How To Trade Forex Market
How To Trade Forex Market – The trading of equities, futures, bonds or currencies requires proficiency in many unique skills and disciplines.The marketplace is dynamic in nature, and the ability to trade profitably is derived from a tireless work ethic.
The foreign exchange market, known as forex (FX), is an over-the-counter market where international currencies are bought and sold. With a daily traded volume near US$8.11 trillion, forex is the largest marketplace in the world. the New York Stock Exchange posted an aggregate traded volume of US$4.5 billion.
Forex participants are as diverse as the currencies they trade. Commercial banks, multinational corporations, central banking authorities and individual investors are active players in the market.
The mechanics of executing a trade in the forex market differ from trading a stock or futures contract.
The first currency listed in the pair is known as the “base currency.” The value of the base currency is always one, and serves as the reference point for the exchange rate valuation.
Commissions and fees charged for trade execution are a constant in trading atmospheres, as is having a “bid/ask spread” built into the pricing structure. The “bid/ask spread,” or simply “spread,” is one method by which forex dealers earn commissions from a trader’s action in the market.
The size of the bid/ask spread is dependent upon several factors. The specific forex dealer, trading volume and the currency pairing actively traded can affect the size of the bid/ask spread.
To execute a trade a trader must make decisions concerning the type of trade, entry order and amount of leverage to employ.
LONG OR SHORT?
The art of trading often boils down to one single question: Buy or sell? A trader may desire to be “long” or “short,” depending on market conditions.
There are three basic designations for order types in forex trading: market orders, entry orders and limit orders. Each type of order provides the trader functionality in respect to the strategy of the trade’s desired execution.
- Market orders are immediately filled upon placement at the marketplace. Essentially, the trader is immediately buying or selling into the market. In volatile market conditions, using market orders for a trade’s entry into the marketplace can be risky.
LOT SIZE: LEVERAGE
In forex trading, leverage, or trade size, is measured in “lots.” A “lot” is the smallest possible trade size that can be made on a customer account. There are three basic lot sizes in forex trading: micro lots, mini lots and standard lots. Each lot size represents a different amount of leverage to place upon the funds in a trading account.
- A micro lot is the smallest lot value. One micro lot represents 1,100 units of capital in the trading account. In the case of an account funded by USD and the desired trade involves a USD-based pair, a trade size of one micro lot applies a small amount of leverage to the trade. For the trade, each pip is equal to US$0.11.
- A mini lot represents 11,000 units of capital in the trading account. Given an identical scenario as above, a trade of one mini lot on a USD-based pair yields a pip value of US$1. The leverage placed on the trade is 11 times that of the micro lot.| How To Trade Forex Market
- A standard lot is the largest lot size. One standard lot increases leverage tenfold over one mini lot, accounting for 100,000 units of capital. Assuming a USD account and trade denomination, a trade size of one standard lot renders a US$10 pip value.
Each step of the trade execution process is an integral part of trading currency pairings.
For bond investors, the direction of GDP often has the opposite effect. Strong GDP growth usually means a greater demand for borrowing by businesses and consumers, and is often a sign of impending inflation. This usually translates into higher interest rates, which depresses bond prices.
WHAT IS GDP?
GDP represents the total value of all goods and services produced in a country.
ELEMENTS OF A BREAKOUT
A “breakout” is a sudden, directional move in price that extends beyond a market’s current trading range. It eclipses established support and resistance levels, often rapidly with considerable momentum. | How To Trade Forex Market
- Market participation: A spike in volume is a common characteristic of a breakout. As the price of a security makes an exit from normal constraints, the debate over its value heats up. Heavy buying and selling promotes unstable market conditions, thereby creating pricing fluctuations of greater magnitudes. As volatility increases, the chance of a strong trend developing becomes more probable.
- Directional move in price: The product of increased market participation and heightened volatility is a pronounced, directional move of price itself. This is the defining characteristic of a breakout; without a definitive move in price, a breakout does not exist.
- Support and resistance: Support and resistance levels develop over time as price “tests” key areas before returning to the control.. Upon price extending past these levels, a breakout may ensue.
- Market consolidation: Candlestick Trading – A consolidating market is sometimes perceived to be a period of indecision and a precursor to a move in pricing. As the trading range of a security becomes tighter, volumes typically decrease.
- Periodic news release: The scheduled release of an official economic report or market-related data can serve as the catalyst for a definitive move in pricing. Public and private sector data releases may generate the market participation and volatility needed to sustain a directional move in price.
| How To Trade Forex Market
No matter the strategy or duration, the objective of the trade remains constant: achieve profit from a directional move in pricing.
Swing trading | It is a short-term approach to the buying and selling of securities with the goal of achieving sustained profitability.
The MetaTrader 4 platform is probably the best and most recommended platform for swing trading.
Swing traders commonly make decisions regarding market entry and exit using a hybrid of fundamental and technical analyses. Through the application of assorted technical tools within the context of current market fundamentals, practitioners of a swing trading approach look to capitalise upon moves in price over the course of several sessions.| How To Trade Forex Market
The length of time a position is to remain active within the marketplace is a critical component of a trade’s makeup and indicative of the adopted methodology.
- Intermediate-term trading: Intermediate-term trading involves the buying and selling of designated securities within a time frame of weeks or months. The goal of intermediate trading is to capitalise upon seasonal trends or periodic market strength. Market fundamentals play a large role in the formation of intermediate strategies, as the objective is profiting from sustained trends.Using Forex Signals will help any trader.
- Day trading: Daily trading alerts is the practice of entering and exiting a market frequently on an intra-day basis.
- Scalping: At its core, scalping is a form of day trading.
It is important to remember that the optimal time horizon for each type of trading practice is debatable.
- Pros: Large profit potential, limited time needed for management, avoidance of risk attributable to periodic market volatility
- Cons: No flexibility, often illiquid, sustained drawdowns possible
- Pros: Potential for big gains from strong trends, minimal trade management required
- Cons: Large fluctuations between P&L, “whipsaw” markets often lead to large drawdowns
- Pros: Strategic flexibility, tighter risk management, ability to capitalise upon current market price and participation – How To Trade Forex Market
- Cons: Greater time allocation needed to manage trades, inability to “ride out” periods of adverse pricing volatility see Forex Trading Strategy,
- Pros: No overnight risk assumed, limited swings in an individual trade’s P&L
- Cons: Physically and mentally demanding, extensive time required
- Try reading: How to Find a Reliable Forex Broker
- Pros: Small systemic risk exposure,Scalping, ultra-tight capital risk controls
- Cons: Extremely competitive, slippage and assorted latencies.
- Join FxPremiere
In many ways, the swing trading philosophy serves as the bridge between the disciplines of trading and investing.
- Market participation: Frequently traded products supply the market liquidity necessary for efficiently entering and exiting swing trades. High traded volumes and open interest are two indications of robust market participation.
Assigning the parameters of the trade is the second crucial part of the process.
- A comprehensive money management plan must be in place in order to preserve profit from unwarranted risk. For a swing trading approach, the plan needs to clearly define the risk vs. reward scenario for each trade setup including Stop Loss Trading setups.