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Morning Star Forex Pattern

by Fxigor

One of the reversal candlesticks is the morning star candlestick pattern. As we know, reversal candlesticks are trading patterns that suggest a possible change in future trends trend reversal.

Morning Star Forex Pattern

Morning Star Forex Pattern represents reversal candlestick pattern that predicts hypothetical future price reversals to upside. The morning star pattern consists of three candles: a large bearish candlestick, a small candle, and a bullish large candle.

morning star forex pattern

 

The morning star pattern consists of 3 candles:

  1. Large bearish candle
  2. Small bullish or bearish or Doji candle
  3. Large bullish candle

The second candle can any small candle. Usually, it is a doji candle or a small bearish candle, but sometimes it can be a small bearish candle.

Morning star pattern can be seen in any part of the trading industry such as stocks trading, forex trading, indices, ETF, commodities, etc. It is part of reversal candlestick patterns analysis that analysts use in technical analysis.

The opposite candlestick pattern for the morning star is the evening star candlestick pattern. It is a bearish version of the bullish evening star pattern.

Filed Under: Chart Pattern

Evening Star Forex Pattern

by Fxigor

Recently, I wrote one article related to reversal candlesticks. This article concludes that reversal candlesticks are trading patterns that suggest a possible change in future trends, trend reversal. One of the excellent reversal candlestick patterns is the evening star. 

Evening Star Forex Pattern

Evening Star Forex Pattern represents reversal candlestick pattern that predicts hypothetical future price reversals to the downside. The evening star pattern consists of three candles: a large bullish candlestick, a small candle, and a red large candle. 

Evening star forex pattern

The evening star pattern consists of 3 candles:

  1. Large bullish candle
  2. Small bullish or bearish or Doji candle
  3. Large bearish candle

 

Evening star pattern can be seen in stocks trading, forex trading, indices, at any trading asset. It is part of technical analysis, reversal candlestick patterns analysis.

The second candle can any small candle. Usually, it is a doji candle or a small bearish candle, but sometimes it can be a small bullish candle.

The opposite candlestick pattern for the evening star is the morning star candlestick pattern. It is a bullish version of the evening star pattern.

Filed Under: Chart Pattern

How to Predict Forex Movement? – Practical Example

by Fxigor

To trade any market requires knowledge and practice, but you know more than these two when it comes to Forex trading. Forex depends on a lot of factors other than the ones included in technical analysis. These are fundamental factors, and they vary extensively from one country to the other. This makes predicting price movements in the Forex market more difficult. However, with the help of specific tools and indicators, it can be made possible. In this article, you will get to know all about Forex and how to predict forex movement.

How to predict forex movement?

To predict forex movement, traders use past market price data,  trading patterns, market sentiment, and fundamental analysis. However, the future price is tough to predict accurately, so professional traders create several possible price movement scenarios and analyze basic price levels. 

Foreign exchange, or Forex, is one of the most traded assets in the world. Even though it is banned in many Asian countries, currency worth over $5 trillion is sold every day. The majority of this trade comes from big corporations and banks; however, even small and individual traders collectively move currencies worth trillions of dollars every day.

Two driving forces have a significant impact on Forex: demand and supply. There is one more thing that influences these driving forces. We call it sentiment, which innumerable factors can mold. Investors’ moods depend heavily on the news and data received from official sources. They also keep an eye on the development in different countries, especially in the countries where the Forex market operates 24/7. 

 This is called fundamental analysis. The strength of a currency depends directly on the development and socio-economic stability of its respective country. Therefore, every positive or negative effect of a country has the power to appreciate or depreciate the value of the said currency. Since it is almost impossible to predict all these events, investors use various tools and indicators to remove most risk factors. Fortunately, compared to the initial days, the tools and indicators available today allow traders and investors to make better trading strategies. They can implement a range of approaches and employ different methodologies to help them stay ahead in the game.

We have created an outlook in this article on using different tools and indicators to make different approaches.

What Approach is Ideal to Predict Forex Movements

Before we discuss the types of approaches and decide which one is perfect for you, it is always better to brush up on the basics. First, you should know all about the currency pairs. Forex is only traded in two currencies where the first currency is known as the base currency, and the other currency is called the counter or quote currency. For example, in the pair USD/GBP, USD will be your base currency, and GBP will be your counter currency. It is essential to choose a pair wisely because most of the trading strategies depend on it. The most popular currency pairs are EUR/USD, USD/JPY, and GBP/USD. These are major currencies, but you can find good opportunities by trading less popular currencies as well.

Along with the choice of currency, you also need to give due importance to the time frame as it impacts the trading approach. Since the Forex market operates 24 hours, seven days a week, many traders open and close their position on the same day. This is called day trading. Traders open a new position every day when the market opens and close it at the end of the day, irrespective of their stand. This is done to avoid any drastic price fluctuation that may happen overnight. Some traders believe in holding a position for a slightly more extended period. This period is up to 14 days, and this type of trading is called swing trading. The strategies adopted by swing traders are similar to those that long-term traders, who hold a position for even years, use. Swing traders, like long-term traders, also refrain from acting to every price movement.

