According to online trading strategy company NetPicks, FX trading in currency pairs permits traders to invest in the price movements of currencies. Forex Trades are based on speculation as to whether currency pair prices will go up or down.
Forex trading, also known as FX trading, foreign exchange trading or currency trading, offers traders opportunities to trade currency pairs in a decentralized market. People trade via electronic over-the-counter financial exchanges based in major worldwide cities including Paris, London, Tokyo, Sydney and New York.
Traders can trade with the help of charts and a live signal service provided by NetPicks. The ability to trade in various cities means that the forex market is open 24 hours a day. When the New York exchange closes, forex traders can trade currency pairs in Sydney. When the Sydney market closes, traders can make trades in Tokyo and then trade currency pairs in other European countries.
Spot trading, or making trades on the spot, is preferred by most traders. However, people can also trade via the forward markets and the futures markets. Business owners who want to hedge their risks prefer trading in the forward and futures markets.
Forex Market Characteristics
The Forex Market is Extremely Liquid
According to NetPicks, one reason that many traders prefer trading currency pairs is because the forex market offers substantial liquidity. The FX trading volume on any given day is based on trades equaling approximately $5.2 trillion.
Traders have Limited Trading Alternatives
Unlike the stock market with its wide array of investment choices, the forex market is limited to a few options. The most frequently traded currency pairs include the United States dollar versus the yen (USD/JPY), the euro versus the yen (EUR/JPY), the pound sterling versus the United States dollar (GBP/USD), the United States dollar versus the Swiss franc (USD/CHF), the Australian dollar versus the United States dollar (AUD/USD) and the United States dollar vs the Canadian dollar (USD/CAD).
Although foreign exchange traders have options to trade more exotic currency pairs including the United States dollar versus the Mexican peso (USD/MXN), the risk typically outweighs any possible financial gains. Consequently, most traders buy and sell established currency pairs.
Retail Traders Benefit from High Liquidity
Traders value the forex market’s high liquidity based on volatile price movements. Quick price changes provide many financial opportunities.
A Few Words About Leverage Trading
Leveraging is permitted to forex traders. Leverage trading means that a trader is allowed to spend a small amount of the total investment volume with the help of a margin account. Traders interested in opening margin accounts need to look for brokers offering these options.
A person with a margin account only needs to have a total equity of $1,000 to fund trades valued at $100,000. Of course, FX traders do need to reimburse their brokers. Accordingly, investors should only open margin accounts if they have the means to pay back the borrowed funds.
Common Forex Terms
PIP or Pip
The price interest point, also known as the PIP or pip, refers to a gain or loss. In a typical currency pair priced to the fourth decimal place, a pip equals one basis point.
The main thing to remember about the bid price is that the price is for traders who want to sell their currency pairs. The bid price is the price that buyers are willing to pay for each pair.
The ask price is for traders who want to buy currency pairs. The ask price is the current purchase price of a currency pair. New forex traders need to understand that bid and ask prices constantly fluctuate.
A spread represents the difference between the bid price and the ask price. In the forex market, spreads are measured in pips.
How to Trade in the Forex Market
- NetPicks advises traders to determine the risk factors of chosen currency pairs before making trades.
- Buy the selected pair or pairs based on a bet that the base currency is going to become stronger when compared with the quote currency.
- Sell the pair or pairs based on a bet that the quote currency is going to become weaker in comparison with the base currency.
- Place a buy or sell order. A trader has the ability to observe the market price, potential profit and possible loss. These observations occur in real time. The trader can place new orders or close out current orders.
- Once the trade is closed, the trader follows the same steps in reverse when it is time to sell the currency pairs. After the trade is closed, a forex trader can see the trade’s profit or loss in the balance section of a trading account.
NetPicks advises new traders to study the forex market before engaging in trades. A sound education offers each trader the chance to succeed. Traders also need to understand various elements that come into play when trying to evaluate currency pair price fluctuations including political news stories, monetary policies representing the various countries, political announcements and economic factors.
Make Wise, Unemotional Decisions
According to NetPicks, forex traders need to have innate abilities to make trades without becoming emotionally involved in their efforts. Furthermore, traders should not trade with money they need for other pressing matters including paying their mortgages or buying groceries. Traders are urged to begin trading with small sums of money. A knowledgeable forex trader can start out with $100 to $500 and make small profits in the forex market.
A Short Summary Regarding NetPicks
NetPicks, or Netpicks, was founded in 1996. The company was a forerunner when investors first became involved in online trading ventures. The team at NetPicks wants to help traders achieve success in all their financial endeavors. With its headquarters located in Irving, Texas, Mark Soberman and his staff offer tremendous insights into the inner mysteries surrounding forex trading.