Forex Trading (100+ New Hacks 2019)

Forex Trading

Introduction Foreign Exchange Market (Forex)

Currency—and not just the idea of it—has been around since the start of civilization. It’s a universal system that allows countries separated by geography, culture, religion, and political beliefs to interact with one another in a systematic and civilized way.

 

It’s what allows trading between foreign nations, political alliances, and even individuals just like you. Without it, trading would be a complete mess.

 

The Foreign Exchange Market (Forex) lets each and every one of us become an active participant in the systematic process of currency trading and currency exchange.

 

This is because Forex is a global decentralized market designated for the exchange of currency—any currency. Are you hoping to trade U.S dollars for Great Britain pounds?

 

No problem. Interested in selling Australian dollars and buying Japanese yen? No worries. Forex lets us buy, sell, and trade any and all currencies at current or pre-determined prices.

 

What should be made clear at this point, however, is that Forex offers more than just currency exchange. It offers ways for individuals just like you to make a meaningful profit.

 

When you dedicate your attention and time to exchange endeavors and apply the right strategies to particular exchange situations, you possess the ability to generate profit in as little as 24 hours.

 

This is a bold claim, yes, but it’s not an unrealistic one. Thousands of financially-limited individuals enter the Forex market each day with the twinkle of making an extra few hundred dollars, and hundreds upon hundreds exit positions (a currency exchange term we’ll learn later on) feeling successful and more financially-free.

 

Let this be said, though: currency exchange on Forex isn’t simple. As much as I’d like to say it is, it’s not. Sure, Forex and its techniques can be (over)simplified so that its basics can be learned in a matter of minutes, but at that point, you’re not learning about the detailed strategies and techniques of currency trading.

 

You’re not fully understanding how currency pairing and currency quoting works. You’re not being introduced to the terminologies that you’ll hear casually tossed around the market, the most popular currencies that you’ll want to know the characteristics of or the crucial step-by-step process of creating a personalized trading plan.

 

In other words, these oversimplified and easy-to-understand-the-moment-you-hear-them explanations won’t do you much good when you finally sit down to trade currency on Forex.

 

forex

 

Forex is a complex financial endeavor that requires your time, practice, and patience. With this blog, you’ll learn all about the crucial elements and strategies of Forex’s complex market, but you won’t find yourself falling behind in the process.

  • It is my personal mission to have you achieve your highest financial aspirations.
  • I’ve included a free blog as a bonus to thank you for reading this.
  • Investing doesn’t have to be a complex and frustrating experience.
  • You’ll actually enjoy accomplishing MORE in LESS time.
  • You’ll feel like you’re in the fast lane to your financial goals.

 

Getting Familiar with Forex

The complex functions and elements of the Foreign Exchange market (Forex) is not something most people pick up on immediately. It’s not even something most people will fully understand over the course of a week.

 

Understanding Forex is something that takes time, although active participation in the marketplace itself certainly speeds up the learning period. Hands-on learning and experience is an excellent catalyst to Forex and currency exchange success.

Getting Familiar with Forex

You’ll find an actually overwhelming abundance of online articles, personal blogs, podcasts, and videos that talk about the Forex marketplace and the currency exchange process, but many of these sources either focus too narrowly on the basics of the marketplace or skip over the basics and hone in on the marketplace’s complexities.

 

For the beginner currency trader, neither of these two approaches to Forex is helpful. What you need is a combination of the two —a type of coalesced approach that blends the basic with the complex.

 

What you need is something that helps you build a foundational knowledge of Forex, and then lets you expand off of that knowledge by introducing more complex topics.

 

So, we’ll start the first half of that approach in this blog. That is, this blog will introduce beginners to the basics of Forex and will help them build foundational knowledge about Forex and its marketplace.

 

You’ll learn the basics —what Forex is, who the market participants are, what factors affect the market’s conditions, why Forex is such a great marketplace to enter, and what the benefits and disadvantages of Forex trading are.

 

Getting Acquainted with Forex

Getting Acquainted with Forex

Definitions—some people thrive off them, some people detest them. No matter your personal preference, you’ll want to learn to embrace them when it comes to Forex and its marketplace. Learning and understanding the basic premise of Forex is how you’ll begin to build the foundational knowledge that I’ve mentioned a few times now.

 

Now, I could rattle off a long-winded definition of Forex, perhaps something along the lines of, “the Foreign Exchange market is a global decentralized marketplace designed and designated for…,” but how helpful would that really be for a beginner trader?

 

I’d say probably not very since many readers would have to look up what a global decentralized marketplace is first in order to understand the initial definition.

 

Fortunately, we can skip all of those unnecessary steps by giving a more direct and simple definition that clearly defines Forex and the marketplace without sacrificing any important information or detail. So, let’s start by breaking Forex down into bite-size, manageable pieces.

 

Forex is:

forex-99

  • A global marketplace available to countries around the world.
  • A marketplace that allows people or institutions to buy, sell, and/or trade currency.
  • A marketplace that also allows people or institutions to buy, sell, and/or trade currency for a profit.
  • A place where currency can be bought, sold, or traded at either current prices or pre-determined values, depending on the Forex market in which you are trading. 

 

A marketplace that does not set the value of the currency. Instead, it determines the current market price value of the currency—the price at which currency is traded. (There’s a difference).

 

Not a physical marketplace. It’s an online marketplace where all transactions are handled electronically. These transactions, oftentimes called over-the-counter (OTC) transactions, happen over computer networks and between two parties, two traders.

 

So there you have it—a neat and (hopefully) easy-to-follow breakdown of the basics of Forex and the Foreign Exchange marketplace. If you’re feeling comfortable with these definitions, feel free to move forward with your reading.

 

If you’re confused in any way, be sure to review and understand these basics fully before moving on. Remember: we’re building a foundation right now. Any chips in your foundation will affect the layers we add on in later blogs.

 

Meet the Participants

 Forex marketplace,

During your time in the Forex marketplace, you’ll come across a large variety of parties, a Forex marketplace terminology that essentially refers to traders or exchangers of currency. These parties will vary, but usually, consist of either:

 

  • 1. Individuals much like yourself who exchange currencies on the Forex marketplace on their own and for their own personal interests,
  • 2. Financial institutions who employ individuals to conduct currency exchanges throughout the day as a means to generate company profit, or
  • 3. Banks and governments that require currency exchange transactions for a multitude of reasons, often so that trade can be conducted between themselves and another country that uses a different currency.

 

What Affects the Market?

What Affects the Market

If you’re at all familiar with the basics of the stock market, then you’re already in a good position to learn about the Foreign Exchange marketplace. This is because both financial marketplaces are highly volatile—they’re unpredictable, fast-moving, and ever-changing. Stock prices are constantly dipping or rising, and currency price values are always shifting.

 

What you’ll want to know, however, is that there are particular factors that cause Forex to experience either gradual or sudden changes. Some of these factors include, but certainly, aren’t limited to:

 

Supply and demand: this is the basic premise to anything and everything relating to financial markets. If you aren’t familiar with this concept, become familiar with it.

 

Interest rates: currencies with high-interest rates are, for obvious reasons, unfavorable. Traders will often pursue other exchange transactions that offer lower interest rates.