Other than these proactive tradings, there are different types of Forex trading strategies that focus on the bigger picture. Take momentum and range trading, for example, where traders look at price movements and analyze them to find long-term trends. In momentum trading, traders pay attention to an unusual price movement, whether up or down, to see if there is a scope for the beginning of a long-term trend. In range trading, traders lay stress on the levels of support or resistance. They spot these levels in the past data with the expectation of seeing these levels again in the future. Range trading is suitable for currencies that show noticeable price movements, but there is no clear long-term trend.

Using Fundamental and Technical Analysis to Predict Forex Movements

There are two types of analysis that traders do to see where the Forex market is heading and which currency pairs are more profitable. These two analysis types are fundamental analysis and technical analysis. Let’s read about the significant differences between these two before dissecting them in detail in the next section.

Fundamental analysis is based on the external and internal events that can influence the value or strength. These include the country’s financial markets and economic state and various government and monetary policies.

On the other hand, technical analysis is solely concerned with patterns and trends. It predicts all the price movements based on the data that is available in historical price charts. The aim is to predict future Forex trends based on stats, facts, and figures.

To conclude, we can assert that fundamental analysis aims to identify either undervalued or overvalued currencies and find their real value in the process. Traders consider external factors that can potentially drive price. On the contrary, the technical analysis thinks of the laws of supply and demand as its principle. It focuses only on the currency price. The aim is to check if the market trends will repeat themselves by studying previous stats and data. The rest of the unquantifiable data is neglected in the process.

Practical Example how to predict forex movement

To enter into a trade, traders need to have several triggers based on technical and fundamental analysis. For example, a trader can enter into the trade after a strong bullish trend, for the example above yesterday high, during multi weeks bullish trend (price above EMA200), and when Industrial production has excellent results. See the example below:

 

forex trading plan example

Forex Trading and Fundamental Analysis

Fundamental analysis takes into consideration all the factors that can influence exchange rates. This method is all about studying the fundamentals like government policies, monetary policies, housing markets, rate of interest, and more to predict a currency’s strength. The main focus of fundamental analysis is identifying a mispriced currency that will correct itself over time as the external factors lose their power. Fundamental analysis is not particularly short-term trading, although it is used in various strategies. It predicts long-term price movements. 

There are so many external factors that can influence the price of a currency. Some of these, like natural disasters or medical emergencies, cannot be predicted. However, there are some key economic indicators that you can learn about, as these are important in terms of fundamental analysis. The key economic indicators are:

  1. Economic Growth: As a general rule of thumb, it is seen that a country’s economic growth directly impacts the value of its currency. If the country is performing well, it will drive its respective currency’s prices up and vice versa. Traders analyze a country’s overall economic state by considering its GDP (Gross Domestic Product). It tells the traders if the economy is expanding or shrinking and at what rate. An improvement in economic growth assures that investments will remain safe, thus attracting more investors. An increased number of people will be willing to buy a developing or developed country’s financial assets or stocks.
  2. Inflation: Inflation refers to the rise in the prices of goods and services produced in a country over an economic period. This rise is good for the economy but in a controlled manner. It affects the monetary policies as the central authorities will like to maintain their control over it. Inflation weighs on the exchange rates. For fundamental analysis, the crucial inflation measures considered are the RPI (Retail Price Index) and the CPI (Consumer Price Index).
  3. Interest Rates: Here, we are talking about the interest on savings given by the government. It has one of the biggest influences on the Forex market. If the interest rates are on the higher side, more investors would be eager to invest as their investment will fetch a higher interest rate. They will hold more money in savings accounts or in the form of other instruments to take advantage of the higher savings rates. This will increase the demand for the local currency, which is always beneficial for the economy. 
  4. Trade and Capital Balances: To maintain the currency’s value, every country strives to achieve trade balances, that is, the balance between imports and exports. More imports mean more outflow of the currency and vice versa. Countries that rely heavily on exports need to be careful at all times. Since the primary source of income for them is an investment from foreigners, the currency value will drop if their exports drop. For example, if more investors are taking their assets out of the country, it shows that the market sentiments have changed. There will be more outflow of currency than inflow, and it is not a good sign.
  5. Employment and Wages: Employment and corresponding wages are essential determinants of a country’s economic growth. If a country has been dealing with a lack of vacancies and unemployment, it proves that the economy is not growing. Additionally, a constant increase in employment is also not an assured sign of growth. If the vacancies are rising, but the wages remain stagnant, there is disguised unemployment in a country. Therefore, employment and wages both should increase.
  6. Geopolitics: You cannot see a country and its currencies as two separate entities. A currency represents the state of its respective country. It is natural to presume that a politically stable country will have a stronger currency. If there is political instability or estranged foreign relationships, the value of the currency will suffer. This is why a currency sees a slight fall every time there are important elections of war-like situations between any two countries.

