How does the Forex Market really works?

The international currency market (Forex) is the place you trade money to make money, from the currency change, placing yourself on the right side of the market and also assuming a controlled risk in each transaction.

Forex market reflects global capital flow and when you discover how this market works, you will develop skills that can bring you money in any economic cycle. Understanding the movement of currencies, you will easily understand the evolution of gold, oil or indices.

There is no better way to be connected with the major events and the global economy!

Warning: beware of commercials like “Earn 100% in one day!” / “Guaranteed Profit” / “There is risk of loss”.

FOREX is the largest and most liquid financial market in the world with a daily turnover of several trillion dollars. Liquidity is a strong attraction for the participants, because it suggests the instant freedom to place trades at any moment. The main role of the foreign exchange market is to assist international trade and investment, enabling the necessary conversion exchange for protection or speculative interest.

Check out the infographic for more interesting information about the true exchange rate and how the forex market really works.

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What`s your trading style?

Because there isn`t a precise definition, these are considered rather general trading styles.

Scalping (very short-term)
Scalping is a trading strategy in which a trader is trying to gain small profits in a very short period of time. In general, these trades are made on very short time, from a few seconds to a few minutes, and involve an increased risk. In order to have a higher gain is required to trade with the smallest spread possible. As the spread gets higher it will be harder for a scalper to gain profit.

Day trading (short-term)
Day traders usually open positions in the market from several minutes to several hours and they don`t hold open positions overnight. They typically use very short-term charts such as 15 minutes charts.

Swing trading (medium-term)
This is a medium-term trading style and it implies opening a position for a few days or even a week or two. Swing traders usually use a 4 hours chart for this trading style.

Position trading (long-term trading style)
They usually keep their positions open for a longer period of time compared to Swing traders and can last from several months to a year and more. They tend to focus mostly on 1 day charts.
A carry trade is a transaction based on the difference between interest rates (sell currency with a lower interest rate to get a better return on the currency with higher interest) and may take several years and more (but no less than a few months).
This type of traders will use charts focused on a longer period of time if his position will be based on a longer term (1 day or 1 week charts type). I believe it`s important that every trader should start using long-term charts at least to determine the overall trend, and also support and resistance levels.
Keep in mind that a Day Trader doesn`t want to use a 15 minutes chart to open a trade and keep it open for several days. (I strongly recommend you to avoid thinking like a day trader in this case).
Otherwise, if you are a swing trader you don`t want to use a 1 hour chart and to close your trade after 15 minutes.
So in other words, make sure you use time frames suitable for your trading style. I suggest that you go for a medium or long term trading strategies because your analysis are much easier to make and also more accurate.

Good luck!

Trading tips that every trader should know about

When to increase / decrease size position

When a trader goes through a difficult period, the first reaction would be to reduce the size of transactions. For example, he would invest instead of 5 lots at once, only 2 lots. Unfortunately, many traders try to recover the loss amplifying the size of transactions. This almost never works not because it’s a decision based more on emotion than on solid arguments. Increasing volume must occur when things are going well; this is the best time to become aggressive.

How to remove the emotional factor from your trading style

The best way to do this is to plan as much as possible before placing the trade. Many traders focus on what happens after they opened a trade, but the volatility can`t be controlled by the trader. What he can control instead is the plan for each opened trade, where to place stop and profit limits and determine in advance what to do in case of any unpredictable event.

In general, every time you think you’re overwhelmed by emotions, withdraw from the transaction and try to prevent hasty decisions. It can happen after a transaction or after a larger number of transactions. We recommend that when you feel frustrated by the results of recent transactions is useful to take a look into the past and see why they failed. Keeping a trading log will be very useful. Each time you place a trade, write exactly what you did. Follow the strategies that did work!

Keep in mind that emotions can control you when registering both profits and losses.

If you realize that you take unnecessary risks due to several successful trades is not wise to continue. It may harm your balance account, so get out and try to identify what worked better in your past successful trades.

Then, when you’re ready, trade again.

It would be ideal to avoid all emotions while investing. That’s why most professional traders use efficient money management systems. They make decisions like placing stop orders and take profit limits that they never change after they opened a trade. It reduce losses and increase profits!

