Following on from our beginners' articles on forex trading strategies, below is an in-depth knowledge vault for the FX trader.
I. What is Forex? - Analogizing foreign exchange (FX) to investing in currencies e.g. USD then swapping them for other currencies e.g. EUR after they've appreciated in value. A 24/5 trading market with a wealth of technical and fundamental analysis methods and a dynamic community.
II. What is Currency Trading? - An overview of FX as a $3 trillion industry, dwarfing the world's stock exchanges. Easy to get into, simple - pick from a handful of currencies and go - and unregulated, forex is volative and exciting. Break down the bid, the ask, base and quote currencies in an example.
III. Currency Pairs Explained - Learn more about the components of currency trading - how bid and ask prices work, labelling pairs - e.g. EUR/USD - and which pairs are most commonly traded. Boost your vocabulary and discuss the building blocks of forex with the professionals.
IV. How are Currency Exchange Rates Determined? - Background theory on how currency values are tied together by supply and demand and changes in macroeconomic systems. List of factors influencing exchange rates - essential information for fundamental analysts looking to make long term trade choices. Pore over financial news broadcasts at home and abroad.
V. What is Forex Spread? - Dig deeper into the concept of spread with a real world example. Use its unit of measurement, pips to separate the bid and ask price. Understand the spread is the brokers' bread and butter source of profit, but you can make money at the same time as the broker with no other fees or taxes.
I. What is Forex Leverage - Command 10, 50, 100, even 400 times more trading capital using leverage, pumping up both your risk and potential profit. Analogizing this advance in funds from the broker to credit card loans, and your assets / credit history to the margin amount you deposit.
II. How Leverage is used on the Forex Market? - Digging deeper into the uses of leverage, using the example of United States trading accounts, leverage charts and ROI statistics. Comparing the lower volatility of currencies as compared to stocks, to explain why leverage is useful for all traders, however large their trading account.
III. How Does Margin Trading Work? - Formulae for calculating the equity of your trading account. Understanding the leverage ratio and your margin requirements for different forex trades, with examples.
IV. Why Forex is Better Than Stocks - Citing leverage and other reasons as arguments for forex trading being preferable to stocktrading. Not only can you control larger capital with leverage, the initial investment and barriers to entry are lower. Plus with $4 million in forex transactions carried out daily, dwarfing the NYSE and NASDAQ, forex is where the money is.
I. How Do Forex Brokers Work? - Almost all the products we buy come from middlemen, and forex brokers are no different. They make money from commissions and/or the spread. Read the history of how brokers have changed over time with regards to fees and qualifications. Find a broker for your goals.
II. Market Makers vs ECN Brokers - The differences between Forex brokers that use their own liquidity and Electronic Communications Network (ECN) brokers that source quotes from third parties. Compare brokers by their spreads, commissions structures, and the pros and cons of trading with each.
III. How to Become a Forex Trader - Chosen a broker? Familiar with their fees? Now set your budget and determine your goals, whether that's to earn a living or just extra disposable income. Decide your best investing position - short, mid or long range. Snap up the latest promotions.
I. What is Forex Hedging? - Analogizing forex hedging - as in the phrase 'to hedge your bets' - to negotiating a buyback price on a product purchase. Flow chart of considerations forex hedgers go through to manage risk when opening and closing positions.
II. What is Forex Scalping? - Another analogy to explain how scalpers makes large numbers of short term trades with precision and speed. Read the three qualities of the ideal scalper set out by the Australian Financial Review. See if this trading strategy lines up with your personality type.
III. What is an Economic Calendar? - Forex traders make use of data from governments, financial news, studies and other sources to guide their trading decisions - one of these is an economic calendar. See an example calendar setup and learn how to create your own comprehensive resource online.
IV. What is Automated Forex Trading? - The pros and cons of using automated software to execute your forex trades, and example software products. Educate yourself on what to look for in pricing and features.
V. What is the Best Forex Trading Software? - More info on automatic forex software, demo software, choosing the best software for you, and avoiding scams.
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