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Forex Trading Forex Trading implies a buying or selling of a currency pair for profit. In forex trading, all currencies are dealt in pairs with the first currency in the pair being known as the "base currency" while the latter is known as the "quote currency". Forex trading Pairs are used as a means of comparison. A rise in value of any forex trading pair denotes the appreciation of the base currency against the quote currency. Likewise, should the value of the pair fall, it signals a depreciation of the base currency against the quote currency.
Forex Trading Currency PairWhen you buy or sell a currency pair, the profit or loss you gain is based on the difference between the base and quote currencies. When you buy the Eur/Usd pair you are essentially buying the Euro and selling the US dollar. Conversely, should you sell the Eur/Usd pair, you are in effect buying the US dollar and selling the Euro. As mentioned above, profits or losses in forex trading is derived from the difference between the base and the quote currency. Simply put, when you buy the Eur/Usd pair, you will only gain profits if the Euro appreciates against the US dollar. When you sell the Eur/Usd, profits are only gained if the Euro depreciates against the US dollar. This applies to all forex trading pairs. Assume you bought Eur/Usd at 1.400 and after a day, the price rises to 1.450. This indicates a profit of 50 (minus the spread) pips for the buyer since a rise in value of the Eur/Usd pair indicates that the Euro has appreciated against the US dollar.
However, if you sold Eur/Usd at the indicated price above, you will be running a loss of 50 (minus the spread) pips. What is the spread? The spread is a one time payment or a fee to your forex trading broker everytime you open a trade. It is calculated in pips (price index position). Different currency pairs have different spreads and different forex trading brokers charge different spreads. The most popular traded currency pairs in Malaysia usually have the lowest spreads, such as the Eur/Usd. So a 3 pip spread would mean paying 3 pips to your forex trading broker when you open a trade on that currency pair.
Some of the most popular currency pairs in forex trading involve pairs made up from major currencies such as the Euro, US dollar, British Pound, Japanese Yen and finally the Australian and New Zealand dollars. As such, these currency pairs experience higher than usual activity due to the volume of trades executed everyday in the forex trading market.
They also differ in terms of volatility. As a general rule, most currency pairs that include the british pound tend to be very volatile, the example being the Gbp/Jpy pair. While others, seem to move very conservatively like the Usd/Jpy. Some forex trading investors like higher volatility and some don't. Over the course of your forex trading career, you will undoubtedly settle on a few favorite currency pairs. In part two we will be discussing fundamental and technical forex trading.
There are three types of traders in the forex trading business. Fundamental traders, technical traders and forex traders that utilize strategies from both fundamental and technical disciplines. They can be found not just in Malaysia but worldwide. Fundamental traders are forex traders that utilize fundamental analysis to predict the general direction of a curency pair. Fundamental analysis is concerned primarily with events that affect the currency.
Economic reports such as unemployments rates, interest rate changes and the trade balance all greatly affect the value of curencies. As such, fundamental forex traders always look towards news events and releases in their attempt at predicting the currency's general direction. It is used for both short-term and long-term forex online trading. Technical forex traders are not concerned with these economic events. They use technical analysis to give them an edge in forex trading.
The study of technical analysis is one that identifies chart patterns to predict the general movement of the currency pair. Support and resistance levels, fibonacci levels, moving averages and trend patterns are some of the techniques used by the technical forex trader. The third type trader is one that draws strength from both fundamental and technical analysis. Most traders use both techniques to some degree but never in equal amounts. Forex traders usually have a dominant discipline that is further enhanced by either technical of fundamental analysis. It will take a while for the beginner to truly find their sweet spot so to speak. But eventually as time passes, beginners will begin to feel comfortable with forex trading a certain way. This may or may not be a mix of both disciplines but it is highly likely. By far and large, the biggest type of online trader prevalent today in Malaysia and the rest of the world is the technical trader. This is so mainly because technical trading aspects are much easier to grasp. Fundamental trading requires a very strong grasp of international economics. Something that most people in Malaysia do not possess. The internet is rife with free forex signals and online forex courses that claim to make you the perfect forex trader. It is easy to see them for what they are. It is better to stay away from those that make the most outlandish claims, i.e "Make $100 a day after my 7 day course!". It should be noted that there is a vast amount of free information regarding both fundamental and technical analysis available on the internet if you search the internet.
It is in the end, your money. It is too easy to fall into traps that promise the world. One should always start from scratch. Visit forex factory and investopedia and learn all you can. The road is hard and is frought with danger but it is important to remember that success in forex trading comes to those that try hard and long enough to make it a worthwhile endeavor.
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