Forex Trading Tutorial for Beginners
The number of investors who are generating a good sum of money through investing in the forex market seems to allure and inspire individuals who are looking for ways to make more money to follow the same path.
If you are one of the individuals who want to try trading in the forex market, you must remember that the success in this arena is not solely determined by luck.
If you are serious about making money out of trading in the forex market, you must remember that luck is not the only thing that matters here.
The key to generating good ROI is to fully comprehend the forex market and everything about it.
What Is The Forex Market And Forex Trading?
Let us begin by discussing the forex market itself. The forex market, also known as foreign exchange market or FX market is best described as a market wherein participants are able to speculate on, exchange, buy and sell currencies at determined prices.
Simply put, FX market is a global decentralized market for currency trading. It is made up of huge international banks, central banks, commercial companies, investment management firms, retail forex brokers, hedge funds, and investors.
By far, this market is the biggest market in the world where the main participants are huge international banks. It processes trillions of dollars’ worth of forex transaction every day.
The FX market operates on numerous levels and works through financial institutions. Behind the scenes, huge international banks turn to “dealers” or smaller number of firms that works in the finance field and are actively involved in huge quantities of FX trading.
The majority of the ‘dealers’ are banks; hence this behind-the-scene market is also referred as “interbank market”.
Though banks are the major participants, there are also other types of financial firms such as insurance companies involved. Trades between these “dealers” can be massive, involving a hundred million dollars and more.
The forex market assists international investments and trades through enabling the currency conversion.
For an instance, it permits US-based businesses to import goods from the states that are a member of European Union and pay Euros even if its income is in US dollars.
FX market also supports direct evaluation and speculation relative to the currency value and the carry trade. The speculation is dependent on the interest rate differential in between 2 currencies.
In comparison to other markets, the Forex market has unique characteristics. Primarily, the huge trading volume represents the world’s biggest asset class, which hence lead to high liquidity.
The forex Market also features a geographical dispersion, constantly operating 24hours per day, except during weekends. In addition, numerous different factors exist that bring an impact to exchange rates, and investors can use leverage to increase profit as well as loss margins.
With such characteristics, the forex Market is hence considered as the market closest to the idea of a perfect competition.
Forex Market Analysis
Okay, you already know what the forex market is, now what is next? Perhaps, you cannot wait to generate money and become a real forex trader now.
To start your journey in the forex market, one of the things you must learn is how to do a market analysis.
The forex market analysis comes in three types: Technical analysis, Fundamental Analysis, and Sentiment Analysis. Mostly, traders and investors ask what the best among the three.
Each of these three has particular purposes and characteristic but all are helpful so you can thrive in trading. Hence, it is needed to know all three.
It is kind of like standing on a stool with three legs – if one of those legs is weak, surely, the stool will not be able to handle your weight. You sure know what will happen next. The same truth applied in trading.
The theory behind this analysis is that an individual can determine the potential price movement and current trading conditions through looking at the historical price movements.
Since the forex market is a 24-hour market, participants can gauge price activity in the movement through the aid of the huge amount of data available.
Hence, this increases the forecast’s statistically significant. This makes it an ideal market for the traders who use charts, indicators, trends, and other technical tools.
Technical Analysis Likely Discounts Everything; Particularly in Forex
Range or Trend – One of the biggest goals that technical traders have is to determine whether the given pair will travel sideways, remain range-bound or will trend in a particular direction.
Usually, to determine such characteristics, traders draw trend lines that link historical levels that have stopped a rate from heading higher or lower. These levels of resistance and support are utilized by technical traders in order to determine whether the lack or trend or the given trend will continue.
Minimal Rate Inconsistency
Most major players in the forex market have advanced computer systems used to monitor inconsistencies between varying currency pairs on a constant basis. Hence, major inconsistencies rarely last longer than a few seconds.
Just remember that attempting to determine a mispriced rate is less important than determining the flow of capital and trend due to a huge amount of money and a number of investors exchanging hands every day.
At large, technical traders make us of numerous different indicators to predict the exchange rate’s future direction.
Fundamental analysis refers to how you look at the forex market through analyzing social, economic, and political factors that may affect the asset’s supply and demand. Utilizing supply and demands to predict where the price direction is easy. What makes it hard is analyzing all the factors affecting the supply and demand.
The concept of fundamental analysis is that, if a nation’s future or current economic stance is good, their currency will likely strengthen. More foreign investors and businesses will invest in a country with a better economy, which then results in the need to buy the currency of that nation to acquire those assets.
The sentiments analysis focuses on determining and measuring the general psychological state of each and every market participant.
This analysis attempts to determine what percentage of the market participants are bearish or bullish. After identifying the majority sentiment, the sentiment analyst will usually take up the position on the other side of the assumption that the mass is wrong.
Simply put, sentiment analysis determines how the market is feeling.
Which is the Best Forex Market Analysis Method?
Prior to discussing the different types of market analysis, we said that there is no best method to use. Each of the three is important.
Technical Analysis, Fundamental analysis, and sentiment analysis work hand-in-hand-in-hand to aid traders to come up with a good forex trade idea.
All the economic figures and historical price action are there, all you need is to put those analytical skills to test. The importance of these three is the significance of the three legs of a three-legged stool. One weak leg can affect the ability of the three-legged stool to carry your weight.
Hence, it is important not to overlook any of the three analyses because each one affects your prediction.
After knowing the different types of forex market analysis, let us proceed to the forex market hours.
What is Forex Market Hours?
Forex Market Hours refers to the hours during which the participants of the forex market are able to exchange, sell, buy and speculate on the currencies.
The FX market is open 24 hours a day except on weekends. But since this market operates in numerous different time zones, you can access it almost any time. At large, forex market hours depend on when trading is open in every participating country. When one major FX market closes, another one will open.
For example, forex market hours move around the world as this – the trading is available in NY (New York) between 1pm-10pm GMT; then Sydney will come online at 10 pm GM; Tokyo will open at 00:00 am and then closes at 9 am GMT. To complete the look, at 8:00 am, London opens and then closes at 5:00 pm GMT. This allows brokers and traders worldwide, with the participation of the major banks from different continents, to trade 24hours a day.
More Activity Opens More Possibilities
It is vital to know which the most active forex trading periods are considering the fact that the market is open 24hours a day. If you like to trade currency pairs such as GBP/USD, EUR/USD, or USD/CHF, more activity can be expected between 8 am to 12 am when both United States and Europe are active.
Other trading hours you need to be aware are the release times of official economic news as well as government reports.
It is worth finding out about economic indicators that are published in different countries since these correspond with the most active forex trading moments. Remember that an increased activity indicates bigger opportunities when it comes to currency prices.
For day traders, watch out for the hours between London market’s opening and US market’s closing as these are the most productive hours. The peak time is when London and US market overlaps between 1 pm GMT to 4 pm GMT.
What we have included here are just some of many things you need to learn about the forex market. Educate yourself further to guarantee a successful trading.
To Your Success,
Team Trading Walk