In this article you will learn the Forex market's basics - including its size, scope, structure and the route mechanics of currency trading. We will also identify and explain the key terms associated with Forex. Part II will explore the different types of market analysis and trading styles, before exploring how they can be tested on a Forex dummy account.
So as a preface to this article, let's start by answering why anyone would start financial trading in the first place? Unlike the Federal Reserve, the European Central Bank and most other national banks can only inflate their home economies in a more modest way. However, because economies are wired together like networks, rather than simple circuits, the debt travels across borders and through generations.
For many, the only way to repay it is by creating more debt, thus leading the global economy closer to the next inevitable meltdown. When you bring your hard-earned money to a bank, you are not actually just leaving it there for safekeeping. This is how the contemporary global economy functions - and it has been like this for quite a while now. The Internet age has made financial markets widely accessible. And that's a good thing, because you can now be your own bank so to speak.
However, the next time the bubble bursts, your national bank won't buy out your debt - just your bank's debt. These traders often have no background in financial trading and only bits of knowledge on the subject. It's set out to create general awareness regarding financial trading, with a particular focus on Forex trading. In this manner, we hope to change the mindset of aspiring traders and prevent them from leaving empty handed before they have even truly started.
The Foreign exchange market - often called Forex or the FX market - is the most traded financial market in the world. It is the financial hub through which the world's economic, investment and speculative flows move. It is the market where million-dollar trades take split seconds to execute, tipping the balance in supply and demand only slightly. A Forex trading day consists of three overlapping trading sessions that last roughly eight hours each:.
This way, Forex is traded around world and around the clock from early Monday morning to late Friday night. Trading sessions vary in total trading volumes, as well as relative trading volumes per instrument. This is followed by North American and Asian-Pacific trading sessions, which share the remaining volume more or less equally.
Other examples are the precious metals market i. Markets vary in almost every feature imaginable, but the underlying principle of supply and demand forming price remains the same. Despite the variety of financial instruments available to Forex traders depending on their broker's offering , this guide will concentrate on currencies.
As a side note, a certain amount of speculation exists regarding the interrelationship of markets. In the Forex market, financial instruments are presented in the form of currency pairs , since currencies are valued against one another. Traders would then wait for the euro currency to appreciate against the dollar, before selling it back and yielding more dollars than there were before the transaction took place.
Any two currencies can be combined to make a Forex pair, but not all make much sense to actually trade. With this in mind, all currency pairs are divided into four groups - majors, minors, cross pairs and exotic pairs. Combinations of currencies from these pairs that do not involve the US dollar are called cross pairs. Because platforms only do it after you have opened an order, which is already too late for calculating risk.
Financial leverage is a feature offered by Forex brokers to help traders control larger amounts of assets, despite having relatively small accounts. This means you can buy one euro at the ask price of 1. Alternatively, you can sell one euro at the bid price of 1.
But since you have This is called a margin call and it is performed when a debtor traders can no longer meet their obligations to their creditor the broker for the leverage provided.
This is the dual nature of financial leverage - potentially profitable and as potentially devastating. For these reason, a trader must not only evaluate his margin requirements prior to entering trades, but also be aware of the broker's conditions on margin calls. A swap - sometimes called a 'rollover' - is a unique type of a transaction that occurs every time an order stays open from one date to another. This is important to realise for dummies when trading Forex, as interest rates are the primary tool that central banks use to control inflation.
When interest rates are increased, it becomes more expensive for banks to borrow currency from the central bank. Either can be useful at times, which is why national banks periodically raise and lower interest rates. The information on swap rates is always available in a currency pair's description - either directly on your trading terminal, or on your broker's page.
Part II will expand on how to trade Forex for dummies through exploring different types of market analysis , along with trading styles that can be tested on Forex dummy accounts. Forex trading for dummies, part I.
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