What is forex trading ?

Forex is the short form of Foreign Exchange, and to be more clear it deals with currency trading. Majorly for commerce and tourism, there is a need to change the currency of one country to its equivalent value of the currency in another country. With globalization considered as the best step towards a perfect industrial world, businesses across the world require Forex.

Forex Trading Risks

Commercial initiatives and businesses that work in foreign countries are under a constant risk of the fluctuations in the value of the currency. When they sell or buy services or goods in other countries, they aim to prevent losses at least, if not gain huge profits. Therefore the foreign exchange markets have a regularized way to provide a hedge against these risks by fixing a particular rate at which the transaction would be concluded by the end of a certain period. In order to comprehend these risks completely, we need to understand the concepts of decentralized markets and centralized markets.

This is often referred to as Forex Volatility. It tells about the level of uncertainty or the risk involved with changes that could be possibly involved with currency exchange rates. A higher volatility denotes how an exchange rate can be spread over a large number of values. Therefore, this risk of high volatility is one of the major things to be considered when you want to invest in Forex services.

Where to trade forex ?

As the risks involved with forex trade is equally perplexing as the potential for gain, it is essential to find a regulated licensed forex broker. Many forex solutions companies exist in the market today, who have gained trust through the years of service. It is recommended to go for a reputable Forex broker like IC Markets, Tickmill, IQ Option, Roboforex or Pepperstone. You can learn about each of these brokers by referring to Regulated Forex Brokers in Sri Lanka article in both English and Sinhala.

Nowadays banks are taking up the forex trading expertise to ease out the process for their clients. The interbank market is a network of various banks around the globe that have commerce and currency exchange among themselves, in various countries. The banks need to work on the sovereign risks and credit risks by themselves, through deep processes of internal auditing. This is needed to keep themselves and their clients safe from losses as much as possible.

Forex acts as an entity to circulate the various currencies with the equivalent value from and to different countries.

Forex Trading Platforms

With most of the forex beginners opting for Forex Trading Software, most of them are available for free.

Some of the beginners resort to FX bots too. These are nothing but Expert Advisors aka EAs. Though it is designed to be helpful throughout, it is often not very reliable when the market changes and they are hardly on the high-profit side. If you are good with the code it works on, you can change it according to the market trends. But this is even more difficult while you are just a beginner.

If you still believe in rising huge profits with EAs, then the best would be MTA 4  / MT5 .

If you want to go by the news updates, the stock updates you see on CNN and Bloomberg are already the discounted prices with the inception of volatility. As the news is out, the Spreads grow, with a high number of re-quotes and slipping stop-losses. So keeping in mind that you a beginner, it is recommended to stay away from new trading until you become a professional in that mode.

cTrader is yet another trading platform similar to MT4 ( Meta Trader 4 ), with more features as it is new to the market. With a better user interface and advanced codes to take stop loss and profit systems, varying chart time frames, cTrader is a good retail trading platformyou can resort to as a beginner.

If you are starting this forex venture, with little investment of your own and think you have the talent to survive the

Must know Forex Trading terms

Pip

Based on the market convention, it is the smallest price move that a particular exchange rate results in.

eg : If GBP/USD jumps from 1.3360 to 1.3361, the .0001 USD is considered as 1 pip.

Upto 4th decimal place is considered in most currency pairs. Upto two decimal places considered in Jap Yen pairs.

Leverage

In literal means, Leverage indicates the control over big things using something small. On the similar tone, Leverage in Forex terms means to control huge transaction in the market with just a small amount in your capital. It involves a great amount of talent and knowledge in Forex domain to take much out on the leverage part of it ( Higher the leverage, higher the risk and higher the profits ! ).

eg : 100:1 leverage means you can control upto $100 with just $1 while 500:1 leverage means you can control $500 with $1

Spread

It denotes the brokerage costs and the equivalent replacement in transaction fees. So basically this is the difference between Buy and Sell price denoted in pips. ( In Meta Trader 4 / 5 you can enable the spread column to get the values easily while in ctrader, it will be shown with currency pairs )

Margin

The investor takes a loan ( not exactly but will refer to it as loan to get the idea correctly ) from the broker on a short-term basis. This loan is equivalent to the amount of leverage taken by the investor. Before a trade can be placed, it is essential for the investor to deposit the money in the margin account. The Forex margin account is on the equivalent level of an equities margin account.

Slippage

When an order is implemented, a slippage occurs if there is no limit order. Otherwise, a slippage can occur when there is less favorable rate than that which has been set initially. Slippage is widely linked with High Volatility.

Learn About Technical and Fundamental Analysis

If you are involved in forex trading, the analysis is the major key to success. Looking into daily, weekly, and monthly charts is essential for both short term and long term trading.

The technical analysis revolves around trend lines, support and resistance lines and eventually the indicators based on these.

The fundamental analysis is needed to understand the impact of news and commerce trends of each country on the Global forex system.

Learn to trade with the trend

Though many believe to invest in the major currencies like the Dollar or the Euro, it is often suggested to go for more of what you see rather than what you believe. It is essential to invest in the currencies that you can significantly see a profit coming in rather than the ones you believe would yield profits later. This is mainly because the market is quite unpredictable and most often assumptions lead to disastrous losses.

So always be up to date with the current trends in the market analysis and align your investments and forex trading accordingly.

Learn Money Management techniques

Before you jump into the deep pool of the Forex market, it is essential to have a good exposure to the requirements in a viable trading plan. Do read about the Forex Money Management Techniques before you decide on the investments wisely.

When it comes to investments, be it short term or long term, patience is what yields you the money. The longer you wait for the market to change, the larger the income. Again it could be risky, as it is FOREX - the huge trend among most people in any country.