A simple guide on what is Forex trading and how to trade Forex

A simple guide on what is Forex trading and how to trade Forex

A simple guide on what is Forex trading and how to trade Forex

If you are a trading novice or a trader with some experience and wish to learn to make money in the foreign exchange market, then you must understand that this is not so simple, it is more difficult to learn a favorable transaction. If you have heard someone say the opposite, referring to foreign exchange transactions is a simple way to make money; we want to tell you about the real situation: “You want to work hard.” Forex trading with other industries, like to bring profit before the request is still a certain effort. So on this site we will give you not only how to make a lot of money in the foreign exchange market, but also to explain to you how to make less effort in the case of the investigation of such a phenomenon: what is foreign exchange transactions, how can the foreign exchange Trading process to make money. The result is that you will be profitable, thanks to your skills and knowledge. Now we do not take the time to talk about all kinds of horror stories that we need is to start working immediately. Let us introduce you to foreign exchange transactions from the origins of vocabulary. Forex Trading (FOREX or FX) is an abbreviation for the English “Foreign Exchange” (foreign exchange). If we talk about the concept, then the foreign exchange transaction refers to a bank exchange between the currency markets, buy a currency to sell another currency.

So we usually encounter similar words: “foreign exchange market” or “FX market.” Because we are all participants in the market, then you must understand that before sitting on your computer screen and starting to trade, you face this phenomenon in your daily life. For example, you go to the market and spend $ 10 to buy tomatoes, and then you go to the store, the same as the price of tomatoes is 15 dollars. In other words, if you are the owner of the store, you will make more money by the price difference. Of course, foreign exchange transactions with the tomato trade there is a certain difference, which is the foreign exchange market, but for example, let us two different countries to convert the currency as an example. Imagine you with $ 1,000 to go to Germany, but it is known that the euro is the German mainstream currency. So in order to buy food, to commemorate the gift or to pay a variety of additional costs, you need to convert the dollar into euros. Do you go to the money exchange company or the bank, and sell $ 1,000 to buy 900 euros, but you did not spend the money. After a month, but before you return, you intend to convert the euro into dollars, you know that you are abroad when the euro exchange rate higher than the dollar, so you convert 900 euros to $ 1,100. In this case, you play in foreign countries very open, and at the same time you earn a sum of money.

As the foreign exchange market volatility is high, similar changes are faster, and in a relatively short period of time you will get more money. Please note that with the increase in volatility, the risk also increased. And then in a relatively short period of time you will make money or suffer losses. Because you want to understand that the exchange rate of a currency to another currency will rise or fall. In order to calculate the outcome of possible price changes and then make money based on the difference in price change, you have to learn the skills to facilitate foreign exchange transactions. We want to help you! Let’s make a conclusion. What is foreign exchange trading? Forex is a big market where the raw materials of the market are in a variety of currencies, and in order to learn how to make money, you have to learn how to choose the most suitable time for a currency to earn more money.

Foreign exchange market model

Let’s forget about things to buy tomatoes in the market, we just give an example, and then talk about the stock market speculators again. Maybe your understanding of the stock market is as good as the understanding of the vegetable market. Everyone who has a TV or computer has heard of information about the stock market in news or film. What is the stock market? The stock market is quite fixed, the central, its pattern is as follows:

Central market

Seller> price decision, uniform price and spread control <buyer

As the structure of the stock market is a monopoly market. It seems that only one business agent, that is, a unit to control the price. All the transactions to be carried out through the unit. So in these cases is the business agent to obtain the highest profits, rather than the dealer, because the price will be subject to the decision of the business agent to modify. You do not understand how this is going on? Let’s explain it. In fact this item is quite simple. In the stock market, business agents always perform customer orders.

