This article explores the forex trade environment. You will find various guidelines on forex trading have been highlighted. The article also puts forward some benefits and shortcomings of forex trade.
Forex trade is the exchange of currencies between different countries. It is a form of investment where the investor is able to make quick leveraged profits through small changes of one currency against another.
Forex trade takes place continuously on working days because of the time differences across the world.
Guidelines For Forex Trade Success
Forex trades are completed through either electronic networks or telephone connections.
To join the forex trade, one must be able to read the foreign quotes and understand them. Forex quotes are usually written in pairs e.g. USD/JPY 107.2. The beginning currency is the base currency usually with a constant value of one unit, while the second one is the counter. In our example above, one US dollar is equivalent 107.2 Japanese Yen.
To get started a traders needs to have a computer with internet access, and a forex account with a foreign currency exchange broker.
Like in any other trade, forex traders face risks. In order to reduce the risks traders should clearly identify entry and exit points to the market, rather than going in blind. They should also trade stakes that are sensible considering the amount risked. The markets are unpredictable, and risking more than 5% of ones capital on a trade may not be a very good idea.
A forex chart could also be used to avoid the risks of losing money when trading. The forex chart represents the exchange rate fluctuations.
Traders should have a forex calendar open so they know what events are going to affect currency fluctuations over the day. There re always releases that can have an impact. The right blend of fundamental analysis/awareness and technical analysis should be carried out for each trend. Generally the shorter the trade the less focus there is on the fundamentals.
Benefits of Trading Forex
Accessible All the Time
Forex markets are accessible at any time of the day and night; the trader can trade at their convenience. This means traders can begin their careers after work and don’t have the time limitations of most other markets.
Liquidity of the Market
Currencies of the different countries are exchanged instantly; the process happens without any delay and one is able to know exactly when the transaction has taken place. The buyers and the sellers are ready and willing to do business. Because of the number of people in the markets, with different positions, there is always plenty of money in the markets, especially in the major currency pairings.
Shortcomings of Forex Trade
Governments of different countries may tamper with the currency of their country, and this may cause either the strengthening or the weakening of the currency. This makes trading very difficult as the normal rules of currency exchange go out of the window.
Lack of Central System
Forex trade does not have a central market where the buyers and sellers can trade. In such an environment there is the possibility for the entry of unscrupulous brokers and fraudsters.