What is Forex Trading?
Forex trading involves the trading of one currency against the other. Similar to other financial markets, the goal in any forex trade is to make a profit.
The forex market is the largest trading market in the world, boasting a daily volume of approximately $6.6 trillion. Compare this to the global equity markets, which trade around $200 billion each day.
An exchange rate is the relative price of two currencies from two different countries. The movement in the forex markets is the change in exchange rates, which allows traders to make a profit.
How Does Forex Trading Work?
In the forex market, traders buy and sell currency pairs; a single currency cannot be traded ‘by itself’. A currency pair can also be defined as the rate of exchange between two currencies.
So how do we trade a currency pair? Let’s say we want to trade the British pound against the U.S. dollar. We check the internet and see that the current exchange rate for GBP/USD is 1.2420. This means that one British pound is trading at $1.2420, so in order to purchase one pound, you would have to pay 1.2420 in US dollars. If later in the day the pair is trading at 1.2480, this means that one pound is now worth $1.2480, so the pound has risen against the dollar. Conversely, if the pair dropped to 1.2360, one pound now costs $1.2360, so GBP/USD has weakened.
Just like any stock, a currency pair can (and will) move upwards or downwards. In fact, it’s helpful to think of currency as that country’s “national stock”. Similar to the stock markets, currency rates are constantly fluctuating. Traders are always looking to make a profit by ‘buying low and selling high’ – in the case of forex, this means buying a currency pair at a low rate and then selling it a higher rate.
Forex Order Types
In order to learn how to trade online, it is important to understand the different types of orders that can be placed in the forex market. Note that not all forex brokers are created equal – different brokers will accept different types of forex orders. Let’s review the most common orders in forex:
- Market Order – This is an order which is instantly executed against a price that your broker has provided on a trading platform. So, if you want to buy GBP/USD at 1.2410, your broker should provide you with a price of 1.2410, or very close to it.
- Pending Order – an order which is to be executed at a later time, at a price that you specify. This price can be above or below the current market price.
- Stop Loss Order – this order is used to close a trade if the market reaches a specified price. It is often used to avoid additional losses when a trade has gone against the traders.
- Take Profit Order – this is the opposite of a stop-loss order. The trader makes an order at a predetermined price when the market is moving in her favour so that she can lock in the profit on the trade.
Types of Analysis in Forex
There are three main types of analysis used by forex traders to predict market movement. These methods, all of which can be used in forex trading online, are the following:
- Technical Analysis
Technical analysis involves the study of price movement. Traders examine trends and patterns on a chart, which represent the historical movement of the currency pair. The identification of patterns is then used to predict future price movement. According to technical analysis, all current market information is reflected in the currency’s price. Technical traders will monitor parameters such as support and resistance levels, as well as indicators which are based on price or volume.The basis of technical analysis is the use of charts. The most popular chart used by forex traders is the candlestick chart, which provides detailed information of an asset (in this case a currency pair) over different time periods. Technical charts can display an impressive array of information, including trend, volume, volatility, momentum and market cycles.Don’t worry if, at first glance, a technical chart looks confusing, perhaps even intimidating. Any comprehensive online forex trading course will teach you how to read and use a technical chart. Technical analysis cannot, of course, predict the future. However, it can help identify trends and tendencies, which creates forex trading opportunities.
- Fundamental Analysis
Fundamental analysis examines economic, social and political forces and developments that may affect the movement of currency prices. Such events often affect the economy of the currency being traded. The most important events include Gross Domestic Product (GDP), employment reports, inflation and interest rate announcements. These economic and political events are known as ‘fundamentals’.Let’s look at some examples of how fundamentals can affect the direction of a currency. If the UK releases an employment report was better than expected, this would be a positive development for the pound and would likely send GBP/USD upwards. Suppose that the U.S. Federal Reserve were to raise interest rates – this would probably send the dollar higher (which means that GBP/USD would weaken).A major political development could also cause a currency to fluctuate. If the UK and the European Union were to suddenly announce that they had reached a post-Brexit agreement, the pound would likely soar, sending GBP/USD to higher levels. When you are trade fx online, you should be paying close attention to the fundamentals that are being released on that day (and several days ahead). An important tool for forex traders is the use of an economic calendar, which lists economic and political events that may have an impact on the forex markets.Both technical and fundamental analysis are popular in online trading, and some traders will prefer one method over the other. What is important is that you become familiar and comfortable with both methods; you can then utilize one or both when you trade fx online.
