Forex Market Fundamentals

Today I will tell you as much as possible about the Forex market - what it is and what they do here. 

In my article, you will learn all the necessary basics that will set the right vector for your development as a trader. 

I hope this material will help you see and realize your real goal - to become a pro, and not cut down tons of green pieces of paper quickly. For the second without the first is impossible and can lead to disappointment in trading.

“Is it possible to make a profit on Forex?” – this is the question asked by all beginners in the currency market. If this were not possible, then history would not know cases of enrichment on changes in exchange rates.

·      In this article we will analyze:

·      What is Forex

·      History of the Forex Market

·      What is traded on Forex?

·      Forex market participants

·      How to start trading on Forex?

·      Basic Forex Trading Strategies

·      The best time for Forex trading

·      Reasons to trade Forex

·      Forex Risks and Opportunities

·      Forex Trading FAQ

Well, let's look at what Forex is and how it works. Go!

What is Forex?

Forex (Foreign Exchange) is the global currency market. It is a network of national and commercial banks, brokerage companies and other economic agents that buy and sell currencies.

The foreign exchange market is the most liquid in the world: its daily trading turnover reaches 7 trillion. US dollars. This is achieved by the global market and the ability to conduct transactions online.

Unlike stock markets, Forex does not have a single center within which trading takes place. Partly because of this, it operates around the clock (except weekends) and without clearing breaks, which is typical for exchanges.

Operations in the Forex market can be conditionally divided into:

• hedging.
• trading.
• speculative.
• regulating - are carried out by central banks to regulate exchange rates.

History of the Forex Market

With the development of international trade at the end of the 16th century, people were faced with the fact that the coins of different countries had different weights and, accordingly, different denominations. It was decided to switch to "identical" paper money, which can be exchanged in a bank for gold. Toward the middle of the 19th century, the concept of “exchange rate against gold” appeared. Thus, the gold standard was born.

In 1944, the famous "Bretton Woods Agreement" was signed to establish the International Monetary Fund. And the US dollar and the British pound became international currencies.

In 1976, the gold standard was abolished, and exchange rates began to obey the market laws of supply / demand.

Since 1990, the Forex market has become available not only for large financial institutions, but also for private investors and traders. And after 5 years, it became possible to trade on the foreign exchange market via the Internet. We can say that 1995 is the beginning of the modern era of Forex.

How the Forex market works

The main Forex turnover is provided by the central banks of the countries and large commercial banks.

Central banks regulate exchange rates by buying and selling currencies, while commercial banks provide their own needs for currency and fulfill client orders. Thus, currency quotes are influenced by companies trading on international markets and individuals interested in buying or selling currencies.

Hedge funds, brokers and private traders are also part of the Forex market, but through intermediaries. They usually gain access by connecting to wholesale electronic trading platforms (or market makers). The most popular are EBS and Reuters dealing.

The main features of the Forex market are its decentralization and round-the-clock trading. Forex is an over-the-counter market; it does not have a single trading center. Round-the-clock trading on weekdays is made possible thanks to four trading sessions, each of which transitions to the next within 24 hours a day.

Market volumes and liquidity

The Bank for International Settlements is studying the volume of the world currency market. A report on Forex liquidity and trading volumes in this market is compiled every 3 years.

Since 1989, daily turnover has grown by an average of 25-30% in almost every reporting period. The dynamics has been preserved over the past 10 years.

·       2010 - $4 trillion in a day.

·       2013 - $5.3 trillion in a day.

·       2016 - $5.1 trillion in a day.

·       2019 - $6.6 trillion in a day.

·       2022 - $7.5 trillion in a day.

Types of Forex Markets

There are 3 categories of the Forex market: spot, forward and futures. The difference between the markets lies in the delivery time - instantly or on a specific date.

Spot Forex Market

In the spot market, a trade is settled at the time it is entered into. For example, if you bought a euro at 15:00 today, then this currency will immediately appear in your account. In some cases, the calculation may be delayed up to 1-2 days.

