Also known as the currency market, Forex (FX) is the largest investment market in the world. Every day, 4 to 5 trillion dollars of notional value is traded on this market against 25 billion dollars on the New York Stock Exchange. The importance of the Forex market was mainly due to professional traders. But with the development of currency trading platforms, retail traders got into forex because it suited their investment goals. We invite you to discover the essentials of Forex trading.
The Market Price Quotation System
The spot markets and derivatives markets where foreign exchange transactions take place provide advanced access to futures, options and currencies. For individuals, trading forex involves speculating on whether prices will rise or fall on each closed position, whether they are winners or losers. In contrast, most institutional foreign exchange activity serves to diversify large portfolios. Also, to hedge against exchange rate and interest rate risks.
One of the main characteristics of this type of market is the way of quoting prices on the foreign exchange market. The only way to quote a currency is to quote it with other currencies. Since currencies are the very foundation of the financial system. We then obtain a relative evaluation measure which at first seems confusing but becomes normal as we work with this bilateral agreement for a longer period of time. Moreover, offering great flexibility to the trader, foreign exchange transactions allow him to express his transaction in relation to the currency he considers most appropriate.
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How currency pairs work
The most liquid currency pairs are those with the highest supply and demand in the Forex market. This supply and this demand are created by companies, banks, importers and exporters as well as traders. Surely you have heard of the most liquid currency pairs which are the major currency pairs like EUR/USD. And that moves an average of 90 to 120 pips per day. This pair, of course, offers more opportunities for short-term trading. There are also AUD/NZD and USD/HKD currency pairs. They evolve respectively between 50 and 60 pips and 32 pips per day. Note, however, that minor and exotic currencies offer many opportunities if you know a particular currency.
Various factors influence the forex market on a daily basis. Regularly scheduled data releases drive the majority of ups and downs in currency pairs. This is why traders follow the 24-hour economic calendars closely and especially when the numbers don’t match the experts’ predictions. Global shock events, political developments, a skirmish, elections or even a natural disaster leading to price volatility also affect the currency markets.
The Secret to Success in Forex Trading
Timeframes and market-specific variables are generally used to differentiate trading strategies in the forex market. For example, one method is to trade market changes in minutes or days. As a beginner, it is ideal to use a forex demo account to test different forex strategies and determine the relative success rate and suitability. You also have the opportunity to experiment and select your favorite technical indicators for entry and exit points and finally combine the elements of various strategies.
Truth be told, there is no real secret to success in Forex trading. It is important to provide the necessary efforts to become a real trader, in particular by working on patience and discipline. This is even the mistake of new traders who do not devote enough time to investing. It is also necessary to cultivate a winning attitude while remaining realistic. Your trading can be profitable when you acquire the necessary skills and knowledge and learn from your mistakes. Now that you know the basics of forex trading, all you have to do is get started in this world that is very popular with traders.