 

The issuing company’s performance or current events: This includes, but again, is not limited, to a country’s economic performance (are they in debt or are they striving, financially?), or their current events, whether in regards to politics, religion, culture, foreign policy, etc.

Some basic research on a currency beforehand will give you an initial, but incredibly helpful, sense of what specific factors affect the currency you’re interested in trading.

 

Why Forex?

Why Forex

Forex is great for two reasons. First and foremost, Forex offers individual traders and financial institutions the opportunity to generate profit from currency exchange. This is something we’ll discuss in more depth later on this blog.

 

The second reason might not be as interesting, but it’s still very important: Forex is an excellent financial assistant with the international trade because it allows fluid currency conversion between two countries that aren’t on the same currency.

 

In other words, Forex makes foreign imports and exports possible even though currencies between countries aren’t the same.

 

For example, let’s say that England wants to trade with France. For those unfamiliar with European currency, England uses the Great Britain pound (GBP) sterling, and France uses the euro. Because of Forex, England and France are able to trade with one another even though they use different currencies.

 

The workings of this are simple: with Forex, England can easily exchange its currency, GBP, for France’s currency, the euro. Doing so allows England to import goods from France and pay France in euros, even though England’s currency is actually the pound.

 

Simple enough, right? Essentially, Forex just makes trade between two countries on different currencies simpler—it makes it more fluid.

Here’s a list of additional reasons why Forex is worth your time:

 

It has high liquidity: Forex is a high liquidity marketplace because of its unparalleled trading volume. In other words, an impressively large number of people, institutions, and governments trade on Forex, which means things move fast.

 

It’s open 24-hours a day: This excludes weekends, but that’s about it. Because Forex is a global marketplace, it’ll always be open someplace in the world, which means you can trade at any time, Monday-Friday.

 

If you’re interested in exchanging U.S dollars and Japanese yen, for example, you can sell dollars during the evening after work, and buy yen in the morning before work.

 

Simply put, it’s huge: Volume-wise, Forex is the biggest marketplace in the world. This is because the Forex marketplace is established, geographically and virtually speaking, around the world. The larger the marketplace, the more possibilities for trade and profit.

 

It’s used by trillions: Forex has been used over 1.7 trillion times for foreign currency exchange swaps.

 

Weighing the Benefits with the Disadvantages

As with most things, there are both benefits and disadvantages that come along with Forex and its marketplace. Knowing the elements of both these categories is crucial.

 

Benefits:

Forex is the largest global marketplace

Because Forex is the largest global marketplace, there is an abundance of opportunities to generate significant profit. That’s one of the primary benefits of Forex—more money (who doesn’t find that appealing?)

 

Forex traders also have the ability to enter positions worth far more money than their initial investment, which is done when you borrow funds from a lender, usually a broker.

 

This process is called trading on margin. So, a Forex trader can enter a position worth, say, $50,000 after having only put down $5,000 upfront. Your high leverage ($50,000) means your ability to generate greater profit increases, too.

 

Unlike the stock market where all transactions must be completed in a short 8-hour time frame (most stock markets are only open around 9-4 on weekdays), Forex is open 24-hours a day, Monday-Friday.

 

This is great for the working and/or busy individual who can only dedicate time after working hours to trading. Forex allows full-time employees to come home from work and trade during their free time.

 

Disadvantages:

forex disadvantages

In the previous section where we discussed the benefits of the Forex marketplace, we discussed the ability for traders to trade with high leverage (when they borrow money from lending brokers in order to increase investments and therefore increase the rate of profit). However, trading with leverage has its drawbacks.

 

When we trade with leverage, we generally have large amounts of money on the line, so to speak. When price fluctuations move in a favorable direction, our high leverage comes to our advantage—our investment, quite literally, pays off. When unfavorable—and usually unexpected—price fluctuations occur, however, high leverage puts us in a difficult situation.

 

To avoid losing high leverage investments when the market takes a turn for the worst, you’ll need to keep a constant eye on prices and price fluctuations. This, of course, can be difficult since I’m sure many of us are busy, working individuals.

 

There are also various foreign exchange controls currently in place. Some governments across the world have imposed certain restrictions on the selling, purchasing, or trading of foreign currencies. The most common restrictions include:

  • The selling or purchasing of foreign currencies by a country’s residents.
  • The selling or purchasing of local currencies by non-residents of a country.

 

You’ll find restrictions such as these, or those similar to these, in countries including (but not limited to):

  • Angola
  • Bahamas
  • Belize
  • China
  • Cuba
  • Egypt
  • Fiji
  • Iran
  • Morocco
  • Pakistan
  • Russia
  • South Africa
  • Ukraine

 

As you consider these disadvantages to Forex trading, however, keep in mind that with a personal trading plan, the correct application of trading strategies, and a critical mind, any trader can drastically reduce Forex trading risks.

 

The language of the Market

stock market

Bull, bear, dividend, index, portfolio, margin—these are just some of the vocabulary words that you should know inside and outside before you enter the stock market.

 

Bid, ask, option, order, hedge, speculation—these are, again, just some of the vocabulary words that you’ll hear tossed around the stock market and, more specifically, the options trading atmosphere.

 

Just like the stock market and options trading arena, Forex, too, has its own particular set of financial terminologies that all traders should be both familiar with and understand completely.

 

I’ll be the first to admit that the simple task of memorizing terms can be quite boring, perhaps even daunting. Flashcard memorization was something we thought we left behind in grade school, maybe even high school, right?

 

Fortunately, I’m not asking you to whip out those blank index cards, jot down the following terms, and memorize each and every one in great detail. Actually, I just want to introduce a few particular terms and provide a short definition of each one. It’ll be painless, I promise.

 

But why the emphasis on just the following 6 vocabulary terms? Well, I’ve selected the following words to introduce and discuss for 2 particular reasons.

 

First and foremost, these are financial terms that you’ll encounter throughout your reading of this blog. When you’re not sure about what a particular term means, then understanding the concept itself will be rather difficult.

 

For example, let’s say I have the sentence: She was abstemious. If you’re familiar with this word already, then you already know a little bit about the woman’s character without needing to have read anything else.

 

If you’re not familiar with this word, however, then you’ll need to rely on context clues (or look it up in a dictionary) in order to understand what exactly is being said about the woman.

 

The financial terms in this blog work in a similar way—if you aren’t familiar with these particular terms, you’ll find yourself re-reading a lot of the surrounding information over and over again in order to understand what’s being said.

 

The second reason why I’ve chosen these 6 particular terms is plain and simple: these are the most basic, but also most fundamental and crucial, terms that you’ll hear tossed around while trading on Forex, day in and day out.

 

Better yet, these are terms that every Forex trader should use, consider, or think about every day. So before I start getting too ahead of myself here, let’s get on to introducing these terms, shall we?

 

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The 6 Terms Every Trader Should Know

The following is a list of Forex terminologies that you’ll want to be familiar with and understand fully, at least on a basic level. These are terms that 1.) you’ll encounter during your trading endeavors, or 2.) you’ll need to consider when making knowledgeable investment pursuits.

