Forex
is the world’s most traded market characterized by high liquidity and the
ability to transact on leverage or borrowed money that is used to increase the
value of a position which would otherwise be valueless. It is attractive to
most players who come in both for short term or long term speculation. The forex turnover is placed at about US$4 trillion
per day. That is what makes it so lucrative and a pulling magnet for those
desirous of quick returns. There are a lot of things concerning forex that one
needs to know, either as a by the way or by having a mastery before starting on
the journey of trading on a real money funded account.
The
trading hours
The forex
market operates 24 hours a day for five days a week. You can open and close
a position between Monday and Friday at either profit or loss. Most trading
happens between the period when the London Stock Exchange and the New York
Stock Exchange are open. The overlap between the New York and London sessions is
normally for about 4 hours. This overlap is regarded as the noisy and high
volatility session due to the fact that London and New York constitute the
largest trading volume. The Asian Session is regarded as the less noisy session
as it is characterized by few data coming out. Data refers to the economic news
that affects the movement of currency pairs depending on its level of
significance. The Asian session overlaps with the London session for about an
hour.
The
major market players
The major players in the trading of forex are large institutions such as banks and hedge
funds. This is the group that determines currency volatility. It explains why
during public holidays in major world economies the markets rarely move. Institutional
traders account for the biggest buyers and sellers of currencies online and in
its ranks includes both long term and short term trading experts. There are
also retail traders and that is where most individual traders fall in. Retail traders
are short term investors with a small sized portfolio compared to the banks.
Most retail traders hold micro accounts, mini accounts or standard accounts.
The standard account is the best place to belong if you consider yourself a
professional trader within the retail hierarchy. However it is better to
practice through a micro or mini account before funding a standardized account.
Incubating an account from micro to mini to standard is probably what you
should aspire to achieve when you begin live trading.
The
chart system
In forex traders
mainly look at charts to make their trading decisions on whether to buy, sell
or stay out altogether. The forex chart system
includes line charts, bar charts or candlestick charts. All these types of
charts reveal the market movements but the candlestick chart reveals the most
information that enable good decision making when contemplating to either enter
or exit a trade.
Below are the three chart types on the EURUSD weekly timeframe
The line chart
The bar chart
The candlestick chart
Candlesticks are an advanced charting system and
every trader must master how to interpret them in order to trade successfully.
The
timeframes
Forex can be traded in timeframes as low as the one
minute to the monthly timeframe. The timeframe you choose is determined by your
style of trading. If you are a scalper, that is a trader who hopes to take very
many trades within every few minutes then you will probably prefer the one to
fifteen minute chart timeframe as compared to the daily to the monthly chart
timeframe. On the other hand, if you seek to hold your trades for longer
periods exceeding a few days or weeks then the higher timeframes should be your
preserve. Forex beginners tend to blow up their capital trading the lower
timeframes with the twisted logic that it is the way to make more money. But the
few that gain ground are those that discover very early in the day that one
correct trade in the higher timeframes is better than too many trades taken in
the lower timeframes. The higher timeframes for those with the mastery is like
a diamond mine that never gets depleted.
The EURUSD
one minute timeframe chart
The EURUSD monthly timeframe chart
Note that in above EURUSD charts, the monthly chart
has more relevant information for the trader compared to the one minute timeframe
chart. Whereas you can not tell where the exact trend for the EURUSD pair is on
the one minute chart, it takes less that a second to realize that the trend is
down when you look at the monthly chart timeframe.
The
trading platform
Forex
is traded either on a trade station provided by a forex broker or on a meta
trader 4. Trade stations are customized depending on the broker you have opened
an account with. The universal trading platform is however the Meta trader 4
that is provided by nearly all forex brokers around the world. The Meta trader
4 has functionalities that enable you to control the risk amount per trade.
These include control tabs like the entry and exit button, the trailing stop
and the stop loss button and the take profit button. The problem with the
trailing stop on the meta trader 4 is that it only trails your profits when you
are logged onto the internet. That is one great advantage that the trade
stations customized by brokers have over it.
The
forex broker
The brokers are mostly market makers. This means
that they are always trading against you. They do this because it is the only
way that you can get to enter a trade on
time. So that if you buy the EURUSD pair from them, they must respond when you
decide to sell. They have liquidity providers which feed them with every move
you see on your charts. You’ll notice that if your broker is a bank the execution
will be faster than when using the typical market maker. Make sure you use a
regulated broker. Avoid brokers that are non regulated and who work under white
labels. These are mostly retail brokers who cant pay and wont pay any claim.
