Forex Trading Explained

History of Forex Trading

The ancestor of Forex Trading is certainly the gold standard set up internationally in 1875. In order to guarantee the respective value of their currency, each country constituted large reserves of gold proportional to the currency they put into circulation. Thus, the value of a currency was guaranteed by the national reserve. This reached its limits when countries traded much of their gold reserves before the wars. Then came the “Bretton-Woods” agreements. Thanks to the ratification of this agreement by 45 countries in July 1944, the American dollar was adopted as the primary currency for international monetary exchanges.

This currency became convertible into gold at a fixed rate and its value was $ 35 per ounce of gold. As early as 1971, the “Bretton Woods” agreements were definitively abandoned due to contemporary financial constraints. In addition, the implementation of the “Smithsonian” agreement nullified the convertibility of the dollar into gold. Since 1971, all currencies are now floating. Since 1972, currencies have appreciated according to supply and demand. The foreign exchange market or “foreign currency exchange” has opened to the public and democratized since the advent of information technology. It has become Forex trading.

The contemporary Forex market

Cross-data of hundreds of currencies allows speculation on almost any national currency against another. In view of the volumes of exchange on this market, this has made it more difficult for states to control the exchange rate of their currency. The recent history of the Iranian Rial proves that it is now difficult for governments to evade supply and demand. Despite the adoption in 2020 of a national currency called Toman instead of Rial, Iranians have an official exchange rate set by the Iranian central bank which is very far from the real price set by supply and demand international forex market.

Forex Trading Today

Forex trading is a risky business. It should be remembered that more than 80% of individuals who try Forex trading lose money. Indeed, the complexity of this currency market as well as the technical analysis of trading cannot be learned overnight. Professional traders often explain that everything needs to be taken into account before placing a stock order.

  • Central bank information
  • The political context
  • Supports and resistances
  • Pivot Points
  • Moving Averages
  • Technical analysis
  • Fundamental analysis
  • Supply and demand
  • Spreads on a particular currency pair
  • Market trend Bullish or Bearish
  • The size of the lot you want to trade
  • Money management

The list is obviously not exhaustive but already gives a quick overview of the complexity of Forex trading. In addition, the trading platform also plays a lot depending on the speed to place orders or the number of pairs that can be traded on it. You should know all this before investing in forex. 

How to Trade Forex Currencies

There really isn’t a 100% winning way to answer the question of how to trade Forex. What is certain is that sticking to a plan, understanding the financial environment, technical indicators such as Japanese candlesticks for example are essential. The first thing is to train yourself in this risky activity by opening for example a demo account with a verified forex broker in order to learn all the difficulty.Once you have a long experience in virtual money and after many winning trades, put only a small amount that you accept to lose.

Understanding Forex Trading Signals

Forex trading signals are far from an exact science. Everyone creates their own Forex signals based on the technical or fundamental analysis they can make of a financial asset. If we had to cite an example, let’s say that we want to enter the buy (Long) on ​​a descending price. This currency rate is approaching support. If it bounces off this support it can be a buy signal considering that it can only go up. This again is subject to the interpretation of each according to the technical analysis of trading that he has been able to do on a stock price. Peripheral trading vision is an important part before deciding what a forex trading signal is.

Money management

When you want to try your hand at trading, it is above all necessary to have a clear and monitored money management. The 1% rule is used in the jargon of professional traders. This means that a lot size should not exceed 1% of the trading capital. Thus, it is possible to withstand market volatility and its upward or downward movements. The goal is ultimately to place stop-loss orders of 20 pips for take-profit orders of 200 pips.

The risks of investing in Forex

We can never remember enough, trading is a difficult discipline that deserves to have a real trading strategy. this is the reason why we repeat it often on our forex blog. Thats If over 80% of retail accounts lose money in Forex, there is obviously a reason. Between margin calls and market volatility, if a bad decision is made, he is likely to leave all of his trading capital with his Forex broker. Some people take it as a game, yet the money that can be lost is very real.

The différents Trading Style

Having the right style of trading is no easy task, there are so many. Whether you are a scalper, a fan of swing trading, day trading, scalping or if you want to trade the volatility of EUR/USD. You will have to choose wisely your trading method or the strategy for trading Forex. It has several styles which must adapt to the market situation or the analysis of the price of a stock.

 

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