Written by Julie Brownlee on April 1st, Understand which factors impact and move the currency market. And you must have a trading system, including a solid risk management strategy. Unlike trading shares, you trade currencies in pairs. For example, you could trade the US dollar against the euro, the pound against the rand or the yen against the Australian dollar. The exchange rate of a specific currency pair constantly changes according to supply and demand.
The vast majority of currency pairs are quoted to four decimal places. If the quote moves to Just like when you trade shares, you also need to consider the spread when trading F orex.
The spread is the difference between the buy bid price and the sell ask price of a currency. These currencies are the most liquid and due to that have the tightest spreads. You can use one of the plentiful online calendars to keep track of announcements that have the potential to affect your trades.
One calendar I find very useful is Daily FX. Not only do these calendars detail when announcements are going to happen, they also tell you how important they are. If you want to trade major currencies excluding the rand, you can use spread trading.
Spread trading appeals to many traders as the deposit to open an account is much less than what you need for currency futures. Fear and greed drive many of the decisions you make as a trader. Acting on these emotions can lead you to make decisions based on impulse rather than what your strategy is telling you to do. It avoids your emotions getting in the way of winning trades.
This is due to the currency market displaying trends over the long-term. Even if you opt to use technical analysis, you still need to bear in mind the economic indicators we looked at above. Technical analysis is a vast topic in itself, but start off by looking at charts showing the currency pairs you want to trade to see how they behave over different periods. Before you even consider trying to find potential trades, you need to ensure you cover risk management.
By prioritising risk management, you can prevent catastrophic losses and keep losses to a minimum. This ensures that you can continue to trade and not decimate your trading pot on one poorly judged trade.
The most simple include setting stop loss and take profit levels each time you trade. You could also consider position sizing. This involves only risking a predetermined amount per trade. You may find the company you trade through has demo accounts you can use. By having a solid trading strategy which includes risk management, you increase your chances of being successful, not just over the short-term, but for the long haul.
Forex trading can be lucrative, but taking a slap dash approach could mean you lose a lot of money. The risks are high. This gives you a lot of flexibility.
There are three letter acronyms for all currencies. This is where exchange rates come in. Where Pips Come In To measure the movement and value of currencies we use pips. The All-Important Spread Just like when you trade shares, you also need to consider the spread when trading F orex.
The bid price is always less than the ask price. What Moves The Forex Market? These factors have the potential to move currencies. The economic indicators you need to watch out for include: Consumer inflation; Gross domestic product data; Interest rates; Consumer confidence; Employment data; Trade balances; and Retail sales. And you can easily put on small trades. This will make your research easier. This can cost you money. You may notice strong trends for particular currency pairs.
There are different strategies to consider. A clear and decisive way of selecting trades. Stop loss and take profit levels. Risk management strategies to preserve your trading capital.More...