Are You After Forex Trading Basics And Approaches
The forex markets are definitely attracting a lot of heat from the retail investment
community at the moment, as one of the few avenues of good returns for small investors with a high appetite for risk. But there is a long way to go before you can jump into the market- you need to start with the forex trading basics.
Firstly, let's get it right at the outset - forex trading is a two edged sword- the rewards can be high, but so are the risks. And the balance definitely falls towards the risk side when you are starting out your forex trading. But you can swing that back in your favour if you take the time to understand the market properly.
Where to start? Well, first off what is forex trading? The foreign exchange markets are there first to serve the needs of business exchanging goods, and money, through international trade. These are paid for in the currency of manufacture.
Additionally, many investors want to look outside their home countries, and put their money into another country's stock or credit markets. Once again you exchange your home currency for the currency of the country you invest in.
Then there are the big boys from the investment banks and trading houses, who are looking to speculate and play the market for good returns. Until recently they had a lock on all the profits to be made.
That is no longer true- changes in regulation, the massive explosion of bandwidth that came with the internet revolution, and the innovation of forex brokers looking for more customers has led to the new arena of speculative retail forex trading.
Next in stop in our tour of forex trading basics - how to trade? You need to decide which forex trading approach is going to suit you. On the one hand there is fundamental analysis, which is really about looking at the things that seem to shape the forex markets- news on the economy, trading figures, political uncertainty. Many of these event have a big knock on to the strength of a currency.
Technical analysis, on the other hand, doesn't care for causes of market moves. Traders taking this approach are only interested in the patterns the rates make. These seem to follow certain predictable cycles, especially over the short term. If you have the right software to analyse past price movements, and chart out the trading indicators, you can put trades right into the profit taking sweet spot.
The decision as to which approach to take up depends on skills, and time frame of trading. To do decent fundamental analysis, you must have a good grasp of international economics, access to good market intelligence, and a longer time frame over which to play the market.
Technical analysis require something much simpler - behind all the mumbo jumbo, you just need to be able to spot patterns, know how to take advantage of the, and then trade a plan (and stick to it!). It still takes time, but with commitment and discipline, this is probably the best option for new traders still getting to grips with forex trading basics.
by: Bentley Loveday.
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