Forex trading tutorial wont be complete without basic charts explanation!
Advanced technology has changed the world into a global village, changing the working environment in the process. With the latest technology and advance internet features businessess have become online. Foreign exchange trading is one of the results of modern form of global trading.
Foreign exchange or Forex for short is one of the largest and incredibly successful markets in the world. Forex market is one of the largest market in the world by volume.
What is Forex Market?
For the basic knowledge, forex market deals in money swap. In simple words its buying and selling of money. currencies need to be in pairs to held trading such as AUD/JPY or GBP/CAD as it is the exchange of unlike currencies; buying one currency and selling other currency at the spot so the difference result in loss or gain.
How Forex market works?
Similar to all markets, concepts of trading are similar and simple. People exchange currencies conditional on the fluctuation rates. To keep it simple, let’s take the following example.
• You are trading In EUR/USD currency pair, at the start of a year you bought 1000 Euros when the exchange rate was 0.90 So the transaction results in outflow of 900 dollars and inflow of 1000 Euros.
• mid of the year you exchanged 1000 Euros back into US dollars when exchange rate was 1.1 Therefore results in inflow of $1100 and outflow of same 1000 euros.
• Hence the net result is the profit of $200.
I.e. -$900 + $1100= $200.
Things you need to know.
Here are some necessary terms you need to know about forex;
• Spread - spread is the hidden cost termed as commission(cost of trade),its the difference in selling price and buying price.
• Margin - margin is one of the start up cost which is prerequisite for trading.
• Fundamental analysis - fundamental analysis shows wider aspects; assessing economy, social and political aspects. the concept behind is if economy is doing well so do the currency and vice versa. this type of analyis is appropriate for long term study.
• Technical analysis - technical analysis involves evaluation of historical prive movements. the most important thing to understand is trend and charts. Technical analysis primarily includes historical data; This analysis is referred to be mainly short term approach.
• Charts - Chart is one of the essential instruments used to study forex market. There are mainly three types of charts.
• Line charts - Line charts are simple and simple to study. line charts are drawn by taking opening and closing values.. It is best suited to analyze overall directions.
• Bar charts - bar charts also known as OHLC,i.e. high,low,open and close.
• top point represents high price
• horizontal line on the right of the bar represents closing price.
• line on the left side of the bar shows opening price.
• Lowest price is shown at the low point of the bar.
• Candle charts - this type of chart is a further modification of bar charts,addition in candle chart is the inclusion of colored candle stick body parts (colors may vary on various platforms).
• increase in price is shown in green color.
• Red color is for negative i.e. prices decreasing.
With understanding basic charts you can be a successful Forex trader and can earn a lot of money. With very low entry cost, less entry barriers and no time limits many traders and investors are attracted towards Forex trading. Be consistent and learn from your experiences. Focus on experience, to remain updated you need to study Forex glossary,which includes all the terminologies used in Forex markets. For more information take a look at our Forex trading tutorial!
Good luck!