 

Keep in mind as you read through these definitions that we’ll be discussing several of these terms in greater detail in the following blog. For now, you simply want to gather a basic understanding for each term—this will make the following conversations in later blogs easier to follow.

 

Forwards: A forward is a type of contract that is created between two parties, two traders seeking to exchange currency. It’s also a way to confront and deal with the risks that come with foreign exchange (changing market rates).

 

A pre-established date is settled upon by both buyer and seller, and an exact exchange rate for that particular day of trade is settled upon in advance.

 

Futures: This is very similar to a forward, except that the pre-established date of trade and the exchange rate is not settled upon by the buying and selling parties—dates of trade and exchange rates are standardized. Hence, futures contracts are oftentimes referred to as standardized forward contracts.

 

Option: The owner of currency has the right, but not the obligation, to exchange one currency for another by pre-established expiration date and with a pre-determined exchange rate. The seller of currency, however, is obligated to follow through with the exchange if the trade expiration date and the exchange rate has been established.

 

Speculation: Conducting a financial transaction that has a high loss-risk, in hopes of generating a substantial profit in return. For speculators, the possibility of generating huge gains outweighs the risk of losing investments.

 

Speculation does not use mathematical formulas or analytical software. Instead, speculation involves reviewing a security’s financial past, identifying trends and patterns, and making educated assumptions about the security’s future movements.

 

Spot: A currency exchange when a selling party delivers a previously agreed upon amount of currency to a buying party, and receives a previously agreed upon amount of currency back from the buying party.

 

Exchange rates are agreed upon by both parties before the start of a transaction. This is considered a direct exchange between two parties because cash is exchanged rather than a contract (as we saw with forwards and futures).

 

Swap: This is a type of forwarding transaction. Two parties exchange currencies for a pre-established length of time and agree to reverse the transaction on a pre-determined, later date. Deposits are generally required for swaps as a means to hold positions open until the exchange is complete.

 

If you’ve gotten this far, congratulations. These terms can oftentimes appear dense to the beginner trader, and they might even seem pretty similar, maybe even too similar. That is, some of these terms can be hard to differentiate from one another.

 

Quick Check-in

As we prepare to move forward with our discussion, however, you might want to conduct a quick self-assessment. Without looking back at the definitions you just learned, test yourself.

 

Specifically, ask yourself what the definitions for a spot, forwards, and futures were. You’re invited to record your answers in the spaces provided below. Check your answers against the above definitions once you’re finished.

 

Why have I asked you to redefine these three words, specifically? Well, the next blog discusses the three different Forex market types and therefore deals with these three terms directly.

 

You’ll need to understand the basics of these terms before moving forward. Don’t worry if you don’t understand them fully quite yet —we’ll explore the more detailed characteristics of each marketplace in the following blog.

 

All I ask is that you feel comfortable with the information you’ve been provided in this blog before moving on.

 

 Forex Market Types

 Forex Market Types

Within the Foreign Exchange marketplace, there are three different types of markets—spot markets, forwards markets, and futures markets.

 

If you read over the definitions provided in the previous blog, you’ll know that there are differences between each of these markets, but you’ll also know that they’re also quite similar, too, at least on the surface.

 

In this blog section, we’re going to branch off into more detailed and slightly more complicated discussions of each marketplace. No need to panic though, as these discussions won’t be too convoluted for the beginner trader.

 

What we want to do in this blog is simply gather a more detailed understanding of the similarities and differences between these three marketplaces and the individual characteristics of each one.

 

But why? Well, understanding the characteristics, structure, and function of each marketplace gives you, the Forex trader, a better understanding of what Forex trading direction you plan to pursue. These marketplaces, as you’ll soon discover, are structured in different ways.

 

Forward markets, for example, give buyers and sellers more freedom in establishing exchange dates and rates while future markets, well, don’t. Knowing this difference between forward and future markets means you can make more educated decisions about which marketplace you wish to trade in.

 

Many beginner traders find that they feel much more comfortable trading in one marketplace over another. This is perfectly normal—this is what this blog is designed to help you discover.

 

Spot Markets

Spot Markets

In this section, we’re going to look at the structure and function of the spots Forex market in contrast to the forwards and futures marketplace. Let’s first start by establishing the glaring differences between the spot market and the forward/future markets:

 

Spot markets

  • Spot markets trade currencies and cash
  • Exchange transactions generally take only 2 days

 

Forward/Future markets

  • Forward/future markets use and trade contracts, not cash
  • Exchange transactions can take weeks, even months, especially in future markets which generally take up to 3 months

 

  • Essentially, spot markets differ from forward and future markets because they use cash, not contracts, and exchanges occur much more promptly than they do in forward and futures markets. However, there are some additional bits of information that you’ll want to know about spot markets.

 

Like we noted in the previous blog filled with Forex terminologies, a spot consists of a currency transaction between two parties, let’s say Party A and Party B. Both Party A and B, who are trading on spot markets, agree upon several things in advance:

  • the amount of currency that they will exchange with one another
  • the date that the transaction will be conducted on.
  • the exchange rate of each currency being exchanged

 

Here’s an example of what a spot market exchange might look like: during the transaction,

  • Party A gives Party B XYZ amount of U.S dollars
  • Party B gives Party A ABC amount of G.B pounds

 

The spot market is the most popular type of Forex trading, primarily because of its simplicity and the freedom it gives the buying and selling parties.

 

All exchange decisions are at the discretion of both parties, meaning the amount of currency exchange, the exchange date, and the exchange rate isn’t regulated by an outside source.

 

It’s also a generally simple transaction between both exchanging parties because cash is exchanged—there’s no need for contracts.

 

Forward Markets

Forward Markets

The forward and future markets are sometimes lumped together under one category, while the spot market always remains its own, separate category. 

For the first-time or beginner Forex trader, it might be helpful to think of this relationship as spot vs. forwards and futures. However, forward and future marketplaces aren’t the same thing, either.

 

Yes, they’re similar, but the forward's marketplace has a few distinguishing features of its own.

 

The first feature of the forward Forex marketplace is that contracts (not cash like the spot market) are exchanged between two parties. These contracts are bought and sold over-the-counter (OTC).

 

Those familiar with the stock market, and perhaps especially penny stocks, will have an understanding for what OTC markets entail. If you don’t, however, it’s important to know that OTC markets:

  • are markets that lack physical, central locations, so business transactions are generally completed over the phone, email, or electronic trading systems
  • are markets where unlisted securities trade
  • are financial markets that aren’t as strictly regulated as other markets, meaning traders have more freedom, as we’ll shortly see, in determining exchange rates and currency exchange rates

 

Essentially, when we break it down, OTC trading in forwarding markets simply mean buyers and sellers of currency have more control over their trading endeavors.

 

For many traders who have traded on the futures market before, the unregulated exchange system of the forwards market can be very appealing. We’ll learn more about why in the next section when we discuss future markets.

 

Nonetheless, you’ll also want to know that, like the spot market, two parties are involved with contracts in the forwards market.

 

Together, these two parties determine and agree upon the terms of agreement for the currency exchange contract they’ve set up. Each and every one of these details (exchange date, exchange rate, interest, expiration date, etc.) must be agreed upon by both parties.

