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The Foreign Exchange Markets And Their Features

Foreign Exchange

There was a time when foreign exchange trading was the private playground of a bunch of stuffed shirts sitting near the Thames, but those days are now long gone. The internet has revolutionised foreign exchange trading, making it available to anyone who has a computer and an online connection. With the help of “demo accounts”, just about anyone who is of legal age can practise trading strategies, laying the groundwork for a successful foreign exchange trading career in forex. All you need is the time and determination to review some rather esoteric topics (e. g., central bank monetary policy changes) that the forex world deems as important. Learning advanced charting techniques (like drawing and understanding an “Ichimoku cloud”) is also a very good idea.
Forex trading spans the globe, naturally breaking into 3 regional areas. The only time that these trading sessions overlap is in Europe’s afternoon (when North America joins the party). At this time, liquidity is usually excellent, limit order fills are usually wonderful and stop losses don’t “slip” very much.

The Main Features Of Foreign Exchange Markets

In terms of daily turnover, forex is the largest capital market in the world, involving the trading of approximately 80 currency pairs. It’s also the only capital market that spans all times zones, allowing for fluid transactions at almost any time of the day or night. This is due to the fact that it’s the world’s banks who “make the market” and not some central regulatory authority. In addition, since the banks want everyone to trade as much as possible, they’re willing to provide account leverage in excess of ratios of 100:1 (just think of the extra transaction fees that they will receive, if you do take them up on their offer, and you will see the origins of such largesse).

Making Sense Of The Foreign Exchange Markets

Forex is so big that it naturally splits into 3 regional markets. They are as follows: the “Asian trading session”, the “European trading session” and the “North American trading session”. The only overlap is in Europe’s afternoon when North America opens up for business. Liquidity, at this point, is usually extremely good with excellent fills and very little “slippage”. Central and commercial banks dominate trading. In London, for instance, the Bank of England estimates that over $3 trillion in forex transactions are being processed every 24 hours. Most of the trading is done in the “majors” (e. g., UR/USD, GBP/USD, USD/CHF or USD/JPY). However, trading in the “commodity currencies” (e. g., AUD/USD and USD/CAD) continues to grow quite rapidly.

Trading The Foreign Exchange Markets For A Profit

You only need 1 winning strategy to make money in forex. Sign up for a “demo account” and try this “day trading” strategy. Open up a 15-minute chart of the AUD/USD and add 2 exponential moving average lines (“EMAs”) to it. Input the first EMA for “8 periods”; adjust the second EMA for “34 periods”. Make the 8-period EMA bright red so you can track it well; it’s your signal line. Now, take a good look at your chart. You should see the 8-period EMA occasionally crossing over the 34-period EMA. When that happens and prices stay either consistently above or below the 8-period EMA, you launch your trade in the direction of the crossover. Exit at the next crossover.

 

 

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