The foreign exchange (Forex) market is one of the largest and most liquid markets globally. Forex trading is the process of exchanging one national currency against another, with the intention of creating a profit on the rate upon which you’ve exchanged. Comparing one currency against another is referred to as currency pairing.
The Forex market is highly popular with traders, however, as with any investment, it does come with the risk of substantial losses. This is largely because it is influenced directly by macroeconomic and political events, as well as numerous other factors, which make it a highly volatile market. Because of its high-risk nature, it’s vital that you conduct extensive research, plan ahead and employ a trading strategy.
This article will help to guide you through the process of Forex trading and advise you on how best you can manoeuvre the market, to help you to increase your profits and reduce the risk of incurring losses. Keep reading to find out how best to conduct successful Forex trades.
Keep an eye out for daily pivot points
Being attentive to daily changes in the market and in particular, pivot points, can be the key to a successful trade if you’re a day trader. A pivot point, and its resistance or support levels, are areas where the direction of price movement can change in the market. This analysis tool can therefore be used by traders as a predictive indicator, helping individuals to make decisions that are supported by data collected from the past.
A pivot point is calculated by looking at the high, low and close prices of the previous trading session. These prices decide the levels of support and resistance, which are placed above and below the pivot point. If current trade prices sit above the daily pivot point, this should prompt a trader to take up long positions of trade. In contrast, if the price is below the daily pivot point, short positions should be taken.
Pivot points are one of the most commonly used tools in the technical analysis of the Forex market. Price trends can be identified by employing pivot points and recognising key changes in the market’s trading direction. Used in conjunction with a range of technical tools, pivot points can be employed to notify a trader when the market has experienced an increase in traders entering the market, which can create opportunities to profit. Pivot points can minimise losses by indicating which price points will be most lucrative, and when to enter and exit the market.
Trading Forex using CDFs
An alternative technique to trading currencies directly, is trading using CFDs. CFD stands for a contract for difference. This is a contract between the investor and an online provider, which is established upon the value of a financial asset, or asset(s), without owning the underlying asset.
Forex trading through a CFD therefore means that traders don’t own any of the currencies, but rather, the contracts which are relevant to the currencies being traded. This can benefit the trader because it will avoid them encountering different exchange rates and legislative structures, which could hamper trading.
CFD trading provides investors with the opportunity to trade on both rising and falling markets, with long and short positions available. It is highly popular amongst those who have pre-existing CFD accounts for alternative trading instruments as it means that they can trade on the foreign exchange easily, using the same account to avoid hassle. CFDs can be used to trade on all major financial instruments, including stocks and shares, currency pairs, commodity futures, global indices and cryptocurrencies. CFD trading on Skilling will allow you to use a forex trading platform to speculate on the most common forex pairs.
Effective risk management
One of the most fundamental pieces of advice, when it comes to facilitating successful trade on the Forex market, is to understand the importance of trading defensively. This is vital because of the unpredictable nature of the market movements. One tool that can be implemented to protect traders from excessive losses is a stop loss.
A Forex stop loss is provided by a broker to reduce the risk of losses in markets that can prove extremely volatile. This allows an individual to apply a stop loss level to a long or short trade at a specific point from the entry price, placing a limit on how much capital can be lost on one trade.
This is a highly useful tool because the future is uncertain and the Forex market is directly influenced by factors that are difficult to control. Every trade brings with it great risk and to minimise these risks, the avoidance of large losses should be prioritised over making large profits.