"Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought". To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Forex is the one financial market that never sleeps, meaning you can trade at all hours of the day (or night). Unlike the world's stock exchanges, which are located in physical trading rooms like the New York Stock Exchange or the London Stock Exchange, the Forex market is known as an 'Over-the-counter market' (or OTC). This means that the trades take place directly between the parties holding the currencies, rather than being managed via an exchange.
Scalping is a higher frequency form of trading, wherein traders focus on lower time frames, trying to profit from the market's volatility. Very often, traders make 15-30 scalps per day, whereas the profit is usually between 5-15 pips. The risk with scalping is usually 2-5% per trade, but bear in mind that if you cross 5% of your risk threshold, your account will be in a danger zone.
The platforms offered by Admiral Markets include MetaTrader 4 (MT4) and MetaTrader 5 (MT5) and MetaTrader WebTrader. MT4 and MT5 are both available for Windows, Mac, Android and iOS devices (for iPhone and iPad). In addition, Admiral Markets also provides traders with an enhanced version of MetaTrader, known as MetaTrader Supreme Edition. With access to all this software, Forex can be traded from anywhere in the world - and all you need is an internet connection.
Forex brokers provide leverage up to 50:1 (more in some countries). For this example, assume the trader is using 30:1 leverage, as usually that is more than enough leverage for forex day traders. Since the trader has $5,000, and leverage is 30:1, the trader is able to take positions worth up to $150,000. Risk is still based on the original $5,000; this keeps the risk limited to a small portion of the deposited capital.
Traders know the news events that will move the market, yet the direction is not known in advance. Therefore, a trader may even be fairly confident that a news announcement, for instance that the Federal Reserve will or will not raise interest rates, will impact markets. Even then, traders cannot predict how the market will react to this expected news. Other factors such additional statements, figures or forward looking indications provided by news announcements can also make market movements extremely illogical.
Cross Currency Pairs signifies secondary currencies traded against each other and not against the U.S. dollar. Examples include Euro vs. the Japanese Yen (EUR/JPY) or the British Pound vs. Swiss Franc (GBP/CHF). Most reputable brokers offer this category of trades, and it’s especially important for a forex trading account denominated in a currency other than the U.S. dollar, or for more advanced traders capitalizing on discrepancies between other economies.
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This form of analysis involves look keeping track of real-world events that might influence the values of the financial instruments you want to trade. For instance, the value of the Australian Dollar might fluctuate following a Reserve Bank of Australia interest rate announcement, which will then affect the movements of all currency pairs including the AUD.
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses as other traders would. There is also no convincing evidence that they actually make a profit from trading.
A trader thinks that the European Central Bank (ECB) will be easing its monetary policy in the coming months as the Eurozone’s economy slows. As a result, the trader bets that the euro will fall against the U.S. dollar and sells short €100,000 at an exchange rate of 1.15. Over the next several weeks the ECB signals that it may indeed ease its monetary policy. That causes the exchange rate for the euro to fall to 1.10 versus the dollar. It creates a profit for the trader of $5,000.
Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market.
Automated trading functionality: One of the benefits of Forex trading is the ability to open a position and set automatic stop loss and take profit levels, at which the trade will close. More sophisticated platforms should have the functionality to carry out trading strategies on your behalf, once you have defined the parameters for these strategies. A good trading platform will allow this level of flexibility, rather than requiring a trader to constantly be monitoring any trades.
Security: Will your funds and personal information be protected? A reputable Forex broker, and a good Forex trading platform will have measures in place to ensure the security of your information, along with the ability to backup all key account information. They will also segregate your funds from their own funds. If a broker cannot demonstrate the measures they will take to protect you and your account balance, it would be best to find another broker.
However, since the Forex market is a global market, it means there is always a part of the world that is awake and conducting business, and during these hours their currencies tend to experience the most movement. For example, currency pairs involving the US dollar experience the most movement during US business hours (16:00 to 24:00 GMT), while the Euro, Pound, Swiss Franc and other European currencies experience the most movement during European business hours, (8:00 and 16:00 GMT).
The blender costs $100 to manufacture, and the U.S. firm plans to sell it for €150—which is competitive with other blenders that were made in Europe. If this plan is successful, the company will make $50 in profit because the EUR/USD exchange rate is even. Unfortunately, the USD begins to rise in value versus the euro until the EUR/USD exchange rate is .80, which means it now costs $0.80 to buy €1.00.