Forex is short for foreign exchange with the underlying asset being currency. The FX market is by far the largest in terms of volume traded and it operatesaround the clock. Currencies float freely against each other, meaning that the intrinsic value of each one varies greatly, this is where you can make money.
It’s very simple, the aim of the game is to make a profit. Buy something hen it’s cheap and sell it on once the value has increased. Say you want to buy the AUDUSD (Australian Dollars/American Dollars) currency pair. If the AUD goes up in value relative to the USD and you then sell it, you will make a profit. In this example the trader would be buying the AUD and selling the USD at the same time. If you were to buy the AUDUSD pair at1.0715 and it then moved up to 1.0800 then the trade was close, you would make a profit on the trade of 85 pips.Alternatively if the pair had moved down in value to 1.0700 at the time the trade was closed, you would have made a loss of 15 pips.
Currency trading is a macroeconomic endeavour. A currency trader needs to have a solid understanding of various countries’ economies and how they connect in order to grasp the fundamentals that drive currency values. For some it’s easier to focus on economic activity to inform their trading decisions rather than the nuances that drive change in the currency values. Extended information about FX Trading can be found over at ETX Capital.
Before you start on any journey, it’s crucial to know where you’re going and how you’ll get there. Whether you’re aiming to achieve financial independence or just to generate some extra income, it’s wise to allocate a timeframe and stick to a plan for at least the start of your trading career. Knowing what you constitute as failure and define as success is imperative to gaining the insight necessary for successful trading.
Stick to what you understand
Failure to abide by this principle has spelled the end of many traders. As a rule of thumb, if you’re unsure of what you’re doing, or don’t feel as if you can fully justify any decision you’re making then back away. It’s also wise to avoid trading on the basis of hearsay or rumours and ensure you understand both the positive consequences, and the adverse results that may result from any trade.
Never add to a losing position
While this seems to be common sense, ignorance of this principle has spelt disaster for many traders. It’s impossible to know how a currency pairing will shift during any given period of time. You can always hazard an educated guess, but you’ll never have solid knowledge of where a price will be even in a short amount of time. Consequently, there’s no point in pumping more money into a losing position, unless you just love to gamble.
Keep it simple
Forex trading isn’t rocket science, however overcomplicating things can make it feel like it. You needn’t be a maths genius or economics wiz to be successful. Clarity of vision alongside well-defined, carefully chosen goals and techniques offer the best path to success.
Don’t go against the markets
As a beginner you’d never be advised to trade against the market. Joining trends allows you peace of mind. Fighting the trends, is a one way street to constant stress, fear and probable losses. As a rule of thumb, never go against the markets unless you have the patience and financial resilience/stability to stick it out as part of a long term plan.
Forex trading is simple to grasp but exceeding difficult to master. Years of practice are required to master the craft but sticking to a simple set of rules, abiding by a plan and being sensible with your trading will ensure you enjoy your trading and hopefully remain profitable!