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Forex trading explained. All market concepts in an article

Trading

The Forex market, or simply FX (from “foreign exchange”), it is the largest and most liquid financial market in the world that allows traders to buy one currency using another. When you buy a particular currency, assume that its price will increase compared to other currencies and that you will then be able to sell it at a higher price. This type of speculation is the basic principle behind Forex trading.

Screenshot 1 1General features of the Forex trading interface

Volume and liquidity

The New York Stock Exchange is the largest stock market in the world. It counts a daily volume of transactions of $ 22.4 billion. The FX market can boast a daily trading volume of $ 3.5 billion. Forex, however, is not only 200 times bigger than the largest stock exchange in the world, but it is also extremely volatile. Exchange rates are constantly fluctuating, creating numerous speculative opportunities. The high liquidity allows you to buy and sell currencies in an easy way.

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What is traded on the FX market?

The answer to this question is “money”, or more precisely, the national currencies of the various countries. On the currency market, all products are organized in pairs. By placing an order on the Forex market, we buy the currency of one country and at the same time sell the currency of another country.

The most popular currencies on the FX market are the US dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY). Currency pairs that do not have USD are called “cross-currency” pairs.

currency pairsEight major currency pairs represent 95% of the total volume of world trade

The FX market operates 24 hours a day, 7 days a week, on weekdays, from 0:00 GMT on Monday to 21:00 GMT on Friday.

The valuation quotations

A quote is the most recent market price agreed between the buyer and the seller. It consists of two prices: the Ask price, to which the asset is purchased, and the Bid price, to which the asset is sold to other traders. The difference between the two is known as Spread.

Bid = selling price

Ask = purchase price

spread = The difference between the Ask price and the Bid price, commission charged by the broker for the execution of an order.

The use of the multiplier

Daily currency price fluctuations rarely exceed 1%. It means that if you are trading small volumes of the underlying asset, the result will be proportionately humble. One of the possible ways to make Forex trading more profitable from an economic point of view is to apply a multiplier to your investment. The multiplier is a brokerage tool that allows you to receive proportionally larger profits or losses.

Screenshot 2 1

Using a multiplier of x25 you, as a trader, you can invest twenty-five times more than the amount of money at your disposal. In this case, any realized profit (or losses incurred) will be multiplied by 25.

Stop Loss and Take Profit

The largest currency pairs fluctuate enough to offer solid earning opportunities to professional traders. However, spending a lot of time on passive observation of open positions while waiting for an opportunity to close them is neither effective in terms of time nor physically feasible, at least sometimes. The IQ Option platform offers the opportunity to automatically close profitable or loss-making positions when a certain price level is reached.

Screenshot 3 1

All you need to do is set the desired level of profit / loss that will close the position.

What makes currencies fluctuate?

Currencies fluctuate based on supply and demand. The increase in demand for the US dollar, other things being equal, will drive up the USD price. The increase in supply, in turn, will reduce the exchange rate.

What are the main factors that influence the supply and demand for the various currencies? Possible reasons include, but are not limited to the monetary policy adopted by the respective country’s central bank, inflation and political / economic conditions. Economic reports that are published regularly such as employment data, changes in GDP and interest rate decisions can have a huge effect on currency prices. Irregular macroeconomic events, such as Brexit, have a chance to influence the foreign exchange market as well.

Screenshot 4Volatility peaks can be observed as a result of important economic events

Conclusion

The largest and most liquid market in the world opens up a world of possibilities for individual traders. However, it is important to remember that Forex trading involves a high degree of risk and should only be practiced by individuals willing to devote time and effort to studying the complexities of currency trading.

This article does not represent investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that these movements or levels may re-appear in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.

GENERAL INFORMATION ON RISKS:

CFDs are complex instruments and carry the high risk of losing money quickly due to the leverage effect. 73% of retail investor accounts lose money when trading with CFD through this provider. You should make sure you understand how CFDs work and if you can afford to take the high risk of losing your money.



Source: IQOption blog 2018-12-05 14:40:08

PLEASE NOTE: The articles on this website are not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.

In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.

Some of the links on this page may be an affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission.

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The largest and most liquid market in the world where the main underlying asset is foreign currencies traded in pairs. Watch video to know more.

HIGH RISK INVESTMENT WARNING:

This website is not intended for viewers from EEA countries. Binary options are not promoted or sold to retail EEA traders.

General risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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