- Sentiment Analysis
Fundamental and technical analysis are the most popular methods used by forex traders. However, there is a third method, called sentiment analysis. This method examines how other traders feel about a particular currency pair. If a fundamental or technical analysis of the market indicates that the pound should move higher, both methods could prove wrong, simply because the sentiment amongst a majority of traders is that the pound will head lower. When a trader utilizes sentiment analysis, he is gauging ‘how the market is feeling’. This method is by no means a scientific approach, but sometimes listening to and acting upon your ‘gut feeling’ can be a successful trading strategy! Since not all traders are familiar with this analysis, it is to your advantage to learn this method and incorporate it into your trading strategy when appropriate.
Online Forex Trading and Education
Years ago, the only way a trader could execute trades from home was to make a telephone call to his broker to execute a trade. Trading in this method was, of course, cumbersome and inefficient. Fast forward to 2020, and online forex trading is a breeze, thanks to modern technology and the internet. Traders can now utilize their computers, laptops or even smartphones to execute trades and continuously monitor the forex markets, which are constantly fluctuating. Since online forex trading is ‘over the counter’ and not limited to a particular trading exchange, forex traders have the ability to execute trades at any time of day or night, five days a week.
There are literally hundreds of forex brokers on the internet that will enable you to participate in online forex trading. It is critical that you choose a reputable broker before you start to trade fix online. However, even before you begin to look for the right broker for you, you should first take advantage of what the internet has to offer and learn online trading free! That’s right – there’s no risk and no charge when you take a free online course. Bottom line? Before you jump into the forex markets, it’s important to take a step back and take a course to learn to trade forex online. A search on the internet will show dozens of online forex trading courses, many of which are free.
In addition to forex courses, an ideal way to learn how to trade online is to enrol in an online trading academy. Essentially, an online trading academy is a school where you will learn how to trade online, without having to pack a lunch and commute to class!
A solid understanding of the forex market is essential to becoming a successful trader – this point cannot be emphasized enough. In order to learn how to trade currency and make money, every trader requires discipline and a trading strategy that fits his or her needs and goals.
Watch this video: What is Forex Trading and how does it work? (01min 52secs)
Why Trade With Platinum Trading Academy?
Many traders jump into the forex arena with little or no preparation, confident that they will ‘figure out on the go’ how to make money trading currency. However, these individuals have a lack of knowledge about the forex market and have failed to prepare a trading strategy. More often than not, these traders are left disappointed, after seeing their capital quickly disappear. Taking steps in order to learn online trading is essential to becoming a successful trader – this point cannot be overemphasized. In order to learn how to trade currency and make money, every trader needs discipline and a trading strategy that fits his or her needs and goals.
Platinum Trading Academy is tailored for a trader at any level, whether a relative beginner or an experienced trader. We provide each of our students with a private forex mentor, rather than a “one size fits all” seminar or webinar course. With Platinum’s step-by-step mentoring and in-depth training courses, you will learn how to trade online and how to develop an effective trading strategy. If you are looking for an online forex trading course that will build your confidence and produce consistent results, then Platinum trading academy offers a superb online forex trading experience.
The Platinum Formula:
Perfect Fundamentals + Perfect Technical Analysis + Perfect Logic + Perfect Risk Management = Perfect Trade
The Platinum Way
At Platinum Trading Academy, United Kingdom, we teach all individuals from different walks of life to become a full-time trader or create a secondary revenue stream by trading part-time. We trade in an Institutional Way by letting the market come to us and being patient. Using Platinum’s Trading system you can take many Pips out of the market. We can ensure using this style of trading your trading will make a turnaround as you will become much more consistent.
If you want to trade like the professionals do, making consistently profitable returns from your trading, get in touch with us and we will demonstrate live exactly how we approach the markets.
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Hopefully, you have enjoyed today’s article. Thanks for reading! Have a fantastic day!
Live from the Platinum Trading Floor.