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Foreign exchange trading or forex trading involves speculations regarding betting on one currency over another. There are a number of factors that affect the foreign exchange market from a country’s sovereign status to inflation figures and unemployment conditions in a nation. The multitude of dynamics operating in the market makes it both exciting and risky as a trading option.
Attractions of the Forex Trading Markets:
* You can trade in the forex markets 24 hours a day over the phone or online.
* It is an Over-the-Counter exchange; there is no exchange acting as counterparty for each trader. So, you have direct trades between two parties.
* Forex markets have very high liquidity, as trading volumes are tremendous.
* You are presented with the chance to diversify your investment in many countries, as several of them participate in these markets. So, you get to dip your fingers in the world’s pie.
* It is always the time to invest, as you can put your faith in different currencies. If you think the dollar will perform better than the euro, you buy dollars and vice versa. So, you can always participate actively in the markets.
* One of the most interesting aspects of forex trading is that you benefit from leverage. With a small investment, you can speculate with large sums; you only have to pay or receive the margin amounts.
Major Currency Pairs Traded In the Forex Markets
The currency pairs that are actively traded include US Dollar and Euro, Australian Dollar and US Dollar, British Pound and US Dollar, and so on. Liquidity is high in these trades.
Forex Trading Strategies
Strategies vary vastly, as people take opposing sides of the trading platform. This is due to differing perspectives and various market inefficiencies. Financial analysts follow two methods of reading the markets – the fundamental and the technical analysis.
* The fundamental analysis reads the bottom and top lines – the country’s exports and imports, Balance of Payments, and Current Account Deficits. Based on the Budgets and other reports, analysts makes predictions regarding market movements.
* The technical analysis uses charts to predict which way the markets are likely to swing. By following various graphs and learning about supports and resistances, breakouts and price charts, you will learn to read which way the markets are headed.
Tips Regarding Strategies:
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* When the FX markets break through resistance levels, it is a sign that they will go up further with the momentum. That is the time to buy. While you can’t time the markets by waiting for them to bottom out, it is possible to follow certain trends.
* Your trading strategy should take into consideration different market nuances and major traders’ idiosyncrasies. Any rigid system is bound to fail. Robotic trading methods are filled with such loopholes.
* Traders also read the leading and lagging economic indicators to formulate their forex trading strategies. Reading price charts sans these indicators can also help in trading.
There are many financial companies that are members of stock exchanges. They present forex trading with strategies, advices, and market commentary. They also offer commodities, derivatives, and currency trading opportunities enabling people to profit from spreads.