Forex
Forex which is also known as Foreign Exchange market is a global market for the buying, selling or exchanging of foreign currencies. Due to its high liquidity, it was estimated that more than 5 trillion USD transaction on a daily basis. As a global decentralized market, trading of Forex is around the clock except for weekend.
What is Forex trading?
For Forex traders, Forex trading is the simultaneous buying a currency and selling of another currency. The two currencies make up a currency pair which is the exchange rate dependent on each other movement. The base currency is indicated on the left and the quoted currency separated by a / on the right side. Example: Euro/USD = 1.09245. This means that 1 Euro dollar is trading for 1.09245 USD at the particular trading moment. Due to the high trading volume of Forex, the quoted rate changes on a sec by sec basis.
Traders take advantage of price movement by placing a BUY (Long) position or SELL (Short) position on a currency pair. A BUY position mean the trader believes that the base currency will strengthen against the quoted currency and it hold true for the opposite. While currency pair movement typically move within a 1% margin, trading platform offers leverage option of up to 1:250 to allow traders to achieve higher returns on their trades.
How does a trading platform works?
An individual looking to trade Forex has to open an account with a Forex trading platform and place a deposit and most platform allows trading with as low as S$500 deposit. When a trade is place be it to BUY or SELL, the quoted rate includes a spread which is the difference from spot price. Trading platform earn the spread as remuneration for facilitating the trade regardless of the trader making a profit or loss from the transaction.
Is Forex trading suitable for me?
Fundamental traders consider factors such as country’s inflation, trade balance, gross domestic product, growth in jobs, central bank’s benchmark interest rate when making a trade. Technical Traders consider factors such as price action, movement trend, support and resistance levels when making a trade. Aspiring traders must note that Forex trading requires in-depth technical knowledge, fundamental analysis and discipline to be successful in trading.
What should I take note of when trading the Forex market ?
While a 1% movement of a currency pair does not make a major profit/loss to a trader, Forex trading is usually done with leveraging and profit/loss can end up amplifying its effect significantly.
Successful trading involves knowledge of knowing when to execute a BUY or SELL trade for a currency pair as when as when to take profit to maximize return or stop loss to reduce loss to capital. Experiences are usually accumulated through mistake and new traders must be prepared to undertake losses when situation arises.