Getting Started with Forex Trading

The Forex Market is a decentralized OTC (Over-the-Counter) financial market operating 24 hours per day (Monday-Friday) using the electronic network of banks (ECN). It is estimated that the Forex turnover today may exceed 5 trillion dollars per day.

What is Forex Trading

Forex or else FORex EXchange is an electronic network that enables the exchange of global currencies, one for another. Currency pairs are exchange mechanisms used for the global trading of goods and services. Importers and exporters, large corporations, investors, and banks are only some of the participants in the Forex Market. The Forex market operates like the internet, it is not centralized, and it exists in the electronic network of banks, which is called the ECN network. Forex is a huge market with a daily activity turnover worth more than 4 trillion USD. The Rules of the game in Forex are different from those in equity and bond markets, but many similarities can be found too.

» Forex Trading Guide

Trading Tips -Essential information and trading tips regarding the Foreign Exchange Market

The behavior of all Forex pairs is not the same. Some currency pairs are much more volatile, and trend very aggressively, compared to other pairs.

Table: Forex Currency Pairs & Volatility

Knowing the special features of each currency pair can make the difference. That is why it is better to trade a couple of Forex pairs than 8-10 Forex pairs. Knowledge is power when trading Forex.

» Trading Tips for Forex Beginners | » Forex Trading FAQ | » Forex Trading Glossary

Choosing the best time to trade

There are certain hours when the Forex sessions overlap. During those hours, the volume increases by offering greater trading opportunities. In the table below you can see the two Forex Market time zones.

Forex Sessions Overlap

(i) At times when the European and the American markets are both open (between 8 am and 12 am EST) trading GBP/USD, EUR/USD, and USD/CHF can lead to better performance.

Other good times for trading include:

(ii) 1 am to 3 am (EST), when the European sessions are starting and the Asian sessions are closing.

(iii) 7 pm to 10 pm (EST), when the Asian and Australian sessions overlap.

Most Volatile Days of the Week

Some days of the week tend to be more volatile than others. In general, volatility in the Forex majors tends to be larger in the middle of the week, especially as concerns Tuesday and Wednesday. Mondays are static. Fridays are also weak in terms of volatility, as most Forex traders choose to close their positions towards the weekend.

Forex Trading Calendar -When to trade

Currency pairs tend to follow seasonal patterns. For example, during April, the British Pound against the US Dollar tends to appreciate more than 80% of all time.

The Forex majors are the most traded and liquid currency pairs in the world, involved in more than 85% of the total Forex market volume. The Forex majors offer a tight bid/ask spread, making them attractive for scalping, intraday, and algorithmic trading.

These are the periodic returns of the 7 Forex majors based on historical data for the period 2000-2018.

Table: Compare the returns of the 7 Forex majors

» Find more about when to Trade Forex Pairs

Trading Only Liquid Forex Assets -EURUSD

EUR/USD is the most popular Forex pair in the world. The base currency is the European Euro (EUR), and the counter currency is the US Dollar (USD). EUR/USD is an extremely liquid financial asset offering the tightest trading spreads in the Foreign Exchange market. EUR/USD narrow spreads attract scalpers and algorithmic traders. 

» More about the EURUSD Forex Pair

Trading CFDs on Futures

A Futures contract gives its holder the right to buy (or sell) a pre-determined quantity of a commodity at a pre-set price at a pre-determined time in the future.
Futures contracts originally covered physical commodities like grain, cotton, and coffee, but today they cover more asset classes and many more financial instruments such as currencies, bonds, and stock market indices.

The cost when trading CFDs on Futures is limited to the price spread, as there are no trading commissions involved. The price spread is the difference between the buying price (bid) and the selling price (ask). That makes things considerably easy for CFD traders. In addition, CFDs on Futures don't involve overnight rates (SWAPs) like common Cash CFDs. That is a big deal when trading Index CFDs or Commodities.

(i) No trading commissions

(2) No Overnight financing (SWAPs)

(3) Paying only the spread

» Read more on how to trade CFDs on Futures

Trading the News (Foreign Exchange)

News trading strategies are based on economic indicators such as interest rates, employment reports, and inflation.

• INTEREST RATES

In the US, the FOMC holds eight (8) regularly scheduled meetings during the year (January, March, April/May, June, July, September, November, and December)

• EMPLOYMENT REPORTS

Employment/unemployment data play a major role in interest rate decisions. If employment is strong, the central bank can grow more ‘hawkish’. Lower unemployment than expected favors currency appreciation.

• ECONOMIC GROWTH REPORTS

A wide variety of growth reports affect the Forex market, including GDP, Manufacturing Production, Retail Sales, Housing Permits, etc.

• INFLATION REPORTS

Historically, the FED targets a 2% inflation. An extended period of high inflation pushes central banks to raise interest rates. Forex markets adore higher rates and, thus, favor reports showing strong growth and high inflation.

» Read more about how to trade the news in the Forex market

□ Getting Started with Forex Trading

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