What is the Forex Market?
The forex signals market is the ‘foreign exchange’ (or FX) market – which you have no doubt heard of. However, in the name of clarity – the forex signals market is a global marketplace whereby heaps of investors, brokers, bankers, hedge funds and retail investors buy and sell currencies day in day out.
What is the Forex Market?
Forex can be utilised to hedge against interest rates as well as international currencies. Popular ways to trade forex are via ETFs, CFDs.
Leverage can be applied to forex CFDs of up to 1:30 on major FX pairs, and 1:20 on non-major FX pairs.
Forex Market Fundamentals
Now that you hopefully have a clear understanding of what the fx market is, we can go into a little more detail about how to trade it.
Tradable Forex Pairs
If you are interested in buying and selling currencies, you are going to need to know what pairs will be available for you to trade. Although this will also depend on what your broker of choice offers, it is still important to go into the fx markets with your eyes wide open.
What is the Forex Market?
Each and every currency pair comes with an exchange rate. As per the nature of the forex market, this rate will fluctuate throughout the trading day – depending on the supply and demand of the asset. The idea is to try and predict whether you think the price of the FX pair is going to rise or fall – in the short term.
- Let’s supposed that you decide to trade the Euro against the US dollar
- In the world of forex, this pair is displayed as GBP/USD
- The price at the time of writing is 1.18
- Your goal is to predict whether the exchange rate of the pair will rise above or below 1.18
Major FX pairs are made up of the US dollar and another major currency – such as the Euro, the British pound, Australian dollar, or Japanese yen.
- EUR/USD (Euro/US dollar)
- GBP/USD (British pound/ US dollar)
- USD/CHF (US dollar/Swiss franc)
- USD/JPY (US dollar/Japanese yen)
Don’t be fooled by the name, minor fx pairs are far from insignificant. In fact, these pairs are heavily traded on the forex market and will always contain 2 majors such as the currencies mentioned above.
What sets minors apart from majors is that these pairs will never include the US dollar.
- EUR/GBP (Euro/British pound)
- EUR/AUD –(Euro/Australian dollar)
- GBP/JPY (British pound/Japanese yen)
- CHF/JPY (Swiss franc/Japanese yen)
- NZD/JPY (New Zealand dollar/Japanese yen)
- GBP/CAD (British pound/Canadian dollar)
The vast majority of trading platforms will have exotic currency pairs available. For those who are unaware, these pairs will always be made up of one major FX currency, and one emerging currency.
Daily FX Signals
Emerging markets include the Mexican peso, Turkish lira, Thai baht, Uruguay peso, and more. It’s important to note that exotic forex pairs are often much more volatile than the aforementioned currency pairs;
Here are some;
- EUR/TRY (Euro/Turkish Lira)
- JPY/NOK (Japanese Yen/Norwegian krone)
- GBP/ZAR (Pound Sterling/South African Rand)
- USD/THB (US Dollar /Thailand Baht)
- AUD/MXN (Australian Dollar/Mexican Peso)
Understanding Forex Market Orders
Now that we’ve discussed fx pair categories, we should delve into different orders. Orders are a super important part of trading – without them, your broker won’t know what your position you want to execute on your chosen forex pair.
Buy and Sell Forex Orders
When you have determined which forex pair you want to trade, you will need to try and guess which direction you expect the pair’s price to go.
Limit Orders and Market Orders
The next orders on our list are limit orders and market orders. This is essentially the price at which you would like to enter the trade at.
Let’s start by giving you an example of when you might use a limit order:
- Let’s say you are trading EUR/GBP
- The price is currently 1.11
- However, you don’t want to enter the trade until it reaches 1.13
- With that in mind, you create a limit order for 1.13
- Your broker will execute this order as and when EUR/GBP hits that price.
Now, let’s show you how a market order is utilised:
- Let’s say EUR/USD has a buy price of 1.16
- You want your order executed immediately to catch a potential short-term trading opportunity
- As such, your broker will execute your order at the next available price
- In this instance, your order would be executed at a price just above or below 1.16
- This is because currency pair prices move on a second-by-second basis
Spreads in FX
Put simply, the spread is the variance between the buy price and the sell price of the currency pair. It is important to have a firm grasp of what the ‘spread’ is, as it is going to affect how much profit you are able to make from your trading endeavours.
Consequently, trading platforms are going to show you two different prices when quoting a currency pair – the buy price, and the sell price. The contrast between those prices is illustrated in ‘pips’. We are going to cover pips in more detail next, to clear the mist. After all, when trading in the forex market you will see the word pips a lot.
Forex Trading Fund Management
Focusing on your management is only going to enhance your trading expertise and help you to grow as an investor. When it comes to reducing your risk and managing your capital better, there are certain orders and tools which can be invaluable to forex traders.
