Forex might seem like a bit of a minefield to begin with, but once you nail the main principles, you’ll be well on your way to trading like a pro in no time. In this article, we’ll answer the question of what is Forex trading, how to analyze Forex charts, as well as introduce some helpful tools to use in your traderoom.
Let’s get to it!
What is Forex Trading?
Firstly, it’s important to answer the following questions: what is Forex trading, why it exists and how you can use it in your trading strategy.
The term ‘Forex’ is short for ‘foreign exchange’ and is mostly referred to as ‘FX’. The foreign exchange market is not just the largest market in the world, but it’s the most liquid. It’s decentralized: it’s not just one place, it’s a system of stable economic connections between banks, brokers and individual traders, with one main goal of speculating on foreign currency (buying, selling, exchanging etc).
When trading Forex, it’s important to keep in mind that the FX market doesn’t set the value for currency; it simply determines its value against another currency. This is why you’ll often see currency pairs like EUR/USD, AUD/JPY and so on. It’s pairs like these that Forex focuses on.
Main Points about Forex Trading
When it comes to trading Forex, there are a few points to pay attention to.
Base and Quote currency
The exchange rate always shows two currencies. The first currency is called the base and the second one is the quote. The price of the base currency is always calculated in units of the quote currency.
For example, if the exchange rate for GBP/USD is 1.29, it means that £1 Sterling costs $1.29 US dollars. Based on this price, a trader can better understand how the chart is formed.
If the chart is going up, it means that the price of the USD has depreciated against GBP. If the chart is going down, it means that the price of the USD is growing against the GBP.
Major and exotic currency pairs
All currency pairs can be sorted into major and exotic currencies. Major world currencies are predictably called Major currencies, which include: EUR, USD, GBP, JPY, AUD, CHF and CAD. Exotic currency pairs are those of developing or small countries, such as TRY, BRL, ZAR etc.
CFD
On many trading platforms, including IQ Option, Forex trading involves CFDs (Contracts for Difference). When a trader opens a CFD, they don’t own it, but they trade on the difference between the current value and the value of the asset at the end of the contract (when the deal is closed). This means that a trader will receive their outcome in accordance with the entry and exit price.
Margin
Trading Forex with margin allows the trader to trade with more money than they actually have. The broker provides these funds to traders so that they can be more effective and earn more even with small investments. You can find information about the potential margin involved in your Forex trades before opening a deal in the IQ Option traderoom.
Analysis tools for Forex trading
On a variety of trading platforms, traders can make use of analytical charts that, when utilized correctly and effectively, may assist in a preferable outcome.
Each asset may be provided with an ‘information’ section on a trader’s specific trading platform.
For example, on the IQ Option platform, you can find the “Info” button which opens a tab with asset info. This button can be found on any asset, not just Forex.
The information provided in the tab includes the information about the change in the asset’s price, news that may affect the currency as well as collective technical analysis of the asset based on signals of popular indicators for your Forex trading strategies.
Such analysis may be helpful for traders who make multiple trading deals in a day and need all the analytical data to be in one place, in easy access.
Of course, this information should not replace a trader’s own analysis. However, it may be very useful when deciding how, when or what to trade. It can also be helpful for those who are just starting to trade Forex and still need some guidance on analysis tools.
Forex Market Hours
What hours does the Forex market open? This is a common question many beginner traders have. Well, your personal Forex trading hours may differ depending on your timezone and schedule. The Forex market is open 24 hours a day during the working week, so you can choose the best time that works for you.
