It’s like learning to speak and understand a whole new language if we enter in a world of a new financial market. It is easier when you know about the basics of the new market and the vocabulary. If you are new to the Forex world then you will find this article very helpful in understanding some basic ideas and concept of Forex.
What is Forex trading?
Let us understand what is Forex trading. Forex is an abbreviation for “Foreign exchange” and it is typically used to describe the trading in Forex market by the investors and speculators. Let us understand this with a situation- If the US dollar is expected to be weakened in value in relation to the Euro, a trader will sell dollars and buy Euros. When the Euro strengthens the purchasing power of the Euro is increased and the trader can get back more dollars for the same amount of Euros he bought, thus making a good profit.
Thus in Forex trading the speculators or traders always try to predict the correct direction of the currency movements and keep on buying and selling currencies in order to earn a good profit through the changes in price levels. There are 8 major currencies on which most of the Forex trading is done and the currency pairs belonging to this group are traded most. There are different types of Forex strategies and traders use both technical and fundamental analysis to predict the future movement of the currency prices. Knowing what is Forex is just not enough for a successful trader. But to know what the best strategies are and what are the good tips and techniques is also important.
What are technical and fundamental analysis techniques in Forex?
Forex trading is not an easy game and it requires a lot of skills and hard work to be successful in the long run. Traders who just know the basic knowledge like what is Forex and just open the account to trade without any strategy cannot be successful in the long run. It is not just an overnight affair to be a millionaire. Knowing about the technical and fundamental analysis techniques is also important.
Technical analysis takes the help of charts to make a prediction of the future direction of the foreign currency under trade. The historical charts show the history of the price action in the past and with this knowledge and with some technical tools the future trend is identified assuming that the history repeats again. The technical analysis method is used by many technical Forex traders.
Similarly fundamental traders are those traders who trade on the basis of important News and events to be released which affect the currency prices. Due to major News releases concerning the economy of the country belonging to the currency, political, social and other events, calamity and disaster etc. the price of the currency fluctuates significantly. The fundamental traders who know very well what is Forex trading take suitable position when major News is expected and thus try to make big profits out of it.