Forex trading is a massive industry. Every day, trillions of dollars are exchanged. Finding the finest forex broker and a lucrative forex day trading strategy or method is difficult whether you are an experienced trader or a complete newbie to online forex trading. Before deciding on the best path for you, you need to master the fundamentals.
You will discover common forex trading ideas that are relevant to currency trading and online forex trading in this article It will also point out the valuable indicators to ensure you know the facts.
Why Trade Forex?
The forex currency market allows day traders to speculate on foreign exchange market movements as well as specific economies or regions. Furthermore, because there is no central market, forex trading is available 24 hours a day, seven days a week.
The average daily volume traded in the FX market in 2021 will be above $6,6 trillion. As a result, you have a plethora of trades and moves to choose from.
To begin, there are the pairings derived from the eight main world currencies. Furthermore, numerous regional currency pairs are accessible for trading. There are more alternatives, which means more chances to earn.
While not exactly 24/7, the forex market is readily accessible, open twenty-four hours a day, five days a week. As a result, you have complete control over when and how you trade.
A large portion of forex currency pairs is traded on margin. This is since leverage may be utilised to assist you purchase and sell huge amounts of money. The more the quantity, the higher the profit – or loss – potential.
When compared to other markets, Forex has comparatively low expenses and fees. Some businesses do not charge any commissions; you only pay the bid/to ask spreads. True ECN businesses may even provide a zero-spread option!
Currencies Traded In Forex
When learning how to trade forex, the great majority of participants in the worldwide forex day trading community concentrate on the seven most liquid currency pairings, known as the four ‘majors’.
- EUR/USD (euro/dollar)
- USD/JPY (dollar/Japanese yen)
- GBP/USD (British pound/dollar)
- USD/CHF (dollar/Swiss franc)
In addition, there are 3 emerging pairs:
- AUD/USD (Australian dollar/dollar)
- USD/CAD (dollar/Canadian dollar)
- NZD/USD (New Zealand dollar/dollar)
These major currency pairings, as well as a variety of additional combinations, account for more than 95 per cent of all speculative and retail forex trading in the forex market.
However, you’ve surely observed that the US dollar dominates the major currency pairs. This is because it is the world’s most widely used reserve currency, accounting for about 88 per cent of all currency transactions.
A ‘minor currency pair’ or a ‘cross-currency pair’ is a currency pair that does not contain the US dollar. As a result, the British pound, Euro, and Japanese yen are among the most widely traded minor currency pairs, such as:
- EUR/GBP (euro/British pound)
- EUR/AUD (euro/Australian dollar)
- GBP/JPY (British pound/Japanese yen)
- CHF/JPY (Swiss franc/Japanese yen)
Exotic currencies such as the Thai Baht (THB), Indian Rupee (INR), South African Rand (ZAR), and Norwegian Krone can also be traded (NOK). These unusual additions, on the other hand, come with a higher level of risk and volatility.
Although there is no such thing as a “best” currency for trading, a trader does want a certain amount of liquidity and accessibility.
Which Currencies Should You Trade?
In the beginning, investors should adhere to the main and minor currency pairings. Because it will be easier to identify trades and spreads would be reduced, scalping will be viable.
Exotic pairings, on the other hand, have significantly larger spreads and illiquidity. Exotic pairings can earn you a lot of money because they are riskier, but be prepared to lose a lot of money in a single session as well.
How Is Forex Traded?
So how forex trading works? The practicalities of day trading forex are nearly comparable to those of any other market. However, there is one significant distinction worth mentioning.
When you day trade forex, you buy one currency while simultaneously selling another. As a result, the currencies are traded in pairs.
As a result, the purchase price between the two currencies is represented by the exchange rate pricing you see in your forex trading account.
For example, the GBP/USD rate shows how much one pound is worth in dollars.
So, at a rate of 1.3, $300 will purchase £230. So, if you had reason to anticipate the pound will appreciate against the US dollar, you would buy 500 pounds in US dollars. Then, if the exchange rate rises, you’ll be able to sell your pounds and profit. The same is true for Euros, Yen, and other currencies.
Forex Trading – Is It Profitable?
Many individuals wonder how much a trader makes and whether forex trading is a viable career option. The fact is that it varies a lot. The majority of individuals and businesses will struggle to make a profit and will finally give up. A small fraction, on the other hand, demonstrates not only that it is feasible to produce money, but also that it is conceivable to generate massive annual returns while avoiding regular occupations.
If you are one of the few people who can profit from online forex trading, you may start with as little as $50 or even $1, however, it is simpler and faster to develop capital with more. So, while forex trading has the potential to make you wealthy, there are no guarantees. Retail traders lose 75-80% of their money.
Currency is a bigger and more liquid market than the stock and bond markets together in the United States. Anyone wanting to earn a livelihood will find day trading forex appealing due to the abundance of chances and financial leverage.
Unfortunately, there is no one-size-fits-all optimal forex strategy. However, trade at the correct moment and keep volatility and liquidity in mind while making your decisions. You’ll be on the right track if you follow the general principles for FX day trading.