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The Forex Market Explained - Overview of How the Forex (Foreign Currency, or Foreign Exchange, Market) Works and How it is Traded

By Edited Nov 13, 2013 1 0

Overview of the Forex Market and Trading Methods

What is Forex Trading and Why is it so Popular?:

The foreign exchange market, or Forex for short, is popular with online traders. It is a highly liquid market and this, along with frequently fluctuating exchange rates, help to make it so.

Trading through online Forex platforms is classified as spread betting. Depending on the trader's country of residence and its current tax laws, this can mean profits are tax free. Brokers make their money on the 'spread,' or difference between the buy and sell price that they offer. This means, in theory, that they don't win if a trader loses and vice versa, unlike traditional bet providers. Brokers will take opposing trades on times, however, to increase their earnings.

Currencies are traded in pairs and Forex traders can buy or sell (or go 'long' or 'short' on) a currency, thereby betting whether it will rise or fall in price compared with the opposing currency. The change in exchange rate then decides whether the trader wins or loses the bet, or trade.

Different Ways to Trade the Forex Market?

1. Forex traders can have as much, or as little, control over their trading as they wish. Some choose to have minimal involvement, either because they are risk-averse or because they don't have time to devote to trading, or to learn the market in depth. These types of traders sometimes open managed Forex accounts which are run by experts who take a commission.

2. Sometimes Forex traders follow the advice of signal providers, or operate a trading account using a Forex robot, or expert advisor. Free, or subscription-based, signal providers tell customers when and where to place trades, giving them precise entry and exit positions. Forex robots are software that automatically place bets based on pre-programmed criteria and a trader's chosen settings.

3, Hands-on Forex traders usually base their trading strategies on technical and/or fundamental analysis. Technical analysis looks at emerging patterns in the price structure on trading charts and/or at technical indicators.

Forex trading charts depict currency price changes in relation to each other over selected timescales. Certain pattern changes are thought to predict possible upcoming alterations in the direction of the market.

Technical indicators, which are attached to trading charts, represent price alterations over time in differing ways. Readings from these indicators can also help predict which way the market is likely to move in the near future.

Fundamental analysis involves researching up-to-date market news and looking at overall market changes, as well as determining the current market sentiment from discussions with other Forex traders.

Warnings and Advice:

No trading method is guaranteed. Many signal services and Forex robots are scams, or perform poorly. If you are thinking of using a Forex robot (expert advisor) choose a well-known one and research it well before using it to trade with real money. Similarly, discuss signal services you are thinking of using with other traders. Online trading forums are good sources of information.

Demonstration accounts should also be used to practice Forex trading strategies and to test out automated trading systems and signal service tips before any real money is risked. You should never trade with money that you can’t afford to lose.


Trading Chart(88441)
Credit: wikipedia.org
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