Xtrade Education

FOREX TRADING BASIC CONCEPTS

So, what is forex trading market, really? The foreign exchange market is the generic term that exist to convey exchange or trade currencies. Foreign exchange is often referred to as “forex” or “FX.” The foreign exchange market is an over-the-counter (OTC) market, which means that there is no central exchange and clearinghouse where orders are matched. FX participants around the world are linked anomalously to each other around the clock via multiple communication and dealing methods to creating one cohesive market. Over the past decade , currencies have become one of the most popular products to trade. No other market can claim a 71 percent surge in volume over a three-year time frame. According to Survey of the foreign exchange market conducted by the Bank for International Settlements and published in October 2007, daily trading volume hit a record of $3.2 trillion, up from $1.9 trillion in 2004.

The value of one currency is determined by its comparison to another currency via the exchange rate. The major currencies traded most often in the foreign exchange market are the euro (EUR), United States dollar (USD), Japanese yen (JPY), British pound (GBP) and the Swiss franc (CHF). These combine to form the most commonly traded currency pairs: • EUR/USD • USD/JPY • GBP/USD • USD/CHF The first currency of a currency pair is the base currency; the second currency in the pair is the counter currency. One can think of currency pairs as a single unit. When buying a currency pair, the base currency is being bought, while the counter currency is being sold. The opposite is true when selling a currency pair. Foreign currency trading is conducted without a central exchange, but instead is traded over-the-counter (OTC). Unlike other markets, this decentralization allows traders to choose from a large number of different dealers or brokers with which to place trades. This also provides the means to compare prices and pip spreads before buying or selling.

A number of tools and charts are used in forex currency trading and the educated trader uses these tools extensively to perform accurate analysis to determine whether to buy or sell a given currency pair. The forex market is operated in Europe, Asia and the United States in overlapping shifts, so currencies are constantly traded 24 hours a day. No single entity has the capability of influencing the market – at least for very long. Currency trading – at its most basic definition – is the act of buying and selling (trading) different currencies of the world.

A typical scenario might go something like this: A trader is looking at the British pound (GBP) and U.S. dollar (USD). This is called a currency pair. The GBP is the base currency, and the USD is the secondary currency. News that the value of the GBP is up from previous reports creates a positive reaction and a spike in the value of the GBP. This, in turn, will cause a rally on the GBP/USD currency pair. If the opposite occurred, and a positive announcement for the USD was reported, then the GBP/USD currency pair will fall, or dip. Either scenario can offer up a profit, depending on which part of the currency pair is bought or sold. The price of each currency within the pair is determined by a number of factors, such as changes in political leadership, economic booms or busts, even natural disasters.

When you are trading Forex you are trading one currency against another. An example would be when you are trading your Dollars for Euros. Most people have experienced this when visiting another country with a different currency. Because the rate for which you can trade your money fluctuates over time, it is also possible to earn money with currency trading. The only rule you have to follow says ‘buy low, sell high’. Of course this is not as easy as it sounds as you never know in advance what would be considered ‘low’ and ‘high’. However, if you know which factors influence the rate of a currency, you can make predictions about the future rate of this currency. An important aspect to know when trading is called the ‘spread’ of the currency.

This is the difference between the rate to buy and the rate to sell the currency. This is expressed in ‘pips’, which is the smallest unit of price of a currency: 0.0001 of a currency unit.

For example:  The Bid/Ask of the EUR/USD Bid Ask EUR/USD 1.3507 1.3512 In this case the spread is 5 pips (1.3512 – 1.3507 = 0.0005).

This means that if you want to buy US Dollars with Euros, you will receive $1.3507. In case you immediately trade this back for Euros you will only receive €0.9996. In this case you lost €0.0004 by only changing from one currency to another and back. This is why a low spread is important when trading, to make sure your money will not all get lost just by trading.

Predicting the Forex market The Forex market is very complicated and affected by many factors. Nevertheless, the price is always a result of all supply and demand forces. The demand and supply is influenced by several elements which can be put into three categories:

1. Economic Factors This means the economic conditions and economic policy of a currency zone. The economic policy includes fiscal policy and monetary policy. The economic conditions consist of government budget deficits or surpluses, balance of trade levels and trends, inflation levels and trends and economic growth and health.

2. Political Conditions This influence can be seen very strong during election time. Also in political unstable countries this is a major influence on the currency price.

3. Market Psychology This is a major influence in day trading. Currency speculators immediately react to the announcement of a specific economic number. This often results in a market being ‘oversold’ or ‘overbough’.

Method of Forecasting the Behavior of the Forex Market

Trying to predict a market is a complex exercise and requires the use a scientific basis rather than guesswork to predict Forex market behavior. Primarily, there are 2 methods for predicting Forex market trends: • Technical AnalysisFundamental Analysis

FOREX TRADING FUNDING SOLUTIONS

Offline Payment Method: This is more traditional methods of funding your account commonly known and recognizable by majority of people, such payment methods include:

  • Bank wires transfers
  • Western Union / conventional money transfers
  • Bank Check
  • Local Deposits (limited to local brokers)

 

Offline payment methods are best suited for the large amount transfers. Important factor to consider on such transaction are remittance cost which not only includes the fee but also rate of exchange offered by service provider, for larger amounts these charges can be negotiated depending on the amount of funds you wish to transfer.

The second most important factor to consider is time of 3 to 5 working days before your funds reflect in forex trading account, in case of initial funding this can be neglected provided you have done due diligence on the credibility of your forex broker, however if you are funding margin call it can result into your trading account force liquidated due to inadequate funds.

Digital or Electronic Wallet (e-wallet) refers to an electronic, internet based payment system which stores financial value. Such electronic payment systems enable a customer to pay or receive payments online, including transferring funds to others.

  • Paypal
  • Moneybookers/Skrill
  • Neteller
  • Perfect Money
  • CashU
  • Webmoney

eWallet Payments are simple and secure, and funds are made available instantly to recipients. In the same way that you can make payments to multiple accounts, with eWallet Payments you can pay multiple eWallets simultaneously using a similar payment process.

LEARN BASICS OF FOREX MARKET ANALYSIS

In finance, technical analysis is a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume.[1] Behavioral economics and quantitative analysis incorporate substantial aspects of technical analysis,[2] which being an aspect of active management stands in contradiction to much of modern portfolio theory. According to the weak-form efficient-market hypothesis, such forecasting methods are valueless, since prices follow a random walk or are otherwise essentially unpredictable.

Charting terms and indicators

Basic Concepts
• Resistance — a price level that may prompt a net increase of selling activity
• Support — a price level that may prompt a net increase of buying activity
• Breakout — the concept whereby prices forcefully penetrate an area of prior support or resistance, usually, but
not always, accompanied by an increase in volume.
• Trending — the phenomenon by which price movement tends to persist in one direction for an extended period of
time
• Average true range — averaged daily trading range, adjusted for price gaps
• Chart pattern — distinctive pattern created by the movement of security prices on a chart
• Dead cat bounce — the phenomenon whereby a spectacular decline in the price of a stock is immediately
followed by a moderate and temporary rise before resuming its downward movement
• Elliott wave principle and the golden ratio to calculate successive price movements and retracements
• Fibonacci ratios — used as a guide to determine support and resistance
• Momentum — the rate of price change
• Point and figure analysis — A priced-based analytical approach employing numerical filters which may
incorporate time references, though ignores time entirely in its construction.
• Cycles – time targets for potential change in price action (price only moves up, down, or sideways)

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