You may have heard about Forex trading. There will always be a need to exchange currencies across the globe so the Forex market is likely to retain its position as the largest and most liquid financial market. It is a twenty four hour market with no central market place and offers the potential for great flexibility and aggressive trading.
If you like the sound of all that, and want to start Forex trading, then there is plenty of advice and information available online. We are going to take you through some of the information you will find useful when you are starting out.
Knowing the major currency pairs
Trading on the Forex market is all about trading in currencies so it makes sense you should know the five major currencies when you are starting out. They are, the US Dollar (USD) also referred to as greenback, the British Pound (GBP) also referred to as cable, the Japanese Yen (JPY), the Euro (EUR), the Swiss Franc (CHF) and the Australian Dollar (AUD). It’s important to note that currencies are traded and quoted in pairs. The most popular currency pairs are called Majors, and they include EUR/USD, USD/CHF, AUD/USD and GBP/USD.
Paying and receiving interest
We have already mentioned that you trade in pairs of currencies. Whenever you sell one currency you buy another. All currencies have an interest rate which is set their country’s central bank. You pay interest on the currency you sell, just as you accrue interest on the currency you buy. This can work either for or against you, if rates change over time.
Looking for a low spread
The spread is how most Forex brokers earn a living. This is the difference between the amount a currency can be purchased for and the amount it can be sold for. Lower spreads will save you money and help you take advantage of smaller fluctuations in exchange rates, so it is worth comparing Forex brokers on services such as ForexBrokersAZ.com to find one that meets your requirements.
Other brokers earn a living through fixed commissions rather than spreads. This allows they to offer raw spreads and currency pairs, such as EUR/USD from 0 pips. This is a common practice amongst STP and ECN brokers.
Looking for reliability
Finding the right broker is not just about the spread you also have to look for reliability in a broker. At the very least, they should be registered with a regulatory body and hold your money in a segregated account. It’s also a good idea to review their financials to make sure their business is sound.
Having the right tools
Like any undertaking, trading in the Forex market requires that you have the right tools. You need to make sure that any broker you choose provides you with a trading platform that gives you access to the tools you need. The type of tools you will be looking for include news and data in real time, analysis tools, research results and economic calendars.
Combining fundamental with technical analysis
Although technical analysis is most favoured by Forex traders, in the form of Fibonacci studies, pivot points and Elliott waves, there is a lot to be said for keeping an eye on the wider picture too, with reference to fundamental analysis such as that indicated by the Consumer Price Index (CPI).
Hopefully, all of this information will help you as you start out in the world of Forex trading.