GWR: Finance & Insurance

Individuals, governments, banks and companies invest huge volumes of money in currencies and as a result the Forex market is very exposed to the way that we behave during times of economic crisis and economic success.     

When things are going well, investors take risks and when things are going badly they tend to play it safe and take their money out of high-risk, high-interest currencies. This is called risk aversion.

One of the most devastating examples of risk aversion in the Forex market occurred during the recent financial crisis in 2008. Despite American banks being responsible for the worst of the crisis, investors made a run on the US Dollar, which is traditionally seen as a safe currency and pulled their money out of the riskier markets, such as the Australian Dollar. This caused the Australian economy to crash and so the financial crisis, which had started in the USA, started to spread throughout the world’s currencies.

It is possible to trade using risk aversion as a tactic, though it requires patience and careful monitoring of market analysis reports, fx guides and forex news. There are two different strategies when it comes to trading on risk aversion; one is to do nothing, in the belief that the market will return to normal, while the other is to make small trades in the larger currencies, all the while keeping an eye on the global situation and being ready to change tactics as soon as other investors start to take risks again.

New forex traders may be feeling intimidated by the thought of placing their own trade in the market.  Since there are so many terms and practices to learn in forex trading, placing an initial trade can be a bit overwhelming.  Thankfully, there are several resources that investors can use, to help themselves become comfortable making trades for themselves.

Deciding Which Currency to Purchase

In the forex market, currencies are sold in pairs that reflect the value of one currency against the other.  Generally, it is best for new investors to deal primarily in national currencies whose highest trading hours are during the time when they can actively monitor the market. 

Getting Help to Know When to Trade

Those who are still nervous about trading in the market can get assistance from forex brokers or forex signals.  Brokers are educated professionals who can provide guidance as to when to make a trade.  Investors who prefer online assistance can use forex signal software that alerts them to the best time to make a trade.

For those wishing to beat inflation and invest in currencies, their ability to do so is often hampered by their own ignorance of how to proceed.  After first researching what to look for in a broker, then reviewing the different brokers, prospective investors may feel lost as to what to do next.  There are many websites dedicated to providing the information necessary for making intelligent currency investments and even pages explaining how to evaluate the information.  Sometimes, however, a more personal one-to-one experience is needed and that is where the forex forums are invaluable.

The forums for the foreign exchange market (forex), offer both the new and veteran currency trader a chance to interact with other traders and learn at their own pace.  On these forums, questions from the simplest to the most complex are addressed, as well as up to date forex news and tutorials.  The investor can use other investors as a sounding board to validate their own theories on how currencies are affected by events and receive the benefit of the combined knowledge of all other forum members.  Far less expensive than a university degree, hanging out in forex forums can provide a valuable education.

If you want to trade forex to generate a part- or full-time income, you should get yourself all the tools you can get your hands on to make your trading life easier.  These tools include live price feeds, good trading software, charts and last but not least: relevant technical indicators.

What is a technical indicator?  This is simply a statistical formula based on the past price behaviour of a currency, which traders use to try and predict future price movements.  Technical indicators are usually displayed graphically with the aid of charts to make them easier to interpret.

An example of a very simple technical indicator is the tried and trusted moving average.  This is a chart depicting the average price of the currency over the past x number of periods – which can be minutes, hours, days or even weeks or months.

Theory has it that if the price should break upwards through the moving average, it will continue to increase for some time.  If it breaks through the average in a downward direction, it should continue to do so for the immediate future.  Even banks often use long term averages to help them predict future price movements of shares, currencies etc.

There are literally hundreds of technical indicators available to help (or confuse) the currency trader.  Some of them have been developed by statistics experts, others by astute traders, who simply studied price movements over time.

The trick here is not to use all of these indicators simultaneously.  Study them all if you wish, but then choose one, two or three and use them consistently over time. 

You do not have to have money to get started with online fx trading. In fact, many investors prefer to take the time to learn how the market works before opening a live Forex account. These Forex demo accounts are free and allow you to trade ‘virtually’ while learning how the system works. Many Forex brokers offer such accounts in order to encourage you to try their system. Some independent trading platforms also offer free demo accounts.

Practice Trading

Demo accounts do not allow you to actually earn or lose real money. However, you can practice how to execute orders, enter and exit positions and learn how to use the tools in a specific currency trading platform. Trading without trying out a platform can result in costly mistakes.

Learn Forex

Reading about strategies and currency pairs is not the same as online currency trading. A demo account lets you perform real time trades to see exactly how you would fare on the Forex market without taking any risks. This is the perfect opportunity to learn market basics and develop your own strategy.

If you are interested in trading on the Forex market you will certainly need some quality training and specialist programmes are available from an array of different sources.

Online Forex Training

The most popular source for obtaining training is over the internet, where there are many websites available to help you learn the basics of the Forex market and also provide a free demo account for you to use.  Demo accounts are immensely beneficial, because they allow you to see how the market works without actually having to make any real trades.  Undertaking an internet search will yield a plethora of results on Forex training courses.  Some of these courses provide you with day to day tuition from an experienced Forex trader, while others even offer intense courses, which run for say four weeks and teach you all you need to know about the Forex market and how to be a successful trader.  Online Forex courses can teach you how to set up your computer for Forex trading, making risk free trades and provides comprehensive information on Forex trading online.
 