There are three types of settlements in the Forex spot market:

·       TOD. ("today", today). Calculation during the day. The cheapest kind.

·       tom. ("tomorrow", tomorrow). Payment on the day following the transaction.

·       SPT. (spot” or Т+2). Payment occurs two business days after the transaction. 

With deferred settlement, the key rate is added to the size of the deal. In the case of TOM - in 1 day, and in the case of SPT - in 2 days.

Forward currency market

A forward contract involves the conclusion of a transaction to buy or sell a currency pair in the future at a predetermined price. For example, you entered a EUR forward contract at 15:00 today. This means that at some point in the future, you must buy, and the seller must sell the currency at a specified rate. Therefore, you will make a profit in the event of an increase in quotes in the future, as you will receive the agreed amount of euros “cheaper”.

The term of quotations of world currencies in the Forex forward market can last up to one year. The longer the term of the contract, the lower the liquidity will be.

Futures currency market

Settlement on a transaction with a futures contract, like with a forward contract, is carried out in the future. The main difference is that according to the futures contract, the date of its execution is strictly determined. Also, a futures contract can be resold to a third party, unlike a forward contract.

The futures market is chosen if both parties to the transaction want to insure against losses that may arise due to price changes in the future. The buyer - from a decrease in the price of an asset, and the seller - from its increase.

There are two types of currency futures:

·       contracts with settlement currency in US dollars (for example, GBPUSD );

·       transactions based on cross rates of other currencies (for example, dollar / Turkish lira - USDTRY ).

What influences the Forex market?

In Forex, there are various surges that are inexplicable at first glance. Often, they are associated with global events that affect the world economy. 

The scale of activity of central banks, macroeconomic news in the most developed countries of the world, natural disasters - these are some of the factors that can affect currency quotes.

central bank

The main function of central banks is to ensure the stability of the national currency. 

Changes in interest rates and foreign exchange interventions have the most significant impact on Forex quotes.

Central banks of countries raise interest rates to fight inflation and lower to stimulate economic growth.

Currency interventions are the direct influence of the Central Bank on the exchange rate of the national currency, which consists in buying and selling it on Forex to increase or decrease the exchange rate to target values.

Sometimes even rumors about the intervention of the Central Bank can affect the exchange rate.

News

We, as traders, are interested in information about events, because of which quotes can change quickly and significantly.

The most significant price movements are accompanied by “high priority” news. These include:

·       Information on % employment / unemployment.

·       Data on GDP (gross domestic product) of developed countries.

·       Bank interest rate decisions.

·       Meeting of the committee on monetary policy.

The list, date and time of news release can be found in the Lite Finance economic calendar . You can leave news only with high priority. The exit of the rest, as a rule, is not noticed by the market.

Forex legality and regulation

On the Internet, the question is often asked: is Forex trading legal? Answer: the foreign exchange market, as well as the activities of Forex brokers, are regulated by law.

To enter the interbank market, a broker does not need to have a license. However, licensed brokers are more reliable - they are regularly audited, they keep transparent books, and they have a compensation fund.

There are three main bodies, and obtaining licenses from them confirms the reliability of the Forex broker:

1.    US Commodity Futures Trading Commission (CFTC) and US National Futures Association (NFA).

2.    The UK Financial Conduct Authority (FSA) and the Australian Securities and Investments Commission (ASIC).

3.    Cyprus Securities and Exchange Commission (CySEC) and Malta Financial Services Authority (MFSA).

What is traded on Forex?

Forex is a trading platform for exchanging one currency for another. Based on the popularity of certain exchange operations (for example, the exchange of EUR for USD), certain currency pairs have been formed, which are the main instruments of the foreign exchange market.

Currency pairs

The main instrument of the Forex market is a currency pair , when the value of one currency is expressed in another currency. For example, in the EURUSD pair , the value of 1 euro will be expressed in US dollars.

