The Forex Market is the largest financial market in the world. Everyday, more than $5 trillion are being exchanged there so you can be sure it attracts everyone involved in trading from the largest international banks to top professional traders and beginners. In this article, we’ll give you some tips on how to trade the Forex market safely and successfully!
Main Characteristics
The Forex Market is where currencies from all around the world are exchanged against other like the EUR/USD for example. It is open 24 hours a day, 5 days a week. It is a highly liquid market due to its huge volume and is also quite volatile. All these ingredients make it a perfect choice for day traders seeking for perpetual trading opportunities.
The forex market consists of two different levels: the interbank market and the over-the-counter (OTC) market. The interbank market is where large banks operate while the OTC market is where individuals trade through online platforms and brokers.
Choose Your Pairs
There are many currency pairs to choose from but the main ones account for the vast majority of the trading done in the Forex market. Because these pairs also have the largest volume, they typically have the tightest spreads as well. The major pairs are: EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD, NZD/USD.
We do recommend anyone interested in starting trading in the Forex market to start with one of these as they will give you a very good idea of what this market is about. For more experienced traders, especially those who know a lot about currency exchange, minor pairs can certainly be profitable if played correctly.
Make A Plan
We can’t stress this enough, no matter which market you trade in, it is crucial that you make a solid plan before you get out there and start trading. The first step is obivously to learn a lot about the market you want to be involved in. There are many things to know about the Forex market so you should take the time to get familiar with it and see if this is something that feels right for you. The Forex market doesn’t suit everyone so make sure you get some experience with a demo account first. Then, define your budget. As we talked about in previous articles, it is important to only invest what you can afford to lose. Start with a capital that won’t put stress on your overall financial situation and only play with small amounts for each trade. Playing it conservatively insures that you get to know the market well and that you don’t let your emotions take over your trading decisions. Once you’ve made your plan, make sure that you stick to it no matter what. Having the discipline to only trade within your plan will prevent you to make some big mistakes when strong emotions will arise during some key situations.
Technical Analysis & Fundamental Analysis
Technical analysis is necessary to be able to understand previous moves, current trends and forecast future price action in the Forex market. There are a wide range of tools and indicators that can be applied to a chart and we strongly recommend you read our detailed Lesson on this topic.
Just like every market, the prices in the Forex are influenced by financial news. Therefore it is crucial to understand which fields have an actual impact on it. We know for instance that the monthly release of the US NFP (Non Farm Payrolls) which gives data on the current US employment situation is notorious to have a strong impact on the EUR/USD. It is crucial to perform this type of research (fundamental analysis) to be fully aware and of these elements and be updated permanently.