How to Use an Economic Calendar for Forex Movement Prediction

When it comes to fundamental analysis, it isn’t easy to track all the significant events. Fortunately, most events are scheduled. Traders can check that calendar and stay in the know. An economic calendar includes all the essential political and economic events that are likely to happen in a country and can affect the currency, the financial markets, or the Forex in any way. These economic calendars are essential guides to traders and investors.

Various brokers offer economic calendars on their platform, including important central or federal banks like the Federal Reserve, the Bank of England, the Bank of Japan, and the European Central Bank. These calendars also tell you about international political meetings’ schedules or when the world leaders will be coming together to declare something important. 

Which key drivers are essential for you will be subjective as different external factors affect other economies. Not every key driver is equally important for every country. Therefore, you need to be careful while selecting your indicators. For example, the service sector dominates the UK economy. This makes the service sector’s overall performance a crucial determinant in finalizing if the UK economy performed well or not. Another example would be China, which is a manufacturing economy. Even if the service sector remains stagnant, but the manufacturing unit shows steady growth, we will consider the Chinese economy to be expanding.

Forex Trading and Technical Analysis

Technical analysis doesn’t concern itself with the future of exchange rates or the reasons behind it. This is because the technical analysis does not revolve around price movements. It is centered around the concept of demand and supply. Traders rely on technical analysis using various price charts with data regarding the historical performance and exchange rate. 

Traders and investors use various tools and indicators to find past patterns and trends. It is done with the belief that these patterns will repeat themselves. Technical analysts are of the view that one can gauge crucial information from even a single chart. With these patterns’ help, you can detect the market’s mood and predict if that will change soon. Technical analysis aims to let you know in advance when the mood might change and how you can leverage it for your benefit.

While fundamental analysis is more competent for finding long-term trends, technical analysis is majorly used for short-term plans and strategies. Day traders and swing traders rely heavily on technical analysis. 

There are various ways in which you can conduct technical analysis. But, there are a few historical data points and references that occur repeatedly. For example, the opening price, the closing price, the lowest price, and the highest price. These are some of the standard parameters that technical analysts refer to while conducting the analysis.

Technical Tools to Predict Forex

One of the most critical technical analysis practices is to predict future exchange rate movements by using past data. Traders look deep into the market data and look for similar signals and patterns. With the help of the past patterns that emerge in past data, traders analyze where the market is headed next. This may not sound very easy to you, but traders use many tools to identify these patterns possible.

Spot the Trend and Predict Forex

A sequence or similar occurrence of patterns creates a trend. It tells you that the most recent exchange rates of currencies will start a long-term trend. The length of this trend is stipulated by studying how an identical or similar trend panned out earlier.

Forex traders need to pay attention to three types of trends – Downtrend, Uptrend, and Sideways Trend. All the Forex trends are explained below:

A rising trend is an overall move higher in price, created by higher swing lows and higher swing highs. If you spot a rising trend or uptrend according to your technical analysis, you should see the exchange rate heading higher, and it will continue to climb up.

The downtrend is an overall move lower in price, created by lower swing highs and lower swing lows. You do not need to spot a different trend to spot a downtrend. Since currencies are traded in pairs, if one currency gets stronger, the other one gets weaker. This means that if one currency shows an uptrend, the other one will automatically display a downtrend. 

Sideways Trend: A sideways market or a  sideways drift occurs when the prices of investments remain in a tight price range for any period.

Manually, it is not easy to identify trends. The data is limitless, and the movements in the market are quick. You cannot get lost in the data because you always have to act quickly. To make technical analysis easier, traders use several tools. The most popular ones use moving averages as their principle. Moving averages, in simple terms, identifies Forex market trends. Let’s read more about moving averages and other tools.

  • Moving Averages (MA): The moving averages aim to smoothen the historical price data and calculate an exchange’s average rate over a defined time. The tool has a default setting, but you can change the time at your convenience. For example, let’s assume that your moving averages are set for 20 days. Then, it will provide you with the average exchange rate of this defined period. This rate is recalculated each day. On the next day, that is the 21st day; the tool will drop the first day and accept the 21st day as the last day. The MA helps the traders in comparing the current exchange rate with the averages. This allows them to filter out any unexplained or sudden movements that hold the potential to distort the previous price data.
  • Moving Average Convergence Divergence (MACD): The MACD uses averages in two ways, the MA for a short period and the general average for a long time period. Traders keep an eye for the moment when the Ma will cross over with the other average. If the MA surpasses the general average, it is a sign that the exchange rate will be moving higher.

