This article looks at the most important aspects of the foreign exchange market that should be noted by a trader in order to trade effectively.
For those who are not interested in currency trading the term ‘foreign exchange market’ is completely foreign. However, this foreign exchange market is potentially the most lucrative market in the world and one of the simplest ways to make money, if you trade effectively that is. In order to be profitable you must understand what the forex market is.
The foreign exchange market
The foreign exchange market is one of the largest, most lucrative and volatile trading markets in the world. Unlike the stock market, this forex trading market engages in the exchange of currencies instead of stocks; it is also decentralised with trades passing through an interbank network instead of central hub. This allows for traders to interact directly with one another making trading more flexible. However, this decentralisation can also cause difficulty should one trader not honour their side of the trade.
Originally trading on the foreign exchange market was reserved for large corporations, central banks and hedge funds exclusively. However, with the introduction of an online format, individuals are now able to access the trading market through online trading platforms. This has increased the size and activity on the foreign exchange market. The 24 hour trading times from Monday to Friday also allow for traders worldwide to trade at any time regardless of location, making it one of the most active markets on the globe.
Foreign exchange market trading
1. The trading platform
In order to trade on the foreign exchange market you will require certain things, including a forex broker and forex trading platform. The trading platform can be acquired via a forex broker, and it us through the platform that you will trade your currency pairs.
There are various points to consider when choosing an effective trading platform. One must look at the different built-in features provided. There are basic tools which should be available such as forex charts, signals and reports; however, a sophisticated platform will provide one with the option of live forex news feeds and commentary. It is important you find a platform that is easy to navigate and are comfortable with as your platform is a vital part in trading.
2. The trading tools
There are different trading tools available to one that can contribute to effective trading. Many traders will utilise technical analysis when developing a strategy and the most beneficial technical tool is the forex signal. The forex signal assists both new and experienced traders in finding the entry and exit points to trade on the most appropriate positions. It is important to use these signals as support and not a trading strategy.
An important fundamental trading tool is that of the forex calendar. Fundamental traders utilise forex news to trade the foreign exchange market, and are required to analyse the news releases to identify which positions to place. In order to determine which releases are relevant to their currency pairs one should employ a forex calendar. This trading tool lists the releases in order of importance according to impact on the market and relevancy to your currency pair.