Online Forex Trading Explained, forex comes from foreign exchange, forex trading the process of exchanging the currency of one country for the equivalent value of currency issued by a different country but without a physical transaction. The goal of any trading is to make money and that can be done by buying currencies when we expect their prices will go higher to sell them when their prices go higher and make a profit. but what you must know that trading currencies in forex is different by profit and loss because the money you invest is multiplied by 100, 200 times with its leverage.

Leverage leverage 1:100 will multiply your earning by 100, lets say you trade USD/CAD with $100 the price is 1.06 if the price change to 1.07 the 1 cent change in normal case will make you 1 cent for each dollar, so with $100 this change will make you 100 * 1 cent = 100 cents only $1 single dollar but with forex and leverage 1:100 this change will make $100 and with leverage 1:200 this change will make you $200 with $1000 invest this change will make you $2000 and so on.

Forex has the highest leverage in all online trading types and that makes it the most profitable and the most risky comparing to the trading types leverages, Stock leverage is 1:2, options Leverage 1:40.

Where is money exchanged in forex market?
What is really exchanged in trading forex is the contracts we buy and sell because this is what we really trade in forex market, not the currency itself these contracts needs no physical transaction that’s way forex market has no physical location and no central exchange.

24 Hours Market in 4 Sessions Forex gives its traders a 24 hour trading opportunity. Being a Forex trader, you can trade 24 hours a day from Sunday 5:00 pm (ET) to Friday 4:30 pm. This gives traders an opportunity to trade according to their convenience, going by their own schedule and also a chance to react instantly to any breaking news of the markets.

The forex trading day starts in Sydney and ends in New Your after 24 hours:

at 8:00 am Sydney time (equivalent to 5:00 pm ET time) Sydney session starts

after 2 hours Tokyo session starts,

after 8 hours London session starts,

after 5 hours New York session starts it lasts until 5:00 pm (ET)

and that makes forex market 24 hours/ 5 days market when new work session ends at 5:00 pm Sydney session starts.

The Biggest Market in the World With more than $1.8 trillion USD being traded daily, the foreign exchange market has managed to become the world’s largest financial market, over the last three decades. With the large minimum deal sizes and rigid financial requirements, the Forex market, till recently, was not explored by the common trader or individual investor. But now the average investors can also engage in Forex trading. another benefit for this market that its global and available for all, as a forex trader I can trade from anywhere in the world.

Tighter Spread and No Commission Yes you do not have to pay a commission when you trade forex like other types f trading, Forex trade lets you keep 100% of your trading profits. This makes Forex trading even more attractive as a business opportunity, brokers, and systems that you deal will make their befits from the spread. The spread is the difference between the bid price (the price to buy) and ask price (the price to sell) of a currency, for any giving moment the bid price us higher than the ask price. for example; the bid price for EUR/USD is 1.4601 and the ask price 1.4600 this point is called pip. Forex has tighter spreads where you can find the1 pip and 2,3 pips spreads.

Forex Trading Explained

One of the important things you must know about trading forex before you start trading is how the deal will be, its components, rates, prices, orders, and other things traders use. We will also talk about margin, spread and leverage because it will help you to know who much money you need to trade.

Who Trade Forex?

More than 95% of forex trading performed in the forex market are for speculative proposes, from people trade the currencies just to make money, they don’t care about if the currencies values go up or down, all they care about is to make money by the prices changes. Less than 5% of the trades in forex market used for a hedging proposes by governments and other proposes

Forex Deal Components
The Currency Pair Trading in forex come in pairs you buy a currency using another currency, in this example EUR/USD you buy euro using USD dollar, you can make this deal using your account whatever your account currency is.
The money amount you mean to invest in this trade, you will need $1000 to buy one lot or $100 to buy a mini lot.
The Exchange Rate is the same rate that it’s used when exchange money in banks or money exchange shops but the big difference here come with the importance of fractions because of its multiplied in forex.
Leverage leverage 1:100 will multiply your earning by 100, lets say you trade USD/CAD with $100 the price is 1.06 if the price change to 1.07 the 1 cent change in normal case will make you 1 cent for each dollar, so with $100 this change will make you 100 * 1 cent = 100 cents only $1 single dollar but with forex and leverage 1:100 this change will make $100 and with leverage 1:200 this change will make you $200 with $1000 invest this change will make you $2000 and so on.
Margin is the money you deposit in your account to be to cover any losses in the future. It’s used to ensure that the investor can pay in event of loss, it’s also known as minimum security in the forex market.

