How to Understand, Predict, and Make Bets When Forex Trading

Forex Trading

Welcome to the largest market in the whole world folks. This is the biggest and highest grossing market in the entire planet and even the stock markets don’t come close. Money trading has always been the biggest trade because all world currencies pass through here to get to get change into the currency most useful for the trader.

What happens is that the economic value of one currency is traded against another based on demand. The activities include buying, selling and exchanging currencies based on fixed rates at determined prices.

The people or entities that participate in this market include banks, international money institutions, hedge fund firms, individuals and countries’ central banks. The banks are mostly the dealers but are sometimes joined by insurance companies and other financial firms.

Because of the large amounts of money involved and the sovereignty issues surrounding this market, there is very little supervision as to how the whole process takes place. Also, it is very straightforward.

FUN FACT: in 2012, the stock market had an average trading value of $2,000 billion per day while the forex trading market, grossed $4.9 trillion in a day. 

Forex Trading Strategies

There are two broad categories of trading strategies that are widely applied in the forex trading business. These are explained below:

1. Hedging

In the forex trading business, the strategy which is most used is hedging. A hedge is defined as an investment which is designed to reduce the risk which is brought by fluctuation in prices of the way currencies are traded.

It is compared in a way to insurance. The way it works is by shielding the trader from potentially harmful outcomes in the forex market. However, despite the fact that it will protect you, it will also reduce the amount of profits that you gain. It is not entirely free.

A perfect hedge is one which removes all the risk 100% but it does not exist. This however does not mean that you cannot increase the effectiveness of the hedge to the higher 90% levels. It is more of an ideal though.

2. Speculating

This strategy is closer to gambling than most strategies are. However, most of the investors and traders involved will fall under this category. It mainly involves taking very high risk and banking on the fact that something will happen to make you gain more.

Speculators will say that a currency will move higher or lower in price as compared to another currency. It is a wager that the currency will either move high or low. Because currency has to be traded in pairs, one makes a bet of sorts about which one shall win.

While one may want to undertake this risky maneuver, one has to understand the dynamics of the currency, its characteristics, the country it comes from and the economy’s pace. This way, the predictions/speculations are more accurate.

Forex Trading Styles

These styles fall under strategies and they involve specific ways of conducting business in the forex market.

1. Day Trading- As the name suggests, these are traders who make sure that they exit the market before the end of the day. This will ensure that they do not get affected if there are drastic changes overnight.
2. Positional Trading- This one involves keeping track of the charts to check for when the prices are just right to trade. This will usually be done by the end of the day.
3. Swing Trading- This one is where the trader seeks to profit from short term changes in the prices usually lasting for a few days at a time and trading within hours as the prices change.
4. Scalping- these are the shortest lasting trades that are done within minutes to get profits that lie on very thin margins. The trader seeks to get the best bid from the offers made.

As you can see, they mostly involve high risk and one has to be really aware of how everything works or risk doing the wrong think and tanking their ship.

Forex Trading VS Trading the American Stock Market

Forex trading has been proven to be the biggest market in the world with the best conditions of trading that border on the ideal. However, the American stock Market is also not a kiddie’s playground as it trades billions of dollars in a day. This makes it one of the biggest markets in the world.

When comparing these two, we look at the factors that matter which includes the amount of money traded, the players, and the size of the markets, the significance and the cost of operation. In this part of the article, we look at the differences in how the two work. We compare the common aspects and draw a conclusion about the whole operation.

When choosing which part of this you should be on, consider the following things, the amount of risk, account size and convenience. Sometimes, it may all depend on whether you can make the hours or how early you wake up.

So, here are the factors that you look at:

1. Leverage– in the stock markets, the leverage is usually 2:1 and in the Forex market they are usually 50:1 which makes it very easy to make a large amount of profits in a very short time in Forex. However, your account can be just as easily wiped out.
2. Volatility– this refers to the short time prices which change in a matter of hours, days and even hours. The traders who prefer the stable and less risky less-volatile stock market may shy away from the Forex trading markets.
3. The Hours– the hours offered by the Forex trading markets are more and better because in the stock market, they are limited between 9:30 and 4pm EST. however, just because the Forex market is on all the time, doesn’t mean you should always be up.

As such, the markets all have their advantages and disadvantages. You will have to choose depending on how much you want to risk, how long you want to work and how comfortable you are with the way each market operates in general.

Is Forex Trading More Risky Than Traditional Trading 

Forex trading is a very competitive platform which has the highest potential of wiping out even more experienced traders if they so much as make one silly mistake. Comparing the volatility of this and the stock markets among other more traditional markets, it is riskier.

Traditional trading, for example the stock market is not entirely without risk either and one has to be really careful.

Here are some of the reasons why it is on a level far above the rest and what makes it so risky. However, there are people who can argue that the Forex trading markets have better opportunities.

1. Leverage Trading Risks 

When you trade with higher leverages, you can have the biggest profits in the shortest time. However, there is a catch. If the tables are turned on you, you will lose a lot if not everything. That is why the traders call this a double edged sword. It goes both ways and cuts whichever way it swings.