They are scammers in other words. We have recommended trusted huge and trusted
brokers in articles such as why you should be trading with more than oneforex broker.
The
costs you pay for entering a trade
Normally you pay your broker something called the
spread. It is the amount the broker charges you for entering a trade and it
does not matter that the trade closes in profits or loses. The spread is paid
immediately you enter a trade. That is why if you take a trade today you will
notice that your account will be on the negative until after a few moves. The
spread for the major currencies is lower compared to those of the cross
currencies. You also pay the broker the roll over fees. This is fees paid if
you hold a trade overnight to another trading day. Depending on the currency
pair you are trading and whether you have bought or sold, there are occasions
when the broker pays you for every trade held overnight.
How
much money should you start trading with?
This depends on your level of experience. There is
no one size fits all in this regard. It also depends on how risk averse you
are. Where are you getting your trading capital and how will your life be if
you lose. One thing I can say for certain is that your trading capital cannot
be a loan or house rent or your children’s education fund.you can start with
US$ 100. That is not bad. Some people start even with US$ 10 and manage to
build it up. We have a nice article relating to the amount of money top open a
forex account with. It is titled how much money should one start tradingwith? You should read it. We have argued in that article that you don’t
have to be rich to trade forex. At the end of the day money management is what
counts.
How
to fund your forex trading account
There are many ways to use while funding your
trading account. We have written a lot on this subject on articles such as howto fund your forex account and why you should not fund your trading account byway of a debit card. If you read any of those two articles you will know why we
recommend faster ways of funding an account. The wire transfer method is safe,
but it is not fast and at times leads to double bank charges. The cost is even
high if you hold a trading account that is in denomination that is different to
your bank’s currency denomination. If you want to deposit by wire transfer,
your forex broker will give you details about the ban account to send the money
to. Credit cards and debit cards are faster but when they get lost it can lead
to unnecessary headache. If you read those articles you will find out why we
approve of Neteller.
Can
it be taught?
Forex
trading can be taught but only by the experts. We have
written on this subject- please read can forex trading be taught? and whyforex in the books is a falacy? These two articles go deeper into what you
should look out for when seeking out for a forex tutor. Our take on this issue
is that even though forex trading can be taught you are better off mastering it
by yourself. You are your best tutor when it comes to learning how to trade
forex. Remember that you do not need any academic qualifications to trade the
markets. Most of forex is just pure common sense. Read you do not need a universitydegree to trade the forex market.
The
advantage
The advantages that come with trading forex are immense. With great experience you can turn it
into your sole source of livelihood. People make thousands of dollars per trade
per day. It is a kind of work that relieves you from the duty calls associated
with the traditional jobs that over time turn you into a whimp of routine. You are your own employer and you trade when
when it suits you. And by the way you don’t have to resign your current job to
trade forex. With a nice trading idea all you need is a few minutes every day
to check how your open positions are holding. If you choose to open a trading
agency then that is a different story. You might need to be present at your
station for the better part of the day to serve your clients. If you don’t know
the meaning of some of the words that I am using here then you should read forex jagons for the forex beginner.
The
disadvantage
The forex
market is unforgiving to those who don’t know what they are doing. Don’t
come and try guessing with the markets. You can lose your entire investment in
minutes if you are not familiar with the correct trading hours and the all
important aspect of money management. Another disadvantage with forex is that
because of its high profitability, it has attracted very many scammers clothed
either as professional traders or forex brokers. To help you be on the look out
we wrote six tips on how to avoid a bad forex broker and how forexbrokers are turning the trading of forex into a scam.
Conclusion
We finalize by noting that the trading of forex is a
rewarding venture. But it is important to first practice and have the A-Z of
successful trading on your finger tips. The best way to practice is through
demo trading. Open a free account with virtual money and if yoyu double it then
you will be heading on the right direction. We have over stressed the
importance of practicing in an article titled demo trading is your bestchance at learning how to trade. After demo trading you should fund a
trading account with any amount. We wrote have courage to open a live forextrading account to show you that if you do not try the real thing you will
never grow into a great trader that you aspire.
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