The concept of trading foreign exchange in the currency market is also known as trading forex. This is a great hobby as well as a great source of income for several people across the globe. The security market trades approximately $22 billion each day whereas on the other hand the forex market rates approximately US$5 trillion every day. There are several options available to investors in the forex market.
The full-fledged process of FX trading has been mentioned as follows:
– One should learn the basics first: The investor at the time of investing must have a proper idea about the terminologies used in this market. The basic type of currency which one is spending is called the base currency in the forex market. The exchange rate will help in telling how much the individuals have to spend to purchase the base currency. The long position in this market will mean that the individual wants to buy the base currency and sell the quote currency.
The short position here means that the individuals want to buy quote currency and sell the base currency. The bid price is the price at which the broker will be willing to buy the base currency and the asking price will be the price on which the broker will be selling the base currency. The spread will be referred to as the difference between the bid price and the asked price.
-Reading the forex quote: Individuals should have proper idea about reading the forex quotes. There will be two numbers on this. The bid price will be mentioned on the left side and ask price will be mentioned on the right side.
– Then the individuals have to decide the type of currency which they want to buy as well as sell: These kinds of decisions must be made after analysing the whole economy and making the predictions about it. The training session of the country should also be looked because many of the countries have great demand in terms of exports which will provide individuals with an opportunity to earn well. Politics of each country should also be considered, and one must also have an in-depth idea about the whole economic reports. The reports on GDP and other economic factors should be studied very much clearly and thoroughly so that highly informed decisions are made.
-The individuals should learn the process of calculating the profits: These are calculated based on PIP which refers to the difference between the two currencies. The calculation can be performed by multiplying the number of PIP which the account has changed with the exchange rate. This calculation will help in telling a proper idea about the increase and decrease in the values.
-Then one has to research different brokerages: One should go with the option of choosing a broker who has a good amount of experience of more than 10 years of the industry. The experienced brokers will always take good care of their clients. The product portfolio offered by the broker should also be considered and wider business research should be conducted. Then one must have a proper idea about the reviews so that one chooses the best one. After this one should go with the option of visiting the website of the broker so that one can have an idea about their business. After this, the transaction costs associated with each of the trade should be checked and essential parts such as good consumer support and easy directions as well as transparency should be focused.
-Then one should request the information to open an account: After opening the personal account one can also go with the option of choosing a managed account. In the option of a personal account, one can manage the transactions on own and in case of a managed account, the broker will be executing trades on our behalf.
– Then necessary paperwork should be undertaken: The paperwork should be performed as soon as possible and all the costs associated be transferring the cash from the bank account to the brokerage account should be undertaken very well. The fees will have a cut into the profits.
-Then the account will be activated: After this, the broker will be sending the email which will contain a link that will activate the whole account. Then the individual is supposed to follow the instructions after clicking that link.
-Then one has to analyse the whole market: The individuals can go with the option of several types of analysis and adopting various methods. Technical analysis, sentiment analysis and fundamental analysis are the most common options which are successful in this field. The technical analysis will involve analysing the charts and historical data. The fundamental analysis will involve looking at the economic fundamentals of a nation. And the sentiment analysis is a very subjective concept.
-Then the margin has to be determined: Depending upon the policies of the broker one can go with the option of investing a little amount of money but making big trades is a very good option. As a general rule one can go with the option of investing 2% of the cash into a particular type of currency pair.
-Then the orders have to be placed: One can go with the option of placing different types of orders which include market orders, stop orders and limit August. In the market order, the individuals order the broker to execute the order depending upon the current rate of the market. Under the limit order, one has to execute the trade at the specific prices and under this top order individuals will have the choice to buy currency above the current price of the market.
-Watching the profit and loss: The best tip here is to never get emotional because the forex market is highly volatile. Ups and downs are a part of the full process.
Hence, one must go with the option of doing continuous research and sticking properly with the strategy because this is the only way to eventually face a lot of profits.