Advantages of Forex Trading

A large number of trader are attracting towards Forex trading because of the unlimited benefits offered by this market to its traders. Some of them are given below:

No commission: no commission, no exchange fees or no brokerage fess is charged by the Forex brokers. Most of the brokers get spread for their services. Spread is the difference between the bid and the ask price.

No middlemen: there is no need of middlemen in the spot currency trading and you can trade directly with the market.

No fixed lot size: in case of future markets, contract sizes or lots are determined by the exchanges but in spot Forex there is no fixed lot size and you can determine your own lot. This feature allows the traders to take part in the currency exchange market with accounts as little as $25.

Small transaction costs: the transaction cost or spread is very low. Usually it is less than 0.1% under normal market conditions. At larger broking firms, the spread offered by the brokers could be as low as 0.075%.

Remains open for 24 hours in a day: since the Forex market remains open for 24 hours in a day therefore there is no need to wait for the opening bell. This feature provides excellent opportunity to those traders who want to trade on a part-time basis. You can choose the time of trading according to your convenience.

No one can bend the Forex market: since the Forex market is very huge and has a large number of participants therefore no single person or unit can control the market prices.

Leverage: only a small amount of money is needed to control a larger contract in Forex trading. Leverage provided by the brokers help the traders to make nice profits. For example, if a Forex broker offers 50:1 leverage then a deposit of $50 would enable the trader to place a trade order worth $2,500. Similarly with a margin deposit of $500, a trader could control a trade worth $25, 000. Although leverage provides opportunity to participate in the foreign exchange market with a small amount of money but without proper risk management, this may lead to heavy losses.

High liquidity: since the Forex market is very large therefore it is extremely liquid. This allows you to buy or sell currencies with a single click of mouse under normal market conditions. You can also set your trading platform to close your position automatically once your desired profit level has been reached or if your trade is going against you.

Less entry barriers: it is very easy to enter Forex market because of the ‘mini’ and ‘micro’ trading accounts offered by the Forex brokers. You can start Forex trading with an investment as low as $25. Therefore an average trader that does not have large capital may also participate in online trading.

Availability of free stuff: most of the Forex brokers provide free ‘demo’ accounts to build trading skills. They also provide free Forex news and charting services. Demo accounts are valuable resources for the financially weak traders who want to improve their trading skills before opening a live trading account and risking real capital.

Factors Affecting Exchange Rates in Forex Trading

Beside inflation and interest rates, exchange rate is one of the most important factors that help to know the economic health of a country. In Forex trading exchange of currencies takes place. Actual exchange rate can be determined by the demand and supply of the corresponding currencies. Demand of one currency is directly connected to the supply of another currency. Currency exchange rates also affect the real return on an investor’s portfolio. Below are some of the main forces that are responsible for the movements of exchange rates

Difference in inflation of two countries
 

It is a very general rule that a country having lower inflation rates has higher currency value and greater purchasing power relative to other currencies.

 

Difference in interest rates in Forex trading
 

Exchange rates are highly correlated with the interest rates and inflation. Higher interest rates cause the exchange rates to rise by attracting foreign capital. On the other hand lower interest rates tend to reduce exchange rates. When the interest rate of one country rises or falls in comparison to another country; the currency of the country with low interest rate will be sold whereas the currency of the country with higher interest rates will be bought so as to gain higher returns.

Let us take an example to know the influence of interest rates on currency trading exchange rates. Suppose two countries X and Y do not use foreign exchange control and money can flow freely between these two countries. Suppose country X raises its interest rate by 1% but the interest rate of country Y remains unchanged. A large part of the capital from country Y will flow into the country X. A large amount of country Y’s currency will be exchanged for country X’s currency. This increased demand of country X’s currency will strengthen it against country Y’s currency.

Monetary policy
 

Participation of the central bank in Forex trading influences the exchange rates. Usually, central bank participates in foreign exchange market by buying or selling the home currency in order to stabilize the market at a level that is realistic. Prediction by the market players on the future policy will also affect the exchange rates.

Political conditions
 

Growing political problems will result in the volatility in the Forex trading market which ultimately causes significant fluctuations in exchange rates. The stability of the currency of a country is directly related to the political condition of that country. In short, the currency of any country is stable if the political conditions of that country are stable.

Market Judgment
 

The online trading market never follows a logical pattern of change. Exchange rates are affected by various factors such as emotions as well as economic and political events. Market operators should provide reports and data including inflation indicators, balance of payments, economic growth rates etc. But before these data and reports become available to the common people, the market would have already made its own judgment and predictions and they are reflected in the prices of the currencies and if the actual reports and data move away too much from the judgment and predictions of the market, great fluctuations in the exchange rates take place. Exact understanding of the reports and data is not sufficient; a good Forex trading individual should understand the market reactions before the information becomes available for the public.

ForexTrading In India: Best Tips for Money Management

Forex trading market is a very risky market and most of the traders lose their money if they participate in this market without proper money management. Many critics and sometimes many supporters of Forex market compare trading to gambling but the fact is that more planning is needed in this trading than playing a game of poker. Remember some tips if you want to play this game safely.

 

Be familiar with your limits

The simplest idea to be remembered by the currency trading beginners is that do not trade with the capital you cannot afford to lose. Any good trader expects positive return on his/her investment. A good rule of thumb is that never use more than 5% of trading account money at a given time. Hence you can save your capital by playing within your limits.

Be trained from your mistakes
 

Bad Forex trading experience can become best to you. You become emotional when your profitable trades wiped out in an hour. If you become more emotional after losing trade, you will have a hard time and most of your trades will end in red. Try to learn from your mistakes and keep away from making same mistakes again in future. You will be able to build a stable and strong currency exchange account by having a solid strategy and disciplined money management.

Use appropriate leverage
 

Many inexperienced and new traders get attracted to foreign exchange market because of the leverage options offered by the brokers. Leverage like 400:1 and 500:1 can be extremely risky. Although, you can gain remarkable profits in some good days but it is very poor money management and your Forex trading account can be wiped out within a fraction of second. You are suggested to use leverage depending on your financial situation and skill levels. More than 100:1 or 200:1 leverage is not advisable.

Become a professional trader
 

If you want to succeed in Forex trading, you need to become a professional trader. Since a lot of information and trading strategies about online trading is available on the internet therefore it is impossible to any trader to go through it. Never try to make fast money by trading according to the news tip or by following the hottest trend. Currency market is a very risky market therefore you need to manage it accordingly. Select one or two currency pairs and learn thoroughly about them and become an expert of those pairs. Knowing well about a currency pair will help you to manage your money in a better way. Perfect knowledge about the currency pair will help you to set your stop-losses, when to enter the market and when to take profits. Practice makes a man perfect; therefore you will learn more about a currency pair by trading same currency pair many times.

Take proper care
 

It is very easy to be trapped in the emotions during the process of Forex trading because the market remains open 24 hours a day and you can earn or lose money in currency market. Do not lose your sleep. Avoid sitting in front of the computer all day and missing out your life. You should take proper care of your mind and body to carry out a strong trading strategy.