Beginners to forex trading tend to lose a lot of money.
Most likely you have already found at very least some mention of ‘FX’, ‘forex’ or ‘foreign exchange’.
Almost everyone has been looking at forex! It is often recognized to be one of the quickest and easiest approaches to make a killing profit. It is no wonder then, why so many beginners to forex try their hand at this.
We all want to get rich! But making money in forex trading is not as easy as it looks like
Lots of forex traders find it hard to wrap their heads around the concept of the forex market The simplest way to do so is to think of forex as a big marketplace. It is a market that goes into business every morning in Sydney, then goes around the world towards New York.
Yes, the forex markets never sleeps!
While this marketplace is open, investors are free to ‘trade’ currencies they choose. Which means you could exchange 150 US Dollars for 100 British Pounds as well as 100 British Pounds for 150 US Dollars. Beginners to forex trading don’t know the fact that this is one of the rare markets that is very dynamic.
To be honest, the exchange rates for currencies are always in a state of flux. Therefore with the above illustration, let’s assume that 1 British Pound is equal to 1.5 USD, that could change anytime and 1 British Pound could be 1.51 US Dollars.
Even the smallest change can often mean a tremendous profit, specially when you are trading in big amounts.
Understand how currency exchange works
For instance, let’s just say you began with 150,000 US Dollars, and changed that to 100,000 British Pounds.
After that the currency exchange rate fluctuated to 1.51 US Dollars to the Pound, as we pointed out before. So now you could change your 100,000 British pounds to 151,000 US Dollars. That’s a 1,000 US Dollar profit straight away! You can find the opportunity of a huge profit if the currencies had fluctuated by 10 cents or more, not a mere 1 cent.
Normally, as you might have noticed, there is also the possibility that the currency fluctuations may cause you to ‘lose’ value against certain currencies. Bear in mind, this is a big market, and you are not just dealing with two currencies.
As a result, with all the many world currencies available today, you will find a huge possibility for profitable trades to happen. And that is exactly why forex is so favored by serious investors.
Previously, forex trading had been subject to numerous limitations for ‘private dealers’. But these days, that access is less restricted and you can find remarkable windows of chance of those who ready to give it a try.
All that you need, definitely, is a good forex trading system, some capital, and as much information about the forex market as possible. Of course, you’ll likely have some problems, and may even discover that the learning curve is quite steep…
However with time, and after building up a bit experience, you’ll find that profits aren’t as tough to make as you may think before.
What factors influence the forex markets
Everyone is aware that the currency exchange rate for any given currency will definitely fluctuate over time. Even so, only a few people actually really understand why foreign exchange rates always fluctuate.
If you are serious about getting into the forex market though, it will be ideal to have an inkling of some forex trading information as to how the pieces fit together.
Basically, the forex market runs using a strict principle of demand and supply. Therefore if more and more people want a certain currency, and there’s not much of it floating around, then the value of that currency is high. Of course, the opposite is also true.
Becoming familiar with demand and supply is quite easy, but understanding the truth that it is influenced not by a single factor is a little more complicated. In reality, the forex market has 3 major factors at play, which are:
1. Economic factors
Everything that ties along with a country’s economy will be in this category, and it would come with things like financial policies, the budget, its trade figures, etc.
Actually, you can find a ton of factors at play in this one factor alone, but unless you’re an economist, it is uncommon to expect you to know every one of them. Be enough to say, a strong economy is important for a strong currency exchange rate.
2. Market psychology
Not everything about demand and supply is dependent on hard, cold, fact. Rather, a number of it truly does rely on what people ‘feel’ and ‘believe’. Often, if people feel or/and believe that the forex market will go wild, they will choose to swap their currencies to a ‘safe’ option, like the Swiss Franc.
Of course, this is likely to affect the strength of that currency.
Please remember: This is simply one example of market psychology taking part in a role in the demand and supply of a currency.
3. Political conditions
Often people think about this factor to be tied to economic conditions, and it is, in this way. Tumultuous political problems can weaken economies, and so change up the currency exchange rate.
Even so, a change in political conditions is often positive too, and if a party getting into power is deemed to be more sound economically, or even more stable overall, it can benefit a currency gain strength.
Beginners to forex trading should read this article on how geo-politics plays a role in the currency markets.
Given that we’ve reviewed these main factors behind the forex, you need to have no less than a basic thought of what is happening behind the velvet curtain. Furthermore, you should certainly be able to even ‘predict’ the fall and rise of certain currencies influenced by current events, to a degree.
Practice makes perfect, therefore try to see if you can identify fluctuations prior to they happen! If you can, you’re certainly on the way to success!
Watch this video on how Brexit impacted the British pound sterling!
Types of forex trading orders
Everybody knows that they can swap one currency to a different one to get a given exchange rate, but not many people know that there are more complex types of transactions on the forex market than only a simple switch.
Studying the different types with regards to forex transactions might be a big advantage, as it will help you to access a whole wealth of options that could make a huge difference in helping you to avoid a loss and make a profit.
Among the kinds of forex transactions that you should know about are:
1. Market Orders
Basically, these transactions are the types of orders that you’re probably most knowledgeable about. All that they involve is the change in one currency to a different one, using whatever the exchange rate during the time may be.
However you must be aware that no order is instantaneous. In between the time you see an exchange rate, place an order, and have it proceed through, there will surely be a gap with a minimum of a matter of seconds.
In that time the market can go up and down, the exchange rate of your transaction can become the exchange rate at the time the order goes through.
2. Limit Orders
Overall, limit orders are not too difficult to understand. Everything they entail will be the buying process of currencies below market price or above market price. So when you have a limit order to buy US Dollars in certain rate, the moment it touches that exchange rate, you will purchase that currency.
Since these orders are pre-placed, you don’t have a chance of losing valuable seconds within the time you see an exchange rate and you place an order. As a result, many advanced traders make good use of such orders.
3. Stop Orders
Much like limit orders, but in reverse, stop orders are basically just orders to buy above the market rate, or sell below the market rate. In essence they are used to limit the losses that could be incurred by a big fluctuation that you didn’t expect.
So let’s just say you had bought US Dollars when its exchange rate with Euros was 1.4 and you had expected that rate to rise to make profit. You could avoid making a big loss, if you had a stop order to sell at 1.35..
Experienced marketers utilize all of these three forms of orders to manage their forex investments. Normally, the intricacies of these orders, specially the latter two, may take time to master, which means you should tread carefully when you first start off until you manage to come to grips with both.
As soon as you do though, you’ll discover that you can make way more profits, and way less losses, than any other time!