Trading forex markets - The appeal of trading currencies over other asset classes includes excellent market liquidity and 24-hour markets for five days a week. But it's key for traders to understand the product and market and ensure they have a stringent risk and money management strategy in place.
Currency trading is a relative game, whereby you are playing one currency against another. If you feel the Australian dollar will appreciate against the US dollar (for example, you think the AUD/USDexchange rate will go from $0.7100 to $0.7200) you buy the pair. That's known as 'going long'. The directional bias is expressed through the first named currency (in this case AUD), but your profit and loss is derived in the second named pair (in this case USD).
The role of technical analysis in FX tradingTechnical analysis has a large role to play in FX trading, and should be considered as a risk management tool even if trading is based on fundamental analysis. It is an integral part of identifying trends, momentum, risk/reward and entry and exit points. There's also the study of price action, which many confuse with technical analysis. This involves the likes of candle stick analysis and the visualisation of supply and demand, which of course are at the very heart of trading.
Essentially a chart is a road map of supply and demand, amalgamating the activity of every single market participant at any given time. Markets are highly effective aggregators of news and therefore charts can show how markets view current issues such as politics, potential monetary policy changes by a central bank, the underlying economy or overall sentiment at a macro level. Of course positioning and other capital flows also play a big part in short-term moves.
Understand the key players in forex marketsThere are many players in the FX market at any one time. Exporters, leveraged funds, macro-focused funds, real money accounts (insurance and life funds), retail traders and reserves managers (who transact on behalf of central banks) are the key players. This diverse range of participants ultimately means there are many opinions and varying thought processes in the market, all with different time frames and tolerance to risk. A great way to rationalise this flow and bring it all together is through price action and technical analysis.
Using one's gut feeling to form a trading view can often prove wrong, so let price guide you. It's perfectly OK to be wrong, just as long as you don't stay wrong and this is where discipline plays a big part. Successful traders will let profits run and cut their losses as soon as they can. Emotion is the number one reason traders lose money. Some traders will target a higher win/loss ratio, in which case they will not have to worry so much about letting profits run as far, but importantly there isn't really one right or wrong strategy as long as the maths provides an edge.
Fundamentally, the forex markets take time to truly comprehend and harness, and truth-be-told even the most seasoned traders are always learning. Currencies are essentially driven by global capital flows and the perception of the value of money. However, there is so much more that goes into a currency valuation, or what many will label a 'fair value'.
This so-called 'fair value' in the FX market is highly subjective and there really is no universally recognised text book equation which we can adhere to. Compare this to equities, where the textbook 'fair value' is calculated as the 'net discounted cash flow of future earnings', while in the bond market this is the 'net discounted cash flow of future interest payments and principal'. In theory this makes FX trading all the more interesting, but it also highlights just how important risk and money management are.
What drives a currency?Each currency will have external influences they are more sensitive to, and what drives the Australian dollar, for example, will often be different from that of the British pound, Japanese yen, US dollar or the euro. Timeframe is important and the different influences change over a short, medium and longer-term perspective:
Of these, the single most important variable trader is volatility. Volatility directly affects risk and money management, whereby range expansion will generally mean placing a stop further from entry and taking position sizing down. Increased volatility will often see demand for currencies of countries whose economies run a current account surplus, such as the Japanese yen, euro or Swiss franc. These nations are global net creditors and in times of stress, funds will repatriate to their currencies.
In times of lower volatility, tighter price ranges and heightened risk appetite, then traders will tend to buy currencies where yields in their bond market are higher - the Australian and New Zealand dollars and many emerging market currencies for example. This is known as the 'carry trade' and traders will fund this position by borrowing (funding) in a lower yielding currency.
There are many other trading strategies used by currency traders. This may all sound daunting, but traders need to find a strategy and trading plan that is right for their individual circumstance. Find a plan that provides an edge, whether that is trading currencies using fundamentals, technicals or a combination of both.
This article was written by Chris Weston for IG Markets on May 06, 2016.
This article published in collaboration with Scutify, the best app for traders and investors. Download the Scutify iOS App, the Scutify Android App or visit Scutify.com.
