Is it possible to earn much money on the forex trading online?
The answer is YES. As a matter of fact it is not the money made by magic. Forex is a serious business. As any kind of business forex requires much time, financial and mental efforts as well as high qualification. The purpose of our website is to help you understand if this business suits you, provide you with all the necessary knowledge needed for the successful online trading on forex, save you from certain pitfalls which every trader comes across.
So, what is online forex trading?
Forex is an international currency market which was established in 1971 when the world trading changed the fixed rates for the volatile ones. Since that the value of a currency is purely determined by the market and economic conditions of a country.
Nowadays the foreign exchange market is open on a 24-hour basis on weekdays from 2 am on Monday till 2 am on Saturday. Everyday purchase and sell of different currencies like GBP (Great British Pound), EUR (European Euro), USD (US Dollar), JPY (Japanese YEN), CHF (Swiss Franc), CAD (Canadian Dollar), AUD (Australian Dollar) are conducted on the market by banks, market makers, investors, speculators or just ordinary traders. The investments in trading operations with currencies dispose the biggest potential of generating profits. The total volume of transactions closed on forex daily is estimated in 1-3 billion dollars which is 4-5 times higher than the stock market indicators. Once forex trading was handled with the help of massive terminal equipment. At present online forex trading is available to traders via the special computer programs. Online forex trading provides various opportunities to traders without leaving home.
The trading is aimed at buying a currency at the lowest price and selling a currency at the highest price possible at that very particular moment of the trading process. The purpose of a trader is to try to determine the direction of price changes and to buy a currency at an increasing price or to sell a currency at a falling price, then, having made a reverse transaction, to receive a profit.
While trading on forex it is essential to understand the quoted prices especially for beginners. As a rule, quotations are expressed by a five-digit number. For example, USD/JPY=114.90 means that 1 US dollar is estimated at 114.90 Japanese Yen. GBP/USD=2.0252 signifies that 1 British pound is equal to 2.0252 US dollars. When the quotations change, for example, from USD/JPY=114.92 to USD/JPY=114.93 or from GBP/USD=2.0254 to GBP/USD=2.0255 they say that the price had changed by 1 point. So, the yen has cheapened by 1 point but the pound had risen by 1 point.
Each forex participant plays a role of a buyer or a seller of a particular currency in a particular transaction. A seller offers a higher price of a currency like GBP/USD=2.0254 while a buyer will look for a lower price of a currency like GBP/USD=2.0250. The price of supply is called ASK while the price of demand is called BID. That is why if you suppose that GBP/USD price will be rising you will decide to buy the pound so far it is at a low price in order to sell it later at a higher price. When you buy GBP/USD you OPEN your position, when you are going to sell your pounds you CLOSE your position. OPEN and CLOSE positions are also referred to as LONG and SHORT positions. Sometimes the quotations are displayed in pairs like USD/JPY=114.88/92. This denotes a BID/ASK pair.
The difference between the bid and ask rates is called SPREAD. The spread is a means of profit to a person who exposes the quotation. Let us consider a pair USD/JPY=104.75/85 with the spread in 10 points. You sell 100 US dollars and get 100x104.75=10475 Japanese Yen. If someone is willing to buy 100 US dollars they will have to pay 100x104.85=10485 Japanese Yen. The bureau de change will earn 10485-10475=10 Japanese Yen. This is how brokers make profits on the forex market. The spread value varies for different market participants. The spread for those who make transactions in million dollars is minimal, just a few points but it can guarantee a weighty profit. For minor forex participants the spread value is much higher. So, bid rates, ask rates and spread are the key notions to comprehend for a trader when working on the forex market.
There are certain trading instruments which prevent a trader from unforeseen losses and help fix a planned profit. They are STOP and LIMIT orders. An opened position can be closed at any time when a currency rate has reached a particular value. In order to ensure yourself from significant losses while the downward movement of a currency, especially in a situation when you do not control the market or can lose the control over it, you apply to the STOP order. Thus, you indicate the price value lower than the current value under which your position must be closed without any other additional indications. In case the STOP order will be set too close to the current price value a random price change can close the position at a loss, if too far then the losses will be unnecessarily huge. LIMIT is a quotation indicated by a trader which ensures closing of the position with a profit.
How to become a trader and start an online trading on your own on forex?
One should take into consideration three steps.
