Following the Foreign Exchange (ForEx) Market is a fun and strategic for me. Aside from keeping an eye on the market, monitoring the market and keeping up with the trend, I have to make sure that I am on the right track. But to start, what is ForEx (Foreign Exchange) Market?
The ForEx Market (Foreign Exchange or Currency Market) is global-based market focused on the trading of currencies. In this market, it involves the exchanging, buying and selling of currencies given at a current or determined price. In addition, it is decentralized which makes it available and spread out among the different countries globally.
This forex market definition makes us understand that forex trading does not necessarily control the values of different currencies but it sets these currencies according to its market price value; the ForEx Market puts into consideration one’s currency value in contrast to another currency value. Thus, this market is considered to be the most liquid global financial market and the largest financial market.
The Foreign Exchange (ForEx) market plays an important role in the global economy. Do you know that every day, trillions of dollars are exchanged from one currency to another? Yes, that’s a lot of money! But, this exchange of currencies is important for international businesses. Currencies are exchanged in pairs. Thus, a currency is relative to another currency.
Primarily, large international banks participate in the ForEx Market. The market works through these financial institutions and its different levels. In this aspect, banks become dealers in the market and are involved in large quantity-scale ForEx trading. Aside from large international banks, traders like retail investors, institutional investors, government and other financial institutions are into ForEx market as well.
Do you know what is interesting about the Foreign Exchange (ForEx) Market and what makes it unique among other markets?
Unlike other markets like the stock market, the ForEx Market operates 24 hours a day except on weekends, allowing users a lot of forex time hours. Putting an account size into consideration, the ForEx market uses leverage to increase profit. Also, it operates on a global scale; thus, the market is spread out through different geographical locations in the world.
According to bytefreaks.net, the most traded currencies by value as of December 2015 are the following (stated in order together with its ISO 4217 code and respective % daily share): US dollar (USD) at 87%, Euro (EUR) at 33.4%, Japanese yen (JPY) at 23%, Pound sterling (GBP) at 11.8%, Swiss franc (CHF) at 8.6%, Canadian dollar (CAD) at 5.2%, Australian dollar (AUD) at 4.6%, Mexican peso (MXN) at 2.5%, Chinese yuan (CNY) at 2.2%, New Zealand dollar (NZD) at 2%, Swedish krona (SEK) at 1.8%, Russian ruble (RUB) at 1.6%, Hong Kong dollar (HKD) at 1.4%, Norwegian krone (NOK) at 1.4%, Singapore dollar (SGD) at 1.4%, Turkish lira (TRY) at 1.3%, South Korean won (KRW) at 1.2%, South African rand (ZAR) at 1.1%, Brazilian real (BRL) at 1.1%, Indian rupee (INR) at 1.0% and lastly, other currencies at 6.3%, with a grand total of 200%.
Though the Foreign Exchange market may sound and look complicated, all you have to do is be educated on it, and think ahead. In addition, the ForEx market involves psychology, too. Keep an eye on long-term trends, as currency markets are present and visible in such. Watch for business cycles and its analyses, as these look at price trends in a longer term. Also, consider the principle “Buy the rumor, sell the fact.” Such principle states that there is a tendency the currency price reflects a particular action’s impact before it happens and when such happens, it responds exactly the reverse way.
In addition, the trading behavior showed by the Foreign Exchange market is risk aversion. Risk aversion is a consumer or investor behavior that when one is exposed to uncertainty, one tries to reduce that level of uncertainty.
If you are new in the world of ForEx market, it may be complicated at first but as you go further, you will learn more and more about it. Let us use an example. You know that currencies are dealt in pairs, and one currency is relative to another currency. Supposing that based on the analyses and the trend, Europe’s economy is going to grow faster than the US’ economy. With this data, you assume that Euro (EUR) is going to be stronger than the US dollar (USD). So, you can buy the Euro/US dollar (EUR/USD) pair. If the pair rises, you will make money but if it falls, you will lose money. That is why in the art of Foreign Exchange (ForEx) market, you have to really keep an eye on the trend and data.
If want more guides in the world of ForEx market, there are key markets to follow when you are trading. You can follow ForEx derivatives like currency futures, assuming that short-term trends coincide with the foreign exchange rates. For long-term data, you can also use CDS instruments or follow credit fault swap markets if you are focusing on an individual currency. If you use both of these correctly, it can bring you positive results and boost your return on investment (ROI). In addition, if you keep an eye on market relationships, it can help you analyze data about such and correlate it with the Foreign Exchange (ForEx) market.
Knowing that the ForEx market is an open market forex, such is still susceptible to scams. Beware of signal sellers or individuals who offer their sweetest promises to you that they will make you wealthy, because they claim that they trade based on the professional reference. They even seek help from people who will testify in court that they are genuine and are great in trading, but when you give them your money, eventually, they vanish out of thin air and take your money away with them.
