The Foreign Exchange Market
it is the largest currency market; it spans the globe as an interwoven and continuous market.
As your knowledge about the Foreign Exchange Market grows you will get to know about the multitude of tools available to the Forex trader. The software tools are necessary to analyze the market and for buying and selling of currencies pairs for without these tools the Forex trader will not be able to cope with the volume and volatility that is the Forex market.
To be a successful Forex trader means you have to be knowledgeable about much more than just the current exchange rates. You need historical data as well as current up to date information about political situations, prevalent economical conditions and any other data that could have an influence on and affect the behaviour of currency prices.
Forex trading is a game of speculation, being able to predict whether a currency will rise or fall against other currencies and for this to be successful the Forex trader must be in the know as to up-to-the- minute information about political factors as well as economical indicators that would influence this. He must analyze current and historical data to be able to form a clear picture as to how the currency will perform in the market.
There are a number of tools that the Forex trader can make use of so as to maximize his profits and try to minimize his losses and all traders make use of these tools if they want to stay in the Forex game.
Pivot Points: These are calculated on the average between the high, low and closing prices of currencies and can then be used to predict the movements of currency prices. Pivot points indicate where prices are in the extreme trading ranges or whether they fall inside the normal range.
Risk Probability Calculator: The RPC is used to identify trades that show more potential gain over those that show a potential loss. The RPC is also utilized to target exit points to end trading.
Pip Values: With pip value calculators you are able to tell the actual profits or losses that will result from movements in the Foreign Exchange Markets.
Logging your Forex trades: You log onto the trading station platform provided by your broker. You enter the currency pair you wish to trade and the exchange rate will appear on the screen. You then enter the amount of currency you are willing to buy. Some trading stations give you the option to specify the amount you are prepared to risk. This automatically sets a ‘stop loss rate’ into your order, at the same time you can also enter a ‘take profit rate’ to automatically sell again when reaching a certain level. Once you have entered all the relevant details, you will be taken through to the confirmation screen where you accept the currency price as displayed on the screen. There may also be an option of ‘freezing’ the price as quoted; meaning the price of your transaction will be exactly as seen on your screen, there will be no slippage. Once you have accepted the rate, the deal is done and you have placed your trade successfully.
It is wise to make use of all the available tools to simplify your trading, it frees up your time and you do not have to watch your account all day long.
Trading in currencies is not a new concept at all, the market for buying and trading Foreign Exchange has existed since the time that different countries have used different currencies. The trading of these currencies have however always been the domain of large institutions and banks. The birth of the Internet revolutionized the Foreign Exchange Market and given access to everybody who wishes to trade in Forex. It is no longer restricted to the high-rollers; the playing fields have been levelled in the favour of the little players.
The Internet created retail Forex trading whereby anybody can open an account with an online Forex broker and start trading currencies. Through the Internet the Forex broker can now reach individual traders and offer them most of the services that in the past were exclusively for banks and institutions.
Forex Brokers: The Internet has made possible the creation and utilization of the trading platform. As part of their services Forex brokers offer trading downloadable software that you download directly to your hard drive from their websites. These trading platforms offer facilities such as the ability to view live charts, currency rates, test a Forex trading system and perform real time currency pairs analysis. The greatest benefit of these trading platforms is that they provide the trader with real time, accurate live connection to the market allowing the trader to see the value of each currency pair across the world.
There is fierce competition amongst online Forex brokers that is very beneficial to all small time Forex traders. Not only do small time Forex traders now have the opportunity to actually trade on the Foreign Exchange Market, but this opening up of the Forex market has lead to the creation of the demo account and the mini-account especially for the small traders.
Demo Accounts: this type of account holds huge benefits for the small trader. Most online Forex brokers offer this type of account to traders and it is free of charge. With a demo account the trader does transactions in exactly the same way as with a live account. Everything works in exactly the same way; market conditions, software, trading platforms, rates and charts.
Spread: the difference between the bidding and the asking price of a certain pair of currencies is called the spread. The profitability for the Forex trader of a transaction depends on the tightness of the spread; the tighter the bigger the profit.
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Years ago it was expensive to get into the Forex market trading business. You needed a very large amount of starting capital. For the most active currency pairs such as EUR/US, GBP/USD, USD/CHF and USD/JPY you needed start up cash to the value of 10 pips or more. Today the smaller trader has the option of trading these pairs as low as a 2 pip spread. Today with online Forex brokers offering their services to small individual traders most of them will allow you to open an account with them for $300 or below.
The Forex market has been changed forever with the opening of its doors to everybody and encourages competition amongst brokers that lead to benefits for traders with more innovation still to follow in time.