Forex trading refers to the process of swapping national currencies against each other for reasons like tourism, trade and commerce. The foreign exchange market is a globally-spread market where forex trading takes place.
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A Step by Step Guide to learn Forex Trading
fxreviewtrading.com/articles/learn-forex-trading
What is forex trading?
Forex trading refers to the process of swapping national currencies against each other
for reasons like tourism, trade and commerce. The foreign exchange market is a globally-
spread market where forex trading takes place.
Due to the global reach of trade and finance, forex trading is the largest and most liquid
trading market globally. In the fx market, currencies are traded in pairs like the Euro/US
Dollar.
Currencies are one of the essential assets for most people, no matter which country they
are from in the world. Besides, currencies are necessary instruments to facilitate forex
trade.
The market remains open for 24 hours per day and functions 5.5 days each week. In Forex
Trading, major hotspot countries include New York, Tokyo, London, Hong Kong, Paris,
Frankfurt, Zurich, and Sydney.
How forex trading started: History
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Unlike stock trading that can be traced back to many decades, the concept of forex trading
is relatively a new fruit in the tree. In the most rudimentary form, the exchange of
currencies had existed for centuries and started when people started punching and
stamping currencies out. But the concept of the forex market is fresh. The accord that was
signed at Bretton Woods in 1971 gave way to free-drifting of most of the currencies. Since
the value of different currencies wavers and fluctuates, there was a need for a systematic
way of dealing with and exchanging them. This gave rise to the concept of forex trading.
Steps to forex trading
Open the trading platform: The first step involves having a trading platform on
which you will facilitate forex trading.
If you want to find an authentic trading platform for forex trading, we recommend
you PrimeFin. It is a regulated financial service provider that functions in Norway,
Denmark, Sweden, Netherlands (Dutch/English), Spain (Spanish). PrimeFin offers
a wide range of instruments and assets to trade with that include stocks, indices,
commodities, forex, and more.
Charting: After opening the trading platform, now open the charts and select the
currency pair you want to trade in. it can be any currency pair you are interested in
like US Dollar/ Japanese Yen, or Euro/ US Dollar. After choosing the currency pair,
now select a particular bandwidth of timeframe. The timeframe you choose will
reflect the representation in your candlesticks. Now, the chart can show an uptrend
or a downtrend.
Addition of indicators: After the process of charting, it’s time to add technical
indicators. Technical indicators are more beneficial in forex trading as they make
the process of decision making easier.
Placing the order: While placing the order in the forex market, you can “go short”
or you can “go long”.
Setting of stop-loss and gaining profits levels: This step is optional in forex
trading, but we highly recommend it. Setting stop loss at less profit level can aid to
long term achievement for traders and investors. Setting stop-loss can decrease your
risks when the maker is not moving in a favourable direction. Setting the profit level
will assure traders of the fact that the trade will exit a profit level before it goes
downwards.
Confirming the order: After locking your order, wait for the screen to pop up
with the confirmation of your order. The confirmation and ticket digits of the order
are crucially important. You don’t want anything going hay way with your trade, but
it is always good to have some precautionary measures in case the trade is not
executed correctly.
The period of patience: This is one of the most challenging steps in the process
of forex trading. After the confirmation of the order, many traders get anxious and
continuously keep on checking how the market is moving. One way to avoid this is
to get away from the market for some time.
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Completion of trade: The final step entails the completion of the trade. Not all
transactions will reap your profits. The forex market entails a lot of risks. It is,
therefore, essential to have measures to decrease the risks associated with your
trade.
Hedging and forex trading
Since the forex market is prone to many risks due to changes in the price of various
currencies, one can opt for hedging by fixing the price at which the trade will reach the
end. This will help in the reduction of risks. For hedging currencies, the investor or trader
can lock in the trade in the forward market, which will fixate the exchange rate of the
trade.
Hedging in foreign exchange can also take place through futures contracts. The advantage
of hedging through futures contracts is that they are authorised by central regulatory
bodies, but they might be less liquid as compared to forward markets.
Speculation and forex trading
The volatility in the forex market due to political, economic factors, interest rates, changes
in demand and supply, and tourism can be used by traders to make enormous profits in
the forex market.
The factors mentioned above can lead to a reduction in the value of a currency against the
other. If a currency is to go downwards, it means the other currency will see a rise in its
value. This is because currencies get traded in a set of two in the fx market.
Trading currencies as assets
As an asset, currency can be traded in one of the two ways:
1. Trading through the switch in exchange rates
2. Trading through differences in interest rates between two currencies.
A trader can buy a currency with high-interest rates and sell the currency with a
comparatively lower interest rate. This way, profits can be made by trading through the
difference in interest rates of currencies.
Risks and challenges associated with forex trading
The foreign exchange market is highly volatile and affected by a lot of factors like political
and economic changes in countries, interest rates, the flow of trade, etc. therefore, the
foreign exchange market is subjected to a lot of risks and faces numerous challenges.
First of all, the foreign exchange market is a decentralised market that operates
through computers and nodes. Forex trade is not standardised, and in many
countries, the foreign exchange market is entirely unregulated.
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In the forex market, a lot of small investors and traders trade through unregulated
brokers which can sometimes cheat and trade against the trader.
Forex trading requires a precise and sharp understanding of various indicators and
fundamentals of foreign exchange. A forex trader must keep in mind the economic
conditions of different countries and how they can affect her or his trade.
Most of the time, high brokerage fees and commissions are associated with forex
trading.
Advantages of forex trading
The forex market offers high flexibility to investors and traders. There are
significantly fewer rules and regulations, and the market works through a
decentralised system. There is no limit set about how much currency is to be bought
in the market—the foreign exchange market functions 24 hours a day.
A wide variety of options are available to importers, traders, investors, and
exporters. There are a wide variety of instruments that can help facilitate Forex
Trading, like stocks, exchange rates, futures, and options etc. Also, a vast pool of
currencies can be traded against one another, giving a wide choice to traders.