5 Things Investors Need to Know About the Forex Market
Trading in the forex market is a high-performance skill. If you’re in it for the money, you won’t get far. But if you’re in it because you see it as a high-stakes game, the money will follow. This shift in attitude will make a huge difference.
A Quick Look At 5 Things Investors Need to Know About the Forex Market
The foreign exchange market is known by many names, like “FX,” “forex,” or “currency trading.” This is an over-the-counter, decentralized, and global marketplace where the currencies of the world are traded. It’s the largest financial market in the world and has the highest liquidity. Its daily trading volume is over $5 trillion. To put this forex market in perspective, it would take a month of trading in a huge financial market like the New York Stock Exchange to equal a day of forex trading.
As an investor, there are five important things you need to know about trading on the market:
- Market hours and holidays
- General forex market trading tips
- How to trade like a pro
- Special qualifications or requirements for market trading
- How to start trading on the market
An In-Depth Look at Things Investors Need to Know About the Forex Market
1. Forex market hours and holidays
What times does the forex market close on Friday? What are the market hours in my local time zone? Traders ask these types of questions all the time because it’s not a physical market. It doesn’t have a building in a city in a country. It does not have a central venue. Instead, it’s a virtual market. You can trade by telephone or via an electronic communications network (ECN) from a variety of markets around the world. Due to this lack of physical constraints, the market clock runs 24 hours a day.
During the course of the week, the market opens on Sunday at 5 p.m. EST (22:00 hours GMT) and it closes on Friday at 5 p.m. EST (22:00 hours GMT). It’s necessary to have a forex market time converter to understand these hours in your local time zone. It’s difficult to trade well if you don’t know if the market is open or not.
World market hours are affected by national holidays. Trading is closed on national holidays, which, of course, depend on the country. It’s important to know about forex market holidays because there is usually a surge in trading activities as soon as the markets open again. Knowing when the forex market opens and closes in your country before and after the holidays can help you choose your most profitable entry and exit points.
Generally speaking, the forex market is closed on New Year’s Day, Good Friday, Easter, International Worker’s Day, Christmas Eve, Christmas Day, and Boxing Day.
In the United States, besides some of the major public Christian holidays and New Year’s Day, the market are closed on days like Martin Luther King, Jr. Day, and Washington’s birthday. Forex market opening times after a break can impact the success of your trade. If you get your timing right, you can start trading currency pairs before other traders have got wind of the favorable exchange rate.
As a trader in the foreign exchange market, it’s a good idea to get both a forex and an economic calendar. They not only give you the dates for this year but for the next year as well.
2. General Forex Market Trading Tips
Here are some general trading tips that will help you adopt the right attitude and mindset as a trader:
- Know Thyself: Unless you know your own strengths and weaknesses, you won’t be able to curb your excesses, tolerate risk, or allocate capital wisely.
- Set goals: Do you want extra income, a comfortable retirement, to acquire financial independence? Set clear goals on why you’re trading in foreign exchange.
- Make a plan or plan to fail: What resources do you have available in terms of time, money, and knowledge? Allocate your resources in the best, most realistic way to focus on the best currencies.
- Select a great broker: A first-class broker will help you succeed with market world binary forex trading, so select the right person or firm with care. They need to be as proficient as their advertised claims, reflect your trading preferences, offer premium trading software, and provide superb customer service.
- Find the right account package: Start with an account type that lowers your risk. If you have too much leverage but don’t know what you’re doing, then it could work against you. Beginners should start with a mini-account before moving on to a standard account.
- Don’t spread yourself too thin: Develop a deep understanding of a single currency pair. Only after you’ve become thoroughly familiar with a liquid, frequently traded pair should you try out more challenging trades. Restricting yourself to a single currency pair will prevent you from getting overwhelmed when things get chaotic.
- Keep your ego in check: Avoid adding to a losing position based on the hope that the market will turn around. Instead, cut your losses and ride your winners. Another way your ego can get in the way is by increasing your account by simply adding more money; instead, increase your account size based on organic gains.
- Learn from trades: While it’s always motivating to win, it’s important to understand what you did right or what market conditions worked in your favor. By knowing what has worked, you’re in a better position to replicate your successes. As a trader, you’ll make plenty of mistakes, too. Choose to learn from them rather than feel discouraged. Successful forex market traders keep a journal of their trades so that they can identify recurring patterns in their own flawed analysis.
