Forex (FX) is a portmanteau of foreign currency and exchange. Foreign exchange is the process of changing one currency into another for a variety of reasons, usually for commerce, Forex (FX) refers to the global electronic marketplace for trading international currencies and currency derivatives. It has no central physical location, yet the forex market is the A forex trading strategy is a technique used by a forex trader to determine whether to buy or sell a currency pair at any given time. Forex trading strategies can be based on technical analysis Forex, also known as foreign exchange or FX trading, is the conversion of one currency into another. It is one of the most actively traded markets in the world, with an average daily Forex trading is the trading of currency pairs—buying one currency while at the same time selling another. Can You Get Rich by Trading Forex? Forex trading can make you rich, but ... read more
And it is free. What is EA exactly? However, not all of us are computer programmers. And not all of us even want to master programming in a quite complicated language — just to be able to do the Forex trading strategy description ourselves. A lot of coding skills is needed essentially to program 2 relatively simple things. We can argue that, at least in trading strategy testing, this is already a secondary priority.
Using this simple approach, we can understand that the best Forex trading strategy description should not need to be programmed each and every time. Instead, we can just use a simple logical blocks to be able to define our strategy. The idea is that an average person — who is just able to think logically, but not having any programming skills — can understand it easily.
That said, of course, we need to develop the blocks themselves. This is the approach that we used in our Smart Strategy Tester from the very beginning. The 0. dollar USD versus the Canadian dollar CAD , the euro EUR versus the USD, and the USD versus the Japanese yen JPY. There will also be a price associated with each pair, such as 1. If the price increases to 1. The USD has increased in value against the CAD, so it now costs more CAD to buy one USD.
In the forex market, currencies trade in lots , called micro, mini, and standard lots. A micro lot is 1, worth of a given currency, a mini lot is 10,, and a standard lot is , Trades take place in set blocks of currency. For example, a trader can exchange seven micro lots 7, , three mini lots 30, , or 75 standard lots 7,, Trading volume in the forex market is generally very large.
The largest trading centers are London, New York, Singapore, Hong Kong, and Tokyo. The Forex market is open 24 hours a day, five days a week around the globe. Historically, foreign exchange market participation was for governments, large companies, and hedge funds. In today's world, trading currencies is as easy as a click of a mouse and accessibility is not an issue. Many investment companies allow individuals to open accounts and trade currencies through their platforms.
This is not like a trip to a foreign exchange kiosk. The process is entirely electronic with no physical exchange of money from one hand to another. Rather, traders are taking a position in a specific currency in the hope that there will be some upward movement and strength in the currency that they're buying or weakness if they're selling so that they can make a profit. There are some fundamental differences between foreign exchange and other markets.
First of all, there are fewer rules, which means investors aren't held to strict standards or regulations like those in the stock, futures, and options markets. There are no clearing houses and no central bodies that oversee the forex market.
Second, since trades don't take place on a traditional exchange, there are fewer fees or commissions like those on other markets. Next, there's no cutoff as to when you can and cannot trade.
Because the market is open 24 hours a day, you can trade at any time. Finally, because it's such a liquid market, you can get in and out whenever you want and you can buy as much currency as you can afford. Forex traders transact in one of three distinct marketplaces: the spot, the forward, or the futures market.
The spot market is the most straightforward of the Forex markets. The spot rate is the current exchange rate.
A transaction in the spot market is an agreement to trade one currency for another currency at the prevailing spot rate.
Spot transactions for most currencies are finalized in two business days. The major exception is the U. dollar versus the Canadian dollar, which settles on the next business day. The price is established on the trade date, but money is exchanged on the value date. The U. dollar is the most actively traded currency. The most common pairs are the USD versus the euro , Japanese yen, British pound, and Australian dollar.
Trading pairs that do not include the dollar are referred to as crosses. The most common crosses are the euro versus the pound and the euro versus the yen.
