If you are an ordinary independent investor, it’s unlikely that you have an in-depth knowledge of the foreign exchange (Forex or FX) market – and there’s a really good reason for that. Until recently, Forex was a trading market that was available only to large financial institutions, corporations, hedge funds, central banks and very wealthy individuals. Fortunately, it is now much easier for the average investor to leverage the power of the Internet and reliable online brokerage accounts to buy and sell currencies with the click of a mouse.
Before looking to use Forex signals in your trading, it helps to understand some of the basic terminology:
- Currency pair: The Forex market trades by valuing one currency against another, with the “base currency” being the first of the set and the “quote currency” being the second. Currency pair shows the buying power of the quote currency against the base currency.
- Leverage: Borrowed capital used to increase an investment’s potential return
- Liquidity: How quickly an asset or security can be bought or sold without affecting the market price of the asset.
- Position: A trade that an investor currently holds open
- Spot Market: Market where contracts are effective immediately – goods are sold for cash with immediate delivery.
- Forward Market: Binding contract for over-the-counter (OTC) market, setting the price of financial instruments for future delivery.
- Futures Market: Participants buy and sell contracts for future delivery; this is an auction market.
Fluctuations in currency are tiny on a daily basis; often representing a change of 1% of less between currency pairs making FX trading one of the least volatile financial markets. Since the market is so stable, in order to increase the value of potential movements, traders rely on leverage as high as 250:1 to make the movements as meaningful as possible for currency traders.
Currency prices are based on supply and demand, which are highly objective and the market is large enough that it cannot be manipulated even by the largest central banks or individuals. With the ability to open and close positions within minutes or hold them for many months. There are plenty of opportunities for savvy investors, but understanding the basics behind currency movement is critical in order to be successful.
So… what is Forex?
The “place” where currencies are traded is called the foreign exchange market (shortened for convenience to “Forex”). Whether you realize it or not, currencies are important to people all over the world, and are required in order to conduct global business. The daily need for currency exchange is what makes the forex market the largest market with the highest liquidity in the world, dwarfing the stock market and trading an average of around $2,000 billion per day.
Oddly, there is no single central marketplace for this exchange to take place – instead currency is traded online via traders around the world. Trades take place 5-1/2 days per week, 24 hours a day in the major financial centers of New York, Tokyo, Hong Kong, London, Zurich, Frankfurt, Sydney, Paris and Singapore and across every time zone – meaning it is always open somewhere around the globe.
Spot Market, Forwards and Futures Market
The three main ways that forex can be traded are on the spot market, forwards market and the futures market. Trading in the forwards and futures markets is all based on the underlying real asset, so the spot market has always been the largest. References to the forex market generally mean the spot market for foreign exchange trading; the spot market is where traders use the current price to buy and sell forex. This bilateral transaction occurs when one party delivers currency at the agreed-upon rate to a second party, receiving exchange value of another currency.
By contrast, the forwards markets does not actually trade currencies; instead contracts are brokered between two OTC parties who mutually agree upon terms. The futures market involves buying and selling contracts for settlement on public commodities markets at a future date. These contracts contain details includes dates such as the settlement, delivery date and incremental customizations in minimum price.
These contracts are binding and settled upon expiry for cash, although they are often bought and sold before they can expire. Risk protection is provided by the futures and forwards markets, more so than in the spot market, and international organizations often hedge against future exchange rate fluctuations by utilizing these markets.
Reading a Forex Quote
Currency quotations are done in relation to another currency, reflecting the value of one currency in the standards of another. Hence, the rate of exchange between USD (U.S. dollar) and JPY (Japanese yen) could be expressed by this currency pair equation:
The base currency is found to the left of the slash, while the quote or counter currency is found to the right; with the base currency always being equal to one unit with the counter currency the equivalency in the other currency. Therefore, you can read this currency pair that US$1 can purchase 119.50 yen.
Introducing Forex Trading Signals
While foreign exchange trading can be incredibly lucrative, you need to utilize the most reliable forex tools available to you in order to save you spending hours of watching and waiting for possible entry and exit points. This is where FX signals can help, they are available for anyone who hasn’t quite got the time to deeply examine the market – allowing you to pre-set the limit-level and stop-levels for your trades. Pre-setting this information removes the limit to profit-making opportunities.
Forex signals can help support your revenue opportunities and free up your time. They are essentially buy and sell indicators, used to let traders know about upcoming good entry or exit points in the market. There are a wide range of live forex signals generated by FX signal services who monitor the market – sending recommendations to the traders’ computers and cell phones indicating that a positive trade is available.
Main methods of receiving signals:
- Via Email
- Via SMS
- Via an App
How Live Forex Trading Signals are created…
A technical analysis of the foreign exchange market is used to create forex trading signals, utilizing indicator points to define market trends. By analyzing these trends, software and master traders are able to identify favorable entry and exit points; and this information is sent to signal services allowing them to keep traders informed.
Some of the different indicators used to generate signals include:
- SMA (Simple Moving Average): A currency’s SMA is calculated directly from currency charts. When the price of a currency moves above the simple average line, buy signals are generated; when the inverse occurs the signal is sent to sell.
- MACD (Moving Average Convergence Divergence): The 26-day exponential moving average (EMA) indicator is defined by the relationship between the 26-day EMA and the 12-day EMA, with the 9-day EMA serving as a “signal line” which acts as a trigger.
- Volume: Used as an indication of the market’s interest in specific pairs of currency, the volume indicator movement shows a new trend may be starting.
- Bollinger Bands: Tightening of a band’s width for a pair of specific currencies often precedes volatile exchange prices.
A successful day trading strategy depends on receiving high quality live forex signals any time of the day or night, so working with a trusted exchange partner is critical.
Risks Involved in Forex Trading
While it may seem that all the risks have been managed out of forex trading, that is not entirely accurate. Excessive use of leverage during volatile market situations may result in excessive losses, and a significant rise or drop in interest rates throughout the currency markets can affect all currencies. There are also risks in timing: the forex market is open 24 hours a day, meaning time differentials can have a huge impact on the market. There are country risks as well – instability in a political movement or even outright war can cause significant shifts in currency rates which will have a ripple effect.
Choosing a Forex Signals Providers
Using the right signals provider is critical, as they will make the difference between receiving your fx signals quickly enough to take an action, and that the signals are as accurate as possible. While in the past, day trading strategy had as much to do with an individual’s personality, trading plan and exit strategy as anything else, forex trading today is much more structured in many ways. Avoid missing out on a big opportunity by choosing a forex signals provider you trust.
There are a number of Forex signals providers to consider, many who are good for first-time investors. It is always best to choose a reliable provider who has a proven track record, and one that has been operating for a little while.
In conclusion, while Forex signals trading does have a risk associated with it, the risks are far less if you choose a provider who can offer you reliable signals, but again do remember that if you are trading the signals on a live account you are fully responsible as Fx Signals Service are for informational purposes only. Forex trading can be very lucrative for the right investors, and signals providers can help even the newest investors enter this exciting market safely.