Trading Forex Prices (Quotes)
Quotes are used is the price of currency in term of other currency, quotes types are:
Direct Quote is the price of 1 US dollar in term of other currency, e.g. USD/CAD
Indirect Quote is the price of 1 unit currency in term of US dollar, e.g. GBP/USD
Cross rate any quote which is not against the US dollar.

What are Major Pairs? Now one can tell what are the best trades to trade but we can tell you about the major pairs because they are the most traded in the market: EUR/USD Euro, GBP/USD Britches pound, USD/CAD Canadian, USD/CHF Swiss frank, USD/JPY Japanese yen.

Simple Trading Scenario
You open mini account online and deposit $2000 – you buy one mini lot $100- pair EUR/USD – at rate 1.4500 – after 1 hour you sold that pair at changed rate 1.4600

The change in the price from 1.4500 to 14600 is 100 point (pip) and that will make: (The amount of the mini lot) $100 * (The change in the price) 0.01 * (Leverage 1:100) 100 = $100 * 0.01 * 100 = $100 profit.

FOREX TRADING TECHNICAL ANALYSIS

Forex Trading Technical Analysis

Technical analysis is used to forecast the behavior of the forex market, there are major methods to predict the movement of the price to decide when to buy and sell currencies in order to make profits. We will mention the most important trading forex indicators, what important information these indicators can tell us and how these methods help us in prediction the price.

Technical Analysis is based on
Markets Discount The actual price is a reflection of everything known to the market that could possibly have an effect on price movement and includes supply and demand, political factors, and the market sentiment.

Prices Move in Trends Prices can move in three directions; they move up, down or sideways and that will create a trend, this trend will help the technical in analyzing the mark.

History Tends to Repeat Itself This allows anyone using technical analysis in currency trading to predict where prices are likely to go next and traders can then act upon this information for profit.

These facts generate many tools to be used by forex traders, technical analysis in currency trading is concerned with price trends and everything that can possibly affect a currency is reflected in price action. When you start trading you will know how important these trends.

Technical Indicators are used to indicate the market trend, strength, and important support and resistant points which could be the points to buy and sell. There are a huge amount of available indicators used either alone, or in combination.

Trend Indicators Trend is a term used to describe the persistence of price movement in one direction over time. you can spot trends is via trend lines, drawn below price. And this technique is still used by traders.

Support/Resistance Indicators are used to define Support and resistance levels where markets repeatedly rise or fall and then reverse. These levels are very important to decide when to buy and sell.

Volatility Indicators are used to describe the magnitude, or size, of price fluctuations independent of their direction. Changes in volatility tend to lead changes in prices.

Cycle Indicators are used to determine the timing of a particular market pattern. and that will help us to expect the price movement.

Momentum Indicators are used to describe the speed at which prices move over given time periods. They determine the strength or weakness of a trend as it progresses over time. Momentum is generally highest at the start of a trend and lowest at market turning points.

Sentiment Indicators These indicators attempt to gauge the general attitude of the investment community, to determine whether investors are bearish or bullish.

These indicators are only to be used when extremes of sentiment are reached, either bullish or bearish.

If used in this way, they are one of the most powerful warning signs of a significant market turning points and can be used in technical analysis of currency markets to huge effect.

Forex Trading Fundamental Analysis

Forex Trading Fundamental Analysis

Online Forex Trading Fundamental analysis is used to forecast the behavior of the forex market like the technical analysis but it based on different factors like economic, political, environmental and other relevant factors when fundamental analysis used with technical analysis to determine their trading strategy the chances of predicting the currencies movements are much higher.

What is the main difference between Fundamental analysis and Technical Analysis
The fundamental analyst studies the causes of market movements, while the technical analyst studies the effect. Many people made profitable trades after or before economic announcements.

