The basics of Forex Trading

Forex stands for Foreign Exchange which means currency trading, or trading in foreign currency. The foreign exchange market is the world’s largest market with a turnover of some 5.3 billion dollars per day. There are a variety of different actors: banks, governments, international corporations, insurance companies, professional traders, hedge funds and millions of amatörhandlare.

Forex trading is so popular because it is very easy to get started, it is possible (but not recommended) to trade with small accounts and high volatility.

Are you looking for a broker? We recommend IC Markets. Take a look at the website and download their free demo platform.

The Forex sessions

The forex market does not have the same opening and closing times as the stock market or other financial markets. You can trade currencies 5 days a week, 24 hours a day, from morning till Friday evening, when the american market closes.

It may be worth keeping an eye out for are mainly overlapping times, where the greatest volatility and therefore trading opportunities occur. During the trading day keeps the various commercial centres are open as follows (Swedish time):

Frankfurt 08:00-16:00
London 09:00-17:00
New York 14:00-22:00
Sydney 00:00-08:00
Tokyo 01:00-09:00

Exposure overnight

As a Forex trader, you can always find a trending market anytime of the day. Moreover, the 24-hour open characteristic that there are no prisspridningar as in stock trading.

But as a Forex trader, you have the exposure over the night, and volatile price movements.

 

News

News and macroeconomic events influence the currency and the Forex prices. It is important to keep track of important news events (even if you are a purely technical trader).

Before, during and after a press release we have a few options, and here are our best tips to deal with the news in the best way:

1) do not Take new trades prior to important news events.

2) If the price is close to your profit, close your position

3) Wait 30 – 60 minutes after a news release before you go into a new trade. Volatility can be very uneven and unpredictable.

What news events you should follow? ForexFactory has a good nyhetskalender showing the main news. It shows the currency that is most affected. Here is the list of the largest marketers:

GDP (gross domestic product)
Arbetslöshetsdata and NFP
The CPI (Consumer Price Index)
Interest rate – the main driver of currencies
The FED, ECB, BOE, SNB, BOJ, RBA – centralbanksmöte.

What is a currency pair?

Currency pairs are simply quotes that relate to the current comparative value of a nation’s currency to the currency issued by another nation. Each currency has its own characteristics.

For example, if you buy aud/USD buy sek (and selling at the same time dollar). The first currency in a pair is called the base currency while the second is called the counterpart

Bids and prices

When you are looking at a prismatning, you will see two different prices for each Forex pair: the bid and askpriset. Askpriset is the price that you must pay when you go into a köphandel and the bid price is the price you have to pay when you want to go into a säljhandel. Askpriset is always higher than the bid price. The difference between the two prices is called the spread (or bid-ask-spread) – it represents the cost of trading and the brokers ‘ commissions.

The image below shows a regular MetaTrader-view. To the left (1), you will see a list of Forexpar with their bids, and price. In the middle, you will see the window Order execution.

Majors and Forexpar

GBP/USD, USD/CHF, USD/JPY, USD/CAD, AUD/USD and EUR/USD is the most traded pairs. Moreover, the major pairs are cheaper to trade, which means that the ”spread” is lower.

Exotic currency pairs usually include a currency from a tillväxtmarknadsland. The reason that they are called the exotic currency pairs have nothing to do with the countries ‘ geographical location, but about the additional challenges involved in forex trading with these currency pairs.

Example: USD, NOK, TRY, PGI, SEC and many other. The spread, and thus the costs are usually much higher.


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