The number of buyers in the stock market is lower than the number of sellers, just the opposite number of buyers than the number of buyers is also high Business agent is the seller, because the seller is his customer. In these cases the business agent may not receive any profits, they are not sold to the buyer, because there is no such buyers. So in order to avoid a similar problem Business agent to raise transaction fees, improve the spread, so that the market buyers to enter the various obstacles. In other words, the business agent will turn the offer into the most suitable for their own requirements, is the pursuit of self-interest.

Forex trading (spot trading) is not the same as stock trading, because the foreign exchange market is a non-central market. So you do not need to ask one of the central stock markets (London, New York or Tokyo) for foreign exchange transactions. Refers to no one in the foreign exchange market will be a monopoly price, because there is no uniform price for the foreign exchange market. Different forex brokers have different quotes because the market is so big that the competition is intense, so each foreign exchange broker offers the best price to his clients. In other words, customers in the foreign exchange market (traders) have the opportunity to say that they can make a choice, but in the stock market they cannot choose their own. There is also an advantage in the foreign exchange market, that is, foreign exchange transactions have nothing to do with the positioning of traders. Dealers will trade anytime, anywhere through modern communications equipment.

There may be many readers will be the foreign exchange market is a non-central market this information and confused. Because the non-central to some extent the equivalent of chaos, and then chaos is mess, so there is no transparency and truth. But the reality is not the case. Non-central is not equivalent to chaos, referring to no government will specify a certain price, foreign exchange transactions is a “democracy”, foreign exchange transactions instead of the totalitarian system of the financial industry. So the transparency of the foreign exchange market to “big country” and many of the formation of the official level. The rules of the country are designated by the national (the dealer). The world’s largest bank “committee” is the head of the country, then there are small banks and banks, and then there are speculative investment groups, commercial enterprises, ECN model foreign exchange brokerage firms and retail market makers, they are a kind of business (“Foreign nationals” – market participants).

Foreign exchange market participants

The above information includes all the traders are the market participants of this information. Basically, market participants are not just retail market makers. If the market is a “country”, then all the official rank is the national (national) member of the country. So let’s take a closer look at all foreign exchange market participants.

3.1 The world’s largest banks

The world’s largest bank as follows: Barclays, Citigroup, Deutsche Bank, UBS and so on. These and other similar banks have developed exchange rates on non-central foreign exchange markets. In accordance with the supply and requirements of the indicators, they develop a buy and sell spreads. From the perspective of foreign exchange transactions, the spread is called a spread. These largest banks make up the interbank market. So the interbank market is not a central management unit that conducts all transactions and creates the dealer’s funds. The interbank market is a trade union whose members designate prices for their clients (small and medium banks, largest brokers, large speculative investment groups, large commercial enterprises).

3.2 Small and medium commercial banks to small and medium commercial banks are making a big bank and conduct business transactions in order to unite the lack of funds on the link in the interbank market.

3.3 speculative investment groups, business groups, government banks and the central bank, ECN forex brokers and mode of retail market makers there are a lot of foreign exchange market participants. This is due to the fact that their demands are the same when the currency flows. If IBM wants to buy SIEMENS’s supplementary equipment, IBM will convert the dollar into euros in order to pay the price of these goods. If the required amount of funds is not suitable for inter-bank market requirements, the company had to use the services provided by small and medium commercial banks. If the money is enough, the company can send the funds directly to the largest bank.

So it is justified here that government banks are concerned with foreign exchange markets like business groups (such as IBM, Apple, Siemens, etc.), with the aim of making payments for international transactions and managing their own foreign exchange.

Speculative investment groups, ECN model foreign exchange brokers and retail marketers in accordance with the same model to trade. Because the amount of money withdrawn by the dealer is not enough to be shipped directly to the interbank market, the dealer opens an account provided by the broker, who brokers these funds directly in hedge funds, small and medium-sized banks or the largest market participants.

3.4 traders

a trader to open a new account, and then on his / her computer (laptops, netbooks, smart phones can) install a trading platform. The broker sends the offer to the platform, which is obtained with the largest market participant, and the trader starts the transaction at the quoted price. Dealers can be from all over the country and have different religious beliefs. There are more richer people, some more general, but they are the same as other foreign exchange market participants in order to obtain profit to trade.

