The forex market is the largest and the most traded global market. Despite its impressive size, its underlying rules are quite simple to figure out.
Aspiring forex traders and people who are interested in learning more about forex markets can start by understanding the following basic concepts:
1. No Centralized Marketplace
There is no central location for forex trading, which allows trading to continue uninterrupted five days a week, 24 hours a day.
The opening and closing hours of a market depend on its local time zone, so there’s always a market up and running for forex traders to participate in.
2. Understanding the Eight Majors
It’s impossible to follow all currencies that are traded in the global forex market. One only needs to follow 8 major currencies, which are known informally as The Eight Majors.
The Eight Majors are:
- United States (USD)
- Great Britain (GBP)
- Japan (JPY)
- Eurozone (EUR)
- Switzerland (CHF)
- Australia (AUD)
- Canada (CAD)
- New Zealand (NZD)
These countries are deemed to have the largest and most well-organized financial markets in the world. As such, their currencies are preferred for trading by a large number of FX traders.
3. Trading Strategies
Being a successful forex trader means knowing which trading strategy to implement and when. Two of the most frequently used trading strategies are day-trading and scalping.
A trader engages in day-trading when they observe the market on a day-to-day basis and makes multiple trades during the day.
In comparison, scalping is the act of making several small trades in a very short time—typically within a few minutes.
Both these methods are preferred by short-term forex traders, and new traders will often come across debates discussing the advantages and disadvantages of each.
4. The Right Use of Leverage
Every trader in the forex market has access to leverage, but it’s a resource that needs to be fully understood and used carefully.
Leveraging allows traders to borrow funds from their forex broker in order to finance trades that their account balance is too low to justify.
When used appropriately, leveraging can deliver great profits, but misusing it can lead to severe losses.
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