Trading in the Forex market is not a simple activity. On the one hand, you have a plethora of terms like ‘spread’, ‘rollover’, ‘slippage’ or even the misunderstood ‘broker’, which can scare off even the most motivated of beginners. On the other hand, to master trading on the Forex market well, and once you understand the basics, it will be necessary to work hard to become an expert in the field. Having said that, in this article we have gathered things you need to know before starting Forex.
The definition of Forex
Let’s start with the most important thing: what exactly is Forex trading?
Trading is an activity that consists of speculating on the performance of an asset over more or less short time horizons in order to take advantage of market trends and movements.
Forex is the foreign exchange market, a market where currencies are quoted in pairs. Thus we will find EUR (euro) vs. USD (US Dollar) or GBP (British Pound) vs. JPY (yen).
Forex trading is therefore the activity of speculating on currency movements.
Unlike other financial markets, such as stock markets with shares or bonds, you trade in Forex on a decentralized market. This is the international currency market, which is open 24 hours a day, so you can trade without interruption from Sunday evening to Friday evening.
The main purpose of a Forex trader is to make money after trading one currency against another. Do not let this simplicity fool you, this process requires great expertise, the right skills to build a trading strategy and the skills, including psychological, to implement this strategy.
Three essential concepts
Pip (or pipette) : It corresponds to the point on the stock markets. Currency movements are counted in “pips” (or pipette, 1/10 of a pip). The meaning of “pip” comes from “Price Interest Point”. In general, “beep” corresponds to the 4th decimal place. So don’t be surprised if you hear a Forex trader claiming to have gained 50 pips.
Party : A lot corresponds to the standardized amount that can be traded on the foreign exchange market, corresponding to 100,000 currency units. Brokers sometimes offer the option of trading mini lots (10,000 currency units) or even micro lots (1,000 currency units). The value of a “pip” for a lot of EUR/USD is 10 USD.
Dispersion : The spread corresponds to the difference between the price at which it is possible to buy an asset and the price at which it is possible to sell it. Depending on the Forex brokers, the spread can be fixed or variable. Generally, Forex brokers build their compensation into the spread and do not charge a brokerage commission.
Three Forex Trading Strategies
With Forex trading, it is essential to master one or ideally several strategies before you start trading. Here are the three most popular strategies:
Position trading : This may very well be the least complex Forex trading strategy to implement. This trading strategy consists of taking medium or long-term positions to follow major currency trends. It will be necessary to follow, adapt and manage the same position for a period that can be spread over several weeks or even over several months.
Swing Trading : This type of strategy also involves following currency trends, but over a shorter time horizon. The trader will have to take positions on the big waves in the market and often position himself up or down.
Day trading: This is the most common strategy in the collective imagination when it comes to representing the profession as a trader. Day trading consists of taking one or more positions during the same day. Posts should generally not exceed one day. The Forex day trader can use technical analysis signals or replay the movements when macroeconomic news is published.
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