if you want to be in profit. Specific Forex strategies can only be good for a certain period of time and for certain currency pairs.



How much money do I need to start trading Forex

    With some Forex brokers you can start trading Forex with as little as $1. Usually, the minimum amount varies from $100 to $10,000 ($100,000 and more for Interbank trading).



I can't (or don't want to) install any Forex trading software on my computer. Can I still trade Forex

If you don't want (or it is not possible) to install new software to start trading Forex then a good option for you would be using web based trading platform. You can browse our Forex brokers list to find those which support such platform. Here is a short list of those brokers which have web based trading options:

    eToro
    Easy Forex
    Oanda
    Interactive Brokers

source

http://www.earnforex.com/forex-faq#start

What is Forex?

What is Forex
FOREX — the foreign exchange market or currency market or Forex is the market where one currency is traded for another. It is one of the largest markets in the world.

Some of the participants in this market are simply seeking to exchange a foreign currency for their own, like multinational corporations which must pay wages and other expenses in different nations than they sell products in. However, a large part of the market is made up of currency traders, who speculate on movements in exchange rates, much like others would speculate on movements of stock prices. Currency traders try to take advantage of even small fluctuations in exchange rates.

In the foreign exchange market there is little or no 'inside information'. Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global macroeconomic conditions. Significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time.

Currencies are traded against one another. Each pair of currencies thus constitutes an individual product and is traditionally noted XXX/YYY, where YYY is the ISO 4217 international three-letter code of the currency into which the price of one unit of XXX currency is expressed. For instance, EUR/USD is the price of the euro expressed in US dollars, as in 1 euro = 1.2045 dollar.

Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there is no single universal exchange for specific currency pair. The foreign exchange market operates 24 hours per day throughout the week between individuals with Forex brokers, brokers with banks, and banks with banks. If the European session is ended the Asian session or US session will start, so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets.

Average daily international foreign exchange trading volume was $4.0 trillion in April 2010 according to the BIS triennial report.

Like any market there is a bid/offer spread (difference between buying price and selling price). On major currency crosses, the difference between the price at which a market maker will sell ("ask", or "offer") to a wholesale customer and the price at which the same market-maker will buy ("bid") from the same wholesale customer is minimal, usually only 1 or 2 pips. In the EUR/USD price of 1.4238 a pip would be the '8' at the end. So the bid/ask quote of EUR/USD might be 1.4238/1.4239.

This, of course, does not apply to retail customers. Most individual currency speculators will trade using a broker which will typically have a spread marked up to say 3-20 pips (so in our example 1.4237/1.4239 or 1.423/1.425). The broker will give their clients often huge amounts of margin, thereby facilitating clients spending more money on the bid/ask spread. The brokers are not regulated by the U.S. Securities and Exchange Commission (since they do not sell securities), so they are not bound by the same margin limits as stock brokerages. They do not typically charge margin interest, however since currency trades must be settled in 2 days, they will "resettle" open positions (again collecting the bid/ask spread).

Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.