What is the Forex market and how does it work? - Forex Trading Tips

What is the Forex market and how does it work? - Forex Trading Tips

June 10, 2022
15 days ago

What is the Forex market and how does it work? - Forex Trading Tips

For many people, the foreign exchange market is the natural place to trade. in which they move when it comes to trading. Today we want to tell you what is the foreign exchange market, how it works and what are the best tips to profit and make a good Forex trading.

What is the foreign exchange market

There are currently more than 170 currencies in the world, and most of them operate in a proprietary market that never closes. When you travel to a foreign country your money may not be worth the same as on a later trip. The fluctuations allow us to obtain economic benefit when we operate with currencies. These currency differences are what allows the foreign exchange market to be one of the most active in the world.

Every day it moves approximately a whopping $6 trillion to $7 trillion.

How the foreign exchange market works

The factors that drive the fluctuation of a currency are quite diverse. Firstly, the strength of that country's economy, followed by the different socio-economic scenarios that take place. If you want an example of current events in 2022, you only have to look at the depreciation of the ruble, the Russian currency.

With a fall of more than 30%, it is the perfect example of how currencies can become a great opportunity when it comes to good dividends. Generally speaking, people take advantage of these changing situations to trade in the foreign exchange market.

Currently, of the total number of currencies in the world, 13 of them are so-called convertible currencies, i.e. currencies that can be freely exchanged for other currencies.

The current convertible currencies are as follows:

  • Danish krone
  • Norwegian krone
  • Swedish krona
  • Australian dollar
  • Canadian Dollar
  • New Zealand Dollar
  • New Zealand Dollar
  • Euro
  • Swiss Franc
  • Pound Sterling
  • Russian ruble
  • Japanese Yen
  • Chinese Yuan

Non-convertible currencies are those that are used exclusively within the territory of the country that issues them, and correspond to economies that are not as strong.

Therefore, the Forex market operates exclusively with convertible currencies.

A very common practice is to trade with the fluctuation of the dollar against the euro. If the dollar is at a low level with respect to the single European currency, it is the time to buy and then, when its value increases, to obtain the desired profit.

Tools to control trading

When you are clear that you want to trade in the foreign exchange market, you must have at your disposal a series of tools that will help you to do it well. Remember that any lack of discipline or haphazard trading is the perfect breeding ground for disaster.

You will know that trading has a high graphic component, that is to say, observing the evolution of currency pairs is a good mechanism to try to predict their evolution. Within trading, the simple moving average or SMA and the exponential moving average or EMA are often used.

The simple moving average is an indicator that shows the evolution of a specific value. This value is obtained by calculating the sum total of the price that has been providing a currency divided by the number of days we are analyzing. Indeed, it is a classic average AND it is an element that helps to quickly identify a trend.

However, the exponential moving average has an added feature. In this case, it is an exponential average which gives more importance to the most recent data. As you move backwards in the graph, the values will be of lesser importance compared to the latest ones.

Making the most of support and resistance

These terms are commonly used in trading, and identifying them will help you understand how a security works.

We speak of support when the price no longer falls regularly and begins to rise, and we speak of resistance when it no longer rises and begins to fall. To make it easier for you to understand, they correspond to both the floor and the ceiling of a particular security. As a trader, you must be able to identify both supports and resistances to try to take advantage of these situations and to be able to analyze the future trend.

In order for you to trade successfully, a good analysis of support and resistance can be the key to making sure you can take advantage of them. Establishing support and resistance charts is a good starting point to begin to identify these spaces and to be able to act accordingly.

Therefore, our recommendation always goes through a training period if you are not yet able to identify both supports and resistances.

You have a lot of contrasted information with which you can start training yourself. To tell the truth, a section on supports and resistances would take several blog entries, but at least knowing how to identify these terms is a good start. You can watch the evolution of the currency pairs on your computer screen, and draw horizontal lines with both supports and resistances to see within which range they move.

This will give you an idea of what the usual price range is, and allow you to take the right amount of risk to make the most of your trades.

The foreign exchange market is always very attractive, so if you want to start your trading operations within it, you have the advantage of being able to operate 24 hours a day every day of the year.

If you are thinking of investing, we recommend joining NAGA, which offers a DEMO account with $10,000 so you can test your trading skills before using real money.

In addition, you can earn money by helping others to earn money, by sharing your trades, or by copying the trades of more experienced traders. Discover the benefits of social trading.

Trader Channel.

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