Forex Broker Inc. – Trading Forex has never been so easy
Forex has also become one attractive investment for Bitcoin holders, and many of them are now starting to trade in Forex Markets. Because forex is a $5.3 trillion-a-day market, with most trading concentrated in only a few currencies, there are always a lot of people trading.
There are a lot of Forex Brokers to choose from and most forex accounts are made up of low, competitive commissions and super-tight spreads. To pick a good Broker you should do your own research and before start trading, you should first practice your skills with a demo account.
Forex Broker inc. offers new users a demo account and a no deposit Bonus for those wanting to try out some forex trading. The company offers a great set of trading products such as Forex, Spot Metals, CFD’s, Energies, stocks, spreads, and swaps. Forex Broker inc. also offers a lot of benefiting promotions like special loyalty bonus, FB tournaments, VIP status accounts and raffle, welcome bonus, and non-farm payroll competition. At Forex Broker Inc, even U.S based traders are welcome. Established in 2012 and based in Malta, Forex Broker Inc is regarded as a USA Forex Broker friendly broker that is committed to offering its traders the best possible service in the industry. With their low spreads and 24/5 customer support, they offer value for money.
Forex Brokers inc. uses the most popular platforms; traders can choose between online platforms or downloaded versions. All in all, there are five main versions of trading platforms: Meta Trader 4 (MT4), Meta Trader Mobile, Sirix WebTrader, iPhone Trader, and Sirix Tablet.
Forex Broker Inc. only takes $5 to open a trading account. The $5 minimum initial deposit applies to all types of accounts. So, if you’re into trading Forex and looking for the right place to start you might want to check out Forex Broker inc.
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ANALYSIS | May 12, 05:07 GMT Joel Kruger JKonFX
A GOOD SWING - Trading is a bit like golfing. It's a lot of fun when things are going well, but can be devastatingly frustrating when they aren't. The trick to good golf is a good, consistent swing. If you can find that same swing time and again, you should put yourself in a great position to succeed on the course. The same can be said for trading. If you stay disciplined and consistent and don't deviate from your methodology, you will be putting yourself in a great position to be profitable.
CLUB IT DOWN - The trouble is that it can be hard to keep that same swing running all the time. And the moment the swing isn't feeling the same, everything goes to sh%#t. As traders, there will be times when we lose our focus and take a misstep. It's very hard to continue with the same level of focus over an extended period of time. But it is absolutely imperative that when we find ourselves unable to trade the way we know we should be, to do what we would do out on the golf course in a similar situation. Out on that course we would club it down.
REDUCE SIZE - If the driver ain't going for you, pull it back to an iron and make sure you are taking a little risk off in order to ensure that you are able to find your way back. If you feel like your trading isn't going well and you've lost that edge, reduce your position size and trade smaller until you feel ready to scale back up. One bad shot isn't going to ruin you, but if you keep clubbing away with that driver to try and get it back, you are destined to kill your game. Make sure you club down and not up. Make sure you aren't increasing your size but reducing it.
IMPORTANT NOTE: Trading forex, futures or futures options carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. This website and its information does not take into account your investment objectives, financial situation, or needs. Before deciding to trade forex, futures or futures options you should you should carefully consider your investment objectives, level of experience, and risk appetite, as well as obtain advice based on your unique situation before making any investment decision based upon this forum or any information contained within. This forum and the information provided here should not be relied upon as a substitute for extensive independent research before making your investment decisions. JKonFX is merely providing this website for your general information.
Past performance is not necessarily indicative of future results. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. JKonFX will not be responsible for any losses incurred on investments made by you as a result of any information contained in this website. You should be aware of all the risks associated with forex, futures, and futures option trading, and seek advice from an independent financial advisor if you have any doubts. In addition, the information contained on this website is not intended to be investment, legal, accounting, tax or other professional advice. If such advice is sought, or other expert assistance is required, the services of a competent professional should be sought
All CFD traders are aware of the fact their success and work is not confined to whatever happens in the trading office environment. It is important for traders to move around and meet clients and this can curtail many of their trades. FXB Trading uses several different mobile platforms so that traders can monitor their orders and place new trades.
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