What is Forex Trading and How???
An Introduction to Forex Trading:
Forex Trading is trading currencies from different countries against each other. Forex is acronym of Foreign Exchange.
For example, in Europe the currency in circulation is called the Euro (EUR) and in the United States the currency in circulation is called the US Dollar (USD). An example of a forex trade is to buy the Euro while simultaneously selling US Dollar. This is called going long on the EUR/USD.
How Does Forex Trading Work?
Forex trading is typically done through a broker or market maker. As a forex trader you can choose a currency pair that you expect to change in value and place a trade accordingly. For example, if you had purchased 1,000 Euros in January of 2005, it would have cost you around $1,200 USD. Throughout 2005 the Euro’s value vs. the U.S. Dollar’s value increased. At the end of the year 1,000 Euros was worth $1,300 U.S. Dollars. If you had chosen to end your trade at that point, you would have a $100 gain.Forex trades can be placed through a broker or market maker. Orders can be placed with just a few clicks and the broker then passes the order along to a partner in the Interbank Market to fill your position. When you close your trade, the broker closes the position on the Interbank Market and credits your account with the loss or gain. This can all happen literally within a few seconds.
Get Started with Forex Trading
How to Get Started with Forex Trading
Let’s answer these questions one at a time, in order of
importance.
1. Choose
a brokerMaking a decision on which broker to use is personal for each trader. Some brokers offer certain options that some traders will thrive on, while other traders will hate the broker for those same options. It is important to review and compare the options of each broker closely and choose the one that makes you feel most comfortable.
- Review Forex Brokers
Once you have made your decision on which broker you like the best, it is time to open a demo account. Most brokers will offer at least a 30 day trial of their trading platform giving you a chance to trade on the platform using play money. Using a demo account is a good opportunity to make sure that you feel comfortable using the broker’s trading tools. You would not want to trade real money without being fully comfortable with the trading platform. A demo account will not only help you get a grip on how to use the broker’s trading platform, but also trading the market in real time.
- Learn to take risk seriously
- Practice sound money management
4. Practice
Reading Charts
Before you start making trades you should get familiar with charts and how they work. It is a good idea to get familiar with the different time frames and the different types of charts. The shorter time frames will give you an idea of how the market is moving minute to minute. The longer time frames can show you how the market moves over longer periods and will show the larger trends. Most charting software will offer charts as lines, candlesticks, or bars. Take plenty of time to try out different looks and time frames to find the style that you are comfortable with.
Before you start making trades you should get familiar with charts and how they work. It is a good idea to get familiar with the different time frames and the different types of charts. The shorter time frames will give you an idea of how the market is moving minute to minute. The longer time frames can show you how the market moves over longer periods and will show the larger trends. Most charting software will offer charts as lines, candlesticks, or bars. Take plenty of time to try out different looks and time frames to find the style that you are comfortable with.
- Learn about candlesticks
- Learn to understand support and resistance
The first trade is a nervous and exciting experience. The demo account prepares you for the technical aspects of trading, but when real money is on the line, emotions will come into play. It is important that you keep a level head and do your best to trade with the same methods that you practiced on the demo account. It may prove to be difficult, but if you master your emotions and use sound money management, anything is possible after this step. If your first trade loses money, do not give up, just piece together where you think you went wrong, and try again.
Forex trading is a constant learning experience. Trading mistakes can be expensive. If you learn from those mistakes and do your best to avoid them in the future, you can become a very successful forex trader.
Best Forex Trading Hours
The Best Times to Trade the Forex Market
The forex
markets are great because they are open almost all of the time and there are a
wide range of currencies to choose from. This brings up an important question.
What are the most active forex trading hours?
Generally speaking, the most active forex trading hours all around are between the London markets opening around 8:00 GMT and end with the markets in the US closing around 22:00 GMT. The absolute busiest time in the forex markets are during the London to US overlap between 13:00 GMT to 16:00 GMT. These are the hours that are the most liquid or when the most traders are in the markets making trades. If your intention is to do daytrading, these are key hours!What are the major sessions for forex trading?
There are 3 major sessions each day in the forex markets. They are the London session, the US session, and the Asian Session.
The London
Session
The London session starts around 8:00 GMT and winds down around 1600 GMT. The currencies that are the most active during these hours are EUR, GBP, and USD.
The US Session
The US session starts around 1300 GMT and winds down around 22:00 GMT. The currencies that are the most active during these hours are AUD, EUR, GBP, JPY, and USD.
The Asian Session
The Asian session is a reasonable quiet session on most days. All pairs are pretty slow moving and it is not a good time to day trade. The only real currency that has noteworthy activity is the JPY and the activity is slow unless a major financial event happens.
The London session starts around 8:00 GMT and winds down around 1600 GMT. The currencies that are the most active during these hours are EUR, GBP, and USD.
