Forex stands for foreign exchange or FX. It is the exchange of one countries currency against another country’s currency. It always involves two currencies. They are presented together and presented in GBP/USD, JYP/USD, NGR/USD format. The first currency is the base, while the second currency is the quote. The sellers always have two prices for them. The smaller price is the price they want to buy from you and it is called Ask price and the higher price is the price they want to sell to you and is called bid price. They buy low and sell high, the difference is their profit and is called spread.
The difference is also called PIP, In the Example above, the difference is 2pips.
1.0920-1.0922 = 2pips Price is stated in 4 decimal places except in Japanese Yen which is stated in 2 decimal places. Sometime prices may be stated in 5 decimal places or 3 decimals for Japanese Yen but the last digit is not considered often.
Forex market is a market place where various countries’ currencies are traded. It is not a conventional market where one will drive to shops or supermarkets and buy items or sell wares. Forex market is virtual market where the transaction is carried out without any physical contact between buyers and sellers. Anybody with a computer and internet connectivity can participate in the market after following due processes. Even an internet enables android phone is enough to login into the market. It is open 24hours a day and 5 days a week. There are 5 major markets.
|MARKETS||TIME OPEN (GMT)||TIME CLOSED (GMT)|
In the past, only banks and big financial institutions participate in forex market but now it is available for everybody. The big banks provide the finances for the trade. The brokers connect you to the network and provide access to general public to trade.
- Central Banks: They influence the currency exchange market rate by their policies like interest rate etc. that open at different times but overlapping in some cases. This is why the market is available 24hours a day. The major markets are: EUROPE, LONDON, US, AUSTRALIA, JAPAN/TOKYO
While the market is open 24hours a day for best result, different currencies are traded at different times by the professional traders.
- Commercials Banks: They provide liquidity to their market. They influence the prices by their big market moves. When they place a buying order, the price is likely to rise because of high demand and when they flood the market with the currencies, the price will fall.
- Financial Institutions: Managers, pension funds, brokers also participate in the market.
This is where small transactions occur, the players are:
- Hedge Funds: These are financial speculators who buy low and sell high to make a gain.
- Corporations: This are mostly importers and exporters who need foreign exchange for their businesses. They patronize forex market to get better exchange rate.
- Individuals: These are Individual players who mostly participate in forex market for a margin.
HOW TO START FOREX TRADING
Just like everything in this world, one needs knowledge to succeed in it and knowledge is power. The Universal business concept of buy cheap and sell high also applies in Forex. However, forex is not like any other business where one buys materials with money from one market and develop it or take it to another market to sell. In Forex Market one is buying cash directly and selling same in the same market without any value addition. Your product is not in any way different from others. The only value addition is the time factor when prices may rise or fall due to some error factors completely outside your control. It is therefore necessary for one to master the market well before starting. The unfortunate thing is that a lot of traders jump into it with little or no knowledge of the complexity of the market. It is a very complex market requiring deep knowledge on:
- Trading system
- Position Sizing and money Management
To Trade Forex, one needs to get a good broker to register with. The steps are:
- Get a Trusted Broker: This is very important aspect of your trading journey. A bad broker can ruin your trade in several ways, unfortunately there are several bad and scam brokers around.
- Understand the Brokers Terms and the type of accounts offered.
- Register with the broker
- Fund your account wallet
- Start trading.
- If you lack knowledge of Trading Register with a Fund manager on the broker’s site.
In this your journey to trade forex, we can come to your assistance in:
- Selecting a broker
- Selecting a Fund Manager
STARTING FOREX TRADING
The first thing to do is to understand what forex is all about. There are 4 major types of traders in forex. Each will suit a different individual. One needs to know oneself to find a suitable system to apply. About 60% of forex trading depend on one psychology. It is therefore necessary to evaluate yourself and know your weakness and strength well. Are you an emotional person? Do you have enough time to trade? Do you have enough composure to trade? All these have a place in your trade. The 4 types of forex trading are:
- The Scalpers: These people have time to sit before a computer and watch their trade. They can carry out several trades a day. They open a trade and make a small profit and close it. They don’t have the patience to plan a trade for several hours’ days or weeks.
- Day Traders: This people can sit down plan a trade or two trades a day. They analyze the market and plan when to enter and close a trade. They aim bigger profit than scalpers and are patient enough to achieve it.
- Swing Traders: This are long term traders who can plan for a trade a week. They usually have big funds to be able to accommodates negative fluctuations in the market before the trade turn in their favor. They can do only 2 to 4 trades a month.
- Position Traders: These are the biggest traders and they aim higher profits per trade. They can trade once a month or in months.
Having identified the appropriate trading system to adopt, you need to have the technical skill suitable for each system. The skills are not mutually exclusive but some are more suitable and give better results than others in some systems.
The Skills are:
- Fundamental Analysis
- Technical Analysis
- Price Action