Forex currency quotes: how to make money on exchange rate fluctuations
On January 15, 2015, in just one day, investors could increase their deposit by more than a quarter. On that day, the Swiss Central Bank announced the cancellation of the artificial ceiling, thereby sending the national currency to float freely. For 1 day, the Swiss franc soared 26% against the US dollar and 30% against the euro. True, such luck does not always happen. In addition, there were those who, at this jump, on the contrary, lost money. About what the Forex currency market is , how to make money on the currency, read the review.
Each country, with rare exceptions, has its own national currency. Currency is the same tool as raw materials or securities. It can be sold, bought, that is, exchanged for other currencies. True, for example, you cannot directly exchange the Mexican peso for the Indian rupee. Therefore, freely convertible currencies were taken as the basis through which any exchange can be made on the stock exchange or Forex.
The value of the national currency in the equivalent of other currencies to some extent reflects the state of the country’s economy. Any changes in it lead to a change in the rate that the Central Bank controls. And you can earn on these fluctuations. If you understand what factors and how will affect the value of the Forex currency, you can earn on the exchange rate difference.
Where to trade currency:
- Banks This option is suitable for long-term investors. The disadvantages include a narrow choice of currencies (usually only freely convertible ones are available) and a large margin with spreads (the difference between buying and selling currencies).
- Exchange. Platforms that provide the opportunity to buy and sell real currency through brokers accredited by exchanges. Which exchanges trade in currency : MB (Russia), LIFFE (Great Britain), EOE (Netherlands), DTB (Germany) and others.
- Forex trading. Here, the trading is not conducted by the currency itself, CFD (price difference contracts). That is, the trader does not become the actual owner of the currency, but relies on which direction the rate will change. Forex advantage – low entry threshold. There is even a cent account, which is useful for practicing strategies in the real market. Foreign exchange brokers are licensed by regulators and through them individuals get access to currency exchanges.
What currencies are traded on Forex: the list of currencies in Forex is quite limited. The most common currencies in the arsenal of brokers are Euro, British Pound, Japanese Yen, Canadian, Australian and New Zealand dollars, Swiss franc. Sometimes there are also exotic currencies – South African rand, Russian ruble, etc. The peculiarity of exotic currencies is a high spread, weak volatility (rate of price change) and liquidity, lack of information for analysis.
What is the ratio of a Forex currency pair depends on the following factors:
- Macroeconomic statistics: discount rate, balance of payments, unemployment rate, inflation, consumer price index, etc.
- News background. Many people are subject to outside influences. Therefore, one of the options for influencing the exchange rate is the publication of forecasts, opinions, news, etc., which may affect the trader’s decision and accordingly move the rate in one direction or another.
- Institutional capital. Market makers, investment banks, large investors are capable of moving orders in one direction or another with large volumes.
- Geopolitics: world conflicts, sanctions, elections, etc.
How to start trading currencies:
- Get acquainted with the theory: read on the Internet, watch seminars, webinars on what currency pairs are, how to earn money on them, what commissions of brokers, etc. Learn about the basic rules for minimizing risks.
- Choose a broker, register. Before you start trading currency on a real account, you will need to go through verification (identification). Verification is not needed for a demo account, and we recommend starting with a demo account.
- Practice opening deals, having previously mastered the platform’s functionality.
- Learn to analyze fundamental factors.
- Once positive results are obtained over a long period, you can switch to a real account. Better start with a cent.
What currencies are best to trade on Forex, there is no single answer. On the one hand, the greater the volatility, the more and faster you can earn. But in such markets, slippage often occurs (discrepancy between the open / close prices and what the trader has indicated), such currency pairs are classified as high-risk ones. In addition, volatility can vary depending on the session. Option – use a volatility calculator.
Some tips on how to trade currencies on the stock exchange and Forex:
- Try to evaluate as many potential factors affecting the course as possible. This can be statistics from countries with the currencies of which you work, forecasts of investors, etc. For example, in the case of positive statistics, if it does not correspond to the forecast, quotes will roll back.
- Do not rush to make hasty decisions, but do not delay. Keep trades in stop loss.
- Build a diversified portfolio with multiple correlating assets.
Types of earnings strategies on Forex currency quotes:
- Scalping. It is a multiple opening of transactions lasting several seconds or minutes. It requires a lot of attention and emotional stress.
- Intraday trading. Provides for the opening of one or more transactions within one day with savings on the swap. The transaction may be in the market for several hours.
- Long term trading. The transaction is open for several days or weeks. What Forex currencies are suitable for this strategy: it is best to use exotic currency pairs.
Strategies can also be divided into those that are based on fundamental analysis ( Forex forecast is based on the publication of statistical data, news) and technical analysis (trading on indicators that predict the direction of a trend based on an analysis of past periods). We will analyze one of the strategies for technical analysis below.