In addition, be aware of signs that a ForEx deal may be a scam. When brokers would not allow you to withdraw money from your investment account, it should send a signal to you that there is something wrong. The main idea is this: these brokers may state their promises and guarantee you a big return on your investment, but be suspicious of it; trustworthy brokers are not sales agents, so there is no great need for them to be doing that unless they are eager to make money as soon as possible. Safeguard your investment and protect your money because that’s what is most important.
I’ve been following and into the Foreign Exchange (ForEx) Market. As an investor and a trader, I am active on the most productive hours. London markets open at 8:00 GMT and US markets close at 22:00 GMT, but the trading peak time is from 13:00 GMT- 16:00 GMT. The ForEx market is open 24 hours a day, but only on weekdays.
Aside from keeping an eye on these time frames and peak hours, I also keep some principles with me when trading in the Foreign Exchange (ForEx) market that I hope is beneficial for you, too. Below are simple guides I have listed down which can help you if you want to enter and invest in the ForEx market.
In entering the ForEx market, keep in mind that things are uncertain. So be prepared to think of the worst-case scenario. If you experience loss, what will you do? If you experience gain, what will you do next? Ask these questions to yourself and discern well on how to keep yourself as safe as possible.
There is no room for excuses.
If you are new in the market, or if you do not understand the price actions and data on hand, it is better to not trade at all, than to regret and makeup excuses if in case you invested wrongly. In this way, the damage is not done, and nothing will be seriously taken away from you. So, it is better to stay safe than sorry. Remember, ForEx market is for the risk-averse, especially if you are handling the money of other people.
Think before you act.
In the world of Foreign Exchange (ForEx) market, you have to be wise. Do not be impulsive and illogical, and think well first before you act and invest on something. Remember, you can gain lots, but you can also lose a lot more. During forex market analysis, it is very vital that you think thoroughly before you engage certain actions. A good way to go about this is by registering on forex market watch where you can use tools that would be suitable for your forex market analysis.
Do not put all eggs in one basket.
Let us use the example we have tackled before. Imagine the Euro (EUR) is getting stronger than the US dollar (USD) as the days go by. With this data, you can assume that it is a great idea to invest by buying an EUR/USD pair. You might think that you can put all your money in this pair, but remember, the ForEx market is prone to change; you can gain in minutes, but you can also lose in minutes. So, it is safer to not put all eggs in one basket. Instead, you can invest a quarter or half of your money in buying an EUR/USD pair, and keep the remaining with you until you see another good deal.
Set a 2% per trade risk limit.
Honestly, a lot of people are violating this rule. Even I have tried violating such (It was never a good idea, so never mind). Think that with great risk come greater profits, but really, why are we in the ForEx market? Because we are risk averse, and we have to remind ourselves constantly of that! So, let us set a 2% per trade risk limit and not be blinded and confused with the bigger numbers.
Being the first does not necessarily mean the best.
In the world of Foreign Exchange (ForEx) market, great and right timing is the key to making money. Let us say you purchase early because the deal is great. You cannot expect that because of such, it will guarantee you profits seen quickly. Sometimes it will go down and you will lose money, and you will decide in the end to withdraw, only to know that after withdrawal, as times goes by, the deal goes up again. So, it is best to just keep on checking the data and analyses, and when the right time comes when the deal is best, you can trade in peace.
The strong is for the weak.
Since we deal currencies in pairs, it is best to keep in mind that a strong currency should always be paired with a weak currency. Always keep up with the data updates to know current strong and well-performing currencies as well as weak-performing currencies. Because data on strong and weak currencies can be reliable for a good period of time, it is easier to visualize and foresee the market as to what currency to pair with another currency.
Make use of trailing stops.
Trailing stops serve as a direction to buy or sell a trade if it moves in an undesirable direction. Since the ForEx market moves quickly, gains can turn losses in a snap. In addition, managing your investment in a Foreign Exchange (ForEx) market is critical and challenging because of this undeniable fact. So make use of trailing stops for you to be guided and so that you will have more control over your money.
In my experience being exposed to the Foreign Exchange (ForEx) market, the truth is, there were times I lost. Being in this industry, one must be open that losses can be really incurred. But if assessed as a whole, my gains are absolutely greater than my losses. This art of trading has been a fun yet challenging for me, and it teaches me to think critically and logically, rather than act impulsively.
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A lot of people may think it’s very hard to enter into the ForEx trading market, but once you have the right tool, the right people and the right amount of money to start, you will love it! Thinking that the ForEx market is the largest global financial market, of course, it would be fun and better to invest your money on such. The ForEx market is even more welcoming for investors like you. Open your mind and just think about it.
Go for greater yields, go for Forex!