Forex is a huge market that dominates all other financial markets. What does huge mean?
$5.3 TRILLION traded each day! That is TWICE the size of the UK economy!
WHY FOREX TRADING RULES
1. It’s the most liquid of markets
2. There’s no centralized exchange
3. It’s a 24-hour market
Your investment can be affected while you sleep, so don’t forget to use stop losses
to control this risk! All markets show volatility and traders hoping for short-term
profits may be exposed to it. Moreover, in an over-the-counter market regulatory
oversight is limited and traders must
investigate brokers’ trading practices.
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YOU MUST KNOW UNDERSTANDING CURRENCY PAIRS
Currencies are always traded in pairs made up from the base currency and the quote currency. The 7 most traded and important pairs are the majors. All involve the USD in combination with the Euro, the Japanese Yen, the British Pound, the Australian Dollar, the Swiss Franc, the Canadian Dollar and the New Zealand Dollar. Minors are the pairs that involve the three main non-USD currencies: Euro, Yen and British Pound.
You are trading two variables, both sides of the trade. When you buy GBP/USD you expect the Pound’s value to rise compared to the Dollar. When you sell the GBP/USD you expect the Pound’s value to fall versus the Dollar.
If the USD is strong and rising, we expect the USD/CHF, USD/JPY, USD/CAD pairs to be also rising and the EUR/USD, GBP/USD, AUD/USD and NZD/USD pairs to be falling.
A key concept of successful trading is to look for a strong currency that is trading against a weak currency. Remember, it is all relative.
WHAT MOVES THE MARKETS
Almost anything can move the markets – news, sentiment, and gossip can all have an impact. Interest rates, unemployment, inflation, and company earnings also matter. FX pairs in particular can be key reflectors of the confidence about and within a country. It’s not only the hard economic data, but also fundamental news and sentiment that can swing markets around.
Following all these can be overwhelming but you can always focus on high-impact events.
STRATEGIES AND TRADING STYLES
While understanding the basic concepts is vital, managing risk and an appreciation of technical and fundamental analysis will also help. However, you need an approach and strategy that fits you and your lifestyle. Emotional control is another key element when trading. If you don’t know yourself then you will find it hard to succeed. Spend some time understanding yourself and find the time frames or trading styles that best fit you.