As the largest and most liquid market in the world, the Foreign Exchange market is also the most accessible. Trading 24-hours a day from Sunday evening until Friday night, means you can trade the opportunity as you see it. Whether you're after short-term volatility or long-term price trend, you can trade FX based on international news or economic fundamentals.
In this beginner's guide to FX trading, we outline the benefits of trading currency pairs over other trading traditional stocks and shares while outlining the trading options available as well as how to manage your accounts and the tools which can help to minimise risk.
Currencies Paired with the US Dollar
Historically, the US Dollar has been the most traded currency in its role as the world's primary reserve currency and is involved in around 90% of all currency trades. As a result, the Dollar has the most profound impact on the forex market because it is paired with many major currencies including the EUR/USD, GBP/USD and USD/JPY. There are dozens more major, minor and exotic currencies to be traded, including the Swiss franc, Australian dollars, Canadian dollars and many more..
Multiple Influences on Movement
Forex trades are based on the exchange rate between two currencies, such as EUR/USD. This exchange rate will then move as investors gauge a range of constantly changing factors from economic data, political decisions, social unrest and even natural disasters. As a result FX traders, particularly short term traders, tend to base their currency trades in reaction to significant events in the belief that they will have a pronounced impact on the market.
For example In December, the sharp rise in US Non Farm Payrolls gave stronger signs of the US economic recovery, giving additional strength to the US dollar and pressurizing the value of other currencies which were paired against the dollar.
Flexible Leverage
Forex is a leveraged product enabling you to trade by paying a small fraction of the equity that would be needed to fund a trade. This means you can potentially magnify your returns on an investment. The flexible leverage can also be increased up to 50:1. Remember though that higher leverage can result in losses that exceed your initial deposit. This is why risk management should always play a crucial role in your trading strategy.
Risk Management
Because foreign exchange can be a volatile market and all trades are leveraged, trading currencies requires careful risk management and a considered trading strategy. Your positions can be managed efficiently using stop losses and limit orders to help minimise losses and lock in profits at predetermined levels set by you.
It is also important to outline a profit target and know exactly how much you are prepared to lose before you place the trade. By creating a carefully considered strategy before you start trading, your key decisions are already made, leaving you free to follow the market movements and react to them as they happen.
Learn more about foreign exchange with FX Solutions at: http://www.fxsolutions.com/learn-to-trade/
Forex trading involves substantial risk of loss and is not suitable for all investors. FX Solutions is compensated through a portion of the bid / ask REMOVE.
About FX Solutions:
FX Solutions is a leading foreign exchange broker with a focus on advanced trading technologies, transparency of transaction and unparalleled customer service. FX Solutions serves retail clients, white label partners, institutional trading partners and introducing brokers in over 140 countries.
