Here Some Secrets of Forex Trading
Forex stands for foreign exchange, refers in a general sense to the worldwide market that deals with currency trading. It is the largest financial market in the world in terms of value and volume. It is also the most crucial network that facilitates the movement of foreign exchange for business and for governments.
The need to exchange currency is inevitable due to the global nature of trade. This is the primary reason why Forex has developed as the most liquid financial market in the world. It outweighs the global stock market in terms of financial involvement and in the number of deals that take place. As of April 2013, the Forex market had an average trading of US$5.3 trillion per day.
The Forex market has no centralized controlling authority – the exchange is carried out over the internet. For a transaction to be made, the traders use computer networked over-the-counter (OTC) channel. The market is operational 24 hours a day and works in real time environment with the signals fluctuating every second.
The key secret to this market is “doing less”. This has benefited my successful traders to achieve desired levels of profits. Here are some of the very basic tricks and tactics that help traders to thrive in such a volatile market.
Trade for the Risk of Reward
Forex trade involves a risk-reward characteristic that dominates the scenario. The amateur traders in an attempt to play the safe game tend to risk minimal trading amount and often bear losses. As a result, many traders have wrecked their asset base. On the other hand, successful traders risk a certain amount of money for the reward of twice or thrice the recovery amount. The risk to reward ratio generally fluctuates between 1:2 and 1:3 but it is bound to serve good margins.
Trade for Higher Time Frames
The exchange market is based on a real-time framework where the values fluctuate every second. The lower timeframe time consideration varies to the time constraint of a few minutes. While the longer timeframe is considered variation in a span of hours or a day. The traders who experience a boom in the market are not affected by meagre fluctuations. Such traders believe in bigger risks and bigger rewards over longer time intervals.
Trade for Bigger Exchanges
The successful traders hunt for bigger trades. Big trading opportunities do not come very often. Successful forex traders understand the market policies and which trade will fetch a good profit. They do not believe in “quantity” rather they patiently wait for the right deal. On the other hand, the traders who pounce on every other deal tend to lose what they earn, and this may often result in significant loses and even bankruptcy.
Trading forex on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.