Popular currencies

Major Currency Pairs include.

 EUR/USD , USD/JPY , GBP/USD , USD/CAD , NZD/USD , USD/CHF , AUD/USD .

They are the most liquid, which is why their price movements are smooth.

Cross rates are more volatile currency pairs. On average, they move more pips per day, but their profit potential is significantly reduced by low liquidity. An example of cross rates is USD/PLN , USD/SGD , USD/CZK , USD/NOK .

Forex market participants

Forex market participants, which form the main trade turnover, are central and commercial banks, investment and pension funds, as well as large companies associated with foreign economic activity. These financial institutions use Forex to a greater extent for currency exchange operations and to a lesser extent for speculation.

Who trades on Forex:

·       Banks and international financial institutions.

·       Large commercial companies.

·       Governments and central banks.

·       Speculators and private traders.

The chain of participants for a private trader is limited to his Forex broker and liquidity provider.

A forex broker or forex dealer is a financial institution that provides a trader with access to trading in the foreign exchange market. The broker also provides the trader with the necessary tools: a trading terminal with online quotes, a trading account, access to analytics, and the ability to use leverage.

Liquidity providers, as a rule, are international banks, which are representatives of the foreign exchange market. They provide quotes for currency pairs to a Forex broker.

How to start trading on Forex?

To start online trading on Forex, you need to register with a broker , download a client terminal and open a trading account - demo or real.

The potential profit and possible risks of a trader depend on the volume of transactions, which are indicated in lots.

How to trade on Forex? A trader can earn both on the growth and on the decline of quotes. There are two types of transactions for this:

·       buying or opening a long position.

·       selling or opening a short position.

If a trader predicts the growth of an asset in the future, in order to make a profit, it is necessary to open a long position. If a decline is expected, open a short position.

In each transaction, it is necessary to use a " stop loss " - a protective order that will close the transaction if the price goes contrary to the trader's forecast.

Basic terms

To succeed in Forex trading, you need to gradually increase your trading competence. The first step is to learn the basic terms: pip, lot, spread, leverage and margin.

What is a pip in forex?

Novice traders often ask: what is a pip in trading on the foreign exchange market and how to find out its size? A pip in Forex is the minimum amount by which the value of a trading instrument can change. For example, for a pound/dollar pair ( GBP/USD ) with a five-digit quote, 1 pip = $0.00001.

What is a Lot in Forex

Lots in Forex are units of measurement of the volume of a position to buy or sell a currency pair.

If a trader makes a deal to buy EUR/USD with a volume of 1 lot, then he buys 100,000 euros. Most Forex traders use leverage and trade through brokers, so they need a smaller amount to work.

What is Spread in Forex

Forex spread is the difference between the lowest selling price (“ask”) and the highest buying price (“bid”).

If bid = 0.91437 and ask = 0.91440 then the spread is 3 pips.

What is Leverage in Forex

Leverage in Forex trading is the ratio of a trader's own funds to borrowed funds that he uses to open transactions. Forex broker leverage can increase investments by 10, 100 and even 1000 times. This service allows you to make transactions in the foreign exchange market with a smaller deposit than is required to buy 1 standard lot, that is, 100,000 units of currency.

What is margin in Forex?

Margin is the amount of a trader's own funds required to maintain his open positions. This part of the funds is blocked until the position is closed. The greater the leverage, the less equity is required to open a trade. Therefore, the smaller the margin will be.

Three types of analysis

When trading Forex, traders usually use three types of analysis:

·       Technical: The object of this type of analysis is the price chart.

·       Fundamental: the object of study is macroeconomic indicators and news.

·       Analysis of market sentiment for open buy and sell positions.

Technical analysis

In technical analysis, price movements are considered without taking into account the reasons that caused them.

The tools for analysis are:

·       Chart patterns are models that form the price movement itself, for example, head and shoulders, triangle, flag patterns.