Leverage is a really important part of trading the fx market for many seasoned traders. To clarify, leverage is offered by the majority of fx trading sites and enables you to trade with more funds than you have in your account.
Let’s explain further – leverage is comparable to a loan. The higher your leverage is, the higher your profit could be – of course, the other side of the coin is that your losses can be a lot greater too.
When it comes to forex, licenced brokers are only allowed to offer retail clients in the UK, Europe, and soon-to-be Australia (meaning not professional) 1:30 on major FX pairs, and 1:20 on exotics and minors.
Automatically Lock in Gains: Take-Profit Orders
Much like stop-loss orders, take-profit orders allow you to set a trade target – so to speak. Whilst stop-loss orders allow you to mitigate your losses, take-profit orders allow you to lock in your gains.
Here is an example of a take-profit order in another hypothetical trading scenario:
- When going long on CAD/AUD your goal is to make gains of 5%
- With that in mind, you place a take-profit order for 5% above the price of the pair
- When that price has been reached, your broker will execute your take-profit order for you to lock in your profit at 4%
Your stop-loss order earlier means you are risking no more than 3%, while your take-profit order has ensured that you exit your position automatically when you make 5% in gains. This is a great way to balance your risk to reward ratio when trading in the forex markets.
Maximum Forex Stakes
When you are considering how to better manage your own trading bankroll, you should give some consideration to the maximum amount that you risk on each position. It is easier to think about this as a percentage rather than in monetary terms (like dollars or cents).
Tried and Tested Forex Market Strategies
We couldn’t discuss trading the forex market without talking about strategies. Once you have a good grasp of the inner workings of a forex trade – i.e what to trade and how to place an order;
Forex Day Trading
People who are day trading forex tend to keep a trade position open for less than a day (hence the name). This can mean closing a position within minutes, or hours. What are indices?
Forex scalping isn’t the easiest way to trade forex. It isn’t as simple to master as other strategies, so is often only utilised by seasoned traders. The aim here is to benefit from the tiny price fluctuations in a trading day.
Forex Swing Trading
If you are a beginner then you might find forex swing trading a sensible option. In a nutshell, swing trading is good for short-term traders who prefer to trade the forex market with a little more flexibility.
Forex Demo Accounts
Demo accounts are not to be sniffed at. They are a superb tool for both forex trading newbies and seasoned currency traders alike. The reason being, online brokerage firm’s offering clients demo accounts allow you to trade in a forex market which mirrors the real currency environment. Not only that but you will be given paper funds, like demo money. Instant Orders
Using Signals and Automated Forex Market Systems
We mentioned earlier that there are shortcuts, so to speak, for those who don’t yet understand technical analysis and price charts that forex trading involves. Or perhaps you just lack the time and dedication needed to get to grips with it sufficiently enough.
You can read more about our forex signals here.
Mirror Trading the Forex Market
This is a fantastic feature which enables traders to copy an experienced trader. In layman’s terms, whatever currency pairs they trade will be reflected in your own trading portfolio.
Put simply, if you decide to copy a trader who specialised in forex and they inject 0.3% of their portfolio in AUD/USD and 0.2% in GBP/USD – then 0.8% of your portfolio is also dedicated to those two pairs.
It’s important to note that you need to make sure your broker is compatible with MT4 before signing up. Of course, there are still no guarantees when using a forex robot. With that in mind, we recommend trying a demo to see whether you like it.
How to Find the Right Online Broker for the Forex Market
In order to kickstart your fx market trading adventures, you will first need to find yourself a good broker. As we touched on, there are hundreds offering a great service, some not so good.
We believe that by selecting a fully licenced broker you are protecting yourself against the dangers lurking in the online trading space. After all, it’s risky business handing your money over to a company which is free from regulation.
At the end of the day, regulatory bodies such as the FCA (Financial Conduct Authority) and CySEC (Cyprus Securities and Exchange Commission) were created to keep the financial services space clean and fair for all.
Open a Forex Market Account
First thing is first – you are going to need to head over to the website of the broker you have chosen. You will usually see a ‘sign up’ button. Click that and a short form will appear.
At this point, you are going to need to enter your name, telephone number, date of birth, and email address. Most regulated trading platforms will also require a government-issued photo ID like your driving licence or passport. This is perfectly normal, as per KYC rules enforced by broker licence providers.
Deposit Funds Into your Forex Account
Now that you have created an account you are going to need to fund it. Otherwise, you won’t have anything to trade forex with. This is usually fairly simple.
Place Your First Forex Trade
Now you are all set up with a funded account – you can start trading in the forex market. You simply need to find your chosen FX pair and create an order.