The spot market can be very volatile. Movement in the short term is dominated by technical trading, which bases trading decisions on a currency's direction and speed of movement. Longer-term changes in a currency's value are driven by fundamental factors such as a nation's interest rates and economic growth.
A forward trade is any trade that settles further in the future than a spot transaction. The forward price is a combination of the spot rate plus or minus forward points that represent the interest rate differential between the two currencies. Most forward trades have a maturity of less than a year in the future but a longer term is possible. As in the spot market, the price is set on the transaction date but money is exchanged on the maturity date.
A forward contract is tailor-made to the requirements of the counterparties. They can be for any amount and settle on any date that is not a weekend or holiday in one of the countries. Unlike the rest of the foreign exchange market, forex futures are traded on an established exchange, primarily the Chicago Mercantile Exchange.
Forex futures are derivative contracts in which a buyer and a seller agree to a transaction at a set date and price. This type of transaction is often used by companies that do much of their business abroad and therefore want to hedge against a severe hit from currency fluctuations. It also is subject to speculative trading. As a result, the trader bets that the euro will fall against the U.
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. The difference between the money received on the short sale and the buy to cover it is the profit. Had the euro strengthened versus the dollar, it would have resulted in a loss. The forex was once the exclusive province of banks and other financial institutions. The internet has blasted the doors wide open. Entry costs are low and the marketplace is open around the clock.
There are many choices of forex trading platforms , including some that cater to beginners. There also are online forex trading courses that teach the basics. Those financial institutions and the traders who work for them are still there, alongside the neophytes working from home. They have deep pockets, sophisticated software that tracks currency price movements, and teams of analysts to examine the economic factors that make currency rates move.
Currency trading is a fast-moving, volatile arena. It's risky business and can be made riskier by the use of leverage to increase the size of bets.
It's an easy way to lose money fast. Anyone willing to jump into the Forex should get the necessary training in advance, and start slowly with a minimal stake. There are a number of terms that are used by Forex traders. Here are some of the basics. Going long: Buying a currency on the belief that its value will increase in a matter of hours.
Then it can be sold for a profit. Going short: Selling a currency on the belief that its value will decrease. It can then be repurchased at a lower price. Currency pair: Every Forex transaction is an exchange of one currency for another. In this example, the U. dollar is the base currency, and the British pound is the quote currency. The ask: The price the trader will pay to buy a currency pair. The bid: The price the trader will pay to sell a currency pair.
The spread: The difference between the buying price and the selling price. Just seven currency pairs represent the majority of trades on the Forex. They are:. By contrast, the total notional value of U.
Money Management Rules in Forex Trading Money management in Forex is one of the most important and yet most ignored topics. Too often we hear and see many trading strategies being advertised all over the place, but very little information out there on money management. Profitable trading is not all about one or two fluke profit trades. Profitability in Forex is the ability to make Forex trading profits over time, with consistency and regularity.
Forex money management is what makes the difference between a winning trader, and one who wakes up in the morning afraid to check his trading platform because he doesn't know what to expect. It is possible to have six trades in a month, with three winners and three losers, and still come out on top with profits. It is also possible to win 5 out of six trades, and then have the single losing trade wipe you out and return you to baseline level for the month.
What is at play here? The answer is simple: money management. The intention of this article is to put into your hands, ten essential money management rules so that you can transform your trading habits to make you consistently profitable.
No matter how juicy a trade may look, limit your risks so you can live to trade another day. Here they are: Do Not Over-leverage Your Accounts The allure of Forex trading is in leverage: the ability to control large positions with a small amount of money. Many industry experts do not advocate using more than leverages, but we see traders being offered leverages as high as for trading.
Leverage in Forex is a two-edged sword. It can work in the trader's favour, or against him. Most of the time leverage works against traders. Do Not Over-leverage Your Accounts Over trading can mean taking too many trades at a time, thus increasing your risk exposure to the market. It can also mean trying to chase pips all over the market by placing too many trades in a day, especially after a losing run in an attempt to get back some of what was lost.