·       Indicators  are instruments that are calculated based on price values. They help visualize what is happening on the chart more clearly. Examples of indicators: moving average , stochastic oscillator .

·       Candlestick patterns are displayed as candlestick charts. The forecast is based on the type of candles and their combinations, for example, “pin bar” or “absorption”.

Fundamental analysis

Fundamental Forex analysis is the study of macroeconomic news that can change the supply and demand for the currency of a particular country. Typically, such forecasts are made for the medium and long term.

The objects of fundamental analysis are:

·       News and data publications related to the economic situation in the country: statistics on unemployment and retail sales, consumer price indices, decisions of the US Federal Reserve. It is most convenient to track such information using the economic calendar.

·       Geopolitical events: elections, decisions on trade cooperation with other countries, participation in joint national projects.

·       Global force majeure: natural disasters, hostilities, strikes.

Market Sentiment Analysis

Market sentiment is the ratio of open buy and sell positions for a particular instrument.

·       If the volume of open purchases > the volume of open sales, then it is assumed that the majority of participants predict an increase in price.

·       If the volume of open sales > the volume of open purchases, then most participants expect a price decrease.

Previously opened positions do not affect the current and future price movement. In addition, the main Forex participants are banks that open transactions not for speculative purposes, but because of the need for a particular currency.

Graph types

Price information for Forex instruments is usually displayed on the chart in the form of candlesticks, bars or lines.

Candles reflect the picture most clearly. They are based on four main points:

·       price at the beginning of the period;

·       minimum price for the period;

·       maximum price for the period;

·       price at the end of the period.

Bars are built using the same four points. This type of chart is convenient for traders who only care about the maximum and minimum prices for the period.

The line chart is built at the last price of each period or “at closing prices”. It is ideal for analyzing the big picture, but not very good in terms of detail.

Experienced traders carefully study graphic patterns in their work on Forex. Various figures can suggest a price reversal and, therefore, optimal entry points into the market.

Candlestick charts

Candlestick charts reflect price dynamics in the form of Japanese candlesticks. The type of candle depends on the change in the maximum and minimum prices for a certain period:

·       if the closing price is lower than the opening price, then the candle becomes descending (usually black or red);

·       if the closing price is higher than the opening price, then the candle becomes ascending (white or green).

When analyzing candlestick patterns, it is important to pay attention to the color of the candlestick in order to identify strong signals to open positions (for example, “bullish engulfing” ).

Bar charts

Bar charts well reflect the maximum and minimum prices of the instrument for the selected period. The opening and closing prices of the period are reflected less clearly, in the form of small horizontal lines to the left and right of the bar, respectively.

The bar chart is suitable for the classics of Forex technical analysis - graphic patterns and price levels.

Line charts

Line charts are built based on the prices of the last transaction for the selected time period. For example, on a line chart with the H1 timeframe, each of its points will reflect the last market price for the past hour. This type of chart does not provide information on how the price has changed DURING each hour.

How to make money trading forex

Searching for information on how to make money on Forex usually introduces novice traders to false information, the general meaning of which is to make the most accurate forecasts. As a result, the trader seeks not to gain experience that leads to success in any business, but is looking for ways to predict prices.

Hedge funds - information about their profitability is publicly available - consistently earn money from trading. Their founders in an interview spoke about three components of success:

·       profitable trading strategy;

·       ability to comply with its rules;

·       risk management based on the amount of capital.

Types of orders in Forex

There are 2 types of orders in Forex:

·       market;

·       delayed.

Market orders to buy and sell are placed at the current ask and bid prices, respectively. These include market buy and market sell.

Pending orders are placed at a certain price value. They will be executed only if the price reaches these values. They are also divided into 2 types:

·       Limit (buy limit, sell-limit, take-profit). Directed against the price movement.

·       Stop orders (buy stop, sell stop, stop-loss). Co-directed with price movement.