 

Futures Markets

Futures Markets

The futures market is both similar to and different from the forwards market. This is because while the futures market deals with currency exchange using contracts like the forwards market, the rules and fine-print that come with these futures market contracts are much more regimented and regulated than those of the forwards market.

 

In other words, there are entities that regulate the details of the exchange contracts that are drawn up between two parties.

 

In the United States, for example, the National Futures Association (NFA) regulates the futures market. They dictate the specific contract details between two parties, including:

  • how many currency units can be traded between both parties during one exchange transaction
  • date of the currency delivery
  • settlement dates, if applicable
  • exchange rates

 

Just to reiterate, in the forwards market, the trading parties have the ability to define and determine these above contract details. This isn’t to say, though, that these futures regulations are altogether horrible.

 

Actually, the rules and regulations with futures contracts protect both parties from possible exchange risks because the regulation of contract details reduces disagreements between exchanging parties, and the details of the contract are contractually binding.

 

Once the contract is signed, both parties are protected, financially speaking, from the other party exiting the exchange position. In other words, they must go through with the transaction.

 

Those who favor speculation strategies usually also favor the Forex futures marketplace because it allows them to capitalize on exchange rate movements if the trader’s speculations prove accurate.

 

Unfortunately, transaction periods in the futures marketplace take some time—usually over the course of 3 months. So, the futures marketplace isn’t the best marketplace for those who disfavor speculation and/or for those looking to make prompt exchanges and generate profit quickly—the spot market, however, will let you do this.

 

So what’s the best Forex market for the beginner trader to pursue when they’re just getting started? I’d recommend the spot market, partly because its popularity means more trade opportunities.

 

I’d also recommend the spot market because traders are able to skip over the sometimes hassle of contracts, and instead, simply exchange cash. If you don’t feel comfortable trading cash without a contract, however, I’d recommend the forwards market next.

 

You’ll need to define the details of your contract with the other party, but what those details are will be to your (and the other party’s) digression.

 

The goods news also is that other parties, just like you, want to conduct quick and painless currency exchanges, which means defining the details of the forward's contract shouldn’t be too time-consuming or too laborious.

 

However, all three of these Forex markets are highly rewarding financial markets to exchange currency in, and all should be given an equal try once you’ve established your place in the Forex marketplace and have gotten your financial bearings.

 

Every trader will have his or her own personal preference when it comes to market environments and regulations, so it gets a bit difficult when recommending the best marketplace for my readers.

 

Popular Currencies

Popular Currencies

One of the initial strategies for generating profit on the Forex market is knowing which currencies and currency pairings to pursue. With just a little research beforehand, it’s very easy to tackle and successfully complete this step. However, far too many beginner traders overlook this process.

 

Instead, they enter the Forex marketplace and simply try their hand or worse, luck, at different currency exchanges and pairings. To them, a currency exchange with the intention of generating profit is like a guess and check process.

 

The thing is: Forex should never be a guess and check game or process. Turning Forex into a guess and check game only makes your job more difficult —you waste time discovering which currencies are more liquid and which currencies trade at higher volumes.

 

That is, the time you spent making these initial discoveries could have been saved if only you took the time to familiarize yourself with the popular global currencies.

 

These popular global currencies are, well, what they sound like. They’re the currencies that are traded in the highest volumes around the world. This means that there is an abundance of exchange opportunities out there for you to pursue.

 

Yes, you’ll probably find varying degrees of success trading the unpopular currencies as well, but the likelihood of generating profit through popular global currencies is much higher than with unpopular global currencies. Popular currencies mean more exchanges, and more exchanges mean more profit opportunities. It’s that simple.

 

Because pursuing exchanges of a popular global currency is vital to your success as a beginner Forex trader, this blog will introduce the 4 most popular, most fluid global currencies.

 

In the following sections, you’ll find a brief introduction to each currency, will learn why it’s a high-yielding global currency, and will discover several crucial characteristics about each one, particularly how each currency is valued and/or what events cause its value to increase or decrease.

 

So, think of the following sections as an introduction as to why you should start trading these currencies as soon as you enter the Forex market, whether the spot, forwards or futures marketplace.

 

U.S Dollar

U.S Dollar

The U.S dollar is the primary currency of the world. The dollar is held on currency reserve by almost every financial institution and a central and international bank, which is simply a fancy way of saying that almost everyone has access to the dollar if they simply visit their local bank and ask to exchange their currency for it.

 

The U.S dollar is also the primary currency when it comes to currency pairings. Currency pairings is a concept that we’ll learn later on in the following blog, but for now, you should know that the U.S dollar is the most frequently exchanged currency among all others. In other words, the U.S dollar is an extremely powerful, high-yielding, and liquid global currency.

 

Different currency forms of the U.S dollar include:

  • penny/1 cent
  • nickel/ 5 cents
  • dime/10 cents
  • quarter/25 cents
  • half dollar/50 cents (coin) (not frequently used)
  • dollar coin (not frequently used)
  • 1 dollar bill
  • 2 dollar bill (not frequently used)
  • 5 dollar bill
  • 10 dollar bill
  • 20 dollar bill
  • 50 dollar bill
  • 100 dollar bill

Because of its global and monetary power, the U.S dollar is the most globally accepted currency as well—some countries (aside from and outside of the U.S) even use the dollar as their local currency.

 

Yes, the strength of the dollar is that appealing. But even for the nations that have and use their own currency, the U.S dollar is often accepted as currency.

 

I’ve actually experienced this firsthand during a recent trip to Edinburgh, Scotland. If you’re unfamiliar with Scotland, it’s part of Great Britain, and therefore uses the Great Britain pound (sterling) as their currency.

 

However, I was, to my surprise, actually able to pay for items using U.S currency. Furthermore, the cashier was both happy and eager to take it.

 

As if the versatility and worldwide acceptance of the U.S dollar wasn’t enough, some countries (even those as powerful as China) use the U.S dollar to stabilize their own currency and currency exchange rates.

 

This is called “pegging,” and is essentially a method that involves a country fixing its exchange rate to that of another country’s exchange rate in order to stabilize their currency.

 

In other words, this shows just how much other countries depend on the value and strength of the U.S dollar and its position as a global currency leader.

 

As strong as the U.S dollar is, however, it also has some minor setbacks—it’s a rather sensitive currency. Both inflation and interest rates have the ability to change the value of the dollar, even when only slight changes occur.

 

Fortunately, the dollar remains fairly stable despite these sensitive areas, which makes it a top contender among global currencies. I’d highly recommend pursuing currency pairings that include the U.S dollar as one of the two pairs.

 

The Euro

Euro

1 US dollar equals .89 Euro

The Euro is a close second behind the U.S dollar when it comes to global currency leaders. Just behind the dollar, the euro is the second largest currency reserve in the world.

 

What’s surprising about the euro, however, is its relatively short history—it hasn’t been on the world market for very long. Actually, as of 2016, the euro—with its banknotes and coin system—has been on the world market for a little over just 17 years, and has been in circulation for just under 15.