- 1.To choose a suitable broker (forex trading is handled through the intermediary of a broker)
- 2.To open a personal bank account (the account will be used for the trading transactions)
- 3.To install a special computer program (it will help to carry out the trading)
Let us now take a closer look at each of these points.
First of all, it is necessary to choose a reliable brokerage company
which will offer high-quality brokerage services to conduct trading operations on the forex market via the Internet or the phone. Buy and sell transactions are made on behalf of a client of the brokerage company. Besides, the brokerage services include providing a trader with analytical information, trading strategies of high-qualified specialists, analysts’ consultation, a free access to the trading platform and so on. The client and the brokerage company shoulder a mutual responsibility and provide guarantees which are stipulated in the contract of rendering the brokerage services. One should bear in mind that the larger a brokerage company the more qualitative services it renders but to cooperate with such a company one needs to dispose a larger amount of money.
The next issue concerns account opening for the online forex trading.
That can be done in two ways.
- 1.Via the Internet following the instructions in the website of the broker. Later the broker will send all the documents to the client via the post for the written confirmation of the contract.
- 2.The account can be activated in the broker’s office so that all the documents will be immediately signed.
The account is opened in one of the common currencies. As a rule they are dollars, euro, rubles. The trading can be made in other currencies. The currency conversion will be performed automatically with the help of the software according to the current exchange rates. The amount of money to open the account varies in different brokerage companies ranging from 1 US dollar to 100-200 US dollars.
The final item is software
provided by the broker to install in the computer and the access to the internet. The software represents a trading terminal which activates the online forex trading. The software enables a trader to receive all the forex news in due time. Each trading platform is equipped with a set of necessary functions useful for an active trader.
All of them have a similar structure and value. They are easy and fast to operate and ensure security and effectiveness. When the software is installed in the computer the trading terminal is displayed on the screen. The main purpose of the trading platform is to show the major currency pairs and exchange rates online for forex trading. Moreover, the platform gives you an opportunity for an effective buy and sell of assets, currencies and for realizing various transactions. The platform allows you to see the indicators of your personal accounts’ status, to receive the information about transactions, open positions, profits and losses. The program displays diagrams online, enables you to perform different calculations and execute buy and sell deals in no time.
Brokers offer different trading platforms, for example, MetaTrader 4, TradeMaster, Ninja Trader, DevlaniTrader 4 and many others.
An appropriate trading platform is a half way to the success. Forex traders distinguish technical and fundamental analysis which they apply to in order to predict the exchange rates directions. The technical analysis is a statistic and mathematic analysis of the previous quotation prices which enables prediction of the following prices. The initial data for the technical analysis are the highest and the lowest prices, the prices of the opened and closed positions at a particular period of time, the volume of the operations. The analysis represents itself in a number of diagrams which are displayed on the trading platform. The diagrams exactly show the direction of the prices’ movement or a so- called trend online.
The fundamental analysis is another type of analysis widely practiced on forex. Fundamental factors are the key macroeconomic indicators of a national economics state which have an impact on the forex participants and on the level of currency rates. These factors fall under the consideration of the fundamental analysis. It assesses the political, economic, financial and credit policies of countries. The analysis incorporates refinancing rates by central banks, economic policies of governments, potential political changes, all sorts of prognoses and expectations. The technical analysis is suitable to exploit for short time intervals or, on the contrary, for long terms to research the global trends. The fundamental analysis allows estimating the factors influencing the exchange rates dynamics for a period of several days till several weeks.
Any trader who engages in the online forex trading should not only be guided by the technical or fundamental analysis but also should find a trading strategy. A trading strategy is a set of rules to follow when making a transaction. Some traders work out their own strategies while others prefer already ready ones. There are 3 types of strategies depending on the time characteristics: long term, medium term and short term strategies. Those who cannot devote much time to forex should choose long or medium term strategies. Those who have much free time can rely on short term trading strategies which are more beneficial but risky as well. That is why those who once took to them change for medium or long term strategies.
The next criterion is a currency pair as for each time limited strategy there is a particular currency pair. For working out an own strategy a trader should find a particular consistent pattern, then learn it thoroughly, try to analyze it with the reference to historical data (previous exchange rates) and after that test it. In any case before putting in practice any strategy a trader should not be in a hurry and invest all his money in one strategy. Practically every broker offers to open a demo account gratis which can be used by a trader to test a strategy. When the results of testing are favorable, a trader can start employing the strategy on the real forex account.