When to buy or sell

For the first few years, the Forex trader's mind is occupied with the question: how do you know when to buy or sell?

This is due to the false assumption that market movements can be predicted. Over time, understanding comes: it is impossible to determine the direction of future price movement in advance. And the focus is shifting to finding an approach that will allow you to make a profit on the basis of a series of transactions.

Therefore, the answer to the question of when to buy and sell is “according to the rules of your trading strategy”.

Demo account for beginners

When trading on a demo account, a trader gets access to market quotes, but at the same time, does not risk real money.

The importance of a demo account for Forex trading is drastically underestimated. A demo account is a full-fledged simulator, with its help you can test not only a trading strategy, but also your ability to follow its rules in conditions as close as possible to real ones.

It is recommended to switch from a demo account to a real one only if:

·       the overall result of a series of 100 trades is close to 0 or positive;

·       a trading strategy has already been developed - clear rules for opening and closing transactions.

Psychology of a trader

The main problem associated with  the psychology of Forex trading is that a novice trader is not aware of the influence of various emotions, desires and fears on his decisions.

Optimally, the psychology of a trader should be characterized by the phrase “I'm not the smartest”. You have to accept: the ability to predict is very limited, and you should not overestimate the requirements for yourself about the% of profitable trades and the rate of return.

This attitude towards trading is developed by itself, with many years of experience and mistakes.

Can you get rich trading Forex?

The wording “get rich” implies getting a huge amount of money, therefore, it immediately shifts the focus in the wrong direction - from the desire to “become a good trader” to the desire to “get something missing”. 

As in any other industry, you can only get rich in Forex by becoming a professional. 

The foreign exchange market allows you to use a large leverage. Therefore, theoretically, one day you can earn a lot, while risking your entire deposit. Is Forex trading profitable using this method? Only if you don't use it all the time.

Basic Forex Trading Strategies

A Forex trading strategy, as a rule, involves making decisions based on an analysis of the price movement of an asset.

The basis of the best Forex trading strategies is to identify a characteristic price pattern (pattern) that has been regularly repeated in the past. A strategy is a description of the conditions for entering and exiting a trade (with profit or loss) within this price pattern.

Forex trading approaches can be conditionally divided according to the method of analyzing the chart and the duration of the transaction.

According to the analysis method:

·       price action strategies.

·       channel trading strategies.

·       trend trading strategies.

By time spent in the transaction:

·       positional

·       intraday

·       scalping

·       swing trading .

There are also options for trading strategies that do not fall into any category - this is a carry trade, marginal and automatic.

1. Price Action Strategies

The classic price action strategy is based on one or more price candles of a certain shape. Each price action model demonstrates the behavior of buyers and sellers at certain prices within the selected timeframe.

Popular price action patterns – “pin bar” and “engulfing” – indicate a potential price reversal due to an increase in the volume of transactions in the opposite direction of the current trend.

2. Channel trading strategies

Channel trading strategies are based on undulating price movements. The lower border of the price channel is built according to price troughs, and the upper border is built according to price peaks. 

The channel can be either upstream or downstream.

Forex transactions can be opened both on a rebound from the channel border, and after it has been broken, counting on further movement in the same direction.

3. Trend trading strategies

Forex trend strategies use indicators that determine the state of the market.

If a set of indicators indicates the probable beginning of an uptrend, then a buy trade is opened, if it indicates the beginning of a downtrend, a sell trade is opened.

If the indicators indicate a flat state of the Forex market, there are no signals to enter the market.

It is recommended to use trending strategies when trading instruments with good volatility . 

4. Position trading strategy

A positional trading strategy is a conclusion of long-term Forex transactions, so the work is done on large timeframes - from D1 and above. As a rule, position traders combine technical and fundamental analysis in their decisions. The approximate number of transactions is up to 10 per year. Positions are opened based on a long-term trend. Trade between the borders of the flat is ignored.

