What features does the Forex market have online? Why is it important to do forex analysis? How much can you earn, trading on the news?
- 1 1. What is Forex and how does it work??
- 2 2. 3 distinctive features of the Forex market
- 3 3. How much can you earn on Forex – TOP 5 factors, affecting profits
- 4 4. What do you need, to make money on forex – 7 tips for a beginner
- 5 5. The main risks of Forex trading and how to avoid them
- 6 6. Conclusion
1. What is Forex and how does it work??
In the article «How to play on the stock exchange» we talked about three segments of the financial market, one of which is currency exchange – Forex trading. It has many unique characteristics, the main of which we will list below.
Forex is not located in any particular place, as, eg, stock exchanges, his lot – internet space. Therefore, trading is allowed around the clock, five days a week. On Saturday and Sunday, as well as on international holidays the market is closed.
If you go to the trading terminal, can detect, that trading instruments are currency pairs, eg, USD/CAD (American/Canadian dollar), EUR/USD (Euro/Dollar) and so on.
When one currency falls, the other in a pair will start to grow. This allows you to trade both on the rise, and in a recession.
To earn on stock speculations, for example, possible only with market growth.
The real price of the instrument is called «Bid», but we open or close deals at a different price – «Ask». The difference between the first and second is called the spread. Spread – broker earnings.
The volume of the position opened during trading is called the lot.
If we have a dollar account and we opened a position of volume 0,01 lot, then when the price changes by one point, we will earn/lose 1 cent. If we have 1 lot – 1 dollar.
Since every open transaction will be closed sooner or later, on Forex, you can trade with leverage.
2. 3 distinctive features of the Forex market
Of the many Forex features, we identified the three most important, we list them and comment.
Feature 1. Functionality
Forex was originally created, so that you can exchange currency internationally at the most correct rates. Naturally, in the conditions of the exchange it is easiest to do. Already after the traders began to use Forex for earnings.
The largest market participants – Central Banks – make currency interventions to stabilize the national currency. This is especially necessary in times of crisis, when you can’t leave money without support.
Currency intervention – it is the process of buying or selling national currency in order to strengthen or weaken it.
For foreign exchange interventions, true, accounts for 4 to 6% all operations performed, the rest belongs to speculators, huge profit seekers.
Feature 2. Lack of geographical reference
Due to the lack of a specific place, where does forex trading take place, anyone can open deals, having internet access. Successful traders travel a lot while trading from different corners of the earth.
The presence of the Internet at a normal speed allows you to stay updated on all the news of the economic world. In many ways, online trading is even more convenient than offline trading: we wrote about its special advantages earlier.
Feature 3. Composition of market participants
Let’s briefly describe them. Smallest, but the most important group – majorities. These are central and commercial banks, largest investment funds.
Majorities can change the direction of the trend in the market due to «infusion» large capital.
The next group consists of trading companies, which although affect the market, but do not have enough strength for radical changes.
The last group is the largest: this is a great many traders — from beginners to professionals. Representatives «third estate» deprived of the opportunity to exert any influence on the market.
3. How much can you earn on Forex – TOP 5 factors, affecting profits
Ability to trade correctly according to the chosen strategy – far from the only factor, affecting success. A number of important moments stand out, which we describe below.
Factor 1. Initial Deposit Amount
According to the rules of money management, in each transaction, the trader has the right to risk no more than two percent of the capital. Warren Buffett generally does not recommend endangering more than 0,1% all funds available in the account.
What is it for? In order for the loss of this money to leave in stock the opportunity to open another 49 to 1000 transactions and «recoup».
Ideally, the ratio of potential loss to potential profit is 1:3, that is, each transaction should give three times more potential loss.
We traded on Forex wave analysis with a capital of $ 1,000. Profit for the month was about $ 250. Be on the bill a million, we would earn $ 250,000 in 30 days.
If we have one hundred dollars in our account and we risk 2%, risk is two dollars. If we make a profit (perfectly) three times as large, she will be 2*3 = 6$. If the account has a million dollars, then one transaction will bring not 6$, a 60000$.
Hence the conclusion: fundamental factor – amount of capital. Than he is bigger, all the better. Do not be afraid of huge numbers: money can be taken under control, there are even firms like FxStart or United Traders, which provide deposits for trading.
Factor 2. Efficiency (profitability) trading system
Profitability is simply determined – open 10 transactions on the selected strategy on a demo account and analyze, how much profitable, how — unprofitable. Closing deals is subject to clear conditions: if Take Profit is installed, don’t move it.
The ratios can be different. If out of three deals two are closed profitably – it’s quite normal. Much depends on the magnitude of risk and profit.
We have, by the way, risk twice exceeded potential profit, but he was not spontaneous, but conscious.
Trade your strategy for about a month on a demo, and, if the results are positive, can go to real trading.
Factor 3. Well-chosen strategy
You must choose these strategies, which are, primarily, will be convenient for you, and will not cause psychological discomfort. It is advisable to start with medium-term trading, although short-term deals attract newcomers with the ability to quickly get money.