Both these tools are based on averages and are used by the traders to predict stability and strength. It is crucial to know these two aspects when predicting Forex, but traders should understand these trends better. Instead of using only one of these tools, you should use them in conjunction with other tools and indicators. The result will clear your doubts regarding the volatility of a currency pair along with its trend. The following tools are also widely used by Forex traders and investors:

  1. Ichimoku: It is a club-based tool that is also called Ichimoku Kinko Hyo. Along with identifying these trends, the Ichimoku Cloud also helps traders test the momentum or the strength of the trend as it defines the places where the levels of resistance and support sit. In addition to defining these levels’ present place, the Ichimoku Cloud, unlike other tools and indicators, also defines where these levels are expected to occur next or in the future. It is, without a doubt, a valuable Forex tool.
  2. Relative Strength Index: The relative strength index or the RSI is a momentum indicator. It compares your average losses and average profits made for the same time period; let’s assume for 14 days when the exchange rates rise. It tells the traders if a currency is likely to become over or undervalued in the future.
  3. Average True Range: Also known as the ATR, the tool does not identify the trend but helps measure its volatility. It is another type of MA that compares an exchange rate’s highs and lows over a defined period of time. The comparison is drawn near the most recent closing, thus, giving you the five current trading price ranges. This is finally averaged, producing the ATR.
  4. Standard Deviation: This tool measures the movement of a price size. It hopes to identify if the rates will be more or less volatile shortly. Like the Average True Range, this tool is also concerned with volatility rather than finding the trend.
  5. Bollinger Bands: Two Bollinger bands set the upper and the lower exchange rate, and the trade generally happen within this set of bands. The width between the bands may increase or decrease, thus defining volatility. If the rate goes outside the bands, you can tell that it will either break lower or higher depending on its direction.

Different approaches use these tools. Let’s read about some of the most popular ones:

1. Econometric Approach

All the tools explained above facilitate traders in making profitable trading strategies. However, it must be focused that every tool serves a different purpose, and none is without any limitations. This is why traders are always advised to use these tools in conjunction to get a more defined picture of trends and their volatility. 

The most technical approach possible in Forex would be the econometric approach. As every trader puts trust in different variables, they create different strategies using different tools. This is why the econometric model differs a lot. Many variables influence Forex, and it depends on a trader’s individual perspective, which they consider more important or influential. And everything about this is subjective; thus, models are different. 

The econometric model is a good technical model as it allows traders to use different tools for different currencies. For example, if you are trading GBP, it would be better to use a tool that focuses on the service rather than the production of goods as the UK is a service sector.

2. Relative Economic Strength Approach

While every data report has something different to offer, everything is truly interlinked. The central banks create monetary policies after considering the economic data, especially inflation. Wage growth, and GDP. When you predict in which direction the exchange rate will be heading after considering the country’s overall economic health, you are using relative economic strength as your primary approach.

 3. Purchase Power Parity

This approach is different from the previous approach as it is not focused on predicting the direction of the exchange rates, but it tries to figure out the actual rate. This approach is based on one assumption – prices of services and goods should be equalized everywhere.

4. Asset Market Model and Balance Payment Theory

The two models focus on the flow of investment and trade of different countries. The import-export balance has a huge impact on the exchange rate. There has to be a trade balance in the country. If the country is importing more goods than exporting, its value is likely to depreciate and vice versa. It is also better to have a trade surplus. 

Similarly, there has to be more foreign investment in the country as well. Not only does it increase the value of the currency, but it also shows that investors have faith in its economy, which, in turn, invites more investment.

5. Market Sentiments

Understanding market sentiments is essential as it influences demand and supply. Demand and supply can push the exchange rates in either direction. While with other instruments, like stocks, you can look at the volume traded to assess the market conditions, it is not applicable in Forex. The trade is made over-the-counter. Traders should focus on the Forex futures market. This will tell us about the sentiments that are there in the market regarding the current exchange rate. 

Most traders use the reports by Commitment of Traders for this purpose. It is an official report and completely reliable. However, do keep in mind that this market is still a tiny entity compared to the spot market. Therefore, the mood of the future’s market cannot always be accepted at its face value.

Conclusion

To predict Forex movements can be overwhelming, especially for new traders. Both fundamental and technical analysis are important parts of this journey, and it is easy to get confused. Keep in mind that you should focus on one of these analyses without completely neglecting the other one. 

Some many tools and indicators can guide you. Before you begin trading, make yourself aware of all the things that can aid you. Every trader will have a different strategy. Since the currency and the country are conjoined, you must read the official authorities’ financial and geopolitical statements to confirm the stability. Always remember to start slow and gradually increase your investment.

Never try to shoot blind arrows in the Forex market, as you will not get any profits. It is important to educate oneself on different tools and their functions. Instead of relying on just one tool, find the ones that are compatible with each other and your trading strategy.