College

Another place where you can find training is at your local college or training centre.  Courses are often very thorough and affordable; should provide you with opportunities to gain some experience in trading and teach you about all the different facets to the Forex market.  Books are also a useful resource when learning about the Forex and there are many good quality books available either to purchase or borrow from the local library. 

The Foreign Exchange Market, or forex, was once a heavily regulated arena, but in the 1970’s with the beginning of the relaxation of regulations, it became much more accessible and easy to use. It is one of the largest and most liquid markets in the world and with its unique ease of access and lack of requirement for large capital investment, is attractive to anyone seeking to speculate in order to make money. While its primary function is to enable worldwide trade and investment, a huge portion of activity is accredited to forex currency trading. Currency traders buy and sell currency in a bid to make a profit. 

Currency is traded in pairs, with each currency having its own three letter code depicting the country of origin and its currency. For example, GBP/AUD would be the currency pairing for a trade in British Pounds against the Australian Dollar. We are all familiar with checking the forex rate when going on holiday to see how much we will get in our destination’s currency in return for some of our own, but trader’s use these rates to buy and sell currency on a much larger scale.

Trading is not easy and requires determination, confidence and skill. When one global finance market closes for the day another is opening elsewhere, meaning that currencies can be traded 24 hours a day five and a half days a week. This enables traders to react immediately to events that cause changes to the rates instead of having to wait for markets to open.

Forex charts allow a trader to see how a currency has changed in value over time.  There are three main types of forex charts traders use to predict how a currency is going to behave in the future.

Line Charts

This is the simplest type of chart available and it marks the closing price of a currency pair over a period of time.  It is most useful for a trader to get a general idea of how a currency has behaved in the past.

Bar Charts and Candlestick Charts

Bar charts are more complex than line charts and they do not just show the closing price of a currency pair.  They also detail the high and low point that the currency reached before it settled and the opening and closing price for the interval displayed.  The top value of each bar is the highest price that was paid in a specific period, and the bottom of the bar represents the lowest price that was paid.  This provides more information to traders about the currency’s behaviour in a specific moment as well as in the long-term.  Candlestick charts provide the same information as bar charts but in a more graphically pleasing manner.

Charts are essential for successful trading in forex as they allow traders to predict how a currency pair is going to behave in the future.  You must make sure that your broker has excellent charting to maximise the success of your trading.  CitiFX Pro reviews often state that this broker’s charting is well organised, efficient and provides very helpful trading information.

It is difficult to think of a faster-paced, more profitable, faster-growing global market than Forex.  Forex, also known as Foreign Exchange, involves the trading of one currency for another and speculating on market trends in order to sell the currency at the right time, thereby maximising profit.

Forex is usually done through a broker or market maker.  Traders choose a pair of currencies and place trades through their broker or market maker, who will then pass the order to the Interbank Market.  When the trader decides to close, the broker sells the currency and any profit is credited to the trader’s account.

To begin trading in Forex, an individual needs to open a trading account with a brokerage company, and download a trading platform.  All trading platforms offer different functionality for different prices, so it is important to shop around.  An example of a good trading platform is CitiFX.  Reviews of many different platforms can be found online, so it is a good idea to obtain plenty of information before committing to one platform.

The most important thing to remember when trading Forex is not to invest money that you cannot afford to lose.  Although significant profits can be made, so can significant losses and it is important therefore to mitigate your losses by not investing all your capital in one deal.  This way, if it goes wrong and you lose money, you will still have capital left to try again.  Many platforms offer users the chance to practice using a Demo Account first so that they do not have to invest any money but can still practice and build their confidence.

In the past, the foreign exchange market was only open to national banks or multinational businesses, but in the 1980s changes occurred that enabled individuals and smaller businesses to begin participating, using margin accounts.  These accounts have allowed the market to flourish and gain popularity as a sound investment opportunity.  Nevertheless, investing in Forex is by no means simple; those who wish to invest need to undergo a particularly comprehensive education process, which is essential in order to ensure that they make wise investment decisions and avoid costly mistakes.  Undertaking some thorough research before making a move into the market is always a wise decision.  It is vital that as a new trader you familiarise yourself with the market and use a demo account to undertake practice transactions before you enter the real-time foreign exchange market.

Brokers & Accounts

Traders in the Forex market usually require a broker to handle transactions, so it is important to choose one carefully and ensure that they are properly registered.  When you are searching for a broker to handle your Forex transactions, check whether they are registered as a Futures Commission Merchant (FCM) with the Commodity Futures Trading Commission (CTFC).  Forex accounts can be opened quite easily by filling out a form and providing appropriate identification.  The application process will also include a margin agreement, which states that a broker can intervene if they believe any trade presents too much of a risk.  This process is necessary to protect the broker’s interests, but once the account has been set up, you can fund it and begin trading in the Forex market.