Last Updated on Apr 8, 2020 by James W
Forex is a decentralized global market where people sell, buy and exchange trillions of dollars on a daily basis. With over $4 trillion in average daily turnover and the largest number of participants in the currency trading process, it has become the greatest and the most liquid world’s market. First, it was limited to interbank activities on behalf of their clients exclusively. However, with the rise of the internet and sophisticated technologies, everyone interested in this kind of investment can become a Forex trader. Still, Forex is extremely complex and, as such, it requires you to build a solid strategy before you start off. Here are some basics you need to keep in mind.
Choose the Right Broker
As the world’s greatest financial marketplace, Forex requires some sort of an intermediary channel between a trader and an interbank. This medium is, of course, a Forex broker, whose goal is to help you plan and manage your trading practices. Since the number of Forex brokers is constantly rising, you need to conduct a thorough research before you choose one.
One of the most important factors in selecting the right broker is their regulatory compliance. This simply means that, if they are trustworthy, Forex brokers need to be certified by the licensing organization in their country. For instance, brokers based in the U.S need to be registered in the National Futures Association, while those who do Forex trading in Australia need to be approved by Australian Securities and Investments Commission. Additionally, you should also pay attention to the currency of pairs they offer, as well as their trading platform and customer service.
Know what type of Forex Trader you are
The constantly-growing Forex market embraces a plethora of traders, regardless of their monetary size. In order to buy or sell currencies, traders focus on a numerous strategies in order to enter or exit a trade. This is exactly what determines their main characteristics as traders. For example, when it comes to timing, people observe and assess different charts of time frames. In this respect, they can be classified into Day Traders, Swing Traders and Position Traders.
- Day Traders, as their name suggests, tend to buy and sell currencies before the end of the trading day. Additionally, these trades last only several hours, while the price bars on the schemes are usually set to one or two minutes.
- Swing Traders, hold their positions for a few hours or even days in order foresee the trends in the market. Also, they expect to maximize profit from short-term solutions and set their graphs to every hour.
- Position Traders are likely to focus on long-term marketing movements in order to boost profit from their major fluctuations in prices. While their positions may last for days or weeks, position traders most commonly analyze “the end of the day” graphs.
Look for Indicators that help you Identify a New Trend
In order to benefit from Forex trading, you need to keep pace with the latest industry trends and understand what currency pairs to invest in. Of course, there are various methods used to predict the movement of the currency value, but definitely the most popular of them is Forex trend trading.
Trend lines are a crucial aspect of technical analysis, used to point out trends in data within a specific time span. Most importantly, they tell you whether you should invest in a particular currency pair or not. For example, if the trend chart shows the currency pair goes upward, you should buy these currency pairs. Now, in order display data efficiently, your trend chart should include several crucial segments, such as a simple title, labels on the Y- ad X-axis, adequate time frame, a legend, precise scales and, finally, your goals.
In today’s oversaturated Forex market, you can’t afford to make any mistakes. That’s exactly why you need to build a solid Forex trading strategy and these three steps are some basics you need to know when getting into this market.