 

Filed Under: Forex strategy

What is Forex Trading?

by Fxigor

Since its inspection in 1867, Forex trading has intrigued many traders. In addition to being a volatile tradable asset, the charm of exchanging foreign currencies seems to grow stronger with time. According to the reports released by the Bank of International settlements, approximately $5.1 trillion Forex is traded daily.

Generally, we exchange currencies for several reasons like tourism, education, commerce, and more, but how is currency trading different, and is it for you? Let’s explore these questions in this article.

What is forex trading?

Forex trading is the conversion of one national currency into another to make a profit. Forex trading involves buying and selling currency pairs and can be defined as buying one currency, and another’s simultaneous selling.

Now the next thing that we need to define is the forex market.

What is the forex market?

The forex market is a global marketplace for exchanging national currencies against one another, including banks, funds, trading companies, and individuals.

The place where this exchange takes place is known as the Forex market. You might not be aware of it, but every single person is affected by currencies. Currencies are required for all imports and exports. Let’s assume that you are a connoisseur of French cheese, but you live in the USA. To get cheese from France, someone has to pay the French retailer in Euros. It could be a company, you, or anyone making the purchase. This means that Euros will be bought with an equivalent value of USD to import cheese. Similarly, if a French man wishes to buy Indian cotton, he will have to pay in INR. And, the trail will go on.

Coming back to the Forex market, you must know that it is unlike other trading markets as it lacks a central marketplace for the exchange to take place. All the exchanges happen over-the-counter or OTC electronically. This means that traders make all the transactions via computer networks. Since there is no central place for exchange and transactions happen virtually, this market operates 24/7 for five full days and one-half day for a week. There are no boundaries in this market. The trade is worldwide, with London, Tokyo, Frankfurt, Singapore, Sydney, New York, Zurich, Hong Kong, and Paris being major financial centers globally. These places cover almost all the different time zones. As a trading day ends in Hong Kong or Tokyo, another trading day begins in New York. This is why this market is bustling all the time.

Forex history

The stock exchange is believed to have begun in the early 16th century and was established in 1611. Compared to that, the Forex market is relatively new. Yes, countries have been exchanging currencies since they started minting the, but it hasn’t been long since the market was properly established and regulated. In 1971, after the Bretton Woods agreement, an increased number of currencies could float freely and could be exchanged.  You can read more details in our forex history article.

The modern forex market was established in December 1971. when The Smithsonian Agreement was announced. In 1971, a new dollar standard was created whereby several industrialized states’ currencies were pegged to the US dollar.  U.S. dollars were no longer backed and exchanged for gold.

The value of currencies has always varied. This makes it volatile, thus, giving birth to the need for trading and exchange services. Most of the Forex trading is conducted by investment and commercial banks. They represent their clients. There are good opportunities for small and individual traders are well.

Spot, Forwards, and Futures Markets

Big corporations, institutions, and small traders trade Forex in three ways. The first one is in the spot market. It is one of the most popular ways trade is made because the other two markets, the futures, and the forwards market, use it as their underlying asset. Earlier, the futures market was the most popular because it allowed individual traders to hold a position for a more extended period. The spot market was able to shadow the futures market because of technological advancements. Now individual traders have access to numerous Forex brokers, and they can easily keep an eye on their investments through the trading portals offered to them by their brokers. 

Generally, when someone says Forex market, by default, they are talking about the spot market. Its two counterparts are more popular among larger institutions as they look forward to hedging their risks out to a later date in the future.

Another major difference amongst these markets is that the current prices are used for buying and selling currencies in the spot market. This price, determined by demand and supply, tells traders about several things, like a country’s economic performance, current interest rate, and local and global sentiments towards an ongoing political situation. Since these are the key fundamental factors, traders can assess the future price movements using these current rates or how one currency will perform against them. The deals made in this market are called spot deals. These deals are bilateral in nature. Here, one party a currency is delivered by one party to the other on an agreed-upon amount to the other party. In exchange, the first party receives another currency of a specified amount at a pre-discussed exchange rate.

Once the position gets closed, cash is used for settlement. Despite the spot market being famous for transactions happening in the present rather than the future, it can take around two days to complete one transaction.

Instead of trading the actual currencies, deals are made in contracts in the futures and forwards markets. These deals claim to a certain type of currency, a future settlement date, and a defined per unit price.

Two parties trade contracts over the counter in the forwards market. The party settles all the terms of trade.

The futures market operates differently as futures contracts are traded based on a standard size and a settled date. This market is regulated by the National Futures Association in the United States. Futures contracts are more specific in nature. They have details like how many units have been traded, the delivery and settlement dates, the minimum increment in price, and more. These details are not customizable. The exchange offers clearance and settlement to traders.

Both futures and forwards are binding. They are also settled for cash upon expiry. It’s important to know that contracts can be bought or sold before the expiry date. Both markets offer protection against the risk involved in currency trading.

