Forex Trading Made Easy: A Guide to Trading the Largest Global Market – Guest Editorial
The management team at EagleFX give a detailed perspective from their point of view on the global retail FX market
The management team at EagleFX give a detailed perspective from their point of view on the global retail FX market to simplify the wealth of information for the everyday trader
Whether you are already vaguely familiar with FX trading, or are just hearing the word “Forex” for the very first time and are interested in creating a second stream of income, this article is for you. The forex market is in fact the largest market in the world, generating a massive turnover of approximately $5.3 trillion daily. The ability to trade on all of this price movement brings with it the ability to generate substantial profits. Using the information found below, you too can trade your way to extra money in your bank account.
Where Can I Trade?
In order to trade forex, you’ll need to select at least one broker. It will be the brokerage that provides you with a platform for trading and handles all of the financial processes. When you’re ready to start trading, you will deposit funds with your chosen broker, and when you want to cash out some or all of your profits, it will be the broker that issues this payment. Brokers can vary quite a bit in what they require and offer, but by choosing one of the top firms in the industry, such as EagleFX, you’ll be in good hands and will know that your withdrawals will be fast and your funds secure.
Breakdown of a Currency Pair
Let’s start with the core basics. For starters, you’re likely wondering just what makes for a currency pair. When trading FX, you’ll see that all currencies are traded in pairs. Within the EagleFX trading platform, you’ll see each pair abbreviated and grouped together. An example would be EUR/USD, which is short for the euro and the United States dollar.
When coupled, the first currency listed is known as the Base currency, while the second serves as the Quote currency. The EUR/USD pairing thus tells how many U.S. dollars will be needed in order to purchase one Euro.
Typically, each currency pair will belong to a group, with the two major types being Major and Minor pair. The list of Majors is comprised of the six most actively traded pairs within the market and these six are ideal selections for novice traders due to the fact that they are less volatile than others. Then there are a larger number of Minor pairs, all of which are less actively traded.
There does exist a third type, which are known as Exotic pairs. The list of Exotic pairs is comprised of the currencies of emerging markets. Although not “officially” included in asset groups, cryptocurrencies must be mentioned. These digital assets can be traded on within platforms such as the one provided by EagleFX.
Understanding Bid & Ask Prices
When looking at EagleFX’s price feed, you will notice two different prices for each currency pair. One of these will be the bid price and the other is the ask price. The ask price will be the price paid when entering into a ‘Buy’ trade, while the bid price is the price paid when entering into a ‘Sell’ trade.
The difference between these two prices is what is known as the spread and the spread represents the commission that is being paid to the broker. When searching for a broker, you’ll want to select a firm that offers extremely tight spreads, such as the aforementioned EagleFX, who boasts an average spread of only 0.3 pips.
What are Pips?
What is a pip then? Great question! A pip (which is short for Point in Percentage) indicates the fourth decimal place in a currency pair (or the second when JPY is included in the pair). Most currency pairs will rise and/or decrease in price by about 50 to 100 pips each day, but this of course can vary, dependent upon conditions within the market. If the price of the EUR/USD pair rises from 1.3500 to 1.3550, that would represent a change of 50 pips. Assuming that you had bought the pair at 1.3500 and then exited the trade (sold) at 1.3550, you would have collected a 50-pip profit.
The value of each pip is known as the “pip value.” For any currency pair where the USD (United States Dollar) is listed as the second currency pair, the aforementioned pip values will apply. However, when the USD is listed first as the first in the pair, the pip value may vary slightly. To determine the pip value of the currency pair, simply divide the normal pip value by the current exchange rate. For currency pairs involving JPY, use this exact same process, but multiply by 100.
Do note that the first currency listed within each pair is always considered to be the directional currency on a FX price chart. If you open the EUR/USD chart and see that the price is climbing, this means that the price of the euro is shifting higher relative to the dollar. If on the chart you see that the price is decreasing, this means that the value of the euro is dropping in value relative to the dollar.
When Can I Trade?
The Forex market does observe the same standard operating hours as the stock market. Currency pairs can be traded 24-hours a day, 5-days a week, Monday through Friday. The FX market opens each Monday morning when the Australian markets open for trading and then closes each Friday evening with the U.S. market close their doors. Within each 24-hour period there are four primary trading sessions and those are as follows:
- Sidney Session: 7AM to 4PM
- Tokyo Session: 9AM to 6PM
- London Session: 8AM to 4PM
- New York Session : 8AM to 5PM
Note: All hours mentioned above are local time and may need to be adjusted to your own local time zone when trading. It’s important to further note that when selecting pairs to trade, understand that individual currencies are most active most during the hours that their local market is open for trading. For example, the USD is typically most active during the New York trading session. Price action then tends to slow down once the associated market closes for the night.
News, Data Reports, and Trading
News, financial data reports and macroeconomic events can and will have an impact on currency values. When trading forex, it is vitally important that you continually monitor important news events that will impact the markets. Even if you ultimately consider yourself to be a technical trader, the best trading decisions will come from taking into account major news events, along with scheduled statements and data releases such as the following:
- GDP (Gross Domestic Product) reports
- Unemployment data reports
- CPI (Consumer Price Index) inflation reports
- Interest rate decisions
- Central Bank meetings
As a general rule, it is not considered wise to enter into new trades just ahead of or during important news events.Whenever the asset price is close to a take profit level, most traders opt to close the position in advance of important news releases.
Waiting for the markets to calm after key news has been released is generally considered to be wise. Price movement can remain volatile and erratic for quite some time following the release of important statements or data, so consider letting things calm before entering into an FX trade.
The formula for profitable trading is quite simple. Education + Great Broker = Success. Take the time to learn to master the basics and do not be afraid to practice before trading with real money. EagleFX offers unlimited, free demo accounts to those who want to practice trading within a live platform using demo funds before making a deposit.
The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.