Learn How Currency Trading Works


Written By: Ehsan Jahandarpour

Learning how currency trading works is vital for anyone looking to earn a good profit. Currency trading involves speculation on the fluctuating values of currencies. This type of trading is extremely risky and has a high failure rate. Many newcomers think that “it won’t happen to me,” but a staggering 77% of newbie traders walk away empty handed. This may leave new traders feeling like they’ve been duped or taken advantage of.

Leverage

While leverage is a common element in currency trading, there are a variety of different ways to use it. Increasing your leverage can boost your profits, but it also increases your risk. As such, you should only use leverage when you are confident in your trade and know what you’re doing. Otherwise, your leverage can be exhausted or you may end up with too little margin to cover your losses. Lastly, you’ll be personally responsible for any losses you incur, which means you should avoid using too high of a leverage ratio.

Arbitrage

Arbitrage in currency trading involves taking advantage of differences in exchange rates. Specifically, traders can profit by buying and selling contracts at a higher exchange rate than the other broker. While this type of trading is extremely profitable, it also carries a high risk of loss, due to the costs of transaction.

Spread betting

If you want to trade currency without buying or selling the actual currency, spread betting may be the answer for you. Spread betting platforms typically charge no commission when you place a spread bet, and account fees are lower than those for trading in traditional markets. This means that you’ll be able to buy and sell currencies much cheaper than you’d otherwise be able to. Furthermore, unlike trading in forex, spread betting is not taxed in the UK, so any profits you make are free from Capital Gains Tax.

Price slippage

Every trader experiences price slippage at some point during their trading career. Slippage can occur during times of volatility when there is a lack of liquidity. Traders can minimize the impact of slippage by trading only during times of low volatility.

Sniping

Sniping in currency trading is a strategy whereby you trade without the usual indicators. Normally, you use your chart to confirm your signals. However, this technique has several limitations. For one, it cannot be automated. Instead, you must manually trade. Another disadvantage is that this strategy does not use indicators, so you can’t test it on historical data.

Hunting

Traders must learn patience and understand how the market behaves. They must know where to place stop losses and take profits.

Global network of traders

The foreign exchange market, or forex market, is a global marketplace that is open 24 hours a day, seven days a week. It is regulated by a global network of financial institutions. In fact, the vast majority of trade activity in the forex market is between institutional traders, who do not necessarily intend to acquire physical possession of the currencies in question. They may instead be hedging against the possibility of exchange rate fluctuations in the future.

Average daily move of a currency pair

In forex trading, knowing the average daily move of a currency pair is vital for stop loss purposes, as well as finding a reasonable price target. However, not all currency pairs move the same way. While some are volatile, moving 100 pips or more per day, others are more timid and move only 30 to 40 pips on average.

Comments are closed.