There are many different pieces of software out there designed to look at the markets and use pattern recognition to make successful trades without the emotions and “gut feelings” that get in the way of most people trying to make successful trades. The theory behind this type of software is that since it only looks at the hard numbers and the obvious patterns, it is going to be better at technical trading than any person. Whether or not this actually plays out depends a lot on the type of program or software being used.
There are differences between the equity and forex markets. In the equity marketplace, investors typically only do their trades with other individuals, or institutions, like mutual funds. In the forex marketplace, additional players are on the field, and they have agendas unlike those found in the equity marketplace. So, it’s critical to learn and comprehend the roles and agendas of the primary players within the forex marketplace. [Read more…]
While foreign currency trading has the potential to make a lot of money, it also has some inherent risks like other asset classes. This section will take you through various benefits of forex trading as well as various risks associated with it. In addition, we are also going to discuss various differences between equity and forex market to help you understand the inner workings of forex market.
Pros and Cons of Forex Trading
In the previous sections, we have already covered various factors including volatility, global structure as well as size of the forex market that have all contributed to its popularity. The highly liquid nature of foreign exchange market allows investors to trade extremely large amounts without affecting the underlying exchange rate. Most of the brokers in this industry allow traders to trade at a low margin and this is the reason that traders can take big positions in this market. [Read more…]
Inside the market of equities, fundamental analysis intends on measuring the true value of a company, in order to base their investment on calculations of this sort. To a certain extent, the same activity is performed in the market of retail Forex were fundamental traders evaluate different currencies and countries, along with companies and economic announcements, in order to have an idea of what’s the true value of the currency.
All of the economic data, political events and news reports which come out regarding a particular country are analyzed in a similar fashion to news which come out about a certain stock – they are used by investors as a way to determine value. Naturally, that value changes according to a wide array of factors such as financial strength and economic growth. Fundamental traders often look at all this type of information in order to evaluate the currency in a certain country. [Read more…]
The foreign exchange market (FX or Forex for short) is among the most fast-paced and exiting markets in the world. Forex trading within the currency market, until recently, had been reserved for very wealthy individuals, hedge funds, central banks, corporations and large financial institutions. This has all changed with the emergence of the Internet and technology. Average investors now have the opportunity to easily buy and sell currencies through just the click of one mouse via online brokerage accounts.
Usually daily currency fluctuations are very small. A majority of currency pairs move less than a percentage point per day. This represents less than a 1% change in a currency’s value. That makes foreign exchange among the least volatile of all financial markets. Therefore, a majority of currency speculators rely on the high amount of leverage that is available for increasing potential movement value. Leverage can be as high as 250:1 within the retail Forex market. High leverage can be very risky. However, due to deep liquidity and round-the-clock trading, foreign exchange brokers have successfully made high leverage a standard within the industry so that currency traders can have meaningful movements.
Extreme liquidity and high leverage being widely available have helped with spurring the rapid growth of the market and transformed it into an ideal place for numerous traders to invest. Positions can be held for many months, opened and closed in just a couple of minutes, or somewhere in between. Supply and demand considerations form the basis of currency prices. They cannot be easily manipulated due to the fact that the market is so large that not even the biggest players, like central banks, are able to move currency prices at will.
There is lots of opportunity provided by the Forex market for investments. However, a currency trader must have a good understanding of the basics that are behind movements in currency in order to succeed. [Read more…]