Planning to enter the forex trade? Here're some tips for you
September 17, 2018 (Investorideas.com Newswire) Forex, also known as foreign exchange and FX, witnesses more than $5 trillion worth of trade on every working day. The figure makes it much more important than all the capital markets around the world. Most importantly, you don't need to be a full-time forex market trader to participate and gain benefit from the trade. The currency trading concept is not rocket science even in spite of the market's enormous size. Here're some critical aspects of this trade that can prove to be helpful for novice traders.
Most sought currencies
Investors in the stock market need to use their conscience and choose few stocks from thousands of available options. But when it comes to forex, the options to choose from are limited.
The Fijian Dollar, Aruban Florin, Bosnian Convertible Marka, Bulgarian Lev, New Zealand Dollar, Libyan Dinar, Singapore Dollar, Bruneian Dollar, Australian Dollar, Canadian Dollar, the US Dollar, Swiss Franc, Euro, Caymanian Dollar, Gibraltar Pound, Great Britain Pound, Jordanian Dinar, Omani Rial, Bahraini Dinar, and the Kuwaiti Dinar are top twenty currencies from around the world.
The currencies mentioned above are the home currency to the countries that have creditworthy and sophisticated financial markets. Economic data from almost all these nations is readily available in the public domain. So, FX investors can easily access the same and take trading decisions accordingly.
Understand the interest rate policies of the countries in question
The economic stats of the country in question should be at your fingertips, especially, the interest rates related policies adopted by the nation's central bank. The interest rates in the country considerably impact its currency. Thus, as a good forex trader, you need to monitor the policies of all the countries whose currencies you are selling or purchasing.
To control growth and tame inflation, countries with a steady growth rate often increase the interest rates to control inflation. On the other hand, nations where the economic indicators are not in place, the central bank reduces the interest rate. Higher the interest rate; better is the country's currency value. But, lowering the interest rate makes the nation's currency unattractive. Reducing the interest rate also keeps away foreign investors. The demand for such money remains lesser in the FX market.
Use leverage judiciously
You can use as much as 100:1 leverage while trading in the FX market. It means you can control $5,000 worth of currencies with just $50 value of capital. As it is well-known, leverage can prove to be a double-edged sword. It doubles up profit as well as losses when it's just not your day.
With features like stop loss in place, you can control losses. Almost every broker offers this protection these days.
Forex is not just limited to retail traders
Besides retail traders (individuals involved in FX), even central banks, investment firms, corporate companies, Hedge Funds, multi-national banks, and even travels end up using forex at some point or the other.
Bankers make FX transactions on behalf of their customers, as well as on some of their own institution's accounts.
Companies make FX transactions to buy and sell goods in foreign countries. According to market experts, small and large business corporations make a considerable percentage of daily foreign exchange transactions.
To strengthen the weak national currency, central banks of various countries often sell foreign currencies in forward and spot markets. Take the Indian Reserve Bank of India's recent decision to sell dollars through forex trading platforms as an example. According to reports, the Indian banking regulator used state-run and private banks to sell dollars on a large scale to control the sliding value of rupee when it reached Rs. 72 per $1.
Economists around the world suggest that more than 70 percent of the forex transactions are speculative. Such operations are performed clearly to make money whenever any currency is expected to witness a price movement. These currencies are bought and sold digitally, and no physical change of currency is involved. Traders who transact on behalf of Hedge funds control billions of dollars worth of such FX transactions.
Travelers also make foreign exchange transactions at banks and dedicated airport desks to exchange their home currency with the currency for the country that they visit.
Selecting a forex broker
The first step is selecting a forex broker and opening an online FX trading account. A forex broker executes buying and selling orders. So, choosing someone with a good reputation and ratings is critical.
Brokers either charge a small amount of monthly fees for the account or levy transaction fees on every order.
Every broker offers an online trading platform, like MetaTrader 4, to execute transactions. These platforms also provide tools that can help the trader to conduct a financial analysis of the market. With such financial means at the disposal, a trader can keep track of currencies around the world and buy as well as sell currencies within seconds. Professionals can use tools like exponential moving average to get an insight into the currency's movements.
Novice traders can start by using a demo account and virtual money. After gaining experience with the currency movement and market prices, they can start using real money.
You can perform the activity 24 hours a day, except for weekends. However, if you use scalp trading strategy, you must trade only in the timeframe when the market witnesses maximum activity.
Depending on the currency that you need to buy or sell, you can select European trading hours, Asian, or the American trading hours for making transactions.
Remember, some brokers require traders to place their orders only during a specific timeframe of the trading session. When you select your broker, don't forget to check if they have any particular timeline for transactions.
If you are in Europe, services offered by Admiral Markets can prove to be perfect for you. They provide the best possible tools and FX trading platforms like MetaTrader 4, MetaTrader 5, and MT WebTrader along with multiple Android and iOS devices. Admiral Markets operates under license from the FCA, EFSA, as well as CySEC.
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