Forex and Hedging 

The value of currencies fluctuates continuously. This becomes difficult for companies that do business overseas to limit their risk. When they are buying or selling goods outside of their native countries, it biomes easier if the value of the currency stays put. There is a way to hedge this currency risk that is offered by the Forex markets. An exchange rate is fixed, and this will be used for the transactions.

Hedging is possible by buying or selling currencies in advance in either the forward market or the swap market. These markets lock the exchange rate. 

Currency value fluctuation is avoidable when only personal utilities are bought, but even a pip value change can disturb the books of a large-scale transaction. Consider this example. Suppose that a US-based company is planning to sell locally produced blenders in the European markets. The company begins trading when the EUR/USD exchange rate is €1 to $1. Let’s assume that, to the manufacturer, one blender costs $100. The company decides to sell it for  €150 in the European market. Ideally, the company will make $50 on every blender sold in Europe because both the currencies have equal values in this example. In a turn of events, the dollar’s value begins to appreciate against the euro, and the exchange rate becomes 0.80. This means that $0.80 is required to purchase €1.

While appreciation of your native currency is a good thing, it will be problematic for this company because their manufacturing cost will remain the same, that is $100, but the selling price will depreciate. Now €150 is equivalent to $120. The company will lose a profit of $30 on every blender sold. With the strengthening of the dollar, the company’s profit margin shrank.

To reduce this risk, the company should have shorted the Euro and bought the USD when both the currencies were parity. This would have allowed the company to maintain profits even when the dollar appreciated.

The futures market allows this kind of currency hedging. The main advantage of trading in this market is that the central authority makes sure that the contracts are clear in terms and standardized. The main difference between futures and forwards is that the latter is more liquid as the former contracts are decentralized. Futures contracts also exist within an inter-banking system globally.

Forex volatility

Forex volatility is the measure of overall price fluctuations over a certain time, how rapidly a market’s prices change in the forex market. It is merely the standard deviation of returns.

The forex market is volatile because several factors can affect a currency’s value other than the technical ones. These factors are called fundamental factors. They cover a whole range of powerful influencers like the interest rate, GDP, tourism, trade flow, economic strength, and a country’s geopolitical stability. These factors are important as they affect the demand and supply of a currency, thus, creating everyday volatility. Traders stand to profit when the value of the currency increases or decreases compared to the other one. While speculating, you must also look at both the currencies of your currency pair. A decrease in the value of one currency means a rise in the value of the other currency.

Let’s see how you can make speculations with this example. Suppose a trader expects that the USA’s interest rates will rise compared to those prevailing in Australia, keeping the 0.71 as the exchange rate between the pair AUD/USD (AUD 1.00 = USD 0.71). If what this trader is hoping for happens, the American dollar demand will rise, subsequently leading to the fall in the two currencies’ exchange rate as now you need fewer USDs to one AUD.

Let’s assume that with the rise in the interest rate, the exchange rate has fallen to 0.50 (AUD 1.00 = USD 0.50). Now you need USD 0.21 less to buy one AUD. If the trader had trusted his speculations and went short on AUD and long of USD, he would have profited from this interest rate fluctuation. This is how you can use other factors to make speculations as well.

Currency: an Asset Class

Currencies act as an asset class in two different ways:

  • It allows you to earn the differential interest rate that exists between two currencies.
  • Profit could be made by leveraging the exchange rate.

It is quite straightforward to profit from the difference in the interest rates of the two currencies. An investor can buy the one that offers a higher rate of interest and short the other one. Before the financial crisis of 2008, traders would buy GBP and short JPY because GBP offered a much higher interest rate.

How is Currency Trading Possible

Trading, in general, was difficult for small and individual traders before the internet, Forex trading more so. Before the internet made Forex trading accessible to everyone, the market was dominated by hedge funds, multinational corporations, and some individuals with high net worths. The market was exclusive because it demanded a huge investment in terms of capital. The Internet turned it into a retail market that aimed at individual traders. They could access the forex markets without large investment requirements as banks or brokers represented them. Traders also get high leverage from brokers that they can use to make larger profits using smaller deposits. 

Forex risk management

Forex risk management represents a process that allows currency traders to minimize losses resulting from forex exchange rate fluctuations. Forex risk management is based on the ability to protect your trading portfolio from losses. Usually, forex traders need to risk less than 2% from their account in one moment.

loss and gain how to recover

Like other trading markets, Forex is also not away from risks. Since you will be trading two currencies simultaneously, you might find the process confusing and overwhelming.

Banks across the world that trade with each other makes the interbank market. These banks are aware of the sovereign and credit risks involved, and they accept them after consideration. They try to keep themselves safe by establishing regulated internal processes. These regulations are imposed throughout the industry so that every participating bank is protected.