That said, if there is a stronger emotion than others that may affect the trader, that would be greed. When greed comes into the equation you will only take unprofitable decisions. Investing in forex is like riding an emotional roller coaster. Start at the peak when you’re on a roll and get to the lowest point when you`re losing. It’s always best to take care of yourself and your balance account, by controlling your emotions first.

The most important factors in selecting a top broker

Brokers are a must if your goal is to make profit, but their reliability can not be proven with words. Before some of you put your life savings in the hands of a Forex broker, it`s necessary to check several aspects. Here`s a short guide that will point out the main criteria that must take into account before you start trading with a broker.

1. Regulation

In Europe, Forex brokers should be monitored and supervised by the nation’s financial operations, just for traders to be protected from possible illegal activities. Since there is no unique entity, the rules may differ from one country to another. For example, in the UK, brokers are regulated by the FCA and in Switzerland by CFB. To have insured deposits, they must have financial coverage, providing sufficient liquidity.

2. Trading platform

Most transactions in Forex are mediated by the brokers trading platforms, which is why it must be efficient and at the same time accessible to customers. MetaTrade 4, among the most popular, is the perfect solution that meets the requirements of all participants in the forex market.

3. Bonuses

Surprisingly but some Forex brokers offer bonuses for deposit customers, proving so their good intention and offering their services. Bonuses can range from cash amounts that the client can trade to free of charge trades.

4. Commissions and Spreads

Trading fees should be as low as possible. The broker earn from units added to the difference between the selling price and the buying of the currency pair, so the trader don`t have to pay commissions.

5. Initial investment

The size of the initial deposit may raise questions in choosing a forex broker and it`s desirable to be based on clients capacity to risk. Forex brokers offer many types of accounts ranging from a minimum of $100 (due to leverage). Contrary to expectations, an increased balance allow traders to regain from bad trades.

6. Leverage

Leverage allows investors to achieve a significant amount to trade, while limiting the risks faced by the funds invested. Using leverage you`re purchasing power can reach up to 1:500, giving you a major advantage (but keep in mind that even the profit potential is big so is the risk involved, you can lose your entire deposit.

7. Customer Support

Most Forex brokers help their clients develop trading skills by proving them the opportunity to trade for free with demo accounts. This way traders become more familiar with the platform they`ll use and also with how the financial market works. Other than this, a broker`s offer may include an education center with information for beginners and professional traders, webinars/seminars, daily analysis, signals, 24/7 assistance and personal account manager.

I hope you found this article useful because in my next article I`m going to give you a few trading tips that every trader (beginner or pro) should know and use in their trading strategies. After you find the right broker and start trading you`ll need all the help you can get.

How to choose the right broker

In general, choosing a broker should not be a problem when you’re just a beginner and wanting to invest small amounts. With a simple search you`ll find maybe thousands of brokers worldwide, with various offers.
But what do you do when you want to invest a few thousands or tens of thousands of dollars in the Forex market? There may be problems withdrawing money, or maybe you don`t feel safe with that much money left in the hands of a broker that you can`t bring in court, in less pleasant events.

Given the diversity of brokers operating on the international forex market, it requires some useful recommendations in choosing the right broker, so it certainly inspires confidence and provides the best tools and all his knowledge for successful trading.

It’s good to know that among the various categories of brokers you must avoid the ones in conflict with the interests of the small investor. For example, Market Makers or Dealing Desk, which benefit from the lost transactions of the customer. These brokers usually declines trades proposed by customers or offer a new price, higher than the initial quote.

Another type of Forex broker is NDD (No Dealing Desk) and ECN, which unlike the DD, doesn`t modify the initial quotation.

 

ECN Accounts:

• ECN brokers display professionalism in dealing with clients,being more operative and providing real updated information about the actual level of liquidity in the market. They also offer optimal trading platforms.
• The spreads (usually variable) they offerare much lower than the ones of the DD and NDD brokers.
• ECN Accounts allow customers to view the total cost of fees (spreads) paid each month through their account statements.
• ECN accounts are transparent and facilitate interaction between participants in foreign exchange transactions that are reading the best selling (ask) and buying prices (bid) on the market.