3.5 Broker

Let us specifically look at one of the foreign exchange market participants, it is the broker. We have already mentioned that brokers are a chain that brings together traders and markets. A broker is a “bridge” that enables traders to reach market prices from his position. There are two kinds of brokers:

  1. Dealer (Dealing Desk): to create their own trading conditions of the market maker.
  2. No Dealing Desk – ECN (electronic communication network) and STP (direct and complete processing).

Do not specify the market price and spread (the difference between the bid price and the selling price). In this case they return to the transaction, but it is not always good for the dealer. Dishonest market makers are usually not favorable for traders to specify the price, but the dealer is quite favorable price. Because the highest profit on the broker who trades on the basis of the transaction is the loss of the customer.

STP model of foreign exchange brokers with the market maker is not the same; they do not specify their own prices. They let the dealer directly into the interbank market, so that will get the highest profit is the dealer, not the broker. As a result of the inter-market execution of STP models, foreign exchange brokers offer lower spreads and faster order execution. In this case, the customer’s funds are safer than those kept in the market maker’s account. STP model of foreign exchange brokers are not interested in the loss of traders, their profits lies in the spread.

ECN model foreign exchange brokers are similar to STP model foreign exchange brokers, regardless of whether they have their own trading system and all participants’ trade by setting positions. When you open a certain fee, the fee is the broker’s profit. ECN model brokers specify the spread is floating. Spread depends on the quotation for buying and selling the market participants.

Financial market type

Financial market types are usually divided into three categories:

Spot market. Currency trading in this market. Timely order. You will open, close and modify from Monday to Friday at any time.

Futures market. Futures are contracts that buy and sell funds in the future at the prescribed price (so they are called futures).

  1. Option market. With the spot market, but there is no obligation to buy. The disadvantage of dealing with options is that trading time is limited.

Currency pair of spot market transactions

You may remember our example of the conversion of a currency pair into another currency pair. So foreign exchange transactions are based on currency pairs. There are a variety of currency pairs. For example, the pound and the dollar, the dollar and the yen, the pound and the yen and so on. The currency pair is represented by two codes, the first of which is called the base currency, for example, the currency pair of the pound and the dollar, and the pound represents the base currency. The other is the secondary currency. Next to the chart or the data you will see (say 1.5555) becomes a quote.

Currency pairs are divided into three categories:

  1. Global mainstream currency pairs
  2. Cross currency pairs (secondary currency pairs)
  3. Foreign currency pairs

5.1 The sale of major currency pairs is carried out relative to USD (USD).

Australian dollars and dollars, the euro and the dollar, the pound and the dollar, the New Zealand dollar and the dollar, the dollar and the Canadian dollar, the dollar and the Swiss franc, the dollar and the yen.

5.2. The main cross currency pairs:

These currency pairs do not include the dollar. The most popular cross currency pair does not include the dollar but includes the euro, the pound, and the yen.

The euro and the Australian dollar, the euro and the Canadian dollar, the euro and the Swiss franc, the euro and the pound, the euro and the New Zealand dollar; the pound and the Australian dollar, the pound and the Canadian dollar, the pound and the Swiss franc, the pound and the New Zealand dollar; the Australian dollar and the yen, Yen and kinship, euro and yen, pound and yen, New Zealand dollar and yen; Australian dollar and Canadian dollar, Australian dollar and Swiss franc, Australian dollar and New Zealand dollar, Canadian dollar and Swiss franc, New Zealand dollar and Canada Yuan, New Zealand dollar and Swiss franc.

5.3. Exotic currency pairs:

Exotic currencies are made up of currency and dollar-denominated by brokerage unstable countries. Some brokers even have foreign currency pairs, according to foreign currency in euros, pounds, yen trading.