 

Different basic currency forms of the euro include:

  • 1 cent
  • 2 cent
  • 5 cent
  • 10 cent
  • 20 cent
  • 50 cent
  • 1 euro (coin)
  • 2 euro (coin)
  • 5 euro banknote
  • 10 euro banknote
  • 2o euro banknote
  • 50 euro banknote
  • 100 euro banknote
  • 200 euro banknote
  • 500 euro banknote

 

The rapid rise in popularity and power of the euro is most likely due to the number of European countries that have designated it as their currency, among other things. The 19 European Union (EU) countries that use the euro as their currency include:

  • Austria
  • Belgium
  • Cyprus
  • Estonia
  • Finland
  • France
  • Germany
  • Greece
  • Ireland (the Republic of, not to be confused with Northern Ireland)
  • Italy
  • Latvia
  • Lithuania
  • Luxembourg
  • Malta
  • the Netherlands
  • Portugal
  • Slovakia
  • Slovenia
  • Spain

 

As you can see, the euro is a rather unique currency in contrast to the other popular global currencies we’ll discuss in this blog, primarily because of the number of European countries that use it today.

 

Regardless of its relative newness to the world market, the euro, much like the dollar, proves to be quite powerful. Much like the dollar, countries around the world “peg” the euro’s exchange rate in order to help stabilize their own country’s currency and their currency’s exchange rate. You’ll find that several parts of Africa use the euro specifically to do this.

 

The value of the euro is, unfortunately, rather sensitive, though not in the same way as the U.S dollar. Political events that occur within just one, several, or all of the European nations that use the euro as a currency have the potential to affect the strength of the euro and how it’s valued as a global currency.

 

Events within the European Union generally result in increased trading volumes, which is why traders should always be familiar and up-to-date on global news, or at least up-to-date on the news and current events of the country they wish to exchange currency with.

 

Great Britain Pound

1 US dollar equals.71 British pound

1 euro equals .79 British pound

Great Britain is yet another powerful location whose currency is among the top global currency contenders. Even though Britain (which consists of England, Scotland, Wales, and Northern Ireland) is part of the European Union, it does not use the euro as its currency.

 

Instead, it uses the pound, also known as pound sterling. Although the pound is different from the euro, it has a similar banknote and coin system in place. These include:

  • 1 penny
  • 2 pence
  • 5 pence
  • 10 pence
  • 20 pence
  • 50 pence
  • 1 pound (coin)
  • 2 pounds (coin)
  • 5-pound banknote
  • 10-pound banknote
  • 20-pound banknote
  • 50-pound banknote

 

England, Scotland, Wales, and Northern Ireland’s currency has a relatively high value when compared to other countries around the world. If you take a look at the conversions listed at the start of this section between U.S dollars and pounds, and euros and pounds, you’ll notice that the value of the British pound is a bit off from that of the dollar and euro.

 

Don’t be fooled by these numbers, though. Some beginner traders might be tempted to think that these numbers suggest the pound is of less value than the dollar and euro. Actually, it’s quite the opposite. The conversions you see at the start of this section shows that 1 US dollar equals.

 

British pounds, which means you need to exchange about $1.42 US dollars in order to receive 1 British pound. So, as you can see, the pound is valued more than the world’s two top global currencies, the dollar, and the euro.

 

The political standing of the British government is usually a strong factor when it comes to determining the current value of the pound and how well the British currency trades on the Forex marketplace.

 

 Fortunately, the British government is rather stable in terms of politics at the moment, so traders shouldn’t be too worried about any drastic, sudden, and altogether unexpected drops in the global valuation of Great Britain’s currency.

 

The pound plays the role of a very liquid currency in the world market, so it’s generally a great exchange pursuit for the beginner Forex trader.

 

Japanese Yen

1 US dollar equals 104.30 Japanese yen

1 euro equals 116.93 Japanese yen

1 British pound equals 147.17 Japanese yen

 

The Japanese yen takes us out of the Western hemisphere and relocates us in the Eastern hemisphere of the world—Asia.

 

The yen is the top currency contender in all of Asia, which means it is the most powerful currency out of all Asian countries. It’s also one of the most powerful currencies in the world, right behind the U.S dollar and euro.

The different basic coins and banknotes of the Japanese yen include:

  • 1 yen (coin)
  • 5 yen (coin)
  • 10 yen (coin)
  • 50 yen (coin)
  • 100 yen (coin)
  • 500 yen (coin)
  • 1,000 yen (banknote)
  • 5,000 yen (banknote)
  • 10,000 yen (banknote)

 

Japan’s yen once carried an incredibly low-interest rate, which is an extremely attractive quality in terms of currency, and even more so to those individuals who exchanged currency with the intention of generating a profit.

 

When the yen’s interest rates were low (and almost non-existent), thousands of traders flocked to the yen, buying the currency and then exchanging it for high-yield currencies.

 

Doing so generated them a substantial profit in the process. However, the growing popularity and strength of the Japanese yen has made this “carry trade” a difficult process to master since interest rates on the yen have since risen to somewhat match those of other currencies.

 

From this, we learn that the value of the Japanese yen depends upon its interest rates. Of course, the valuation of the yen also depends upon the general economic state of Japan, its government, and any political events, too, though it’s interesting to consider just how much the interest rate of the yen affects its place as a global currency contender.

 

If you take a look at the listed conversions at the start of this blog, you’ll find that some currency pairings (exchange rates) are much better than others. Take both the U.S dollar to Japanese yen and British pound to Japanese yen conversions for example. With 1 U.S dollar, you receive roughly 104 Japanese yen.

 

With 1 British pound, however, you receive about 147 Japanese yen. Obviously, the British pound to Japanese yen conversion is much more favorable than the U.S dollar to Japanese yen conversion, primarily because you get more for your money with the second conversion pairing.

 

Simply knowing this basic information will help you seek out and successfully accomplish more profitable exchange opportunities—this is the whole point to generating profit using the Forex marketplace.

 

Other Currencies

Other Currencies

Knowing the units of these 4 currencies, the factors that drive the value of each one upwards or downwards, and its position in the global currency market is crucial to your initial success in the Forex marketplace.

 

However, a committed Forex trader will also take a few extra minutes to familiarize himself or herself with the other popular currencies being traded on the Forex market.

 

I’ve included a somewhat extensive list to help you out with this process. On this list, you’ll find three things: 1.) the name of the trading country, 2.) the name of its currency, and 3.) the Forex abbreviation for the country and currency.

 

Before you get started, though, here’s a quick hint: the abbreviation for each country and its currency is usually selected by abbreviating the country’s name into two letters, and abbreviating the country’s currency into one letter.

 

So, for example, United States dollars is turned into USD. Knowing this should make remembering the following abbreviations a bit easier for you.

 

Quotes and Currency Pairings

Currency Pairings

Finding, reviewing, analyzing, and understanding Forex quotes and currency pairings are crucial to finding success in the Forex marketplace and generating a substantial daily profit.

 

Without this knowledge and a particular set of skills, traders simply aren’t able to decipher the long lists of quotes, currency abbreviations, pairings, asks and bids, and data.

 

This right here is oftentimes where beginner traders go wrong. Yes, with time we can all (hopefully) figure out what these abbreviations mean and suggest about currency and the issuing country, but that can be a horrendously and completely avoidable time-consuming process.

