Forex Market Trading Online
The foreign exchange, or forex market (currency market) is a worldwide financial market for trading currencies. Forex market trading can be done online, and currencies can be bought and sold on a continuous basis Sunday afternoon through Friday afternoon USA time. The forex market is a decentralized, over the counter market between buyers and sellers, and is the largest financial market in the world.
Forex Market Trading Basics
The forex market assists with facilitation of international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import Australian goods and pay for them in Australian Dollars even though the business' income is in US dollars. The difference in price between the two currencies is the current exchange rate, and these currencies must be exchanged to complete the transaction. The currency market also supports direct speculation, investing and day trading on intraday movements, or short term and intermediate term trading profits.
All currency transactions are the same, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s after decades of government restrictions on foreign exchange transactions.
The forex market has huge trading volume representing the largest asset class in the world. The liquidity of the foreign exchange dwarfs all other financial markets because it is a worldwide market with more participants. Retail traders use leverage to enhance profit and loss margins and with respect to account size, making it very attractive to most anyone with an interest in trading, speculating, day trading, or trend trading.
According to Wikipedia, as of April 2016, average daily turnover in global foreign exchange markets is estimated at $5.1 trillion, quite a large growth over the $3.2 trillion daily volume as of April 2007. Of this total $1.65 trillion per day was retail forex trading or the spot forex market. As of 2022 the daily forex trading volume is approaching $7.0 trillion. The spot forex market is what most day traders and swing traders participate in with retail trading accounts. By comparison, the New York Stock exchange has a daily trading volume of $22.4 billion. The forex market is massive, over the counter inter-bank market, completely electronic with no central exchange.
The Spot Forex Market
The spot market is where currencies are bought and sold according to the current bid and ask price, the "spot price". That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance of the country or region associated with the currency, world political situations, as well as the perception of the future performance of one currency against another. Spot forex market transactions are bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value.
When you go to a bank and exchange currencies you are participating in the spot forex market. After a position is closed, the settlement is in cash. If you would like to become a foreign exchange trader you will be trading the spot market and the prevailing quotes or spot bid and ask prices. In an online transaction you are also participating in the spot forex market, similar to exchanging currencies at a bank or currency kiosk at the airport, only when you trade online usually leverage is used. If you go to a bank and buy Euros and pay for the Euros with US Dollars, you have just traded the spot forex. If you buy the EUR/USD in an online trade you have basically done the same spot forex transaction.
Trading The Spot Forex Market Online
Anyone can trade the spot forex market online. You must open a forex brokerage account and make a deposit with a reputable forex broker. This will facilitate cash settlement of your trades. Then you can learn about your broker trading platform and spot forex bid and ask pricing. Then you should demo trade so you get more comfortable trading with leverage, and also to test the effectiveness of your trading system. When you are demo trading you must have a profitable trading system to follow for each trade. We have a profitable trading system at Forexearlywarning, and we invite all forex traders to study our system thoroughly. Each trader should evaluate whether or not the system is suitable for them, and we believe it will be.
Basically, spot forex trading is buying a pair that is rising and closing out the buy transaction for a profit or selling a pair that is falling and closing the trade at a lower price than you sold it for a profit. Buying or selling a pair can be done inside your online brokerage account. Pure and simple, all traders trade for one reason, with profit as the goal. If they are short term traders or day traders, or if they hold onto their positions longer, the goal is to make a profit. The goal is to buy a currency pair and sell it for a higher price, or sell a currency pair and buy it back for a lower price, on all trades you enter. Our intermediate level course offers guidelines on how to select a forex broker for using with the Forexearlywarning trading system. Remember that the role of the forex broker or dealer is to act as an intermediary in the transaction. Brokers offer a bid and ask price for immediate spot price dealing and settlement to exchange one currency for another. The high liquidity of the forex market facilitates the online transactions.
What Currencies And Pairs Can Be Traded
The forex market is loaded with opportunities. Most traders only trade a few pairs, and this is a big mistake. Seek out a trading system that gives you a lot of different opportunities to make pips by trading a larger number of pairs, as long as the liquidity is good.
There are eight major currencies that forex traders trade most frequently. These include the US Dollar (USD), the Euro (EUR), the Canadian Dollar (CAD), the Swiss Franc (CHF), the British Pound (GBP), the Japanese Yen (JPY), the Australian Dollar (AUD), and the New Zealand Dollar (NZD). These eight currencies have the highest liquidity of all currencies traded. The top three most liquid, highest trading volume currencies are the USD, EUR and JPY, in order. At Forexearlywarning we prepare daily trading plans and provide live trading signals for 28 pairs that are comprised of these eight major currencies. Traders can also trade other currencies, but with the Forexearlywarning system we stick with the top eight most liquid currencies in the forex market.
The eight most actively traded currencies can be combined into 28 currency pairs. Forex market traders focus their trading on these pairs the most. All 28 pairs have significant trading potential and should not be ignored. Of the 28 most frequently traded pairs, seven are considered major pairs. A major pair is any pair that has the USD on the left or the right like the GBP/USD or the USD/CAD, and the US Dollar is part of 84.9% of all currency transactions. The other 21 pairs are called exotic pairs. The exotic pairs are any pair where the USD is not on the left or the right like the EUR/JPY or AUD/CAD. The 28 pairs we trade all have sufficient liquidity and low spreads for day trading, swing trading, or trend/position trading. The 28 pairs we trade all have different characteristics like volatility, spread, and pip payout. Traders can learn more about these pairs in our intermediate level course lesson about currency pair characteristics.
Advantages of Forex Market Trading Online
When you compare trading currency with other financial markets there are several advantages. This forex market is highly liquid, so market size and trading liquidity on each pair is an advantage. The high liquidity creates small spreads, and spreads have been tightening for years as daily trading volumes increase. The forex market is easy for a trader with a small account to trade because of the leverage. You can get leverage on your deposited funds of 50:1 inside the USA and outside of the USA you can get much higher leverage on your deposited funds. So there are very few barriers to trade the forex market, and almost anyone can access the market. The leverage means you need less money to go open an account and start trading live. There are also many companies that will provide trading capital and funding for your forex trading business, which is phenomenal.
Traders pay no commission on each trade to buy and sell currency pairs. If you trade stocks or options you must pay a commission on each transaction, so this is another advantage. The profit potential is large with forex trading if you have an effective trading system, and we have one at Forexearlywarning. Many brokers offer guaranteed stop order execution, so applying risk management principles to your trading is another advantage. These advantages alone stack up well against other markets and this market is likely the most attractive of all markets for trading.
Some traders also believe that since it is a 24 hour market that this is also an advantage. This is a bit of a fallacy as entering trades should be conducted in the main trading session only, which is about a 5 hour window of time. We will expand on this topic more in our intermediate level course.
Example Profitable Online Forex Market Trade
If you endeavor to trade the forex market online, you must have a profitable trading system. Here is an example profitable trade using the Forexearlywarning trading system. Our real time signal system, The Forex Heatmap® showed that the New Zealnd Dollar NZD was strong and the Canadian Dollar CAD had some slight weakness, therefore the NZD/CAD had a strong movement to the upside. If the NZD/CAD is in an uptrend you can continue to hold this pair for more trend based pips. If the NZD/CAD is ranging you can scale out lots or exit the trade and treat it as a short term or intraday trade. Either way our trading system creates profitable entry points for forex market trades in your online account, and it works the same way for 28 pairs, including popular pairs like the EUR/USD.
.jpg)