All the participating banks in this interbank market offer bids for the currency of their choice, making supply and demand the mechanism on which it runs. The trade flows are quite large, making it nearly impossible for rogue traders in the system to influence the prices in any way. The system is well-defined and helps in creating transparency.

Small retailers generally trade with small or semi-regulated brokers or dealers. This can increase the risk as these dealers do re-quote prices. They are not above trading against their customers as well. It is better to trade with a dealer that operates from a region where forex is regulated, as this will offer some degree of protection. On a general note, Forex rules and regulations are inconsistent throughout the world.

Dealers from the UK and the US are required to a comparatively more strict code of conduct. If you are planning to trade Forex, it would be good to look for regulated brokers from these two regions.

Forex Trading Pros and Challenges

Pro: Talking about daily trading volume, the Forex market is up-and-coming. Since the maximum number of transactions happens in this market, there is more liquidity here, making it easier for traders to enter or leave a trade.

Challenge: Brokers and dealers often offer high leverage to their clients. It can even go higher than 100:1. At the same time, it is undoubtedly beneficial when your speculations are right, but it can leave you in debt if you are wrong. One must understand the challenges involved with leverage before employing them.

Pro: The market operates without a break for five days a week. The day starts with Australia and ends in New York. The most important trading centers like Hong Kong, Tokyo, Paris, Frankfurt, London, and Singapore and New York and Sydney cover all the time zones. 

Challenge: Forex trading is different as several indicators and economic fundamentals influence currencies’ values. A trader must learn to see the bigger picture if they hope for their speculations to be productive.

Conclusion

If a trader wants to begin trading with smaller capital, then the Forex market will be up-and-coming for them. They can make a significant profit with their limited funds by doing swing trading or day trading. If you wish to invest a larger sum in the market, consider long-term trading based on fundamental analysis. A carry trade can be beneficial too. To be a successful Forex trader, one must consider both fundamental and technical analysis.

Filed Under: Finance education

Best Forex Trading App 2021

by Fxigor

Forex trading became more popular with the investigation of the internet. More small and individual traders were able to step into this market now. The internet makes this market accessible to everyone and offers several useful Forex trading apps that make trading easier.

Best Forex Trading App 2021

The best forex trading app is the Metatrader app and various applications based on MT4 platform such as AvatradeGO,  HF App, Think Trader, Fxpro App, etc. All these apps support forex trading apps for android and iPhone.  Except for Metatrader based applications, apps like TD Ameritrade and Stock Trainer are different and have some prediction analytics tools in their options.

It is a competitive market for brokers and dealers as well. Everyone wants to offer the best to their clients and retain them. Many of them are investing heavily in the making of Forex apps. Many individual builders are also doing the same. 

Apps make trading easier and more accessible. You don’t have to sit in front of a desktop all the time to monitor price movements. With these apps’ help, you can keep an eye on your account on the go via tablets and smartphones. 

We live in a world that is forever moving. This makes it imperative that we stay interconnected, especially when discussing the foreign exchange market, because every news can impact it. Traders need to check daily business updates to ensure that their trading strategies are still relevant. The Forex market has a global and decentralized environment. It allows businesses and financial institutions to trade currencies 24/7.

Approximately Forex worth $5.5 trillion is traded every single day. It the largest financial market with the maximum number of transactions per day. Large corporations and international banks mostly dominate this market as they trade around the clock and make profits by converting currencies. 

Forex trading supports international investments and trades as well. How? Let’s understand it from this example. Let’s assume that a store wants to buy cheese from Europe and sell it in their store. To purchase the cheese, they will have to pay the seller in euros. With the help of Forex, they can easily exchange currencies with no hassle. 

Talking about enabling international trades, Forex trading offers productive investment opportunities. If you have the required skills and knowledge, you can easily make a lot of money through Forex trading. In fact, many experienced companies and individuals do make profits in billions every day.

To take advantage of this trading market completely, traders and investors need a platform to facilitate their actions without any hiccups. These platforms run their bots through the entire market and alert the user about the best possible opportunities. Having said that, we would also like to highlight that there are many foreign exchange apps to choose from. To make the selection process easier for you, we have shortlisted the best platforms available to traders.

Foreign Exchange Apps – trade forex on your phone

  1. MetaTrader app

MetaTrader is the most famous desktop and mobile application in the forex industry. This free app offers excellent real-time live quotes, free indicators, and easy navigation.

Whether you are a new trader or an experienced one, it is not possible that you haven’t come across this trading platform. It is one of the most popular Forex trading platforms and a holy grail for many retail investors and traders. You can trade stocks, futures, Forex, options, and many other financial instruments on your Android devices.

The app uses several real-time charts to supply its users with general analysis related to the financial markets. The data used for this analysis include price monitoring, quotes, and historical information.