 

And in such a fast-paced, highly fluid, virtual marketplace, time is of the essence. Really, it is. Familiarizing yourself with the abbreviations of the most popular and highly rewarding currency pairings, and knowing how to read and interpret quotes inside and out, is vital to your Forex success.

 

You’ll save time by doing so, but, perhaps most importantly, you’ll make better, more knowledgeable, more productive financial decisions that generate a more substantial profit. Who wouldn’t want that?

 

With that being said, this blog deals with two mistakenly overlooked topics— reading quotes and dealing with currency pairings. However, you’ll find a lot of additional information and sub-categories under these two categories, so read slowly and carefully. We’ll start by introducing how to read quotes.

 

We’ll then move into our discussion of currency pairings—what they are, what direct and indirect pairings entail, what cross currency pairings are, and how to ask/bid currency pairings.

 

Reading Quotes and Currency Pairs

Reading Quotes and Currency Pairs

Quotes, in the Forex marketplace, are sets of abbreviated names and numbers that tell you the current exchange rate between two different currencies. While it’s a fairly simple concept, it’s crucial to know and understand the monetary relationships and differences between multiple countries’ currencies.

 

When you first enter the Forex marketplace, you’ll find quotes all over the place.

For example, you might see:

 

USD/AUD=1.37

This is a quote because it’s quoting the exchange rate between U.S dollars and Australian dollars. If you haven’t yet picked up on what the abbreviations in this specific example stand for, I’ll explain shortly. However, this quote tells us that for every 1 US dollar, the Australian dollar is worth 1.37 dollars.

 

This group of abbreviations, symbols, and numbers (above) is also called a currency pair, since USD and AUD are two countries that are paired together in preparation for currency exchange, and 1.37 denotes an amount of currency.

 

It’s vital that you understand how this works, so if you find that you’re still a bit confused, I’ve broken this same example down into step-by-step explanations. Use the symbol key that follows the currency pairing (pictured below) to find out what each section of the quote means.

 

USD/AUD=1.37

1. The information above this bracket tells you which two countries the quote/pairing deals with. In this case, USD refers to U.S dollars, and AUD refers to Australian dollars.

 

2. The currency abbreviation to the left of the forward slash (USD) is called the base currency. The base currency is always equal to 1. In this case, the base currency is equaled 1 U.S dollar.

 

3. The currency abbreviation to the right of the forward slash (AUD) is called the quote, or counter currency.

 

4. The number that follows the equal sign is the quoted currency. In this case, the quoted currency refers to AUD and is 1.37 AUD dollars.

 

When we put everything together, this currency pairing tells us that 1 U.S dollar equals 1.37 Australian dollars. It might be helpful to think of the information before the slash as one equation (1 USD), and the information after the slash as another equation (AUD=1.37)

 

So what does all of this tell you? Well, this quote tells you the exchange rate between the base and counter currency, between USD and AUD. For every 1 USD you exchange for AUD, you’ll get 1.37 AUD back. In other words, $1USD=1.37 AUD.

 

Direct and Indirect Currency Pairings

Direct and Indirect Currency Pairings

You’ll need to understand what each section of a currency pairing means in order to understand direct and indirect currency pairings, so if you don’t fully understand what we’ve covered so far, please review now before moving on. If you think you’re in good shape, let’s get started.

 

There are two different ways you might encounter currency pairings—they can either be direct or indirect currency pairings. Don’t stress too much about this, though. When it comes down to it, the main difference between a direct and indirect currency pair is the order in which the information is presented. That’s it, really.

 

Direct Currency Pairing

With a direct currency pairing, the domestic currency is the base currency. In other words, the currency you’re trading initially (the domestic currency) will be the first currency abbreviation of the quote (because remember: the currency before the slash is the base and the currency after the slash is the quote currency).

 

So, let’s use our USD and AUD example again. Let’s say we’re from the US and we want to exchange USD for AUD.

 

A direct currency quote for USD and AUD would look like this:

USD/AUD=1.37

 

Hint: this is the example we’ve been using thus far. This quote tells us that 1 U.S dollar would purchase 1.37 Australian dollars. But let’s see what happens to the equation when it’s turned into an indirect currency pairing.

 

Indirect Currency Pairings

Indirect Currency Pairings

Indirect is the opposite of direct, right? So, the order of currencies in indirect quotes is simply the opposite order that they appear in with direct quotes. It’s as simple as that.

 

If you’re looking for a definition, an indirect currency pair places the domestic currency (USD) as the counter currency (remember: the counter currency is the abbreviation after the forward slash).

 

Let’s continue with our example just to give the more visual readers an example of what this might look like. Again, let’s say we’re American traders looking to exchange U.S dollars for Australian dollars, but this time, we’re looking at indirect currency pairs. Here’s what an indirect currency pairing will look like:

AUD/USD=.73

 

Because AUD is the base currency, we know that, in this exchange, AUD is equal to 1 Australian dollar. The part after the forward slash is like an equation that tells us that USD=.73.

 

When we put all of this information together, we know that when we exchange 1 Australian dollar for U.S currency, we’ll get back 73 cents in USD. In other words, 1 AUD will purchase.73 US dollars.

 

Simple enough, right? To master direct and indirect currency pairings, you simply need to remember two things: 1.) direct currency pairings use the domestic currency as the base currency and 2.) indirect currency pairings place the domestic currency in the counter currency position. If you can remember, that, then you’re well on your way.

 

Cross-Currency Pairings

Cross-Currency Pairings

Here’s a quick pop-question to see if you’ve been paying attention during this blog and the last. Carefully read the following question, record your answer in the space provided below, and keep reading to find out more about cross-currency pairings (and to discover the right answer to the question).

 

Question:

In the Forex spot market, which currency is the most traded?

My answer:

_____________________

Cross-currency pairings are very similar to what we’ve seen already in this blog. They’re exchange quotes comprised of a base currency, a counter currency, and the quoted currency of the counter currency, but they never contain USD as an element of the quote. USD is never the base currency or the counter currency. So, you might see cross currencies such as AUD/GBP=.52 or JPY/EUR=.0086.

 

So, essentially, cross-currency pairings are pairings of any kind of currency, except the U.S dollar. If it contains the U.S dollar, then it’s either a direct or indirect currency pairing. If it doesn’t, then it’s a cross-currency pairing.

 

As we learned earlier in Blog, the U.S dollar is the largest global currency, which means that most currency exchanges occur between the U.S dollar and another currency. We might want to think of the U.S dollar as a link between all currencies.

 

A trader looking to generate profit might trade Japanese yen for U.S dollars, then U.S dollars for GB pounds, then GB pounds back to U.S dollars for a small profit when market values are favorable. So when we don’t include U.S dollars in our currency quotes, we call it cross-currency pairing because we’re crossing currencies without the foundational U.S dollar.

 

By the way, the answer to the pop-question is U.S dollars, but you probably already guessed that, didn’t you? It seems as though the world of currency revolves solely around the U.S dollar at times.

 

Regardless, when the U.S dollar isn’t an element of currency quotes or currency pairings, the other most common (cross) currency pairings that you’re likely to encounter are between the EUR, GBP, JPY, AUD, CAD, etc.

