Things Every Trader Should Know About Foreign Exchange

The risk of trading on the Forex market depends on the angle from which you look at it. Instead of talking about risk from a perspective of a trader, we need to take a larger and broader look on the market as a whole.
Once we do that, we can say that risk of trading comes from the nature of the market, as it is decentralized. This means that regulatory bodies for this market don’t exist. This might sound like something that is irrelevant, but the very nature of the Forex increases the risk for all participants. This happens because there is nobody to regulate the currency rates, and thus the rates of the foreign exchange don’t represent the real value of those currencies.

Some relevant facts about the foreign exchange

When it comes to volume of the trading, the Forex markets are the biggest of all types of trading. This means that they have high liquidity which makes it easier to enter a position or to exit it. Do note that this only applies to the major currencies. But it applies to currency pairs you can find on 24option and other binary options brokers (once again, only major currency pairs count).

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Forex isn’t just one big market, but several smaller markets that are connected. This is why it is possible to trade 24 hours a day without any problems. This is a big advantage for people who hunt for good positions throughout the day (night).

High liquidity of the foreign exchange allows participants to enter places with enormous leverages. It isn’t strange to find a trade in which you can enter with a leverage of 50:1 or more. This means that you can invest a small amount of money and have a potential to gain fifty or hundred times more. But we all know what leverage means and that it is a double-edged sword. Only the most experienced traders should consider high leverages on their positions. Beginners should stick to regular trading or little leverage (up to 5:1 ratio).

Forex trader is also an economic analyst

Numerous factors influence the currency, and thus a Forex trader has to consider them before they buy or sell. All participants on this market need some basic analytical skills to prevent losses caused by distinct elements. The most important thing for a foreign exchange member is to focus on only a few currencies and follow the state of the countries and responses from their central banks. A trader will be able to predict the future condition of the currency as long as they analyze all of the factors that may influence it.

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The need to be an analyst, as well as a trader, spawned two different approaches to the foreign exchange (we are talking about speculators). One approach focuses on active trading in which the trader enters and exits positions at the peak times and thus earning bigger spread due to their activity. The second method focuses on leverage, and in this case, active trading doesn’t matter as it is possible to make the large profit in short period.

Author: William Jackson

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