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Did you know that 5.3 trillion dollars are traded daily on the forex market? As global currencies shift up and down, there is profit to be made by buying in one currency and selling in another. But where do you begin?
If you are just starting with forex, we can assist. Read on as we tell you everything you need to know when you want to buy and sell with forex trading.
Forex trading involves trading against currency pairs and their upward or downward movements in value. When you buy and sell in fx trading, a purchase is made in one currency and sold in another.
You buy in the base currency on the forex market when you expect it to strengthen and sell if you believe it may do the opposite. On the traded market, the price is always given along with the currency pairing, such as GBP/USD 1.2578. This means it costs $1.2578 US dollars to buy 1 British pound.
Several factors influence currencies and when you should buy and sell. Many traders also follow the strategies below when using the financial markets.
Trend Trading
Trend trading involves looking at various factors to see which direction a market will head in. It predicts if a pairing will increase to a high level, known as the uptrend, or decrease on a downtrend. This is done using indicators such as the moving averages and a relative strength index (RSI).
Trend Reversal Trading
In FX trading, a trend reversal is when an upward trend (bullish) turns into a downward one (bearish). Indicators such as the stochastic oscillator can be used to predict this. It will tell you when a traded currency is overbought or undersold, suggesting a downward trend may be about to happen.
Range Trading
Range trading involves setting a buy entry and sell entry-level. It works on the theory that a currency will move consistently between these levels until a given date in the future. When it goes above the level, it is time to sell, and when it goes below, it is time to buy.
Several factors can influence the value of a currency. While it is hard to watch every single one, a change in one or two could signify a shift in the value of the currency exchange.
Interest Rates
Central banks set interest rates. Generally, it is linked to inflation and exchange rates within the country itself.
This must be carefully balanced. High-interest rates will attract a lot of foreign investment and encourage saving. However, if it stays that way, interest rates can cause inflation, making goods and products expensive and devaluing the currency.
Inflation
Inflation is the inherent value of a currency and its buying power compared to that of others. A bag of rice may cost one unit of currency in a specific country but may cost lots in another—all because of inflation. Low inflation rates generally signify a stronger currency.
Political Stability
Investing in a foreign exchange market with political instability brings a high level of risk and reward. Stable countries will have much more foreign investment, giving them a more robust standing on the stock market.
Public Debt
Most countries borrow money to improve economic growth. However, inflation will increase if their debt begins to outpace the economic growth, resulting in related consequences.
Once you have decided which platform to use, you can trade on almost any market in the world. However, some pairings are more popular than others. Below are the most traded ones.
EUR/USD
This trade places the value of the euro against the US dollar. If you believed the dollar would drop in value, you would execute a EUR/USD trade.
The expectation is that the US dollar will go down in value while the euro rises. If the opposite happens and you believe the euro will go down in value, and the US dollar will increase, you should sell.
GBP/USD
In this, the British pound is the base currency. When you monitor the markets in real time and think it will rise against the dollar, it is a good time to buy. If you believe the US economy is improving and the United Kingdom is slowing, then you would sell.
USD/JPY
In this trade, the USD is the base currency against the Japanese yen. You would buy when you believe that the Japanese central bank is going to weaken its currency, and the USD will get stronger. If you think the opposite will happen, then you should sell.
Like any trading, a level of risk is involved. However, there are a few tips you can follow to minimize it.
By using these principles, you should be able to trade successfully. Make sure you use your head, looking at key indicators and pointers instead of making off-the-cuff decisions. You may learn even more about managing risk in our education center here.
Now you know the main points about forex trading, you can begin to buy and sell. The key is researching and staying in touch with politics, current events, and economics. Once you have the right trading platform, you can get started immediately.
Baxia should be your first stop for trading. We have everything from forex to cryptocurrency and counter OTC stocks. Create an account here and begin your trading journey today.
Start placing forex trades with a Baxia trading account
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