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What is forex trading

Mission statement

‘To bring educational resources and personal experience to traders and Investors alike.  To save you time and improve your financial performance'

As promised from my previous post, I will be concentrating this post on Forex Trading.

Woman trading currencies online on forex trading platform.

I would like to commence with a look at the history of the forex market. Approximately 500 years ago the forex market was first established in Amsterdam.

  • Money was in the shape of metal objects.
  • Jump forward to the year 1875 when the Gold standard was introduced. Jump forward again to 1970s and before the internet.

If you were an investor wishing to trade the forex market you had to call a brokerage firm. You had to rely on the broker accepting a phone call as and when the trader wanted to trade. Voice brokerage trading still exists but the majority of forex trading is carried out online. So ‘What is forex trading online about'?

Forex, also known as foreign exchange or FX trading is conducted over the ‘interbank market', which is the top-level foreign exchange market where banks exchange different currencies. The banks can either deal with one another directly or through electronic brokering platforms

New-York-Stock-Exchange

Forex is one of the largest trading markets, with a global daily turnover estimated to exceed $5 trillion US dollars and approximately equivalentto£4.2 trillion GB sterling.

Traders who work with pairs based on the dollar will find the most volume in the US trading session. However, the London stock exchange is the largest of all the stock exchanges. The forex market opens on Sunday evening 2100 GMT and closes on Friday at 2100 GMT.

There are three sessions

1 European markets

2 United States markets

3 Asian markets

The sessions are broken down as follows.

The London Stock Exchange commences at 0800-1700 hrs overlapping with the New York Stock Exchange 1300 pm to 2100 pm GMT,

Australia 2200 – 0600 GMT

and Japan 2300-0700 GMT.

Time frames on forex exchange platforms allow the trader 1 minute, 5 minutes, 15 minutes, 1 hour, 4 hourly, daily, weekly and monthly periods to trade depending on their trading plan and their trading strategy. Forex traders will record their trades in their trading journal.

Currency Pairs

All currency trading is done in pairs. You have to buy one currency and sell another currency. Here are the 3 groups of pairs,

  1. Major pairs: These pairs include AUD/USD, EUR/USD, GBP/USD, NZD/USD, USD/CAD, USD/CHF and USD/JPY
  2. Minor pairs of currency pairs that do not include the US dollar IE EUR/JPY
  3. Exotic pairs of currency pairs of the developing countries.
  4.  
    Forex trading

There are people trading from all walks of life. Until recently the volume came from professional traders, from large companies but as currency trading platforms have improved more retail traders have found forex to be suitable for their investment goals.

Part-time traders are operating out of different rooms of their homes quite often after a day’s work, something that only became possible with the proliferation of the internet.

 

One of the reasons Forex trading is so popular with hobbyist investors is that the markets are open pretty much 24 hours a day, following the different countries’ time zones allowing people from all over the globe to be trading at some time or another.

There are accumulations of these part-time forex traders losing money day after day, they are largely self-taught.

It’s essential that would-be traders don’t invest money they can’t afford to lose as forex trading without an understanding of risk management and position sizing is fraught with risk.

New entrants to the market face a bewildering array of options, platforms and terminology not to mention whether they study fundamental trading or technical trading.

Risk Management

Risk management is essential to help protect a trader from losing all of his or her money in their forex account. This can be put in place by position sizing, setting stop losses and take profit levels to remove profits from the trade safely back into the account.

Position sizing

Position size should be considered before entering into a trade. This will depend on the account size. Should the position size be too large the trader is putting their account into too much risk. When the position size is too small the trader will grow their account more slowly.

In forex trading, the position size is measured in pips and lots.

Lot Sizes

1 A micro lot is 1,000 units of currency;

2 A mini lot is 10,000 units; and

3 A standard lot is 100,000 units you buy or sell in a trade.

Most professional traders risk 1% or less of their account. A pip, which is short for “percentage in point” is normally the smallest part of a currency price that changes.

Stop losses.

A stop-loss closes out a trade if it loses a certain amount of money. It is how you make sure your loss does not exceed the account risk loss.

Its location is also based on the pip risk for the trade. However, in a volatile market, there are times when you can be whip lashed out of a trade and lose more than you had planned for.

This can quite often happen following a news flash that may affect the market you are trading in.

Take profits

There are several ways to decide where to place your take profit position. One way to take profit in a successful trade is to put an order in to close a position when the next support or resistance level is reached.

support-and-resistance-levels

We will discuss support and resistance levels in a later post.

Another common and an extremely simple way to take profit is to simply close the trade at the end of the day, known as day trading. Sometimes I have woken to a nice profit when trading goes into the Asian market, however, sometimes I wake to find the profits I had, disappeared when the trade peaked and changed direction.

Alternatively, you may wish to set your take profit by taking your stop loss size and setting your take profit at 2 times risk. In long term trading, this could increase to 3 times or 4 times risk, this is possible in weekly or monthly trading.

Preparation comes before Action

This post has looked at the history of the forex market. It has discussed the opening of the markets, the sessions available to trade. It has described the different trading times on a forex platform. Currency pairs and risk management have also been described.