Either way, you run the risk of losing big. Use Acceptable Risk No matter how juicy a trade may look, limit your risks so you can live to trade another day. Trade with Stops and Targets Not using a stop loss or a profit target is pure suicide!
In Forex, an overnight event can send an unprotected trade badly into the negative territory. It happened in early when the Feds cut interest rates in an unscheduled weekend move, and more recently with the SNB and Bank of Japan's interventions. You would never know what hit you. Use Trailing Stops This is a feature that helps a trader to protect and lock-in profits.
Never Take Trades, Which Do Not Deliver Risk-Reward Ratios of at Least A risk-reward ratio of means your profit target is twice your stop loss. If your trade has a R-R ratio of , it means that for every winner, you will need to lose an equivalent trade three times to wipe out profits.
If you make pips in a trade with a pip stop loss , you would, then need to lose three trades using the same R-R ratio to cancel the profitable trade. This is why a trader can have two winners and three losers in a month and still make money.
Do Not Trade During Sleep Hours Trading at hours when you normally sleep disturbs your body rhythm and brain function. You will be more prone to mistakes that affect money management. If you want to know what are the best hours to trade on Forex market, read article: Best Forex Trading Hours: When to Trade and When Not To Trade Aim to Compound Small Profits over Time Trying to score jackpots in trading is what usually gets traders taken to the cleaners.
An approach of compounding small profits for bigger gains much later is the way to go. Use Matching Instruments for Your Account Size Money Management really is one of the key elements in Forex trading.
You can use the best strategy ever developed, have the best trading plan, be perfectly disciplined but when you don't use proper money management rules you won't succeed. In my early trading years, I blew up multiple accounts to learn how important Forex money management is. So do not repeat my mistakes. When to Trade Forex and When NOT TO TRADE It is true that Forex trading is by definition, a market that operates 24 hours a day.
This is because there are various key trading zones where market activity in the Forex market is carried out, corresponding to the three major time zone financial districts. These are in London, New York and Asia. It is the activity in these zones, which come up one after the other that give the Forex market its hour appellation.
That said though, we need to point out that even though the Forex market is by definition, a hour market, there are only specific times of the day when the Forex market has enough market activity that traders can profit from. These times are the times when there is overlap of activity between two-time zones.
Profits in Forex are only made when there is enough liquidity, volatility and market activity, and these times are the best times to trade. Overlap means more liquidity and more market activity, which produces volatility. In Forex, a trader can only make money when the market is volatile and not when it is nearly still. Best FX Trading Hours So the next point would logically be to know at what times we have overlap of two trading time zones.
These are the times when there is overlap between the London and New York sessions, the New York and Asian sessions, and the Asian and London sessions. In studying and memorizing these times, also make some allowance for the Daylight Savings Time DST when we have time corrections in March and October to correspond to the equinox changes in the earth's position relative to the sun.
TIME ZONE EASTERN TIME GMT Asian Open 7 PM 12 MidNight Asian Close 4 AM 9 AM London Open 2 AM 7 AM London Close 11 AM 4 PM New York Open 8AM 1 PM New York Close 4 PM 9 PM.
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Money Management Rules in Forex Trading. Money management in Forex is one of the most important and yet most ignored topics. Here they are:. Do Not Over-leverage Your Accounts. The allure of Forex trading is in leverage: the ability to control large positions with a small amount of money. Over trading can mean taking too many trades at a time, thus increasing your risk exposure to the market.
Use Acceptable Risk. Trade with Stops and Targets. Not using a stop loss or a profit target is pure suicide! Use Trailing Stops. This is a feature that helps a trader to protect and lock-in profits.
Never Take Trades, Which Do Not Deliver Risk-Reward Ratios of at Least A risk-reward ratio of means your profit target is twice your stop loss. Do Not Trade During Sleep Hours.
