Table of Contents
What is Forex?
Forex, also known as foreign exchange, converts one currency into another. It is one of the most active markets globally, with an average daily trading volume of $5 trillion. Learn more about Forex, how the forex market works, and how forex leverage works.
Many operations are carry out for practical reasons, but investors carry out most currency conversions to profit. The number of currencies converted daily can make the price movements of some of them highly volatile. This volatility makes Forex so attractive to investors: it provides more excellent opportunities to maximize profit and increases risk.
How does Forex Work?
Before starting to see the details and, even more so, to start trading, the trader must understand the basics, such as the Forex market and Forex trading. In this guide, you will be able to find all this information, as well as recommendations of Forex brokers and other tools of the Forex market.
In Forex, currencies are the main exchangeable asset. Therefore, the exchange rate between currency pairs is trade. Forex trading or FX trading consists of buying or selling currency pairs.
This operation involves the sale of one currency and the purchase of another
- If a trader believes that the euro will increase its value against the dollar, he will buy the EUR/USD pair. By placing this order, he is buying euros and selling dollars: buying the currency he considers stronger and selling the currency he considers weaker.
- To close the trade, you will issue a sell order, which involves selling the euros and buying the dollars.
- If the euro has appreciated against the dollar at the sale, the EUR/USD pair will have increased in value so that the operation will bring you a profit.
- On the other hand, if the trader thinks that the US dollar is going to appreciate against the euro, he will sell the EUR/USD pair. This order involves selling euros and buying dollars.
- To close the trade, you will need to issue a buy order. If the dollar has appreciated against the euro at the time of purchase, the EUR/USD pair will have decreased in value, which will bring a profit to the trade.
There are many combinations of currency pairs that can be trade on Forex. However, to start in Forex, it is advisable to operate on the most well-known currencies since the volatility and investment costs are lower in them. The following point reviews what these currencies are.
How to Start Trading Forex?
If you are looking to get the best results through Forex trading, you must first know these key aspects:
Select the Currency Pairs you are Going to Trade
Currency pairs with high trading volume are the most recommended when starting.
Among the most representative examples are the currencies of the United States, the European Union, the United Kingdom, Japan, and Switzerland, which represent the most powerful economies in the world.
Know the Economic Events that are to Come
Published macroeconomic information for the world’s significant economies influences currency values. Therefore, knowledge of them can give clues to the strength or weakness of currencies.
Establish a Schedule to Operate
The best hours for trading are those with the highest trading volume and coincide with the opening and closing hours of the major foreign exchange markets, such as New York, London, and Tokyo.
Use Technical Analysis Tools
To obtain good results, it is essential to use technical analysis. It studies, through stock charts, the price trends of any security.
Use Leverage Properly
Knowing how to use leverage will help you limit your losses wherever possible. In each operation, you must set a “stop-loss” or acceptable loss level since you will be able to close the position that did not evolve as expected and avoid further losses.
Any negotiation requires continuous learning. It’s not like becoming a doctor, where you learn first and do it later. In the case of trading, you must know and practice simultaneously.
Forex Trading Systems
To trade in Forex, it is necessary to have an account in a broker or a platform that allows us to access this market and connects us with the rest of the investors to buy or sell.
There are various trading systems for Forex. One of the best known and greatest used in MetaTrader 4, or its most current version, MetaTrader 5. The popularity of this platform is due to the valuation of users and the facilities it allows for trading, such as its speed. to trade buy and sell orders.
MetaTrader is free software that connects different trading platforms and allows trading with them through a computer or mobile device. In addition, MT serves as a link that will enable the user to trade with their broker within the same platform.
Conclusion
The foreign exchange market (also known as Forex, an abbreviation of the English term Foreign Exchange or FX) is a global and decentralized market trade currencies. This market was born to facilitate the monetary flow derived from international trade.