US dollars and the Danish krona, dollars and Hong Kong dollars, the dollar and the Mexican peso, the dollar and the Norwegian kroner, the dollar and the Swedish kroner, the dollar and the Singapore dollar, the dollar and the Thai baht, the dollar and the South African rand.

Trading period

Before you start Forex trading, you need to understand a very important thing. The transaction is continually going from Monday to Friday. There is no limit to time. The situation is so because there are several major stock exchanges in the world and in some countries, there is an exchange that manages price volatility. At the end of the trading session of a stock exchange, such as the end of the Tokyo Stock Exchange trading period, other trading days began in London. Some stock exchanges can continue to be carried out in different areas, so to provide customers with rich price categories. For us (that is, for brokers) about the beginning of the transaction in different regions of the news is very important, because a trading period start/end of the price changes have a great impact. For example, at the end of the European trading session, then the European currency price changes little, in the same direction, these conditions should be consistent with the short-term trading traders, but also to long-term trading traders to bring some trouble.

How do I trade?

7.1 positions

Now that you have been taught the main currency pair, the principle of currency trading, you need to understand the mechanism for trading on the foreign exchange market. Let’s start with the focus. In order to trade, you will start with some pen trading. In the foreign exchange market, these transactions are called positions. The type of position is divided into the following two categories: 1. a currency to buy (buy too much) – buy; 2. a currency to sell (sold too much) – sell. When the exchange rate increases, open the buying position and open the sell position when the exchange rate decreases.

* Let’s take a few examples (in the case of buying and selling pound and dollar currency pairs)

Buy: If you see the pound raised more than the dollar or the dollar fell more than the state of the pound, which means that the pound against the dollar will increase. The increase in the currency means that we buy the pound to sell the dollar, so open the buying position.

Sell: the pound fell below the dollar or the dollar increased compared to the pound means that the pound against the dollar will fall, so we should sell the pound to buy the dollar and open the sell position.

* The above way is in line with all currency pairs.

7.2 selling price, bid price, and spread

If you go to the bank to convert the pound into dollars, you will see two prices in the bank: buy the price and sell the price. This is also true in the foreign exchange market. If you want to open a buy position, the position is opened at the bid price; if you want to open a sold position, the position is opened at the purchase price.

The selling price (OFFER) is the price in the base currency to buy the base currency, in other words, the buy price.

The buy price (LAST) is the price of the base currency in the price tag, in other words, the selling price.

In the icon can be seen on the sale price and the purchase price in the middle of the distance, the distance is your broker opening fee, called the spread. In order to calculate the size of the spread we only need to reduce the bid from the selling price. Spread is the difference between the selling price and the bid price.

7.3 points, hands, leverage, and margin:

We have just calculated the difference in the spread by subtracting the buy price from the selling price. In this case, we have to calculate the size of the spread. The point is calculated in terms of points. One is the lowest bid unit of quotation, also known as the pip.

In daily life, you usually deal with weight and volume. Water is calculated in terms of liters, sugar in kilograms. The size of the contract in the foreign exchange market is calculated by hand. If you intend to open a position (trade), you will have to select the size (number) of the position. 1 hand is equivalent to the basic currency of 100000. So in order to buy the basic currency of 10000, you will want 0,1 hand, 1000 words – 0,01 hand.

It seems that in order to start trading in the foreign exchange market, you need a lot of money, but this is not the case. In the past, only wealthy people would be able to afford foreign exchange transactions. At present, almost every person will carry out foreign exchange transactions due to the services provided by foreign exchange brokers. In order to bring too much money into the market, brokers in accordance with the conditions of margin trading to the traders to provide the necessary funds. The main criterion for margin is the percentage of leverage provided by the broker to the dealer. Let’s give an example: the leverage ratio is equivalent to 1: 100, which means you buy 100,000 of the base currency, and you will need 100 to accompany the money. Not 100000, but 1000. The total amount becomes a margin. In order to calculate the margin, we need to allocate the size of the contract in accordance with the leverage ratio.

