1. Have you ever heard of FOREX? How are currencies traded?
What comes to mind initially when you think about Forex? Which parts of Forex are critical, which are optional, and which may be ignored? You get to be the judge.
Let us discuss FOREX and the benefits of FOREX trading.
Why Currency Trading ?The advantage of FOREX is that you can only lose the amount of money required to conduct a deal (known as "margin").
Of course, with the proper self-taught education, you will win more than losing, but you should be aware that despite the high leverage of FOREX trading
(200:1 is possible, which means that if you put up $1, the trading vendor will allow you to trade it as if you had $200), it is still less risky than futures (commodities) trading.
And you can't obtain this kind of leverage when trading equities.
Because of the FOREX market's liquidity and 24-hour trading, hazardous trade gaps and limit movements are avoided.
2. Orders are processed swiftly and without lag
If you do your homework and choose reputable brokers, they will automatically terminate some or all of your open positions if the equity in your account falls below the minimum necessary to keep the positions open. You will never lose more than the amount of money in your FOREX account.
Currencies are exchanged in dollar increments known as *lots*. One lot is worth $1,000 and controls $100,000 in cash.
This is the "margin" I mentioned earlier. For just $1,000, you can manage $100,000 in cash. Currency is always exchanged in pairs.
3. HOW ECONOMIC EVENTS AFFECT GLOBAL CURRENCY
Trader A'S RESPONSE
Fundamentals that you read about are usually meaningless since the market has already discounted the price. I'm considering (1) the long-term trend, (2) the current chart pattern, and (3) determining a solid entry opportunity to purchase or sell.
Trader B'S RESPONSE
I nearly always trade based on market sentiment. I don't rely just on technical knowledge. I utilize technical analysis, which is fantastic, but I can't start or maintain a position unless I understand why the market should move.
Some technicians say that technical analysis forecasts the future, and there is a lot of hype surrounding it.
Technical analysis is concerned with the past; it does not forecast the future. You must use your own judgment to form inferences about what the previous behavior of certain traders indicates about the future behavior of other traders.
4. Technical analysis is like a thermometer to me
Fundamentalists who claim they won't look at the charts are akin to doctors who declare they won't take a patient's temperature.
If you want to be a good trader in the market, you must always be aware of where the market is headed: up, down, trending, or turbulent. You want to learn everything you can about the market in order to get an advantage.
Because technical analysis represents the vote of the whole marketplace, it detects anomalous activity. Anything that generates a new chart pattern is considered uncommon.
It is critical to examine the intricacies of price behavior in order to see and notice. Examining the charts is critical since it alerts to existing imbalance and prospective changes.
5. Fundamentals are everything that makes a country tick for FX traders
The publication of economic and inflation data (such as consumer spending, employment cost index, government expenditure, producer price index, and so on), political players, government policies, or a single incident can send the market into a tailspin. These must be taken into account while deciding whether or not to trade.
Technical analysis is a method of predicting the future price of a currency pair by analyzing previous price data in various ways.
Fundamental analysis is a powerful tool for forecasting economic circumstances, but it does not always predict market prices, and you SHOULD use it in conjunction with the supporting technical indications.
Because traders all across the world utilize comparable charts and techniques to forecast market movements, foreign currency traders place the most importance on technical analysis.
The reason why the FOREX market may be so predictable at times is that if the majority of traders are using the same graph to determine patterns and trends, it is extremely probable that they will behave similarly.
So, for example, many thousand traders who have all charted the same resistance line would most likely configure their trades and direction to adhere to that line.
When fundamental data is made accessible to the public, investors and speculators respond.
Information in the form of news and economic indicators is hazier than information in the form of technical indicators. This sort of study has a lot of gray space. The market will eventually react to how consumers perceive the economic facts in relation to the present market scenario.
Economic indicators often disclose information that "should cause a currency's price to rise" or "may cause a currency's price to fall." The phrases “SHOULD” and “MAY” in the excerpts above highlight the uncertainty of the basic data.
Here's an example of how to analyze fundamental data. Assume there are six economic indicators (there are a lot more).
Let us refer to our six indications as 1, 2, 3, 4, 5, and 6. We are now waiting for the data from our indicators to be published in a financial magazine or on the internet. The following are the readings for our economic data for the EURO:
- Indicator 1: is inside a range where the Euro might rise.
- Indicator 2: The Euro is in a range where it should rise.
- Indicator 3: The Euro is in a range where it might fall.
- Indicator 4: is in a range where the Euro often falls.
- Indicator 5: The Euro is in a range where it might rise.
- Indicator 6: is in a range where the Euro might fall.
You can't tell what the Euro will do just on the aforementioned factors. In addition, currencies are always exchanged in pairs.
As a result, you would need to obtain basic data for another currency pair and compare it to the EURO. As you might guess, this is not an easy process.
I don't want to scare you away from basic statistics. The most effective approach to learn is to focus on one piece of economic facts at a time.
Eventually, you will piece together a picture from all of the fundamental and technical data and be able to make more informed trading decisions.
6. Conclusion
Currency trading benefits include speed, liquidity, commission-free transactions, enhanced safety, short-term trading, and high profits. Let us look at each of these benefits in different trading systems:
Speed:
- Because of the huge number of transactions, currency trading is instant, but future trading takes a longer period to trade specific commodities, agricultural products, financial instruments, and items (contracts need to be written and signed)
Stock :
- For each transaction, stock traders must pay a charge to brokers. All futures trades are eligible for the brokerage charge, however, currency trading is not. Brokers make money in forex trading by researching and benefitting from the price differential between sold and buying currencies.
Liquidity:
- The currency market is available 24 hours a day, 7 days a week, anywhere in the globe, allowing currency traders to trade whenever they discover the right timing and price. This is a trait that can only be linked to currency trading.
Security:
- Unlike other trading systems, which are dependent on speculation, price volatility, slippage, and market gaps, currency trading is regulated by built-in protections that restrict slip-ups.
For-profit
- Short-term trading, such as currency trading, is more efficient than long-term trading. Day trading does not raise speculation or risk, and it does not mean that any profit gained will be reduced by the broker's commission.
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