“What is FX Trading

 > Explanatory Article by Marios Kyriakou, MSc Economics


About the author: Marios Kyriakou has a bachelor’s degree in Economics from the University of Cyprus and a master’s degree in Economics from the University of Warwick. He is also a holder of CySEC’s Advanced Certificate in Financial Services Legal Framework and a professional in Online Trading, Forex and CFDs with more than 7 years of experience.

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<Last updated 14.04.2020>

Dear reader,

Hi! If you are interested in Forex please read carefully the below article so you can be prepared and fully informed about trading currency pairs.

 

What is FX Trading?

Forex trading is the simultaneous buying of one currency and selling another. Currencies are traded through a broker or dealer and are traded in pairs. The majors are the most liquid and widely traded currency pairs in the world. Trades can take place anywhere as long as you have an Internet connection!

The scale of the Forex Market means that liquidity (the amount of buying and selling volume happening at any given time) – is extremely high. Liquidity is very important because it determines how easily prices can change over a given time period.

The dollar is the most traded currency, taking up to approx 80% of all transactions (2019).

In the Forex Market trillions is traded daily, making it the largest and most liquid market in the world. Currencies, assets can be easily sold or bought, in very short period. When trading Forex, you get rapid execution and price certainty (under normal market conditions).

 

What are the Different Ways to Trade Forex (foreign currency)?

The most popular ones are spot forex, currency futures, currency options, and currency exchange-traded funds (or ETFs).

Currency futures are a transferable contract that specifies the price at which a currency can be bought or sold at a future date. For example, currency futures are traded via exchanges, such as the CME (Chicago Mercantile Exchange)

Since currency forward rates are based on the currency spot rate, currency futures tend to change as the spot rates changes. Currency futures contracts are marked-to-market daily.

 

What are the types of Online Trading Brokers?

Brokers basically come in two forms:

1. Market makers, as their name suggests, “make” or set their own bid and ask prices themselves and

2. Electronic Communications Networks (ECN), Electronic Communication Network is the name given for trading platforms that automatically match customer’s buy and sell orders at stated prices. These stated prices are gathered from different market makers, banks, and even other traders who use the ECN.

Market Makers cannot make prices that deviate significantly from the ECN prices. Competition between service providers and regulation prevents it.

 

Which are the 4 major trading sessions?

The Forex Market can be broken up into four major trading sessions: the Sydney session, the Tokyo session, the London session, and the New York session.

They overlap throughout the day as different markets open and close. When these sessions overlap they create high volatility hours, thus opportunities to trade and generate profit within those hours.

Actual open and close times are based on local business hours, with most business hours starting somewhere between 7-9 AM local time. Open and close times will also vary during the months of October/November and March/April as some countries (like the United States, England and Australia) shift to/from daylight savings time (DST).

 

What are the best days to trade based on trend forming criteria?

We know that the London session is the busiest out of all the other sessions, but there are also certain days in the week where all the markets tend to show more movement. It’s best to trade during the middle of the week, since this is when the most action happens. Tuesday – Wednesday -Thursday.

If there is no price move, no huge amount of volume traded, not a large number of participants, then no trends will form .


 

“I hope I am clear on this one. If not, contact us on social media and we will do our best to help you.

Thank you for reading my articles and watching my videos.”

Marios Kyriakou

Disclaimer: This article is intended for educational purposes only and does not replace independent professional judgement. Its purpose is to act as a complementary educational service to society, promoting personal development and social, economic and cultural progress of citizens. While this content has been prepared in good faith, no representation or warranty, express or implied, is or will be made and no responsibility or liability is or will be accepted by the creator to the accuracy or completeness of the information presented or any other written or oral information made available to any interested party and any such liability is expressly disclaimed.
Risk Warning: Trading in Forex and Contracts for Difference (CFDs), which are leveraged products involves substantial risk of loss as there is considerable exposure to risk in any off-exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of the markets that you are trading. You should carefully consider your investment objectives, level of experience and risk appetite before making a decision to trade with us. Most importantly, do not invest money you cannot afford to lose. It is possible to lose all the initial capital invested.

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