Foreign exchange trading or forex trading is the process of converting one currency into another in order to make a profit. It may come as a surprise that the Forex Market is the largest and the most active market in the world with an average trading volume of over $ 6 trillion per day. The Forex market is the only trading market that includes stocks or commodities that are traded for a whole day at least five days in a week but in different time zones. This unique feature enables traders from all over the world to engage in Forex trading at any time. This makes it preferable for those that trade at non-conventional market time.
Understanding Forex Timing
Another important aspect to consider is the forex timing of the different trading sessions. The Forex market operates for the 24-hours but that does not mean that the market is active at all time. The market is divided into four main trading sessions based on the world’s financial centers
- Sydney trading session
- Tokyo trading session
- London trading session
- New York trading session.
Every session may have a unique measure of liquidity as well as the fluctuations in value may also be dissimilar. For instance, the London session plays the most because it comes within the time lapse between the Asian and American sessions and is therefore characterized by high activity and volatile price.
Key Elements Influencing Forex Market Movements
Number of factors affect the fluctuations in the Forex market. Some of them are interest rates, inflation rate, employment statistics and data, gross domestic product (GDP) figures among others. Currency values are also affected by actions of central banks of many countries including the Federal Reserve of the United States and the European Central Bank in the Eurozone by fixing the monetary policies and the interest rates. Other external influences that affect the market volatility include the elections, wars and any natural calamity that may occur.
The Positive Aspects of Forex Trading
- High Liquidity: The forex market is highly liquid, allowing for the efficient buying and selling of securities, even when executing large trades.
- 24/7 Market Availability: The forex market operates 24 hours a day, providing traders with the flexibility to trade at any time that suits them, accommodating different time zones.
- Leverage Opportunities: Traders can use leverage to manage larger positions with less capital, potentially leading to greater gains.
Leverage is, however, quite risky since it augments the trader’s gains and losses. Forex price fluctuates randomly, and therefore price movements are very unpredictable. Prices can shoot up or down within a very short period of time, so traders should practice risk management.
Popular Forex Trading Strategies
In Forex trading success, it is therefore important to come up with a trading plan that incorporates an individual’s tolerance to risks and his or her financial objectives. There are two well-known strategies:
- Trend trading involves efforts to take advantage of a persistent price movement in a particular direction. Range trading, on the other hand, requires traders to determine levels of support and resistance to buy at lower levels and sell at higher levels.
- Another of them is Scalping which implies the efficient carrying out of several operations with minimal changes in price during the day. Regardless of the approach, two major things will determine Forex trading success in the long run; discipline and risk management.
Conclusion
Forex business is one of the most active and promising segments of the financial flow, which opens a wide range of opportunities to get a high income. However, it needs an understanding of the functioning of the Forex market, prospects for the effect of forex timing, and the sessions funded on the market. Therefore, to remain competitive in this market it is crucial to keep updated with the news happening in the global economies, risk management, and having a sound trading strategy. By so doing, it becomes possible for traders to overcome the risks associated with Forex trade while standing to gain big.