Trading at hours when you normally sleep disturbs your body rhythm and brain function. If you want to know what are the best hours to trade on Forex market, read article:. Best Forex Trading Hours: When to Trade and When Not To Trade. Aim to Compound Small Profits over Time. Trying to score jackpots in trading is what usually gets traders taken to the cleaners.
Use Matching Instruments for Your Account Size. Money Management really is one of the key elements in Forex trading. When to Trade Forex and When NOT TO TRADE. It is true that Forex trading is by definition, a market that operates 24 hours a day.
Best FX Trading Hours. So the next point would logically be to know at what times we have overlap of two trading time zones. It is very clear from this table above, that there is a period of overlap between London and New York from 12pm GMT to 5pm GMT, between London and Asia from 8am to 9am GMT. So if you are a trader looking to profit from the best volatility, you can get, then plan your trading around these times.
Best Forex Trading Days. Knowing the best trading times in a day is one aspect. The other aspect is knowing what days to trade, as there are days when your chances of making money are better.
In order to understand the concept of the best trading days, it is important to watch the intra-day volatility of the market from market open at 9pm GMT on Sunday to market close at 9pm GMT on Friday. A study of the market movement of currencies will easily show that Tuesdays to Thursdays are the days with the highest degree of volatility, with volatility being relatively low on Mondays. However, a recent trend has emerged where volatility levels for the week now take off earlier, and that is during the New York session on Monday.
Due to not enough volatility, I suggest you to avoid trading during Forex market holidays. Making this Work for You. One of the most important factors you need to consider when deciding on when to trade and when not to trade is your own body rhythm. In nature, some insects are nocturnal insects; they are most active at night and rest in the day. Human beings are diurnal; we are active during the day and sleep at night.
Sleep is very important; without a clear head, the trader becomes extremely error-prone. You need to know how far away in time your area is from the time zones. Those who live in Africa and Western Europe seem to have the best deal of all, as they can easily take the overlaps during waking hours. It is more difficult if you live anywhere else, as you may only be able to trade one overlap session during your waking hours.
So plan your trading times to coincide with when you are at your optimal levels of performance, and trade accordingly.
When to Trade Forex and When NOT TO TRADE. It is true that Forex trading is by definition, a market that operates 24 hours a day. This is because there are various key trading zones Forex, also known as foreign exchange or FX trading, is the conversion of one currency into another. It is one of the most actively traded markets in the world, with an average daily Forex (FX) is a portmanteau of foreign currency and exchange. Foreign exchange is the process of changing one currency into another for a variety of reasons, usually for commerce, A forex trading strategy is a technique used by a forex trader to determine whether to buy or sell a currency pair at any given time. Forex trading strategies can be based on technical analysis You should have your Forex trading strategy description – even if you trade manually. And if you do auto trading, it is a must. It is safe to say that the majority of amateur traders use Expert Forex trading is the trading of currency pairs—buying one currency while at the same time selling another. Can You Get Rich by Trading Forex? Forex trading can make you rich, but ... read more
The name is a portmanteau of the words foreign and exchange. The foreign exchange market is considered more opaque than other financial markets. Pros and Cons of Trading Forex Pros Forex markets are the largest in terms of daily trading volume in the world and therefore offer the most liquidity. Currencies are traded in OTC markets, where disclosures are not mandatory. If the price increases to 1. Leverage is a double-edged sword; it magnifies both profits and losses. dollars for Japanese yen in order to pay for merchandise that has been ordered from Japan and is payable in yen.TIME ZONE EASTERN TIME GMT Asian Open 7 PM 12 MidNight Asian Forex trading description 4 AM 9 AM London Open 2 AM 7 AM London Close 11 AM 4 PM New York Open 8AM 1 PM New York Close 4 PM 9 PM. Most of the trading is done through banks, brokers, and financial institutions. Table of Contents, forex trading description. Investopedia is part of the Dotdash Meredith publishing family. Forex brokers act as market makers as well and may post bid and ask prices for a currency pair that differs from the most competitive bid in the market.