Understanding the basic concepts of Forex trading

Understanding the core concepts of Forex market is really hard. Forex market is not like our traditional stock market. Every day more than 4.5 trillions of dollars are being traded all over the world. Knowingly or unknowingly people are participating in the foreign exchange market. Things have changed a lot over the past years, people are trading the currency pairs to make a decent profit. Those who have mastered the art of currency trading is making millions of dollars. But sadly the success rate in Forex market is very low. Only 5% of the traders are able to make a profit from this market. Today we will discuss the basic structure of the market which will fortify your knowledge on Forex market.

Foreign Exchange market is such a place where people can buy and sell different currency pairs. Due to market volatility, people can make significant amount money just by buying or selling certain currency pairs. Previously trading was limited to large banks and organizations but due to the recent advancement in technology people can trade the market by using leverage. Leverage will give you huge buying power in the Forex market. For instance, if you trade with 1:100 leverage, you can buy 100 times more than your original buying or selling power. However, leverage trading is extremely risky and can become the active ingredient for dynamic loss in the hands of inexperienced traders.

Basic concepts of the market

Before you start your trading career you have to understand the basic structure of the market. Many people in the United Kingdom are trading Forex but they don’t know about its active participants. In a nutshell, they have a very weak foundation in this investment industry. You have ask yourself, what is Forex trading? before you consider this as your full-time profession. Large banks and organizations often buy other countries currency to save themselves from the inflation problem. Things might seem a little bit complicated to you, but if you bear with us, everything will become easy. Let’s give you an example to make it more. Let’s say that Japan is producing 1 million units of toy cars and they will export it to England. So the British government will buy 1 million units equivalent Japanese Yen during the initial purchase order so that price movement of the currency pairs don’t affect them.

Support and resistance level

So how you do make a profit in the Forex market? The idea is very simple. When the price of a certain asset is going up, you need to buy that pair to make a profit. Similarly, when it’s going down, you can easily make profit by selling the currency pairs in the global market. But buying and selling is an art and you need to follow some key rules. Try to find the key support and resistance level to trade the market. A support is such a place which gives strong bullish steam to the currency pairs. On the contrary, the resistance forces the currency pair to go down. If you can identify the key support and resistance level, you can easily make tons of money in Forex market.

Simple trading system

You can’t trade this market without having any strong plan. You have to develop a simple trading strategy which will help you to find the key trading zones in the market. Those who are new to this industry should use the demo trading accounts to develop their trading strategy. In fact, the experienced professional’s also uses the demo trading accounts to fine tune their trading strategy. You don’t have to win all trades to become a profitable trader. If you can trade this market with a high-risk-reward ratio, even after losing more trades you can earn decent money from this market. Use rational logic to simplify your trading strategy. Never rely on the complex trading system.

 

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