We have already given a clear classification of trading strategies in the material «Forex training from scratch». To make the right choice, you need to master the basic knowledge about Forex. Fortunately, abundant information on the Internet.
Factor 4. Psychological stability
All newcomers consider themselves psychologically stable. They think, that the exchange is not able to turn their heads around and force them to open deals under the influence of emotions. Alas, the first days of real trading absolutely convince everyone of the opposite.
Forex trading – not the only way to make money. If, after a serious review of this work, you understand, that you don’t really want to do it – go to something else, e.g. blogging or freelance.
Currency exchange beckons huge money, but already «lured» she scares away high risks. The riskiness of financial trading does not decrease and does not disappear. The probability of losing money is always.
Factor 5. Market volatility
Forex trading (as in other markets) there is the concept of volatility. Than she is taller, especially sharp fluctuations can make exchange rates. Volatility changes depending on the trading session and news.
Before important news is released, the market usually freezes, almost no movements, but 1-2 minutes before the fact of publication of the news, very sharp fluctuations begin.
You can make good money here, but you can lose huge amounts due to slippage.
If you want to trade on the news – do it better in the options market, not forex.
Trading Sessions – opening hours of major exchanges. We will characterize them in the table.
Forex Trading Sessions (GMT):
|№||Session Name||Stock exchange||Opening||Closing||Volatility|
|1.||European||Frankfurt, Zurich, Paris (London)||06.00 (07.00)||15.00 (16.00)||High|
|2.||American||New York (Chicago)||13.00 (14.00)||22.00 (23.00)||High|
|3.||Pacific||Wellington (Sydney)||20.00 (22.00)||05.00 (07.00)||Low|
|4.||Asian||Tokyo (Hong Kong, Singapore)||23.00 (00.00)||08.00 (09.00)||Low|
Exchanges are located in different cities, Due to the time difference, the start and end of sessions can be defined differently, possible options we noted in brackets.
Many traders do not like to trade in the Pacific and Asian sessions, as prices move very sluggishly.
Take volatility into account, otherwise you can forget about successful trading.
4. What do you need, to make money on forex – 7 tips for a beginner
We will indicate tips, followed by yourself and advised by professional stock market speculators. This material was partially covered in «Exchange Trading for Beginners», let’s look at it from a different angle.
Tip 1. Choose the right trading strategy
When choosing a strategy, it is advisable to talk with a professional, attend a practical webinar or workshop. Wrong strategy always leads to a drain of money. There are many things to consider: deposit amount, trading time, the risks, type of analysis and so on.
About two areas of analytics: technical and fundamental – we wrote in the article «Forex for beginners», can I turn to her, to understand right away, which direction is better to move.
How to be, if you have learned the basics, but be careful not to risk money? Do so.
Nano-accounts are practically no different from ordinary, but if you need $ 200-300 on a Standard account for a successful start, that’s enough for a cent and 2-3. Balance reflected in cents, you will see amounts in 200-300 USC.
Result – we kill two birds with one stone – don’t risk big money, we make real investments and get used to watching the balance change, like on a real account.
Tip 2. Practice trading on a demo account
The exchange is not going anywhere from you, so, if you start working on it after a month or a year «training trade», absolutely no profitable opportunities will be lost.
Demo account – a great way to avoid a lot of annoying mistakes, on which amateurs burn out.
Tip 3. Review Forex Market Regularly
No matter how good the strategy, the trader must always be aware, what’s going on in the market. Each trading day begins with a review of the economic calendar – if serious news on any currency is planned – refrain from bidding.
Tip 4. Do not invest large amounts immediately
If you become a master of the stock market game, people themselves will want to invest in you, in order to receive a percentage. Therefore, do not rush to invest your own money, especially, large amounts.
Tip 5. Work on your emotions
If you wish, you can learn to control yourself even in the most difficult situations. Helps in this, again, strategy.
If the price is not in our direction, you must analyze the market and determine, did you open a deal according to plan. If yes – we wait and do not change anything, if not – better close.
Tip 6. Start a trading journal
A trading journal may be a regular notebook, where you will paste the printouts of graphs with marked actions: where was the deal opened, where did she close, when the trade was profitable or unprofitable and so on.
5. The main risks of Forex trading and how to avoid them
80 percent of all risks in trading are related to human psychology. There are others, three of which we briefly describe below.
Them, Unfortunately, almost impossible to avoid:
- Internet Risks – as we trade through the network, a power outage or low speed can lead to loss of money. To avoid them, you need to set Stop Loss and Take Profit at the time of opening a transaction.
- Slip – situation, when a deal opens/closes at the wrong price, as planned. To prevent slippage, do not trade on news and small time frames.
- Expanding spreads – if you look at the chart «1 minute», can see, that the spread fluctuates – it narrows, then expanding. With medium-term trading, its change is uncritical.
Traders get to know other risks in direct trading
In this article, we talked about the basic principles of Forex trading, examined the features and differences of the foreign exchange market. Hope, that the material turned out to be useful and interesting.