Forex Trading: A Brief Introduction

If you are new to the world of financial market trading, you may well find yourself initially drawn to the lucrative foreign exchange. After all, the daily trading volume for the forex market has averaged $5.3 trillion over the course of the last 18 months, as investors from all over the world join in the pursuit of incredible liquidity and large, margin-based returns. It is important to remember that this marketplace is also exceedingly volatile, however, meaning that achieving the desired returns is often far easier said than done.

 

With this in mind, here is a brief guide to help you understand the forex market and the key considerations when trading in such a volatile space: 

 

In simple terms, the forex market is an entity that is accessible for 24-hours each day across three global, trading sessions. During this time, currencies are traded in pairs, with these unique derivatives capable of delivering margin-based gains (or losses) far in excess of your initial commitment. Typically, traders speculate as to whether a specific currency pair will appreciate or decline in value, usually through spread betting or an ETF (electronically-traded fund).

At this point, there are two key things to remember. Firstly, there are a number of underlying laws that govern changes in the forex market, meaning that a certain level of determinism is required if you are to successfully traded effectively. Similarly, the derivative nature of the market does allow you to prosper in depreciating conditions, as you can short-sell or speculate that the value of a specified pair will decline.

 

Make no mistake; if you are going to trade successfully in the modern age, you will need to use a progressive, online trading platform. It is even more important that you leverage comprehensive resources such as ETX Capital, as this exposes you to far greater levels of expertise and several other, innovative features.

 

The best online platforms include video tutorials, for example, while also providing access to historical price data and real-time news feeds. They will also enable you to refine your strategy and build experience by using a demo account, which simulates genuine market conditions while allowing you to use fake currency.

 

In any volatile market, it is important to understand the balance that exists between risk and reward. This is particularly relevant in the forex market, where prices can shift quickly and incremental gains can quickly turn into huge losses. In this instance, the balance between risk and reward is precarious in the extreme, so you will need to understand and manage this as a forex trader.

 

Of course, understanding is a great way to minimize risk and get the most from your forex trading experience. You can also take practical steps towards reducing risk, however, initially applying stop-losses to your account. This feature allows you to establish a loss threshold, meaning that once you have lost a predetermined sum of money your trading positions are instantly closed.