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What are the Forex Trading Basics? How much do you need to learn Forex trading to be successful?

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So you are new to the world of Forex Binary Trading and are looking to learn Forex Trading Basics. You have certainly found the right place to learn Forex trading. We will go over some of the Forex Trading Basics like High and Low Frequency Forex trading and the key terminologies. Let’s start with the basic – Foreign Currency Exchange. To learn Forex trading, you need to know that the market operates almost 24 hours a day through different time zones and is one of the biggest in terms of trading size and volume. It is a high risk investment and demands patience and discipline.

As long as there is Import and Export, this market will remain active. The currencies are quoted in pairs as in one against the other. Though all the currencies are traded, the majority of the market is usually dominated by the United States Dollar (USD), The Euro, The Japanese Yen (JPY) and the Great Britain Pound (GBP), followed by the Australian Dollar (AUD), Chinese Yuan (CNY), Canadian Dollar (CAD) and Swiss Francs (CHF). Some important terminologies to remember in this field are the Quotes, PIP, Lot, Leverage and Margin. One of the important things to remember in Forex Trading Basics is that the trade is conducted on borrowed money. It is also often called the inter-bank transaction as the trading is mostly facilitated through financial institutions.

  • Quotes – Foreign Exchange is always quoted in pairs like USD vs. Euro.
  • PIP – The currencies are usually displayed at up to 4 decimal places. The profit or loss is measured on the basis of the last decimal point. For e.g. If the USD/CAD moved from 1.2491 to 1.2497, then the USD has risen 6 pips.
  • Lot – Smallest trade size.
  • Leverage or Margin – The ratio which indicates the amount you will be borrowing versus the required security deposit you have to have in your account when you make the trade. For example a leverage of 100:1 means you can trade with a 10$ security deposit for a 1000$ trade.

Now that we have learned the terminologies, let’s move on to learn Forex trading and the Forex Trading Basics. Forex can be traded either in the Spot trading or as Binary Options. Let’s focus on The Forex Binary Trading. In the Forex Binary Trading the profit or risk is fixed from the beginning. For e.g. if the option offers 75% to winners than for every 100$ invested you stand to either lose all of your investment or earn $75 profit on your trade plus your investment. Binary trading is a bit expensive but is a lot safer with the loss margins capped at the onset.

  • You have to predict whether the value of the currency will increase or decrease over time. Your gain or loss is dependent on this bet.
  • There is no use of margins in the Forex Binary Trading.
  • You know your payout and return in advance.
  • The Forex Binary Trading is time defined. It will expire at the time determined by you, whether you want it to be 1 hour, 1 day or 1 month; it is up to you. Early closure or Rollover may or may not be available.
  • The contracts in Forex Binary Trading are collateralised i.e. both buyers and sellers need to put in capital for their trade. Each contract is for 100$. You can buy the contracts for either for or against the outcome.

Now we will move to the Forex Trading Basics within the Forex Binary Trading. To learn Forex trading, one has to learn the type of Binary options available. We will focus on the most popular option – the High and Low frequency Forex Trading. High Frequency Trading (HFT), also known as Algorithmic Trading, usually involves trading in large quantities of small and low profit options. It operates in a very short time span; sometimes it can be as short as a few seconds. The focus is on trading volumes; speed is the key. Trading strategies are designed and based on quantitative models while speed is dependent mostly on computers. The risks of software anomaly, dynamic market conditions and complianceImage are often attributed to this kind of Forex Binary Trading. Some of the commonly used strategies that can be used independently or together include:

  • Classic Arbitrage – using the difference between the no arbitrage price and the market price.
  • Latency Arbitrage – Using the time lag between when the prices quoted and when the actual market movement happened.
  • Liquidity proving – works on the discrepancies in the order book for different currencies and places them on different platforms for trading
  • Multiple Events – working on multiple currencies and their functions like correlation and momentum at the same time.

The following is an example of how High frequency trading looks like on a chart of USD/CAD within 12 hours:

Next in line in the Forex Trading Basics is the Low Frequency Forex Trading. This kind of trading has lower intra-day trades. The trade may take place over a few seconds or as long as a few years. The strategies in low frequency trading may include momentum, reversal, lower volatility, futures, dispersion etc. Statistical arbitrages can be used in the low frequency trades as well. Though this is also done mostly on commercial softwares, human involvement and interpretation are crucial. If you are trying to get into the market without a big firm with high end expensive infrastructure, it would be ideal to learn Forex Trading Basics with low frequency trades. This is less stressful since the margin of error can be restricted.

In conclusion, in order to learn the Forex Trading Basics and Forex trading as a whole, one has to master the key terms and concepts. Whether you chose the Forex Binary Trading or the Spot trading, these Forex Trading Basics will keep you in a good stead. It is easy to get over confident after a few successes, but it is important to remain calm and collected. This market is volatile and the level of risk is high. High frequency trading can get very addictive so self-control is a must. If you are looking for more details and tools to help you find your ground in Forex trading, visit teachutrading.com.

Want to learn High Frequency Trading? Want to become a great Forex Trader?

Teachutrading.com has the answer you are looking for. Contact us today!!

 

The post What are the Forex Trading Basics? How much do you need to learn Forex trading to be successful? appeared first on Teachu Trading.


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