 

Fortunately, you’re hopefully familiar with all of these currency abbreviations after having reviewed the list found in Blog 4.

 

Bidding and Asking with Currency Pairs

Bidding and Asking with Currency Pairs

When you finally get into the actual trading process in the Forex marketplace, you’ll need to be familiar with what a “bid” and “ask” are, how to interpret this data when you come across it, and how to act upon it.

 

If you’re familiar with options trading, then the bidding and asking process on Forex markets will be a breeze. Fortunately, they’re not entirely difficult topics to grasp hold of, even for those completely unfamiliar with this financial lingo.

 

If you find yourself in this second category, however, here’s what you need to know about bids and the bidding process:

 

  • Bids have to do with buying
  • Asks have to do with selling
  • Bidding, or buying, a currency pair is called “going long”

 

A bid price indicates the amount of money that needs to be paid in order to purchase one unit of the base unit

A bid price that is used for selling a currency pair is called “going short” and indicates how much the market will pay for the currency quoted in relation to the currency base.

 

This probably sounds more complicated than it looks, so let’s use an example.

Let’s say we have:

 

USD/AUD=1.3700/09

Before we move on, let’s remember that USD is the base currency, AUD is the counter currency, and 1.3700 is the quoted currency.

Using what we know about bid prices, here’s what we know about

USD/AUD=1.3700/09:

1.3700 is the bid price

1.3709 is the asking price

We can buy 1 U.S dollar with $1.3709 Australian dollars.

 

It’s fairly simple to follow, right? But how does all of this work? Well, you’ll notice that there’s a second slash toward the end of the USD/AUD=1.3700/09 quote.

 

The number that comes before the slash is the bid price, and the two digit number that comes after the slash is the asking price.

 

The asking price is simplified when we see it, though—it’s technically 1.3709, but we can save time by just writing or reading since 1.37 was already written in the bid part of the quote. See how that works?

 

As you move forward, it’s important that you keep one thing in mind: the base currency (the first quoted currency) is always the currency in which the transaction is being conducted, but you probably already knew that. Other than that, everything else is pretty self-explanatory.

 

Strategies for Part-time Traders

areas of the stock market

Unlike many areas of the stock market, the Forex marketplace is an excellent financial environment for those who plan to pursue trading endeavors either full-time or part-time.

 

Usually, the financial marketplace requires a great deal of time, patience, practice, analysis of charts and tables, and careful observation of a security’s every minor fluctuation and major movement.

 

This can be a time-consuming process that requires a trader’s complete attention for the entirety of the stock market’s 8-hour open span.

 

Therefore, the traders who participate in the stock market must be those who are able to dedicate large amounts of their time to stock analysis, interpretation, critical thinking, and thoughtful decision-making.

 

In other words, the attention-demanding nature of the stock market limits the number of individuals who can participate.

 

Certain approaches to the Forex marketplace, however, allow both full-time and part-time traders to successfully trade and generate a substantial profit.

 

Different approaches and exchange strategies should be used depending upon the amount of time an individual can dedicate to pursuing currency exchanges, but it is entirely possible for a part-time trader to find the same degree of success as the full-time trader. This blog will introduce how this is done.

 

Brokers

 reliable broker

Researching, interviewing, selecting, and using a broker or brokerage during your time trading in the Forex marketplace is crucial, especially for the part-time trader.

 

We won’t be going too far into the details of opening a brokerage account in this blog, but you should know just how important a broker is in your situation.

 

You’ll need to spend a few minutes filling out an application, and you’ll need to pay a relatively large application fee (sometimes up to $2,000), but I assure you, if you trade correctly and efficiently on the Forex market, this upfront time investment and monetary investment will pay off rather quickly.

 

Think of it this way: a broker is just another person on your side—he or she is able to help you handle your financial situations and endeavors when you’re personally not able to.

 

As you work toward finding and choosing a reliable broker or brokerage you trust, keep these following questions in mind, and work them into your meetings with each broker.

 

They’re simple questions, but they’ll tell you a great deal about your broker’s interests, experience, services offered, and commitment to helping you personally:

 

  • How long have you been with this brokerage?
  • How many brokerage offices are you affiliated with?
  • How many clients are you currently working with? Do you have a cap?
  • How many clients have you worked with in total since you started?
  • Do you have past client testimonials that I can review?
  • What services do you offer?
  • How will you personally help me and my unique financial situation?
  • Why should I choose you?

 

Stop-loss Orders

You’ll need a broker or trading software in order to create stop-loss orders, which begins to prove my point about finding a broker. Nonetheless, for those who aren’t familiar with what it is, a stop-loss order is, first and foremost, an order that you place with your broker.

 

This order remains on file and tells your broker when to automatically pursue an exchange once a currency pairing reaches a predetermined point. You’ll have the freedom to decide what this point is on your own or during a personal consultation with your broker. Here’s a helpful breakdown:

 

Stop: When a predetermined currency pairing with an ideal, pre-established exchange rate is reached, your broker automatically buys or sells.

Limit: this is when the trader (you) sets a minimum and maximum price that determines when your broker buys and sells.

 

Both of these features are helpful because they make it so that you can exit positions before loss occurs, or enter positions when profit is expected to occur. The best part?

 

Setting up stop-loss orders with your broker means you don’t always need to keep a constant eye on how currencies are doing. Your investments are protected, even when you’re not able to pay attention.

 

Long-term Trends

Long-term Trends

Because the part-time trader isn’t able to keep a constant eye on currency movements and changes in currency values, pursuing currencies with short-term trend histories isn’t a good idea—if things change quickly, you might not be able to act accordingly.

 

Because of this, you’ll want to avoid looking at charts that detail a currency’s hourly movements.

 

Instead, look at charts and other data resources that note and analysis how a currency does over the course of weeks, even months. Looking at long-term trends means you’ll have a general idea about what kind of position a currency might be in later on in the week or months down the road.

 

Start by looking at the basics: are there uptrends every couple of days or around certain events? What are those events? Are similar events expected to occur again? Are there downtrends every couple of days or around certain events? Again, what are those events, and are similar events expected to occur again anytime soon?

 

Notifications

It’s a rather rudimentary strategy in the grand scheme of things, but setting up finance-related notifications and alerts on electronic devices is a great strategy for the part-time Forex trader to pursue.

 

I’d recommend Bloomberg, which is a free mobile application available to both Android and iOS users. Set up daily alerts that are delivered to your phone in the palm of your hand. Gain access to breaking the financial news. Browse through a wide array of financial charts and tables.

 

Follow currencies, currency pairings, and get actual currency quotes. Simply downloading a finance application seems like a minor task, and it certainly is, but it’ll absolutely keep you in the financial loop at all times.

 

And sometimes, being in the financial loop is sometimes all the part-time Forex trader needs in order to make smart financial decisions, pursue advantageous currency pairings, and generate substantial daily profit.

 

Additional Resources

If you’re looking for additional news resources or are interested in receiving incredibly helpful financial updates, be sure to get your hands on something called Forex signals.

