Tips For Investing In The Forex Market
Forex markets are extremely attractive for all corporate and/or individual investors who want to increase their income. One of the important advantages of the Forex market compared to other markets is the two-way transactions that provide the opportunity to earn both on rise and fall.
In one-way transactions, the investor opens a position only if there is an expectation of an increase, and if there is an expectation of a decrease, he waits for the prices to reach equilibrium. In two-way transactions, the investor can open a position in case of a decrease as well as an increased expectation.
Instead of waiting for prices to stabilize, the investor first opens a sell position and sells the product. Then, the short position opened at a lower level is closed with a profit. Thus, the investor gets a two-way profit opportunity.
What Is The Forex Market And How Does It Work?
Forex trading is one of the largest markets where it is aimed to make profits on changes in the value of different currencies. The aim is to make a profit by selling and buying currency pairs in this global market.
In this market, which has a wide range of participants from banks to individual investors, there are important concepts such as liquidity, volume and leverage. It is a market that thousands of investors from different parts of the world are interested in due to its high liquidity.
Forex comes from the abbreviation of the words ‘Foreign Exchange‘, which means foreign exchange trading. The Forex market was formed when world economies switched to free exchange rates and its history dates back to the 1970s. The Forex market is an international over-the-counter market where countries’ currencies are bought and sold 24 hours a day, 5 days a week.
Products traded in the Forex market are not limited to currencies. You can also trade currency pairs (parities), commodities (gold, silver, etc.), and CFD products (oil, natural gas, etc.) in the Forex market.
Those who trade in the Forex market are banks, brokerage firms, funds, institutional and individual investors. Intermediary institutions that carry out transactions mainly use the trading platform called ‘Meta Trader 4’. The main feature of the Forex Market is that transactions are carried out with leverage.
What Are Forex Terms And Concepts?
The most frequently used concepts in the Forex market can be listed as follows:
Currency Pair: It means the ratio of two different currencies. For example, in the USD/EUR pair, the ratio of USD to Euro is specified.
Major Pairs: It refers to the most traded pair in Forex markets. EUR/USD is one of the most popular.
Minor Pairs: These are the ones such as EUR/AUD that are not traded in the forex market as much as the major pairs.
Other concepts frequently used in Forex markets are pip, lot and leverage. Pip stands for price interest point and is used to express the smallest fluctuation in a currency. Lot is the amount of foreign currency traded. Usually 1 lot consists of 100,000 units.
The most popular forex trading concept is leverage. Leverage means that investors trade an amount over their capital and includes the risk of loss. However, leverage is still an investment method preferred by forex traders.
What Is Leverage In Forex And What Are The Risks?
An option that allows a trader to enter into trades with volumes several times larger than the actual amount of money in the investment deposit. Borrowing money to increase your position volume and thus increase your profits even if your equity capital is not sufficient is a means of margin trading.
The ratio between your balance and the position volume you opened. The maximum Forex leverage is specified in the trading conditions for each type of trading account. For example, the maximum leverage for one account may be 1:200, while for another account it may be 1:1000.
An example of leverage in Forex trading:
- 1:1 (one-to-one) leverage means that the trader trades using only his own money. It is the ratio between the trader’s balance and the amount of money he/she transacts. That is, if the trader has $100, he cannot open a position with a total volume higher than $100.
- Leverage of 1:1000 means that the trader can open a position with a volume 1000 times higher than the money he has. This means that if you have $100, you can open a position of $100*1000 = $100,000.
How To Use Technical And Fundamental Analysis Tools In Forex?
Two types of analysis methods are frequently utilized in Forex markets by investors: ‘Fundamental‘ and ‘Technical’ Analysis. First one analyzes the economic, social, and political factors affecting the markets.
In general, fundamental analysis is the interpretation of information based on political and economic factors that may affect the market and making price predictions for the future.
To be successful in the Forex market, it is necessary to be knowledgeable about the situation of macroeconomic markets such as employment, inflation, industrial production, and the characteristics of foreign exchange indicators.
By interpreting basic economic data, it is possible to predict the future movements of currencies or parties. Fundamental analysis alone is not enough to predict future price movements in the forex market.
This is because different fundamental factors can affect the market differently depending on its current situation. For an efficient fundamental analysis, it is necessary to take into account many factors. The more information you use, the more accurate you can increase the analysis.
Technical analysis is an analysis method in which price predictions are made for the future by examining past market movements by using indicators such as price, volume, and indicators.
What Are Forex’s Investment Strategies?
Analyzing market conditions well before trading. You should not forget that a good forex investor follows periodic developments, economic events, and indicators in detail before making a transaction and should revise his strategy plan according to these indicators.
For the best trade, you should trust the strongest possibilities by synthesizing fundamental and technical analysis and enter into trades in this way. A transaction with a well-prepared infrastructure and examination of all up-to-date data will bring you confidence and profit. Creating a strategic trading plan.
A successful investor obtains the greatest profit from his available capital by creating his strategy. Having a strategic plan puts you in a serious position in this market.
The important points to consider when creating this plan are:
- If your position continues with more losses than your expectations,
- Do not risk a large part of your capital for the possibility of a small amount of profit
- Become aware of the mistakes you made in past transactions by backtesting and learn the reasons so as not to repeat them
- Follow the trends
- Do not trade using all of your capital.
See you in the next post,
Anil UZUN