Basic Principles For Trading In The Forex Market

The Forex currency market is the largest financial market in the world. Today he trades in many billions of dollars daily and around the world and far exceeds the transaction volume of any other market including the stock exchanges and Futures markets.

The principles to operate on the Forex are not complicated, in fact its operation is relatively simple and does not require too extensive knowledge in economic matters. What requires deeper knowledge, more practice and experience is to become a successful trader who is able to make a profit in the market in the long run. This requires learning about the various approaches to market analysis, trading strategies, principles of monetary management and risk management . However these issues will not be discussed in this article since they have been discussed in others. For this reason we will concentrate on this section in the basic principles to operate in the currency market.
1. First of all we must understand that the transactions in the Forex market are made based on the value of one currency against another. That is to say, the trader tries to predict if the value of a currency such as the Euro for example, will rise or fall relative to another such as the US dollar. That is why transactions are carried out with currency pairs, the main ones being the following: EUR / USD, USD / JPY, GBP / USD and USD / CHF.

2. To operate in the Forex market is made use of a variable leverage that can go from 1: 1 to 1: 500 depending on the broker. The concept of margin and leverage refers to the amount of money that the broker will “lend” the operator to open a position in the market. If we speak of a leverage of 1: 100, it means that for every dollar the trader invests, the broker will leverage him with $ 100. In this case, this means that if the trader wants to open a position for a value of $ 1000 in any currency pair, he must invest a total of $ 10 while the broker puts the rest. In terms of margin, a leverage of 1: 100 indicates that in each transaction the trader must invest 1% of the total amount.

3. The prices of the different currencies in the Forex are affected by multiple economic factors, political and other indoles which is why there are unexpected movements in one direction or another, before which the trader must be properly prepared. Although it is very difficult for the trader to be aware of all the news and economic factors that can affect the Forex, it is important that at least keep the most important, so that is prepared before the possible market reaction and Keep out or take advantage of the sudden movement that can occur.

4. The Forex market operates 24 hours a day, 5 days a week. However, this does not mean that the trader will find good opportunities every day at all hours. For the market to move strongly in one direction or another, volatility is necessary and this is mainly concentrated in the sessions of the main financial markets worldwide (mainly at the beginning of these), ie during the US session, The European session and the Asian session. For this reason, the best opportunities for profit are concentrated during those periods before which the trader should always be attentive, since the market tends to show strong movements during these periods.