This app lets you switch between TP and SL values on charts and among different financial instruments as well. You will find interactive charts on this platform that you can zoom in and out with a pinch.

Some of the analytical instruments included on MetaTrader are Gann, Elliott tools, Fibonacci, and other updated financial news well.

HF App is an excellent automated platform for Forex trading based on the Mt4 mobile platform. Over 180 countries use this broker and mobile platform, and more than 2 million clients.

One of the best things about this platform is that it is good for both beginners and professional Forex traders. This is possible because of flexible leverage, which allows you to maximize your profits even with limited investment. However, how much leverage you get depends on your experience and knowledge. This must seem restrictive to some, but this is a positive aspect of this platform as it saves beginners from making unnecessary losses. You can go through the educational resources available at HF to become an expert.

You can begin trading with both variable and fixed spreads, but the best part is, once you are done with a trade, your withdrawal requests will be processed within a few minutes. The software, too, is quite user-friendly. Just sign up at this platform to create an account, get your documents verified virtually, and you can begin trading as soon as your funds are transferred.

Wait, there’s more! This software allows you to conduct trade within milliseconds. No more missed opportunities. You can also get daily commentaries coming your way from the market research team of the firm. There are a couple of free trading tools that you can use to make better trading decisions. 

The software is available on both Windows and iOS. You can download it on an Android form as well.

avatrade go app forex trading

Another excellent mobile platform is Avatrade Go. This app offers more than 1000 instruments for trading!

Fxpro APP  where traders can trade 260+ CFD instruments in Forex, Metals, Indices, Shares, Energies & Futures directly from your mobile. It is a great app for those who want to conduct advanced Forex trading and look for analysis tools to support it. This platform allows you to quickly search and track some of the best stocks and currencies worthy of investing. There are 160 intelligence indicators, over 14 types of advanced charts, and many drawing tools.

Its earlier version was only accessible on desktops, but it is now available on mobile phones. There are a lot of functionalities like touch-enabled trade management, split-screen, and quad-screen. These functionalities allow you to keep an eye on multiple markets at the same moment.

This app uses cloud-technology as well. This enables users to access analysis tools, price alerts, and trade data from any device. You can use this app to get streaming quotes for several cryptocurrencies, major Forex trading, indices, commodities, and precious metals. You can also take advantage of the news curated professionally, covering the American, Asian, and European markets.

You will find various in-built trading tools like data release alerts, intelligence reports, risk scanners, trading simulators, and an economic calendar. All these tools are controlled and authorized by the FCA (UK). This makes the app more trustworthy. You can download this app for free on iOS and Android, and it is free.

2. Stock Trainer

Stock Trainer is a software by A-life Software that is perfect for those who wish to invest in financial instruments like stocks and Forex but are still unsure or lack the expertise. It is a good Forex trading platform for beginners and experts alike. 

The app uses real market data to offer virtual stock trading encounters. This allows you to gain knowledge, insights, and experience of how trading works in real-time. The best part about this app is that it is highly comprehensive when talking about features. It covers over 20 stock markets and offers support for limit orders and stop-loss orders.

You can easily build your portfolio over this app. There are several graphical interface themes that you can use to personalize your experience. There is extensive data as old as 10 years, detailing the highest and lowest performing stocks. You can also find news related to investment, some business magazines, and other related information. This information can help you in preparing a sound strategy. This app can help you in building an experience.

This app is available on Android Google Play. You can start with the free version and purchase an ad-free version later on. The biggest downside of this app is that it is not available for iOS users.

 

3. TD Ameritrade

Last but not least on our list is TD Ameritrade. It is, without a doubt, amongst the most popular Forex trading platforms in America. It is a well-established and known platform for trading shares, stocks, and Forex. 

One of the most effective uses of this platform will be a source of information for Forex trading. It is brimming with educational resources that help traders, especially the budding ones, understand the factors that can make them lose money. It is done via its Thinkorswim platform. All the material available on it is sourced from the NFA (National Futures Association). It really helps traders understand the underlying risks involved in trading. 

It is important to educate yourself if you are beginning, and this platform will make you feel at ease and better prepared. You can learn risk management here, which is an essential part of any trading. You will not be rushing into anything and make mistakes if you are well-versed with the resources available here.

While TD Ameritrade offers you a plethora of useful information, some might find it lacking when it comes to Forex trading. This could be because several instruments are traded on this platform which does not focus completely on Forex. Yes, the resources and information are useful, but the platform does not offer a comprehensive price comparison imperative for Forex trading. 

Nonetheless, you can always use this platform to keep yourself updated with the latest Forex updates.

Filed Under: Platforms

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Risk Warning: Trading leveraged products such as Forex and CFDs may not be suitable for all investors as they carry a high degree of risk to your capital. Trading such products is risky and you may lose all of your invested capital. Before deciding to trade, please ensure that you understand the risks involved, taking into account your investment objectives and level of experience.

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