Importance of exchange rates in Forex trading

Posted May 4, 2013 by RaynaJess

Forex trading (Foreign Exchange Market trading, also known as FX trading), represents, at a bare minimum, selling and purchasing currencies from different countries

Forex trading (Foreign Exchange Market trading, also known as FX trading), represents, at a bare minimum, selling and purchasing currencies from different countries, in pairs. You can choose any pair of currencies to trade, but the most traded pairs are: USD/GBP, GBP/AUD, AUD/USD, EUR/USD, EUR/AUD and EUR/GBP. Forex offers people from around the world the opportunity to trade online, from anywhere, and to make money by exploiting the fluctuations in the rate of exchange of different currencies. Anyone can try, but not everyone who tries his hand at Forex training will come out a winner. The exchange rates FX market is extremely volatile, and, as it runs on a 24/5 basis, it can quickly engross your attention, so a few tips for beginners are in order.

Before you start trading your own money, it’s advisable to get a demo account—these usually come with balances ranging between $500 and $500,000. Trading on a demo account will still give you access to live updates, and you have access to many of the same tools as professional Forex brokers, depending on your software choice. Some demo Forex trading Platforms also come with a customer support service, wherein you have trading experts ready to help and answer your questions. Once you start working on your demo account, you should also look for a good, reliable online currency converter website that you trust, and that you like. These websites will have a range of tools that will help you in your trading activities, so always have one on hand when you’re working and checking current exchange rates.

When you start trading with real money, you have the option of doing so independently, or of getting a managed account, wherein someone else trades for you. Either way, you’ll need to establish a set of definite parameters by which you will conduct your trading activity. If you’ve been trading on a demo account for some time, you will have a good idea on what parameters to set. For example, you could set your platform to trade for you, while you sleep, if the rate of currency of a certain currency drops to a certain level. You can also set parameters based on the recent evolution of exchange rates, or by how you believe a certain rate of exchange will change at a certain time, though this is a more risky method. At the same time, predicting fluctuations in exchange rates, or the impending decline of a certain currency’s rate of exchange will put you on the forefront of a great deal, which could bring impressive profits.

This intuition is something unique to human beings, so if you decide to have an automated managed Forex account, this is where you’ll be risking a bit. The issue here, is that when you’re using an automated broker, it will only trade for you based on the parameters you’ve set, whereas a human being—be it you or your Forex broker—can take into account different factors which may and do affect the rate of exchange of a certain currency (like geopolitical wars or natural disasters, among others).

The main prerequisite in forex trading is being able to interpret exchange rates fluctuations and make a profit off trading based on these fluctuations. With experience, FX brokers come to have an intuition about the rate of exchange so it’s never too early to start.
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Issued By giulyrotarry
Country United States
Categories Finance
Last Updated May 4, 2013