Is Forex a Good Option for Beginner Traders
Plenty of people are very familiar with foreign exchange trading, but few are still new to this market. The Foreign exchange market or Forex is the biggest in the world in which the trading volume surpasses up to trillions of dollars in a day.
Therefore, it is appealing to all types of traders, whether you are an institutional whale or a beginner retail trader. Moreover, it has a low cost of doing business, which also favors beginners that are looking to get into the market.
The Currency Market and How does it Work
Forex is an exchange market of currencies from around the work. The value of currencies tends to fluctuate weekly and this volatility in price is what traders can capitalize on. In the Forex market, you have to invest in a particular pairing of two currencies.
The most popular currency pairing that people trade is the EURO/DOLLAR pair, following the other major currencies such as DOLLAR/Japanese YEN. So when you are looking at currencies and their pair, it is all about the relative pairing.
This means that you have to determine whether one currency is stronger or weaker than its counter pair. To get a good idea of this, you can collect data on the market behavior of one currency pair over recent months.
Studying the market behavior means looking at the candlestick graph, in which the candlesticks display the displacement in value over time. You can use that graph to determine the patterns of displacement over some time and technically predict whether the graph is at an uptrend or downtrend.
Technical analysis will however take some time to master, and it can be a bit confusing for a beginner. On top of that, buying two currencies as a pair also adds to the confusion and leaves people scratching their heads.
An easy way to understand this is that, for example, if you buy a US Dollar pair against a British Pound, then you are likely to be speculating that the Pound/US dollar pair means that the pound is going to rise and the dollar is going to fall correspondingly.
When it comes to trading hours, the foreign exchange market, unlike other markets is a true 24-hour market. So it will start Sunday night, UK time when the Asian markets open for business, and it trades around the clock. However, beginners do not have to worry due to this 24-hour market.
When you are trading foreign exchange, and many other markets, you are trading leverage, meaning that even though you might have a thousand dollar position on a particular currency, you do not have to tie up the whole amount. You can instead, only position a small percent of the value on a particular trade.
This provides you a position in which you can use a small sum of money to control a much bigger financial position. This gives you the potential for yielding greater profits, but only at the risk of even greater losses. Therefore, learning how to balance your risk to reward is one of the key elements of Forex trading for a beginner.
What Moves the Foreign Exchange Pairs?
The short answer to what influences the market behavior in the Forex market is everything. Many factors play their role in changing the market psychology, which ultimately rattles the market to either fall or rise. One of the factors being the interest rates, higher interest rates in one country is usually a result of the weakening of an economy, and so that can make the cash inflow take a downtrend direction.
Other factors can include the unemployment rate of a country, political events, natural crises, and all other things that affect the economy of a particular country. These events and occurrences can slow down the economical progress, and as a result, devalue a particular currency’s value.
The Scope of the Market
The Forex marketplace promises great returns in the long term. One can always first try trading using a demo account, and only then start trading with real money.Since it corresponds to the technological and economical progress of big nations, historical evidence suggests that nations such as the United States, Japan and other first world powers are destined to innovate and increase businesses in the near future. This will have a huge impact on the Forex market, and the lives of small retailers in a trade.
The features, mechanisms, and dynamics of the Forex market are rather simple for a beginner trader. With some experience and insights into the global economy, new traders can indefinitely profit without in this market. However, getting familiar with the foreign exchange market may take a little more than anticipated.