Online Trading & Forex: tutorial
Forex; an introduction and some key points
Forex, currency trading or FX, is among the most exciting and fast paced markets around. Till some years back Forex trading was confined to large financial institutions, central banks, corporations, Hedge funds and wealthy investors. But, online trading platform has brought an evolution in this area and now even the average investors have the freedom to buy and sell currencies with the click of a mouse and all through online trading accounts.
The small currency fluctuations on a daily basis make forex the most volatile financial market in online trading as most pairs move less than a percent on a single day showing just 1 percent change in the currency value. Thus most investors now rely on the large leverage to enhance the value of potential movements. Leverage in the retail forex market can go up to 250:1. Even when high leverage is very risky, but all time trading and liquidity of the foreign exchange trading has helped brokers in making high leverage a virtue of this industry that has facilitated in making movements meaningful for traders in this field.
Deep liquidity and high leverage has assisted to speed up the rapid growth of the forex market and make it an ideal online trading opportunity for many traders. Positions in this trading can be opened or closed within minutes or can even remain at held for months. The prices of currencies of different countries are based on objective consideration of supply and demand and are free from manipulation due to the market’s large size. The size of the market does not allow even the largest players, such as central banks, to move prices at will.
The forex market presents a gamut of opportunity for investors. However, in order to be successful, a currency trader must understand the basics behind currency movements.
Why opt for an online trading forex tutorial
The online trading forex tutorial helps in presenting a foundation to investors or traders who are new or do not have much experience with the foreign currency markets. These tutorials cover the basics of exchange rates, the market’s history and the key concepts you need to understand in order to be able to participate in this market. Most such tutorials also venture into how to start trading foreign currencies and the different types of strategies that can be employed.
How to trade forex
Trading forex can be exciting as well as risky depending upon the knowledge a person has. It’s estimated that the forex markets make a trade of about $5 trillion on any given day. This means any person can earn a fortune by just predicting the direction of the market. Forex trading online can be done in a number of ways.
- Learning the basics is mandatory:
- The type of currency which is being spent is the base currency while the one that is being bought is the quote currency; in forex trading one currency is sold to purchase another one.
- Exchange rate is which an investor must spend on the quote currency to buy the base currency.
- A long position indicates that an investor wants to purchase the base currency and sell the quote currency
- A short position is just opposite and indicates that an investor wants to purchase the quote currency and sell the base currency.
- Bid price is the price at which the broker is ready to purchase the base currency in exchange for the quote currency. The bid is the best price at which the investor is ready to sell the quote currency in the market.
- Offer or ask price is the price at which the broker will sell the base currency in exchange for the quote currency and it’s best available at which the investor is ready to purchase from the market
- Spread is the difference that is there between the bid price and the ask prices.
- Reading the forex quote is crucial
- This shows two numbers; the bid price displayed on the left and the ask price on the right side.
- Deciding what currency to buy or sell is the next important step which requires making predictions about the economy.
- It’s always advised to look at the trading position of the country. An investor must see that how many goods a country has in demand which might mean exporting goods to make money which would mean boosting the country’s economy and finally the value of the currency. Also, when anticipating the currency value one must see that whether an election are going to take place in the country which can help in understanding that the currency value will appreciate or depreciate. Another way of estimating value is by reading economic reports which involve GDP reports, employment and inflation reports that can have a great effect on the currency value.
- Learning how to calculate profit is important
- A pip is the measure of change value between the two currencies and one pip is equal to 0.0001 of the change in value
- Multiplying the number of pips with the exchange rate is needed which tells how much the account has appreciated or depreciated in value
How to open an online forex trading brokerage account
It’s mandatory to research different brokerages and few factors which must be considered when doing this are
- It’s advised to search for an experienced brokerage as its shows that the company understands what they are actually doing.
- It’s good to see that whether the brokerage is being regulated by a major oversight body that helps in getting a reassurance about their transparency and honesty.
- Seeing how many products are being offered is good as its helps in knowing that how big a client base and how wide business reach they have
- Reading reviews carefully is needed but do not go with the flow and try doing as much research as possible
- Visiting the website is important to see what all links are working and how professional it looks
- Checking on transaction costs for every trade is advised.
- Focusing on the essentials like good customer support, transparency, reputation and easy transaction is recommended.
How to start forex trading online
- One must begin by analyzing the market for which several methods are available. Technical analysis, fundamental analysis and sentiment analysis are these methods which have different fundamentals and can help in market analysis when starting forex trading.
- Determining the margin based on the policy of the broker is then needed. A golden rule in trading is to invest only two percent of the cash in any particular currency pair.
- Placing order is the next step which can be done in different ways. Market orders, limit orders and stop orders are the ways in which the order can be placed.
- Last is watching for the profit and loss for which one must always stay away from getting emotional. Forex market is a volatile market and ups and downs are all part of this. Thus what finally matters is continuing research and sticking with the strategy to eventually see profits which can sustain in the long run.
Advantages of forex online trading
There are a large number of benefits of trading forex online, below mentioned are just few of the many benefits one can avail.
- The absence of a middleman helps in directly trading with the market which is involved in pricing of currency pairs.
- Spot forex does not involve any lot or fixed size and give traders complete freedom to participate with the minimum trade size and invest as little as possible
- The lower transaction cost is another lucrative benefit which makes forex trading so popular.
- Forex market never sleeps and is an ideal option for those looking to trade for part-time or when they are free
- The foreign exchange market is so huge and has so many participants that no single entity can control the market price for an extended period of time.
- Unlike other financial markets, forex has no limitations on shorting currencies. A bear market term does not exist in forex and any investor can make or lose money here
- Unmatched liquidity of forex trading makes it an attractive option for many. This makes it typically very easy to get into and out of trades at any time, even in large sizes.
- The deep liquidity available in the forex market can help investors’ trade forex with considerable leverage (up to 50:1). This can allow taking advantage of even the smallest moves in the market.
- Due to its global nature, forex is an easy way to gain exposure while avoiding vagaries such as foreign securities laws and financial statements in other languages.
The eight majors of forex trading
Unlike the stock market where investors have a large number of options to choose from, in forex there are just eight major currencies which provide the best undervalued or overvalued opportunities. These following eight countries make up the majority of trade in the currency market:
- United States
- Eurozone (the ones to watch are Germany, France, Italy and Spain)
- United Kingdom
- New Zealand
So, if wishing to try your luck, make sure you first learn the basics, practice through a demo account and then begin with real money, Happy Trading!
Resources – External links:
- Wikipedia – https://en.wikipedia.org/wiki/Foreign_exchange_market – Foreign exchange market
- Europar2010.org – http://www.europar2010.org/forex/ – Italian Trading Online University