7.4. Take profit and stop loss – the reason for the use of these orders, because of profit and make the loss into a very small.

Only win: the currency exchange rate reached the target when the profit was obtained. The size of the profit depends on how long the distance from the opening to decide. The longer the distance, the greater the profit, if the price will reach the only win index.

Stop: Specify the indicator in order to make the loss extremely small. If the price tends to the opposite direction of your order (you open a buy position, the price tends to sell) when the stop-loss indicators are automatically closed positions.

7.5 pending orders:

If you intend to open a buy/sell position in the future, use a pending order. In other words, you set the index of the pending order, if the price reaches the target you set, the required position will be opened. There are four types of order: BuyStop, BuyLimit, SellStop, SellStop.

Buy Stop: If the price reaches the bid stop you specify, you are opening a buy order at the price you set. The pending order can be used to open a buy order and close a sell order.

Limit Buy: If the price reaches the limit buy target you specified, you are buying a purchase order at your set price or lower price. The pending order can be used to open a buy order and close a sell order.

Stop: If the price reaches the seller’s stop-loss target, you are placed to sell the order at the price you set. The order can be used to open a sell order and close the purchase order.

Limit price: If the price reaches the limit you sell, you will be asked to buy the order at the price you set or higher. The order can be used to open a sell order and close the purchase order.

Charts

We have learned: in order to carry out foreign exchange transactions you want to know that we can buy or sell a currency price. In order to facilitate the traders now we can in a variety of charts to investigate the price changes. On the offer of the news can be seen in the trading platform (you will download the platform from the broker’s website), trading platform in accordance with the quotation to produce these charts. The icon type is divided into 4 main categories: Tick Chart, Candle Chart, Bar Chart, and Line Chart.

8.1. Instant and time ranges

On the instant graph you can investigate more information about price changes. Immediate graphs show quotes for each new currency. Immediate diagram with the microscope, you can see the price changes. But the chart does not always help with the transaction. Because if traders and analysts analyze market conditions according to the immediacy of each offer, they will analyze a lot of information, which means that the probability of successful technical analysis is not high. So all the real-time indicators on the trading platform together and divided into exactly the same period, these periods are called the time range. In these time frames, the time can be expressed in the form of Japanese candles or bars or in the form of a line in the same way as the chart.

Among them are the main time ranges: 1M (one), 5M (5 minutes), 15M (15 minutes), 30M (30 minutes), 1H (one hour), 4H (four hours), 1D (one day) , 1W (one week), 1MN (one month). If we investigate one of the most popular examples, that is, Japanese candles, then the chart of each candle will be suitable for the time range. If the 1M chart is displayed, then a candle is equivalent to a seed, and if the 1H chart is displayed, then a candle is equivalent to an hour.

8.2. Candle chart

Candle charts are among the most popular charts among traders. Candle-shaped analysis of the arrival of the foreign exchange world originated in the Middle Ages of Japan, so these candles called Japanese candles. The icon is more convenient because the quotation can be seen on the four most important indicators

The opening price is the price at the beginning of the interval, and the price is shown in the form of candles in the selected time range.

The closing price (close) is the price at the end of the interval, the price in the form of candles in the selected time range shown.

The high price is the highest price that the candle has reached during the selected time range.

Low (low) is the lowest price of the candle in the selected time range.

Japanese candles are made up of body and shadow.

The candle line entity is a rectangle that combines candle opening and closing prices.

The candle hatch is some of the lines shown above and below the candle. These lines combine the high and low price of candle line entities.

8.3 bar graphs

The opening price is displayed on the left side of the line.

The closing price (close) is displayed on the right side of the line.

High (high) is the highest price in the selected time range.

Low (low) is in the selected time range within the bar to achieve the lowest price.

8.4. Line graphs

The line graph reflects the change in quotation according to the time index. The line graph is the order of the price indicators that are noted in the selected time frame.

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