Everything You Should Know About Forex Trading
Trading in Forex is similar to exchanging currency while traveling to a different country. A trader buys one currency and gives another currency. This exchange happens for commerce, trading, or tourism.
Currencies are traded in the exchange market which is open all day. They are important because they allow us to trade locally and internationally. Forex trading usually happens electronically, which means trading usually occurs via computers all over the world. Daily forex trade is USD 6.6 trillion.
Different ways for forex trading:
Most of the Fx trading is not made to exchange currencies but to understand future price movements like stock trading. Like stock traders, forex traders are purchasing currencies that might increase in the future.
There are three ways in which one can trade in Forex:
Source: finance-monthly.com
Spot market:
The spot market is the primary forex market where currency pairs are swapped and rates of exchange are determined based on supply and demand. The spot market is where the financial instruments like currencies, securities, and commodities are traded for immediate delivery.
The Forward Market:
Instead of direct trading, the forex traders can get into a bidding contract with another trader and lock in exchange for an agreed amount of currency for the future.
The futures market:
Traders can opt for specific and standardized contracts to buy or sell a predetermined amount of currency at a particular rate of exchange at a date in the future. This process is not done privately. Instead, it is done on an exchange. Forward and futures markets are primarily used for forex traders who want to speculate about future prices or currency changes.
The exchange rates in the market are based on what’s happening in the spot market. The spot market is the largest of the forex trading markets and is where most forex traders are executed.
Essential strategies for Forex Trading:
Relative strength index:
It considers the average gains and losses over a certain period to make it clear whether the price movements were positive or negative. This means that it can be used to identify price momentum and overbought or oversold signals.
Average directional index:
The average directional index can help to determine the strength of an upward or downward price trend. The indicator will move between zero and hundred, anything above 25 indicates a strong trend. higher the number, stronger the trend.
Range trading strategy:
A range trading strategy is quite popular amongst beginners. It is one of the less elaborate plans. When the market consistently moves between two price levels, it’s considered to be in range. You could identify specific trends when using this strategy. You can go long or short depending on the price position within a particular range. Long in the rising direction and short in the falling trend. This can happen at any time frame.
Breakout trading strategy:
Breakout trading in forex is a top strategy for traders because it allows them to take position at the start of a volatile period. Forex traders are often more inclined towards more volatility as it gives more opportunities to trade.
A breakout is when a currency pair’s price suddenly moves out of a consolidated range (i.e., out of support and resistance levels). This strategy involves opening your forex position very early within the new trend and placing your stop loss at the point the market broke out.
Is forex trading a scam?
Source: blackwellglobal.com
There are several scammers in the forex trading domain, so we may feel that forex itself is a scam and not real, but that’s not true. Fx trading is real, and if you master the art of forex trading, it can make you very rich and provide you with multiple rewards. The truth is that a significantly less number of the population know how to get rich while forex trading, the rest of the people lose money.
A few things that go wrong are:
Sometimes people start gambling, get greedy, and tend to lose a lot of money. They have less to no idea about risk management. They get into competing with or comparing themselves with professionals and experts while just being amateurs who are trading part-time hobbies or side hustles.
You can only become wealthy through foreign exchange if you give some time to training yourselves with the appropriate skills or get a good mentor who can be an expert who would guide you through the process and let you know what to do when.
Patience is very important to earn in the forex market.
Here are a few Scams to be careful from:
When an industry is as big as the forex industry, it is evident that there will be some scams and fraud like the robot trading scam, signal scam, PAMM scam, etc. So it is very important to save yourself from these scams.
Few ways to identify the what you are approached by is a scam or genuine:
Few forex brokers start to be very desperate and aggressive. Beware of them.
Few people exaggerate their services and claims, they take advantage of the knowledge they have. It isn’t easy to spot such people but tries to make an effort.
If you are trying to withdraw an amount and aren’t able to, you’re probably scammed.
Pros of the forex market:
- High liquidity
- High volatility.
- You can access it 24 hours, seven days a week.
- Selling is easy in the short term.
Cons of the forex market:
- Interest rates can be risky.
- one can be scammed in a number of ways.
- Leverage risks.
- Someone is always trying to steal your money through scams, providing fake services, or fake classes.
Source: finance-monthly.com
Conclusion:
It is important to be careful before forex trading. It is one of the most risky industries. It is also one of the most rewarding industries, so before getting into it, it’s better to have complete or at least 80% of the required knowledge, take calculated risks, always have a mentor and save yourselves from scams.
