What Is Forex Trading?
Every day, over $6.6 trillion is traded globally in the forex market. The market is highly active, which is one of the reasons many people are attracted to trading. Because so many people are making trades every second of the day, the market requires extensive analysis and persistence to analyze charts.
A lot of traders use platforms that allow you to perform deep analysis in real-time and make decisions based on movements on the charts at that time. A popular platform people use is known as TradingView, which allows you to study all of the data you could want in a chart. Having as much information as possible helps you to make more accurate and precise decisions about specific trades you are interested in making.
Forex stands for foreign exchange and describes the market where people can trade one currency for another. Successful traders make accurate predictions about a particular currency that is expected to increase in value in the near future. By exchanging a currency with one that is expected to go up in value before it does, the trader will make a gain on the investment.
Forex Currency Pairs
Those active in the forex market will trade what are known as currency pairs. Instead of trading one type of currency, you trade in pairs with one currency against another. An example would be a currency pair of the Euro vs the dollar (EURUSD). If the Euro is expected to increase in value against the dollar then traders will buy a position for the EUR/USD currency pair and if the Euro in fact increases in price the trade will be successful and the investor will see gains.
Forex Trading Hours
One of the most attractive features of the forex market is the fact that it functions around the clock 24 hours a day, 5 days a week. It opens on Sundays at 5 pm (EST) and closes on Fridays at 4 pm (EST). The forex is open at all times during this window as it is always active somewhere around the world whether that’s New York, London, or the Markets in Asia.
Margin And Leverage
Having a good understanding of margin and leverage, is integral to grasping the basic concepts of trading in the forex market. Leverage essentially allows you to increase the size of your trade without having to drastically increase the initial investment. You put in your initial investment and then the broker will lend you money to increase your position. This will increase the size of gains that you can make on that single trade.
Leverage is calculated using ratios. For example, if you are given a leverage ratio of 10:1 by your broker, you can use $10 of your own investment and then be allowed to trade with a position worth $100.
Margin, on the other hand, refers to the total assets you hold that will allow using leverage. How much money you have will affect the size of the leverage you can obtain. For example, if you want to open a position worth $100 at a 20:1 leverage ratio, then you need to hold at least $5 in the account that you use to trade.
Trading Strategies
Having a trading strategy is essential for those wanting to become successful traders. If you have a clear strategy then you remove things like rash emotional decisions that can reduce the profits. Having a game plan before you jump into trades allows you to have a good idea about how you expect something to play out and create targets around when to get out of a position.
Scalping
Scalping refers to traders that participate in opening a position but only for a very short period of time before closing it. This can be anywhere between 1 and 5 minutes and requires a lot of attention to analyzing the movements in the chart in detail. Scalping is a trading strategy used for quick small gains that add up to a decent profit over time.
Day Trading
Day Trading refers to those that open a position and close it on the same day. Unlike scalping, day trading is usually done by opening a position and closing somewhere between 15 minutes and 7 hours later. This type of trading allows for a little less concentration as you don’t have to pay attention to the 1-minute chart with your finger on the button to get out of the position.
Swing Trading
Swing Trading is done over days or sometimes weeks. Those participating in swing trades are predicting movements over a longer period of time. These are usually performed after there is an indicator of a catalyst for movement coming in the near future.
