What trading strategy can be applied?
In this part, we will touch on a very important topic. There are many approaches to market analysis, on which a huge number of trading strategies are based. Trader bring to trader attention a fairly simple principle of trading from significant price levels. In the future, as trader trading skills develop, trader will be able to independently develop new strategies. The “Graphical Analysis for 1 Hour” provides examples of several trading strategies (trading on a breakout of a trend line, trading strategy from support-resistance levels, trading using graphical analysis patterns). Trader can choose the most suitable option for trader. In our opinion, the strategy of trading from support-resistance levels is best suited for a novice trader.
At the same time, to start trading, as a rule, neither a lot of money nor special equipment is required. It is enough to have access to the Internet and a trading terminal – a special program on a computer. Recently, even mobile applications have appeared to access Forex. However, this does not mean that it is easy to make money on Forex, on the contrary, the risks of losses are extremely high.
What do trader need to start Forex trading?
First, trader conclude an agreement with a forex dealer and install the dealer’s trading program on a computer, smartphone or tablet. This program reflects the rates of all currencies in which transactions can be made.
Forex dealer can use currency quotes of international currency exchanges, banks, Russian and foreign brokers, news agencies and other reliable sources. A complete list of possible quote providers is available in the Basic Standard for Forex Dealers .
In order to make Forex transactions, trader must transfer a deposit to the dealer’s account. This money will be a guarantee that trader will be able to fulfill trader obligations under forex transactions.
The program online reflects all trader trading operations – conditional “purchases” and “sales” of currency. But real money comes to trader account or is debited from it only after trader close transactions. If trader correctly predicted the movement of the exchange rate, the dealer credits money to trader account – trader deposit increases. If trader didn’t guess, the deposit decreases.
Trader can withdraw a deposit from the dealer’s account only after all transactions are closed. And trader can replenish trader account at any time. It is important to remember that in a bad scenario, trader risk losing the entire amount of the deposit.
How are transactions made in the forex market?
Before a trade, trader choose two different currencies – a currency pair. One of them is basic, the second is quoted. Trader task is to try to predict how the exchange rate of the quoted currency will change relative to the base one. If trader are sure that the rate of the quoted currency will rise, trader can open a deal to “buy” it. If trader think that it will fall – to “sell”.
Most often, the dollar is chosen as the base currency; trader can choose any other quoted currency.
Trader have chosen a currency pair – euro and dollar. The dollar is the base currency, the euro is the quote currency. For example, trader expect the euro to rise against the dollar.
Now the euro is worth $1,213. Trader open a deal to “buy” the euro in the amount of $100. In reality, euros do not come to trader bank account, but are reflected in the internal register of transactions of the forex dealer and on trader balance in the program.
Let’s assume that the price of the euro really rises to $1.223 in a day. Trader think that it won’t grow any more and close the deal. This is how trader lock in profit: $(1.223 – 1.213) × 100 = $1. The forex dealer will credit this money to trader real bank account – trader deposit will be replenished. If the euro exchange rate falls to $1.113, trader loss will be: $(1.213 – 1.113) × 100 = $10. And the forex dealer, on the contrary, will write off this money from trader bank account.
It should be borne in mind that the forex dealer takes a commission for his services. For example, for opening and maintaining an account, connecting to a trading program, conducting transactions, transferring money to a bank account and other services. All rates must be specified in the contract.
Is it possible to make money on Forex?
Theoretically possible. Making money on Forex is just as real as, for example, playing on the stock market. Legal forex dealers who have a license from the Bank of Russia operate according to strict and transparent rules. They must comply with the Law “On the Securities Market” , the requirements of the Bank of Russia for forex dealers (Decree of the Bank of Russia dated September 2, 2015 No. 3773-U “On Certain Requirements for the Activities of a Forex Dealer”), the Basic Standard for Forex Dealers and others regulations.
If trader can make accurate forecasts of how the situation in the foreign exchange market will change, trader can make good money.
But according to statistics, players lose 3-4 times more money on Forex than they earn. The fact is that it is very difficult to predict the dynamics of exchange rates. The situation in the foreign exchange market depends on many political and economic factors, the behavior of the world’s largest banks, funds and companies. Even news and rumors affect exchange rates.
If trader’re willing to take the risk, it’s best to start with the theory:
• Learn how the international currency market works.
• Get acquainted with the methods of fundamental and technical analysis – they help to predict the movement of any variables using mathematical models.
• Understand the features of derivative financial instruments (PFIs, experts also call them derivatives). After all, transactions with forex dealers are PFI agreements for currency or currency pairs.
• Read articles about the stock exchange and investments . Many books have been written on the topic of trading.
And before concluding an agreement with a forex dealer, trader need to carefully study the documents. Particular attention should be paid to the risks of trading in the forex market, which the dealer is obliged to warn trader about.