5. Intraday strategy

As part of intraday trading, traders make up to 5 transactions per day. Usually, positions are opened at a certain time, during a certain trading session, when the selected instrument is the most liquid and volatile.

The average time spent in a trade is from 1 to 60 minutes.

Due to small take profits, the result is significantly affected by the spread.

6. Scalping strategy

This strategy is demanding on the trader's equipment. The duration of transactions ranges from several seconds to several minutes. The scalper is set up for small price movements, so the slightest delay - due to a slow Internet connection or an insufficiently powerful computer - can cost him profit.

Forex scalping can be used during any trading session, both in high and low volatility. The main criterion is a narrow instrument spread.

7. Swing trading

The main feature of swing trading is that open positions are carried over to the next day. The average transaction time ranges from one day to several weeks. Swing traders can analyze even lower timeframes for more accurate entry and profit maximization. 

Within the framework of this approach, you can trade almost any instrument, since the spread is a small fraction of the take profit value.

8. Carry Trade Strategies

Carry trading is a type of trading strategy that does not depend on the price direction. It consists in making a profit from the accrual of swaps when transferring an open position to the next day. Based on the difference in the interest rates of the banks of the countries, the swap for some currency pairs can be positive.

9. Margin strategy

Margin trading strategy is not a classic trading approach, with rules for opening and closing a deal. This is a general term for the use of leverage in Forex trading.

Most strategies in the Forex market imply marginality, since the price changes of currency pairs are too small - the profit will be small if you trade only with your own funds.

10. Automatic strategies

Automatic Forex strategies or algorithmic trading consist in the use of "trading robots" - special programs that trade independently, without the participation of a trader. The concept of “trading robot” does not imply trading using AI, since decisions to open and close transactions are made using a built-in algorithm.

Automatic strategies are often based on flat trading and are widely used during periods of low volatility.

The best time for Forex trading

The time for Forex trading should be chosen depending on which currency pair you plan to trade. The optimal time for major currency pairs is the period of operation of financial institutions in Europe, America and Asia. The burst of activity in Asian currencies coincides with the period of operation of the Tokyo and Singapore stock exchanges.

Trading sessions in the Forex market

Forex trading hours are associated with four trading sessions:

·       Pacific (22:00 - 06:00 UTC/GMT 0);

·       Asian (24:00 - 08:00 UTC/GMT 0);

·       European (08:00 - 16:00 UTC/GMT 0);

·       American (13:00 - 21:00 UTC/GMT 0).

Tokyo session

The work of the Asian or Tokyo Forex trading session is supported by the work of the three largest exchanges in this time zone: HKE HONG KONG, SSE SHANGHAI and TSE TOKYO. 

During this session, JPY, SGD, CNY are actively traded. Major currency pairs show low volatility during these hours.

London trading session

The European or London Forex trading session is associated with the work of the LSE LONDON, SIX ZURICH, FWB FRANKFURT and JSE JOHANNESBURG exchanges.

During this trading session, major currency pairs in Forex often show a sharp spike in volatility compared to the Asian session. The activity of trading in such currencies as EUR, GBP, CHF is increasing.

New York session

The American or New York Forex trading session starts immediately after the European one, as a result, the volatility of the major currency pairs remains high.

Its work is provided by two American exchanges and one Canadian: CHX CHICAGO, NYSE NEW YORK and TSX TORONTO.

During the American session, pairs with USD and CAD are most actively traded.

Sydney trading session

The work of the Pacific or Sydney trading session is provided by the two largest exchanges in this time zone: NZX WELLINGTON, and ASX SYDNEY.

The volatility of major currency pairs during this period is minimal; active ones are traded in AUD and NZD.

Best Time to Trade Forex

The best time for day trading on Forex with major currency pairs in terms of liquidity and profit potential is during the European and American sessions.

