Foreign Exchange markets was established when the floating exchange rates started to materialize. It is an inter-dealer or inter-bank market based from the numerous networks of major banks worldwide. It is also called an OTC or Over the Counter market because the transactions are done between any counter parties who agree to trade through an electronic network or telephone.
It is a market open for five days within a week and is open for business 24 hours. Today, all transactions in FX markets involve the seven main currencies including Japanese Yen (JPY), US Dollar (USD), Euro (EUR), British Pound (GBP), Swiss Frank (CHF), Australian Dollar (AUD), and Canadian Dollar (CAD). Currencies are usually traded versus the US Dollar in the FX markets. US Dollar is always quoted as the base currency except for the GBP, AUD, EUR and NZD or New Zealand Dollar. However cross rates also occurs. It is the exchange of rates between two currencies which is a non- US Dollar.
Everyday, online investors and traders are trading the forex market because they are making money out of it, plain and simple. There are several tips they follow so that they could avoid pitfalls, some of them are:
- You should know how to trade pairs instead of currencies. Right combinations of currencies in forex trading entail success.
- Remember that power comes from knowledge. If you wanted to start FX online, make sure that you understand the market’s basics so that you could make the most out of your investments.
- Be ambitious. Try making larger scale trades than choosing small scale trades where in you can only get small profits besides tightening your orders.
- Don’t become an over cautious trader. You need to give yourself a chance to produce. You can be doomed if you always place tight stop losses.
- Be independent especially if you are new to the FX industry where in you will decide either to use your own money for trading or look for a broker to trade the money for you. It is important to ask for advice but be sure to analyze each one before taking actions.
- Try to consider tiny margins. It is one of major advantage in forex trading because it can help you trade amounts with higher value compared to your total deposits. However it could destroy you as a forex trader because it can appears as a greed factor especially for new or novice traders.
- Always have strategic planning to avoid great losses in the end. It must include how you are going to manage the risks of forex trading.
- It is applicable to trade during off-peak hours. Remember that there are only two moves in the market, either up or down. Be sure that you know how to do business during this time.
- It is not bad to exit. If the trade is not working then get out of it. Don’t be too emotional. Trading using your emotions will never provide you with good decisions.
- Be confident. You will become a successful forex trader if you are confident in transacting your business.
Foreign exchange market is unique because it does not contain a centralized exchange or fixed location as some of the stock markets posses. The dealers conduct their advertisement, have their negotiations or transactions basing upon the exchange rates directly obtained or via distribution networks of reuters.