The losses can sometimes exceed the amount of money that you invested. If your account drops below the minimum margin close-out, you can have a closeout to prevent you from losing more than you have.

2. Multiple Market Trading Risks 

With all those currencies and markets to trade in, you can miss the best chances to make something big. So, start with a controlled amount of markets which you can manage easily or else you will find that you lose money without even knowing how it happened.

3. Volatility and Liquidity 

When the prices fluctuate so easily, it is easy to make the wrong decision and end up in loss. The liquidity can be an asset but it can also tank you quickly. Banks can act to refuse trading between certain currencies making it hard to move.

4. Brokers Risk 

When you are getting a broker to trade on your behalf or get you the best prices, it is paramount that you get someone who can be trusted. This way, you can avoid being scammed. Reputable firms have brokers who can be hired to do this work for you.

Which Countries Are Best For Forex Trading

This list will be based on statistics and the amount of success that has been recorded over the years. By considering the way that the markets have been moving, we can tell which currencies are more profitable and how you can take advantage of that.

The following are the countries ranked as best to trade in based on their currency strength and how much they gross.

1. United Kingdom
2. United States
3. Japan
4. Switzerland
5. Singapore
6. Hong Kong
7. Australia
8. France
9. Denmark

FUN FACT: The Japanese market is the largest in the world according to forex gurus. It is only difficult to analyze them because their brokers don’t report how much they make. 

What Is Forex Trading

This is the term which refers to the trading of currencies by exchanging, buying and selling them using the prices that are determined from the economic status of the countries that use those currencies.

In technical detail, it is a global decentralized market where all currencies are traded. This involves the banks and individuals who are interested in trading. They watch the prices and move their money in the best directions to make maximum profits.

They do not determine the values of the currencies but they set the value of one currency as demanded by another.

Best Way to Start Trading Forex 

This being one of the most competitive and biggest markets with high risk, it is paramount that you know what you are getting into before you even consider starting here. The following are the things to consider when you want to start trading Forex.

When you are a beginner, it can be difficult to do anything right. So, here are ways you can increase your chances of avoiding getting eaten alive.

1. Analyze Your Goals

According to the investments that you want to make, you probably have goals in what you want to achieve at the end of the road. This will require you to have realistic goals and see the risks and the best ways to follow.

2. Time Frame

When you get into the market, you probably want to make either a quick buck by making the best trade or doing it the slow way by analyzing first or getting the deals on a small scale but over a long period of time. Know which way to go and you can be on the safe side.

3. Risk 

How many risks can you withstand? Anticipate the number of risk and what will happen if you get hit by that particular ‘truck’. Consider your net worth and contingency plans.

4. Have a plan 

You will need this to move smoothly without making too many mistakes because something always goes wring at some point and you will need to be prepared for that.

5. Do Extensive Research 

Before you go into the market, do whatever you can to become conversant with how it works, the moves to make and the best way to be safe. Become a theoretical expert before doing this practically.

 Top 6 Tips for Trading Forex Online 

1. Examine the Exchange Rate

This is the first step when you are trading online. You need to know what the fluctuations have been in the currencies that you want to trade in. this way you can make the best decisions about where to invest.

2. Have a Trading Strategy 

When you want to make profit, you will have to buy currency that you expect to increase in value and this is done using currency that will decrease in value. To do this better, you will need to examine the changes and statistics to know what is best for you.

3. Be Aware of The Risks 

Buying and selling currency online is very risky and you will need to research up on these risks and how to eliminate them. You need to cover yourself to make sure that the mistakes you make do not come to bite you later.

4. Do a Demonstration 

There are websites that allow you to do practice runs on demonstration software before you can go ahead to do the real thing. It would be good if you got to practice first before you start trading these currencies online.

5. Get The Cash and Find A Broker 

You will need to obtain the money that you want to use in trading. Then you need to get a broker from a trusted firm. These online brokerage firms will allow you to get into the market without making the common mistakes that make newbies lose money.

6. Set Stop Loss Orders and Limit Investment 

There are times that you hit certain limits and there comes a need for you to stop trading and minimize your losses. In online trading, you can set the certain limits that you stop trading if you are losing.

You will also need to have a limited amount of money that you place up for investment. That way you can be safe if you find yourself on the wrong end of the deals you make. This will protect you from losing all.

Do You Need a Broker to Trade Forex? 

This will depend on whether or not you are new to the world of trading Forex. Also, whether or not you are new, you will probably need a broker because there is a lot to keep track of and what better way to make sure you are covered that to have someone who is trained to do that kind of thing.

So, yes, you probably need a broker until you can make yourself the broker he or she is. You will need time to learn the ropes before you can take over the trades yourself. The world of Forex trading has very many risks and you will need to keep your mistakes to a bare minimum.

In Conclusion

The market of trading currencies is the biggest in the world and the most competitive. When you get into it, you will have to be very conversant and very covered. This way you can always be sure that your investments won’t be flushed down the drain by bad decisions and mistakes.

Here, you can make so much money in such a short time and you can also wipe yourself out with the wrong moves. Make the correct choices and you can enjoy the benefits