- Understand what you’re doing: You must go beyond relying on rumors, hearsay, or guesswork when it comes to your forex market trades. Don’t act unless you have a good reason for trading forex pairs.
- Master your emotions: Unless you understand what triggers your greed or fear, confidence or panic, euphoria or dejection, you’ll let your emotions get in the way of your trades.
3. How to Trade Like a Pro
Here are several steps to follow to trade. When talking about currency pairs, we will use the USD/JPY pair. This is the United States dollar and the Japanese yen. At the time of this article, 1 Japanese yen equals 0.00090 United States dollars.
Pick a currency pair: You have a choice of more than 65 currency pairs. Although there are over 185 different currencies in the world, most of them are just used internally. Pick a foreign exchange pair whose volatility you understand so that you can manage the risk. Listening to forex market news and understanding how to read a forex market graph will help you to select the most promising currency pair.
Market Maker Forex Techniques: You can trade in one of three ways.
- City Index Spread Betting. Here you trade your country’s currency per point movement.
- Contract for difference (CFD) trading. Here you trade a certain quantity of CFDs in the left currency. So, if you were trading USD/JPY, your base currency would in the US dollar.
- Forex trading. In a USD/JPY pair, your base currency size would have to be large. So, in a USD/JPY pair, the base currency would be your US dollars. The smallest micro lot available for a brokerage would be USD $1000. The reason your broker will need a minimum of $1000 is that if it were any less, your account would be quickly liquidated because of your high leverage. This can easily occur because 1 pip, or percentage in point, is equal to 10 cents. A pip is the smallest allowable movement in a currency pair.
Decide whether you want to buy or sell: Every currency pair has a base currency and a quote currency. In a USD/JPY pair, the base currency would be the United States dollar while the quote currency would be Japanese Yen. You should buy if you think the base currency will get stronger or the quote currency will get weaker in the pair. Conversely, you should sell if you believe that the base currency will get weaker or the quote currency will get stronger.
Practice risk management: It’s a good idea to use stop and limit orders to lock in any gains and reduce your risk. A standard stop loss will close the trade at the best price while a guaranteed stop loss will close the trade at the price you determined. Meanwhile, a limit order will close out your trade when the price is better than the present market level. It’s a way to lock in your targeted price.
Monitor your trade: Your trade will fluctuate with every price movement so that you are in a constant state of alternating between profit and loss. You can monitor how your trade is doing in real time and you can add to your trades or close them whenever you like based on your trading app, which is available for both computers and mobile devices.
Closing your trade: It’s as simple to close a trade as it is to open one. All you have to do is the opposite of what you did when you opened. So, if you bought 5 CFDs when you opened, you would sell 5 CFDs when you close. Upon closing, you will immediately realize your net profit or loss in your account balance.
4. Special Qualifications or Requirements for Forex Market Trading
You don’t need any special qualifications, like a certificate or a license, to trade. You only need about $300 to open your first account and start trading. However, the markets are volatile, and this minimum balance will not take you far with your online trading. It would be better to open up a mini account with $1,000. If you can start with $2,000 that would be even better.
5. How to Start Trading
The three steps you need to start currency trading are simple to implement:
First, find a broker to open up a trading account. Your broker should have an excellent reputation, offer excellent customer service, and employ enough employees for you to trade over the phone without the frustration of a busy line. Forex brokers are called futures commission merchants (FCMs) and you can check on your broker’s reputation and statistics through The Commodity Futures Trading Commission and the National Futures Association.
Second, get comfortable with the software trading platform. Your broker will assign you a demo account to test drive the software to see if you find the forex market graph easy to understand and trading on the forex exchange easy to do. This demo account will have the same features and functionals as a forex market live account, but you won’t be trading real money.
Third, use a trend or range system to understand trading signals. This is what is available to individual traders. Only banks and large hedge funds use fundamental systems, which are more long-range in nature.
To learn more about how the foreign currency exchange works, you can get market news from forex.com, forex factory market, fx online, Trader Online, USforex and dailyfx. Incidentally, forex.com also allows online metal trading of precious metals like gold, silver, and platinum.
If you trade stocks, then you know how important it is to be aware of stock market hours. Although the foreign exchange market does not have a physical location, the forex market clock still plays an important role in your trading. “What time does the forex market open on Sunday?” “What time does the forex market close on Friday?” These are important questions you must know the answer to for your particular time zone.
If you would like to learn more about forex, check out our Beginner’s Guide to Foreign Exchange Investing.