Forex Trading Explained in the Simplest Terms

For anyone who is still very green to Forex trading, there are some basics that need to be covered regarding pricing as well as the very first Forex trades placement. This is a market where companies, major institutions, and individual investors can take part in.

The main aim of trading in this manner is very simple. It is just like all other forms of speculation. This is where one wants to buy one currency at a low price and then sell it at an even higher price. It can also be to sell a currency at a price and then buy it back at a much lower price so as to gain profit.

There are some major currencies that are traded in the world today. However, it is still possible to trade the minor currencies, which are referred to as the exotic. The exotics are so called because they are not traded so frequently. Also, the market happens to be less liquid thus spreading the trading even wider.

The trading spread

Like other prices, the spread of a pair usually consists of the bid price, which can be sold as well as an offer price at which you can purchase. You need to note the way around that you are trading for every Forex trading. Usually, as you buy, the spread reflects the price set for purchasing the first currency of the pair with the second one. In such a case, you should sell if you suspect that there will be a fall against the other and then buy back when the price is lower. This will mean a profit on your part.

Calculating the profit

When you think the price of a currency is about to rise, then you should buy before the rise. After the rise takes effect, you sell at a higher price. This means that the difference will be the profit that you make. The profit is usually the cost of the transaction minus the cost that was originally when you were purchasing the euros.

It is important to note that the profit is usually determined by the second currency within the pair. As an alternative, you may anticipate a fall in the price. In such a case, selling is a great idea. If indeed the price falls, then you can buy back the same currency at a lower price and wait for it to rise again before you can make another sale. The difference between the transactions stands as the profit. Even in this case, the profit determinant is your second currency of the pair.

CFD trading or spread betting

There are different ways for trading Forex. These are CFDs and the spread betting. These products allow a person to speculate the different currency movements within currency markets without necessarily making any physical trade. The operation is done in different ways. Spread betting requires a stake of an amount per pip of a Forex pay. This has been used so as to capitalize on the short-term kind of movements.

How to Stick With High Probability Trades

Professional traders look for “high-probability” trades. The following are 5 questions you should know before making a trade.

Let’s say that the EUR/USD is in an uptrend and you see an opportunity to buy the currency pair. You would most likely just execute the trade if you were trading purely on the data of a single chart or setup. That is a recipe for disaster. At minimum, it is important to take a look at the general trend in the market because being unaware of the markets sentiment can lead to unnecessary losses.

Fundamental indicators, technical indicators, and the market sentiment are three factors that can and will affect every trade. If you wait for those factors to align in your favor, you have a far greater chance of reducing your risk and landing a potential profit.

Ask yourself these 5 questions to help determine whether a trade is worth the risk or not:

1. How deep is the retracement?

In trading, a very strong retracement is much more difficult to recover from than a shallow decline. Buying after a deep correction in an overall uptrend is generally a lower probability trade than buying after only a small retracement. The general rule is that a deep correction increases the risk of the currency pair breaking its uptrend.

2. What is the fundamental reason behind the decline in the currency pair?

If the decline in the currency pair was triggered by a very disappointing economic data such as an abysmal report on consumer spending, then this is a trade you should probably not take because the short-term fundamentals are not in your favor. If there is no major reason or news to explain the dip, there’s a greater chance that the uptrend will resume and you may make profits on this trade.

3. What is in the economic calendar for tomorrow’s news releases?

You should also place importance in checking if there’s a piece of economic data scheduled for release over the next 24 hours that could affect the currency pair you want to trade.

When the trading the EUR/USD pair, if England’s retail sales are on the market and the calendar believes the data could be strong, it creates a higher probability trade. This would also be true if there is U.S. economic data on the calendar that the market expects to be weak. However, if there is reason the British data is expected to surprise by being on the downside or the U.S. data is expected to surprise to the upside, then it may be better to pass on the trade.

4. What is the general sentiment in the market? Does it support the trade?

Considering the general sentiment in the market is also very important. If the Dow dipped 300 points, there is a good chance that the European markets will trade lower in the next session. It may not be such a good idea to buy the EUR/USD on a dip after a sharp sell-off in stocks because the dip could turn into further losses if traders in other countries join in on the selling.

However, if the general sentiment is steady and equities ended up, flat, or only slightly lower, then the trade looks good. There is a greater chance that the rally in the EUR/USD will resume if the general sentiment is actually positive with traders optimistic enough to rally stocks.

5. Which key levels could affect the trade?

If a dip in the EUR/USD stopped just above a significant support level like 1.3000, assuming the support level continues to hold, going long EUR/USD would be a higher probability trade. If that same trade broke below the support level, then there is a greater probability for additional losses if support turns into resistance.

Next… What I am sharing with you is the end result of my 10+ years of trial and error as a trader. I don’t want you to make the same mistakes that I made. I want you to learn from me and I want you to learn for free through the blog I co-founded to help investors like you achieve their financial freedom.

A Future of Digital Currency

Currency refers to electronic currencies stored electronically in banks, and makes up one out of three forms of electronic currency. While paper money is still used globally, up to 80% of the world’s currency is stored through banks electronically. From its infancy, it has grown from an alternative to conducting business to a primary form of e-commerce, and only seems to continue to grow.

The first digital currency was created during the first internet bubble of the early 2000s. It was named E-Gold and was founded in 1996 by Gold & Sliver Reserve Inc, which allowed users to transfer small amounts of the values of gold electronically. In the spring of 2000, it became the first electronic currency to offer an exchange service for other currencies.

Launching two years before PayPal, by 2004 it had over a million accounts. Another service starting in 2006, Liberty Reserve, allowed its clients to convert euros or dollars to Liberty Reserve money, and then back again. Unfortunately soon after it was revealed by the U.S. Government that criminals were utilizing these websites and they were both shut down.

The Difference Between Virtual, Digital, and Cryptocurrencies
While more and more banks are allowing for an increase in electronic banking, Virtual Currencies operate as independent money whose value is created by its original backer. However, the world’s most famous virtual currency, Bitcoin, does not fit this specification, instead encompassing aspects of all three forms of electronic currency.

Digital Currency differs from this as a money backed up by an asset worth the real-world equivalent of its value. Due to most of the world’s money being stored in bank computers, it can said that most of the world’s currency is now digital.

Cryptocurrencies refer to forms of electronic money whose transitions are encrypted. Utilizing block-chains to store data, they effectively link together and act as ledgers that users can use to keep a consistent track of data. Due to the variety of ways its price can be effected, it often fluctuates in value. Although cryptocurrencies do carry a degree of anonymity, some are still required by law to disclose their users identities.

The Future of Transactions
With more banks turning to Digital Currencies as their main form of keeping electronic records, and the growing emergence of a large variety of virtual and crypto-currencies, it can be said that the future of the world’s transactions will be set to be conducted electronically. In perhaps a hundred years, paper money could be virtually a thing of the past.