The purpose of this post was to look at the question So ‘What is forex trading online about'?

I have introduced you to just some terminology a trader will need to study and inwardly digest before signing up to a forex trading platform or risk your hard-earned savings. There is so much more to discuss and in greater depth.

Subsequent writing will break down the information required before any potential trader should consider entering into a forex trading environment.

If you wish any further topics covered within forex trading please leave a comment below

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Trading and Investing

Mission statement

‘To bring educational resources and personal experience to traders and Investors alike.  To save you time and improve your financial performance'

This introduction to financial trading and investing is aimed at the person first looking for information on this subject.

This initial post ‘financial trading and investing' will be very broad and basic and will then dig down in future posts to discuss in greater depth.

You may be someone who has an interest or a passion who is looking to take this idea online that could potentially lead to a profitable income to enable you to leave the 9-5 grind of your working week.

Learning to trade is not something you are going to want to rush into but to find an area of trading that suits your personality and wallet because you will want to undertake a serious study of one of the many styles of trading.

I will discuss the trading styles that I myself have undertaken in the order that I have undertaken them.

Forex Trading

I came upon forex trading when looking online for making money back in 2015. I was planning to retire in 2018 and had already looked at affiliate marketing but started getting emails and adverts showing me forex trading:

Forex trading

Forex trading is the buying and selling of currencies, for example, the British pound and the United States dollar GBP/USD. There are 8 major currencies traded and 24 minor currencies and then there are the exotic pairs.

Then there are different time frames to trade, short time for scalping, intermediate and long term. The next post will concentrate on Forex Trading.

Stock Trading

This is Financial trading and investing in shares of stocks. This means buying and selling of stocks Normally a minimum of 100 shares. Again this can be short term intraday or long term several days, weeks, months or even years.

Some stocks pay dividends, another way of profiting from your stocks. Stocks can either be bought from a broker over the phone or online via a stock trading platform. We will look into this form of trading in more detail in later posts.

Option Trading

Is the right but not the obligation to buy or sell shares of a stock not belonging to you but being able to profit from the move of the stock. They are bought as contracts of a minimum of 100 shares.

Options can also be traded short term, intra-day, daily, weekly or monthly, however, options will be affected by time delay and can sometimes expire worthless but again I will go into greater depth in future posts.

Futures Trading

I have not ventured into Futures trading at this time however I can give a brief outline of what they involve and again go into greater depth later.

In financial trading and investing, a futures contract is a standardised forward contract, a legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is usually a commodity or financial instrument.Wikipedia

Investing

The aim of investing is to build wealth. This can be as simple as saving money in a bank or building society to earn interest.

Sadly the rate of interest paid from a bank or building society nowadays is negligible. Investing can include the buying and selling of real estate or property.

If you bought a property and improved it by renovation and then sold the property or rented out the property the difference minus tax is the profit. It would be seen as an asset, either in the rental from the property or the cash made, over and above the money laid out for the purchase of the property and the renovation costs.

investing-in-property

However, if you bought a property to live in then this could be seen as liability initially as there would be ongoing cost in maintaining the property and possibly a loss in market value.

When the property is finally sold or valued in later years if the property has gained value in the market place then it will have proved to be an asset.

Investing for Retirement

You may feel you have been investing in your retirement by taking out a pension or be in a workplace pension. On retirement, you will possibly receive a lump sum plus a pension paid monthly in some circumstances or you may have a lump sum that you now need to invest in an annuity to receive the monthly income from that pension.

investing-for-retirement

Other than my own experience in retiring from the national health service and receiving the lump sum and a monthly pension I do not know enough about annuities to comment here.

We talked earlier about stocks and options, stock and option investing can be rewarding but also carries risk.

Investors buy shares of stocks or options in a company. If this particular company pays dividends, then they will be rewarded regardless as long as you keep your stocks in their company.

Another way of being involved in a company is by being an angel investor.

angel-investor

This is where you are involved at the start of the company and invest an amount of money while the company is developing and before they get involved in the stock exchanges or may remain a private company.

Your money will grow as the company grows. It should be realised that more companies than not fail to reach this point, for every 10 companies starting out 70% approximately will fail. Of the other 30%, very good profits can be made but this is not a short term investment and could take at least 5-10 years.

Gold Trading

Investing in Gold and precious metals is another way of investing. Gold prices go up and down as with most investments but overall they can be a good stable investment.

gold-coins

Buying physical Gold can be bought as bullion or coins depending on your means. Gold coins for the smaller investor are more convenient, gold bullion for the more affluent and experienced investor. We will look at this in later posts as to the buying and storage of the gold.

Investing in ourselves

The greatest investment we can make is in ourselves. Financial education, knowledge and experience gained from this are one of the most important investments we can make.

It is not only about making money but also about keeping your money. Being aware of the tax liabilities and also legal tax deductions.

keeping-your-money

Finding the right accountant for this speciality can save you and your financial investments. It can be the difference in success or failure.

There is also an investment in our health and mental well-being to be able to enjoy the profits from our financial trading and investing.

If you are interested in any form of investing and would like more information please comment below:

https://financial-trading-and-investing.com

https://fine-wine-investing.com