The US Session
The US session starts around 1300 GMT and winds down around 22:00 GMT. The currencies that are the most active during these hours are AUD, EUR, GBP, JPY, and USD.
The Asian Session
The Asian session is a reasonable quiet session on most days. All pairs are pretty slow moving and it is not a good time to day trade. The only real currency that has noteworthy activity is the JPY and the activity is slow unless a major financial event happens.
Summary
The best hours for trading the forex markets, no matter your method, are during the London and US session overlap. The markets are full of active participants during these hours and the currencies really move. For the most part, even the larger fundamental news comes out during these times. Trading during these hours is your best chance to get in while the market is making decisive moves and it will be your best chance to score quick profits.Mistakes That Forex Traders Make
When getting started in forex
trading, there are common mistakes to be avoided. This is a list of common
forex trading mistakes.
1. Using Too Much Leverage
One of the biggest advantages of forex trading is the
ability to use leverage or trading
on margin. One of the most common mistakes that forex traders make is using
too much leverage. Using too much leverage is when you have a small account
balance, but make a big trade. If the market moves against your position by
just a small amount, it can result in large losses. Commonly, the beginning
forex trader will get emotional and nervous and close the trade for a sizable
loss.
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2. Over Trading
Over Trading occurs when traders try to look for trading
opportunities that are not really there. It happens to new traders very often,
because they just want to trade. The result is usually a poorly executed trade
that results in an eventual loss. Over trading can also result in traders
making too many trades at once and using too much margin.
3. Picking Tops and Bottoms
Many new traders attempt to try to pinpoint where a currency
pair will turn around and start moving the opposite direction. This is
something that is difficult even for professional traders.
4. Buying Systems on the Internet
In a desperate search for that 100
percent accurate forex trading systems, traders search tirelessly on the
internet trying to find that perfect system. The problem is that it simply
doesn't exist. Most of the time, it's just a good way to part with your money
and think that it's for a good reason.
How Flexible Is Forex Trading ?
Understanding the accessibility of Foreign Exchange trading
In today’s world of Smartphones and Tablets, it’s helpful to have a market that is as flexible as you needs determine. The Forex market opens Monday morning in Wellington, New Zealand (equivalent of 5pm ET) and closes in New York, United States on Friday at 4pm ET. In other words, the Foreign Exchange market is open 5 full days a week and 24-hours a day.Trade When You Want
The Foreign Exchange gives you the opportunity to access market opportunities when you’re available, not only when the New York Stock Exchange is open. This means that if you work a 9-5 job but you’d like to trade the market when you get home, Sydney & Tokyo are trading and there are likely great opportunities from news events awaiting you. During the US evening or Asian morning, the most active pairs are the Australian Dollar, New Zealand Dollar, & Japanese Yen.
If you’d rather spend time with your family and not worry about trading when you get home, then you have access to the London Market which is open from 3:00 am to 12:00 noon EST and is often home to some of the biggest moves. However, it’s best to be careful when the market is too violent as a news shock can have a trade move quickly against you.
Of course, if you’re reading this from outside of the United States, then you can trade the US session as New York opens at 8:00 am to 5:00 pm EST. However, I must warn you from years of trading experience, the most valuable time to trade trends or catch big moves are from 8:00 am-12:00 EST as London & New York overlap. After 12:00 pm EST, the market is really quiet and the main opportunities are reserved for Range Trading where price really does not break out into a trend but rather stays in a well-defined price ceiling and price floor.
Bottom Line: Whenever you’re available to trade during the business week, the FX market will be available to you with unique opportunities depending on your availability & preference.
How Can I Access the 24-hour Forex Market?
The world is flush with Foreign Exchange brokerages. This is a major benefit to you because brokerages will continue to offer more trading resources while enticing you to trade with very low costs for entering. In addition to more resources at better costs, many of the major brokerages are answering the call of their ever growing clientele by offering sophisticated mobile platforms.
As you can imagine, the benefits of a good mobile platform are many. However, you will likely have access to enter or exit a trade if you have your phone or tablet on you. Additionally, you can monitor your open trades so that you can keep control of your trades when the Bank of Japan has a rate announcement meeting or that Australian GDP is soon to be released at 9:00pm EST in New York.
Bottom Line: Regardless of where you are in the world and you’re availability, if you’re keeping up with the basics of technology, the Forex market is easily accessible.
How much capital should I trade with?
This is where many traders get into trouble. As a rule of thumb, you should look to see how large of a trade you will need to open the trades that you’re comfortable with to see how much margin is needed. When you know how much market is needed you should look to keep three times the margin to give you necessary breathing room on any and all trades.
Bottom Line: Trading with too little capital is a dangerous trapthat is easy to fall into. It’s often better to give yourself and your tradesmore breathing room so that you’re not forced to make a decision under duress.
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