Definition : Forex is short for Foreign Exchange. Hence you find the term “ forex trading “ which simply means the trading of foreign currencies. This is the largest daily trading volume market with over $3.2 trillion traded everyday.
Difference between Forex market and Stock market.
⁃ Most Forex firms don’t charge commission instead you pay bid/ask spreads, which will be explained below.
⁃ Forex market is a 24 hour trading market. Monday to Friday. So essentially you can they are the McDonald’s of financial markets.
⁃ Forex has very small barriers to entry , in a sense that very little capital is needed to start.
⁃ There choices of currencies to trade are small relative to the number of companies you can buy stocks from.
4 Main trading sessions worldwide
1.Sydney : ( AUD & NZD )
2.Tokyo : Asian session ( JPY )
3.London : European session ( GBP, EUR & CHF )
4.New York : American session ( USD & CAD )
⁃ Forex currencies are quoted using their names. This is displayed with the chart an example would be USD/ZAR.
⁃ In the above example of currency we see two currencies being quoted.
⁃ First currency quoted in a currency pair in forex is regarded as the base currency
⁃ The USD is the base currency, what that currency means is, the USD is being traded against the ZAR.
⁃In the above example of currency we see two currencies being quoted.
⁃ Second currency quoted in a currency pair in forex is regarded as the quote currency
⁃ In this case our quote currency is the ZAR.
Cross Currency Pair
– A currency pair that does not the USD as either base currency or quote currency.
– There are number of factors that contribute to the fluctuations of currency pairs. Here are the most prominent
1. Interest rate changes
2. NFP ( employment data released every first Friday of each month in the U.S)
3. GDP data
4. Inflationary changes
5. Central bank meetings ( FED, BOJ, BOE ,ECB there are many more )
⁃Pips are the smallest price change that a given currency pair can make.
⁃ Most currency pairs are priced to 4 decimal places so that’s the change you’ll witness with the last decimal.
⁃ The only exception is JPY pairs which are quoted to the second decimal.
Bid and Ask Price
⁃ Ask : This is the price you pay when you enter a long position ( buying a trade ) This is always higher than the bid price.
⁃Bid : This is the price you pay when you enter a short position ( selling a trade)
⁃Spread : The difference between in the values of the bid and ask , it’s also the cost of trading and commission for the broker.
The what and how of forex
Forex is the foreign exchange market where people, businesses, companies and entities trade ( buy and sell ) currencies, commodities, indices , and cryptocurrencies.
The basic idea and logic behind trading is that you “buy low and sell high”. When a currency is weak relative to its usual strength it would be ideal to BUY it and then SELL it once it has gained value ( its strength increased).
To start trading the real/live markets, one must have gone through some training and must have gained experience on a demo account and through back-testing of their chosen systems.
There are two ways in which one can analyse the markets in order to execute (buy or sell) a certain currency pair, index, cryptocurrency or commodity; those being Technical Analysis and Fundamental Analysis.
Two very important characteristics of traders are: PATIENCE and CONFIDENCE, yet good companions to those two are Discipline, Focus and Consistency.
To give my personal opinion; the two reasons why some ( or most) people who try out trading the forex market don’t prosper is because
1) They think that forex is a “get rich quick scheme”
2) People want to make money without PATIENTLY LEARNING how to make money.
Orapeleng Malebye, Founder of MetaForex Trader SA
⁃ You need to understand the risks involved with forex trader is not for everyone.
⁃ Consider the following when applying risk management
⁃ Investment experience
⁃ Risk tolerance
⁃ Purpose for investment
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