Fundamental Analysis Indicators There are many indicators will help us in fundamental analysis like:
CCI-Consumer Confidence Index last Tuesday of the month covers current month’s data, information. CPI-Consumer Price Index around day 20 covers previous month data. Element Report 1st Friday of each month covers previous month data. Employment Situation Report 1st Friday of each month covers previous month data. And many other indicators will help to understand the movement in the forex market.

The Economic Factors affect the Forex Market
Employment Data Non-farm payrolls is the name given to the data that pertains to the number of people who are employed within the US economy. Strong decreases in employment indicate a contracting economy, while strong increases are perceived indicators of a prosperous economy.

Interest Rates is very important in forex market. Since the central banks mandate monetary policy and supply, they are the prime focus of investors.

Inflation This is the measure of increases or decreases in pricing levels over a period of time. Due to the immense number of goods and services available in a country usually, a grouping of these goods and services are used to measure changes in the pricing. Increases in pricing indicate an increase in the inflation rate which in turn can devalue that country’s currency.

Gross Domestic Product This is the measurement for goods and services that were finished over a period of time. The GDP is broken down into 4 categories:
1. business spending
2. government spending
3. private consumption
4. total net exports

Durable Goods Goods that have a lifespan of three or more years are considered durable goods and they are measured in quantities that are ordered, shipped, or unfilled over a period of time. These are also an indicator of economic spending or the lack of it.

Trade and Capital Flows Currency values can be significantly impacted by monetary flows that result from certain interactions between countries. When imports exceed exports, there is a tendency for the currency value to decline. Increased investments in a country can lead to the opposite result.

Macroeconomic and Geopolitical Events Elections, financial crises, monetary policy changes, and wars influence big changes in the Forex market.

Joining Forex Trading

Joining Forex Trading

Ok. You feel that you like trading forex and you need to start trading, but you do not know how to start, so you have to read this. First, you must choose an online broker carefully and we will help you in that, then you open a demo account to practice the trading, when you feel that you ready to start to open a mini account to avoid a big losses as a beginner when you start gaining money you can trade lots instead of mini lots.


Things you must consider when you choose your forex broker

1. RegulationYou must make sure that they are fully regulated with the relevant authority. So if they are based in the US, for example, then you should ensure that they are regulated by the NFA or the CFTC Similarly if they are a UK-based company, then they should be regulated by the FSA.If you go with an offshore forex broker that is completely unregulated, for example, then you are taking a huge risk because you may never see your money again.
2. Tighter Spreads For long-term traders the spreads offered by your forex broker is not so much of an issue. But if you intend to trade the shorter time frames then you have to choose the broker with a tight spread. We advise you to choose a broker that offers spreads of around 2 or 3 pips for the EUR/USD and GBP/USD pairs, and certainly no more than 4.
3. Leverage The amount of leverage offered by different forex brokers varies greatly. Some may only offer 100:1 leverage while some may offer as much as 400:1. 100:1 is more than enough to avoid more risk.
4. Demo Accounts demo accounts is very important for new forex traders, it will give you the chance to test the platform and the tools available and give you the chance to practice the trading without any risk. If you are new to forex you must choose a broker you must choose broker offers demo account, not all of them do so.
5. Account Types Although all forex brokers cater for the well-capitalized traders, not all of them cater for those traders who wish to trade smaller positions. Therefore if you yourself fall into this category, then you should look out for brokers that allow you to trade mini lots (equivalent to around $1 per pip) or micro-lots ($0.1 per pip).
6. Minimum Deposit If money is tight or you want to start off small (which is always a good idea), then you will want to choose a forex broker that requires a relatively low minimum deposit when opening a live trading account.
7. Charting Software Nearly all forex brokers provide some kind of charting software free of charge when you open an account with them. It may be the highly popular Metatrader 4 platform or it may simply be a no-frills charting package. So therefore if you do want to use some of the more advanced charts, then I suggest you go with a broker that provides the Metatrader 4 or ProRealTime platform.
8. Additional Services it’s very important that your broker provides you with additional services such as daily commentaries, market analysis, educational materials and the option to deal through your mobile phone.

9. Customer Service If you are just starting out as a forex trader you will probably have several questions and queries when you first open an account with a broker. So, therefore you should try and join a broker that offers a good of customer service.

Resources: Wikipedia, Investopedia

Comments

comments