 

These “signals” are alerts provided by experienced traders, financial experts, or financial analysts that are delivered right to your email, mobile phone, or trading platform (software).

 

For a small fee, you’ll be able to set up where these alerts are delivered to in order to ensure that you’re constantly in the loop (yes, even your computer at work).

 

Notifications will be sent regarding a wide range of finance-related topics and breaking-news stories, but you’ll also have access to tested and proven trading strategies and financial advice from financial experts and professionals.

 

Strategies for Full-time Traders

Strategies for Full-time Traders

Unlike the part-time Forex trader, the full-time Forex trader is someone who is able to dedicate large amounts of his or her time to seeking rewarding currency exchange opportunities and pursuing advantageous currency exchange endeavors. Essentially, the limitations a part-time trader might encounter are rendered void.

 

For the full-time Forex trader, the spot, forwards, or futures marketplace is a financial arena in which the possibilities are endless and profit generation is entirely feasible.

 

In the previous blog, many of the trading strategies that we discussed revolved around focusing on long-term currency exchange endeavors as a means to avoid falling victim to and experiencing monetary loss when sudden currency and market changes occur.

 

However, and fortunately for the full-time trader, both long-term and short-term trading strategies are strategical possibilities. Essentially, you’re in a great position because you’re able to choose which strategies you wish to adopt, and brush aside the strategies you don’t care much about.

 

If you downloaded a financial news app on a mobile device, you’ll find that many apps offer trading strategies themselves. Take advantage of these strategies and features—review them, understand how they work, and considering incorporating them into your strategic planning and decision-making. In the meantime, however,

 

I’ve also included three full-time Forex trading strategies that I’ve personally found the most success with while trading Forex.

 

Risk Aversion

The strategy of risk aversion is exactly what it sounds like—it’s a strategy that ensures a trader’s risk of loss is avoided. This technique is great because it’s rather simple to do, but it’s also incredibly helpful and reliable.

 

Full-time Forex traders will be able to dedicate large amounts of their time to observing currency movements, analyzing trends and patterns, and making informed decisions about which currency exchanges to pursue.

 

The time you dedicate to trading on Forex means you’ll become familiar with rewarding currency pairings and know those currency pairing’s quotes and exchange rates. You’ll also know when those pairings and exchange rates start to go sour. This is when you’d employ the risk aversion strategy.

 

Here’s how it works:

When currency pairings, bids and asks, and exchange and interest rates start to take an unfavorable turn (perhaps because of a current political tension in a country), you’ll need to take notice and act upon these unfavorable movements before a monetary loss occurs and risk accumulates.

 

To do so, you’ll need to liquidate your position or positions in risky assets, while also shifting your funds and investments to less risky currency pairings that have more favorable exchange and interest rates.

 

The transition from risky to less risky currency pairings should be quick and smooth, so it’s best to have a few backup currency pairings in mind before such events occur. This means doing research beforehand on other advantageous and profit-generating currency pairings and their trends.

 

Carry Trading

trading

I’ve actually mentioned carry trading before in an earlier blog, but we didn’t really spend too much time with it. Now, however, we will.

 

If you recall, I mentioned carrying trading during our discussion about the Japanese yen and how the yen has become the powerful global currency it is today.

 

In case you’ve forgotten, the Japanese yen was once quite an alluring currency because of its once incredibly low-interest rates, which drove massive influxes of currency traders towards it.

 

With such low-interest rates, traders would purchase the Japanese yen, then exchange it for much higher-yielding currency, securing an oftentimes substantial profit in the process. This buy low, sell high technique is known as carrying trading.

 

In other words, carry trading is when a trader selects a currency that has a low interest rate and then exchanges it for another currency with a much higher interest rate. But how does one profit from doing this? Well, remember: the larger the difference in interest rates, the more profitable for the trader, generally speaking, of course.

 

If you do decide to pursue this strategy, just be wary of the market’s fluctuations and sudden movements. A single political, cultural, religious, etc. tension in a country can have a sudden and rather large effect on the value, exchange rate, and interest rate of a country’s currency.

 

Always keep an eye on a country’s current events and news, and always stay up-to-date on a currency’s movements, trends, and daily fluctuations, both minor and major.

 

Speculation

The strategy of speculation is used across almost all financial and investing endeavors. Investors of stocks and bonds use speculation. Options traders use speculation. Forex traders, too, use speculation.

 

If you’re not familiar with what speculation is, it’s a trading technique that uses educated estimations—speculations—about the future direction that currency will take. A speculator might make educated presumptions about the valuation of a currency pairing in a few weeks.

 

He might speculate about the exchange rate between USD and AUD after a major event has happened in Australia. Whatever the trader uses Forex speculation for, he or she is doing so in order to determine which currency and currency pairing will be the most favorable and rewarding exchanges to pursue.

 

While there’s no mathematical formula or algorithm that is used for the speculation strategy, it’s not entirely guess-work, either. A trader who employs the strategy of speculation will need to spend a great deal of his or her time analyzing the data of particular currency pairings.

 

You’ll need to focus your attention on looking at a currency pairing’s past history and any past trends and patterns that can be analyzed and further examined. Doing so gives you a better, more educated understanding of how a currency pairing has reacted to particular events in the past, and how it might react to particular events in the future.

 

Additional Resources

Even the full-time trader can’t trade full-time all the time—this I understand. Busy schedules get in the way, social life calls, mandatory weekend work trips are suddenly tossed our way.

 

Fortunately, these minor disturbances in our Forex trading time don’t mean we need to exit all of our current positions in order to eliminate any risks that come from an extended absence.

 

There’s an abundance of trading programs out there that are specifically designed for full-time traders who can’t always be, well, full-time traders. These trading programs are also equally helpful for traders who struggle to separate their emotions from logical decision-making during prime trading endeavors.

 

Or, if you’re a part-time trader who just happens to be reading this section, these trading programs are also ideal for you—they allow you to become more active in the Forex marketplace without actually physically trading. Sounds great, right? Well, that’s because these trading programs are great.

 

And let it be said that these trading programs are smart. You can either program the trading tools yourself, or you can purchase the ready-to-use software. I’d recommend the former option for those more experienced with analytical and trading software, and recommend the latter option for those just beginning to trade Forex.

 

Nonetheless, once programming is complete and trading preferences are entered into the system, trading will commence. Trades will be made on your behalf without you needing to spend hours of your time sitting by your computer and monitoring a currency pairing’s every movement.

 

Perhaps more importantly, the trading software makes unbiased and educated trading decisions, as it has rather unlimited access to charts, tables, data, and other financial resources.

 

In short, trading programs will reduce your involvement in the trading process, if you so desire, and will eliminate any degree of emotional investment during the decision-making process.

 

My top pick among the many Forex trading programs is:

 

MetaTrader4 (MT4)

This trading platform is one of the best available—it helps you trade Forex successfully, provides access to financial experts who analyze financial markets and data, grants access to advanced technical analysis, caters to all experience levels, and provides Forex Signal services so that you can copy the trades of other experienced and successful traders.

 

Best of all, you can keep this incredibly helpful application in your pocket, always within arm’s reach (it’s available on personal computers and in mobile application forms suitable for both Android and iPhone/iPad users).

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