Understanding the Basics of Forex Trading


 The foreign exchange markets commonly referred to as the forex markets is an area where traders, big banks, governments and other big business trade in various types of currencies by speculating their price trends. The forex markets are considered to be one of the most liquid markets in the world. Unlike the other financial markets these are open 24 hours and 5 days a week. There is no central market place and the trading is generally carried out over the counter. In comparison to other forms of trading forex is preferred due to its ease of access and liquidity. But before venturing into the real world of trading its very important to get the basics right. Forex simulation could be an excellent way to learn the tricks of the trade.


Basics of Forex Trading


Forex trading is quite different from the other forms of financial trading hence it is important that we familiarise with certain important terms. The first thing that we come across are the currency pairs. Forex trading is generally done in pairs hence the term currency pairs. The pair includes two currencies where one is bought and the other is sold. The first in the pair is called the base and the second is called the counter. PIP or Percentage in Point denotes the smallest changes in the given exchange rate. Spot market these are referred to as markets where the transactions are completed within two days at the current rate. Another important term is the currency derivatives these are those derivatives that derive their value from the underlying assets. These are instrumental in helping against hedging risks. Currency futures another important terminology that is bound by legally binding contracts to buy or sell currency. The basics of trading are same for all but there are certain guidelines that are country specific. Hence make sure that you are familiar with them before starting to trade.


A Forex Simulator


Before venturing into the real world of forex trading it is important to hone the trading skill. Hence forex simulation provides an excellent opportunity to do so. Now the question arises what these simulators and how do they work? These are nothing but trading softwares that simulate live marketing conditions helping to learn trade with actual conditions. These softwares not only create live market conditions but also provide a risk free approach to learn trading. The software is generally equipped with all the features and functions and can assist in testing any kind of trading strategy. These softwares generally work on free trading money and the account balance is fictitious. These softwares are ideal to learn the stock market conditions and hone your skills with different trading styles and strategies.


The first and the most important advantage of these software includes a risk free real market environment. The software helps practice with real time price data thereby developing strategies to earn profits. In other words, we can say that it helps us learn the intricacies associated with the forex trading. Practicing on these makes the novice traders more confident and help make profits in live situations. The simulator account generally comes for free with the forex dealing account. Therefore the requirement of buying the software does not arise. Another advantage with simulators is that they are quiet convenient to use and are customer friendly. Also they can save on a lot of time for the investor. A demo account and simulator almost serves the same purpose that is it helps you learn trading without venturing into the real world. But there are a certain advantages that a simulator has over a demo account. The demo accounts can be used only on the working days but a simulator can be used any time eve during a holiday when the market is closed. With the trading simulator one can practice trading even without an internet connection. If you wish to take a break, then the simulator can be put on hold and resumed later. There is no such freedom with a demo account. The simulators have a fast forward feature with which one can skip the dull time and jump into some action. It also has a slow motion mode as well which is perfect for beginners.


Types of Forex Trading


There are different types and strategies of trading that one could use the the forex markets to make profits. Always choose the one that suits your style and needs. First in the list is day trading where the traders move in and out of the market with in one day. That is the buying and selling takes place on a single day. Then we have scalping similar to day trading but differs in the number of trades that are carried out in the single day. Traders using this strategy are known as the scalpers and they are known to make profits on small price changes. The is quiet a fast paced form of trading and requires a lot of precision and timing. Hence is recommended only for the experienced and pro traders.


Next we have the swing trading or also known as the position trading. These are short term methods of trading and could last from two to six days. Unlike scalping here the aim is to capture the larger price movements in order to make profits. There is another strategy called the trend trading where the traders make use of the trends in the market to make gains. It is always advisable not to trade against the trend as it could be risky. These trends could be either long term, short term or intermediate. Trends are not permanent and are known to change or reverse. An attempt o make gains from the reversal is called the counter trend trading. The form of trading is quiet risky and one should be a pro before venturing into this type of trades.


Forex markets are one of the largest financial markets with a good amount of liquidity. Hence this makes it a great place to trade for making profits. But being a beginner it is always advisable to study the market conditions first before venturing into any kind of real world transactions. The basics could be similar for all but there are certain guide lines of forex trading that differ with countries. Hence it is imperative to understand them as well as forex is dependent on the economic conditions of the country.