5 Important Forex Trading Concepts You Should Know

5 Important Forex Trading Concepts You Should Know
5 Important Forex Trading Concepts You Should Know

Looking to get into the forex trading business? There are many different things you will need to learn about the trade. Every year, the forex market sees new entrants and leavers. You can find individual traders as well as corporates in this market. Forex trading has grown tremendously and the markets have become more vibrant. Considering how this market is one of the easiest to enter, many people looking to make some profit in the financial market consider forex trading as a great option. If you are planning to get into this trade, you need to inform yourself on some key concepts. Let us look at some of these here below.

1. Forex Analysis

One of the initial concepts that you will learn about is forex analysis. You will find two main concepts and they are fundamental analysis and technical analysis. Fundamental analysis is the consideration of major economic factors to analyze the market. In this regard, things like GDP, inflation and other macroeconomic factors are analyzed. Fundamental analysis helps a trader learn about the long-term outlook of the market. Technical analysis, on the other hand, depends on the price action and momentum. This type of analysis takes place on a daily and hourly basis.

2. Trends

Another major concept that you need to learn about is trend-following. In the technical side of analysis, trend following refers to the situation where a trader follows the price movement and then buys or sells based on the signals. Following the trend is crucial for profit-making. Indeed, most traders who are engaged in short-term trading use this concept a lot. Trend-following has its disadvantages though. To start with, the accuracy of the trend-following tools is low. Besides, the market only trends 30% of the time.

3. Trading Strategy

Every beginner will also encounter various trading strategies. The two most common trading strategies are scalping and day trading. Day trading refers to watching the market on a daily basis and making several trades during the day. Scalping, on the other hand, refers to making several small trades in a span of a short time – usually in minutes. There are other strategies in the market but the scalping vs day trading debate dominates the market. This is because both methods of trade are used by short-term retail traders.

Every beginner will also encounter various trading strategies
Every beginner will also encounter various trading strategies

4. Range Trading

Another crucial forex trading concept that every beginner should learn about is range trading. As opposed to trend-following, this form of trading considers aspects of demand and supply in the market. Traders who do ranging usually focus on market consolidation. Since the market is said to have 70% overall consolidation, these traders are likely to have a bigger window to make profits. Range following is not without disadvantages though. The market is characterized by high levels of volatility and range traders are exposed to this volatility for longer periods. In addition, it is often difficult to accurately determine the two extremes of the range.

5. Leverage

In the financial markets, traders have access to leverage at varying degrees. In the forex market, leverage is accessible to all traders usually in a ratio of 100:1. As a beginner, you will need to fully understand leverage as a concept to succeed. Many traders tend to misuse the leverage and as a result – lose a lot of money. Leverage should be used in moderation and consideration of the trading account. Forex trading involves a lot of risk management and traders need to especially deal with the availability of leverage with care. Leverage is provided by forex brokers, who are the link between the trader and the currencies being exchanged.

Conclusion

There are indeed many different concepts that you can learn as a beginner in the forex market. Forex trading involves lots of different activities and new concepts arise at every turn. The market is made up of many different entities and the strategies used to make profits are unlimited. There are different tools, technologies and information sources used by traders each day. The above concepts are however common across the market and beginners are likely to encounter them first. It is important to understand these concepts and begin trading when you are fully prepared.

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