A Brief Introduction to Forex Trading

September 29th, 2011

Forex market lures many people and the primary reason for it is that it gives a trader the opportunity to earn a lot more than he or she invests. To get into foreign exchange market what you will have to do first is acquire knowledge of how things work and the general terms which are used. You will also have to know the factors which affect the forex market so that you can take the right decisions at the right time.

Forex Analysis

After you start exploring forex trading some frequently used phrases you will come across will be spot, forward and swap. Spot transaction means that delivery will be made within two days, cash is the primary transaction medium and there is no interest to be paid.

Another term is forward where transaction happens on a fixed future date as per the rate decided upon by both parties and the market rates are not applicable. This type of transaction helps to control forex market risks. Swap is a forex trading term which means currency exchange happens on a certain date and then both parties agree to reverse the transaction with mutual consent on a future date.

Forex Strategy

Now let us look at the things which should be part of your forex strategy. First of all you should be aware of the different institutions involved in forex trading; some of them are central banks, nbfc, forex traders and companies doing money transfers.

Another thing that needs to be part of your forex strategy should be gaining knowledge of the factors which can affect the forex rates. Some such factors are political & economical conditions and market psychology. Political stability, rate of inflation, trade balances, fiscal policies and similar other issues play their role in forex rates. You need to keep yourself update to take action in time with regards to your investment decisions.

Forex Indicators

Some forex indicators like relative strength index and stochastic oscillator are used by forex traders to judge how the market is doing and invest accordingly. RSI is a kind of signal that helps a trader measure currency closing price differences. Similarly the other signal called stochastic oscillator is used to check the closing price of any currency over a specific time period.

Forex Broker

A forex broker performs many different things and is an important player in the forex market. Broker is responsible for assisting forex traders put limit orders as well as do various calculations like mark to market one.

Good forex brokers are interlink among various interest groups such as buyers and sellers. They are also responsible for liquidating trades that a forex trader places if the margin is not at the required level. A broker also has to show currency prices to traders and most regular one used is that of offer price upon bid value.

Conclusion

In the above few sections we have tried to provide you with a brief insight of how the foreign exchange market works and various factors you should be remain alert about. As you acquire more knowledge, it will become easier for you to properly utilize your investments and make more profits.

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