However, periods of increased volatility for Forex trading are not for everyone. If a trader is good at trading during periods of flat and / or low volatility, it is better to look at the Asian or Pacific sessions and choose currencies that are actively traded during these periods.

The liquidity of a particular currency depends on the current session. For example, European currencies - EUR, GBP, CHF - are most liquid during the European session, since European financial centers are open at this time. Dollars - USD, CAD - to the American. JPY and SGD liquidity rises during the Asian session; NZD and AUD - to the Pacific.

The Best Days to Trade Forex

Differences in the nature of price movements by day of the week, in my opinion, are minimal. Wednesday is characterized by a slight decrease in volatility compared to Monday and Tuesday. And for Friday - a more “flat” nature of price movements. Therefore, the best days to trade Forex with the trend are Monday, Tuesday and Thursday; during periods of flat and low volatility - Wednesday and Friday.

Reasons to trade Forex

To open a Forex account, it is enough to register with a broker. Forex brokers provide an opportunity to trade with minimum volumes from 0.01 lots and use leverage up to 1:1000. Therefore, you can comfortably trade some instruments with a deposit of $50 or more. Forex trading takes place 24/5, so the trader is not tied to the periods of operation of a particular exchange. 

The difference between Forex and stocks

If we compare “stock trading vs Forex trading”, then the foreign exchange market wins in terms of liquidity, ease of opening an account and the duration of trading. The stock market will be stronger in terms of the number of popular instruments, the size of the spread and the transparency of trading.

Forex liquidity exceeds the liquidity of all world exchanges. To open a Forex account, you only need to register with a broker, and to access stock trading, you need to provide a package of documents.

Forex trading goes around the clock. Shares are limited by the time of the exchange.

Shares of several thousand companies are traded on world stock exchanges, while there are significantly fewer currencies in the world.

Some liquid stocks may have a zero spread, which is unlikely in the Forex currency market.

The advantage in transparency of trading is due to the decentralization of the Forex market and the centralization of exchanges - all information about trading volumes is publicly available.

The difference between Forex and the stock market

The main difference between the Forex currency market and the stock market lies in the set of instruments traded. Forex is currency pairs, the stock market is stocks and various derivatives like futures, options, ETFs and others.

Unlike the stock market, Forex trading continues 24 hours a day as one trading session leads into another. At the same time, both markets “rest” on Saturday and Sunday.

The stock market provides less leverage, up to 1/10, but the volatility of stocks, futures and other instruments is higher than that of currency pairs. Therefore, a large leverage is not required here.

Also on the centralized stock market, unlike Forex, information on trading volumes is available.

Benefits of Forex trading

Main advantages of Forex trading:

·       you can trade at any time of the day;

·       opening a trading account is very simple;

·       high liquidity;

·       available leverage;

·       the opportunity to practice on a demo account;

·       you can trade even with a small deposit;

·       a wide range of trading instruments: currency pairs, CFDs on indices, stocks and commodities, cryptocurrencies;

·       the alternation of high-volatility and low-volatility periods during the day allows you to apply various trading methods and strategies;

·       rich analytical tools of Forex brokers: forecasts for various assets, a calendar of economic news, trading signals, the ability to analyze transactions of other traders.

It is impossible to create artificial demand or supply in the Forex market - trading volumes are too large. Some brokers provide a service for copying the actions of other traders; you can also provide your transactions for copying.

Forex Risks and Opportunities

It is necessary to comprehensively assess both the opportunities and risks when trading on Forex:

Possibilities

Risks

Using Leverage

Influence of gambling on decision making

Narrow spread and short-term trading opportunities

Slippage and requotes

Opportunity to increase the deposit several times

Risk of losing a deposit

Free access to educational and analytical materials

The accuracy of analytical forecasts is not 100%

Let's analyze the impact of risks.

