In a nutshell, forex trading consists of buying one foreign currency with the objective of selling it at a profit later. At its most simple, forex trading consists of the currency exchange you can perform while traveling overseas: A trader purchases one foreign currency and simultaneously sells another, thereby making the exchange rate always vary according to demand and supply. Most currencies are traded in the forex market, a vast global market which opens daily throughout the week, twenty-four hours a day, six days a week. The forex market functions no matter what time of day it is: Even if it’s 3am in Tokyo, traders can still trade in their local currency. The main difference between a traditional stock market and forex trading is that more deals with money and prices are generally set based on a number of factors, including current political and economic news, global economy, and investor expectations.
In order to successfully make more trades, you need a reliable Forex broker, which connects you to several active and profitable currency pairs. Traders can place their trades with real time information: Every moment, every minute, every second – a trader can watch his computer screen and immediately see the status of a given pair. Trades happen instantly, within seconds. The rapid pace of the trading process is the result of instant conversions of price quotes from one exchange to another.
But there is more to forex trading than just watching prices. To succeed, a trader must also be able to understand how the process works, but in simpler terms, he must understand how forex pairs are traded using simple bar charts. A bar chart shows the movements of the price of one currency pair over a given time period, usually a number of days or weeks. You can think of it as the price evolution as seen through the eyes of a child on a stage.
There are two types of charts used by traders to conduct their trades: The real-time bar chart, which traces price changes from one day to another; and the moving average bar chart, which monitor changes in the closing price over a period of time. Both charts display data in different ways, and traders will often use one or the other to indicate possible future trends. This is how an experienced trader identifies what could be a successful trade.
Of course, no one can predict what might happen next, so both bar charts and moving averages are only tools for forex trading. They help traders determine whether current prices are likely to continue rising or falling. They show, at a glance, which currency pairs are most likely to become the sellers in the coming period. A trader can then sell his present currency pair before prices drop further or when the trend suggests that it’s the buyers who should profit. It’s important to remember, though, that forex trading takes place over short time periods, often just a few seconds, and price movement can be highly volatile.
Some traders use automated forex trading strategies. These programs, usually based on mathematical formulas, which trade the markets for the trader in their behalf. They take the human factor out of trading, relying only on algorithms and tested systems to make the decisions for the trader. While they can help make the process less complicated, they’re not without risk, and many experts warn against using these programs altogether.
Another approach to foreign exchange trading that many traders use is to trade “off the beaten track”. For example, there are many technical indicators available that show a certain trend is likely to continue or reverse, but they don’t always lead to profitable trades. Instead, traders use what’s known as non-fundamental reasons to predict which way the markets will move. This can be complex and risky, especially when trading on volatile markets like the forex market. The biggest advantage is that it allows a forex trader to make trades several times during the day without having to concern themselves with constantly monitoring the markets for changes.
The final approach most traders take is to learn as much foreign exchange terminology as they can. By understanding the complex and subtle foreign exchange terms that are used, they can make more informed decisions about when to buy and sell. Not all traders use this approach, however, as it’s not completely necessary to know every term and technical meaning in the field. Even so, it can help significantly in understanding forex trading and developing effective trading strategies.