• The ability to trade “for everything”, multiplied by excitement. A novice Forex trader cannot realize the degree of influence of inner desires, instincts and emotions on the trading process, since he has not yet encountered it. The risk of making “emotional” decisions is in the first place, and it is difficult to control it. Leverage can become a disadvantage for a trader if risk management rules are not followed in an effort to make money as quickly as possible. On the other hand, leverage is a useful tool to lower the minimum deposit amount.
• The risk of slippage and requotes, that is, orders may not work at a predetermined price. This is due to the alternation of periods of low and high liquidity of the instrument. You can avoid this risk with the help of the economic calendar: in anticipation of the release of important news, it is better not to make deals. During periods of high liquidity, the Forex trader has the opportunity even for scalping trades - on some types of accounts, the spread will be suitable.
• The risk of losing a deposit is associated either with a violation of risk management rules, or with a premature transition from a demo account to a real one. It is not recommended to trade on a real account until the result on the demo is “near zero” or with a “small plus”. Otherwise, the psyche may not be ready, and the likelihood of making emotional decisions will increase. On the other hand, with a competent approach, a trader can gradually increase the deposit by several times.
• The risk of unjustified forecasts follows from the probabilistic nature of Forex price movements. That is, it is impossible to 100% determine quotes in the future by any type of analysis. Analytical forecasts do not guarantee a match with the actual data, however, they can provide an overview of the current macroeconomic situation associated with a trading instrument.

A forex trader always operates under circumstances that are not fully understood, so you should reduce the risks that you can control.

Forex Trading FAQ

Is Forex trading safe?

Transactions in any financial markets involve risk, and Forex is no exception. Using protective stop-loss orders, adhering to the no more than 1% deposit per trade rule and other risk management rules will make Forex trading as safe as possible.

Is Forex suitable for beginners?

Yes. Forex is ideal for beginners for a number of reasons: easy to register and open a trading account, you can trade on a demo account and do not deposit real funds, low minimum deposit requirements. At the same time, Forex brokers provide access to quotes of popular currency pairs, as well as CFDs on indices, stocks and commodities.

How do traders make money in Forex?

By concluding transactions to buy or sell. Forex traders try to buy an asset in anticipation of an increase in its value in the future or sell it if its price is predicted to decrease. If the forecast turns out to be correct, the trader makes a profit - a positive difference between the asset's purchase price and its sale price (in case of a long trade).

Is Forex trading still profitable?

Yes - the prices of assets traded on the financial markets continue to rise and fall. And the conditions of Forex brokers are improving: the size of the spread is decreasing, the number of trading instruments is growing, and the connection with liquidity providers is becoming more and more stable.

Is Forex trading highly risky?

If you approach Forex trading as a game of chance, yes. Brokers provide traders with leverage, due to which a trader can risk 100% of his deposit in one transaction. If even simple risk management rules are observed, such a scenario is impossible.

What is the purpose of Forex trading?

The goals depend on the market participant. For a private trader, this is a stable profit based on the results of completed transactions. The purpose of a commercial bank may be to buy currency, while the purpose of a country's central bank may be to regulate the exchange rate.

What does it mean to be a Forex trader?

This means making deals on Forex within the framework of risk management rules and your trading strategy. A trader should have a systematic approach, his decisions are based on clear rules, not guesswork.

Is Forex trading difficult to learn?

The mechanics of making deals on Forex is mastered quickly. However, the path to developing your own trading strategy and profitable trading can take years.

How much money do you need to start working in Forex?

Not at all, you can trade on Forex on a demo account. Requirements for the amount of the minimum deposit on a real account depend on the properties of the trading instrument - the cost of 1 pip, margin requirements, leverage - and the volume of the planned transaction.

Is it possible to learn Forex trading on your own?

Yes. For training, you will need a price chart and basic knowledge about opening orders in financial markets. The rest comes from practical experience.

Can you lose money from currency trading?

Yes, when opening a deal on Forex, there is a possibility of both a positive and a negative outcome - the price can change its direction at any time.