Basic Principles of Forex Trading

Forex may seem to be something strange for people that are not connected with financial markets. Here, we will discuss the principles of the international currency market, as well as provide the basic understanding of the mechanisms that operate there.

Forex is an international currency market with the highest liquidity in the world. In other words, huge sums of money are exchanged daily here. By the way, the market rate is constantly changing, which depends on the level of demand and supply. In general, when there are more sellers than buyers, the price is falling, and when the number of buyers is getting larger, the rate is growing. It is hard to keep track on all of that, but the metatrader 5 download will help you with that.


Basic Principles for Traders

Wishing to make money in the foreign exchange market, we are forced to closely monitor the market rate. It is influenced by various factors:

  • Political events in the world and in the countries of those currencies that make up our trading instrument called a currency pair;
  • Economic forces;
  • Currency needs of large corporations, banks, and so on;
  • The output of important news (the price can start moving very quickly);
  • Any global factors (war, earthquakes and so on).

Of course, do not try to take into account everything, it’s useless. It is enough to note the most important factors affecting the market more than others. As a rule, these are events in the financial sector and in the political arena.


Buy and Sell Principles

Traders analyze the market, look for optimal situations like when it is most profitable to buy or sell a trading instrument (currency pair). The general principles of Forex trading are that it should be cheaper to buy and more expensive to sell. A feature of earning on Forex is the ability to earn money, even if the exchange rate of a currency pair, for example, euro/dollar is falling.

So, we need to buy when the price goes down and sell when it goes higher. It sounds very easy, doesn’t it? In reality, it is difficult to understand what is “cheap” or “expensive” as the price is constantly changing. Traders in the market learn to analyse Forex to be able to predict its further development with a certain probability.


Psychological Principles

Some believe that trading on Forex is terribly difficult, while others call trading an ordinary gambling game. However, after studying the basics of forex trading, new players come to the understanding that the foreign exchange market is a strict trading system that is based on technical and fundamental analysis.

The psychological aspect is also important in forex trading. To make profitable and successful transactions, a trader should minimise the excitement when making a decision on the transaction. Therefore, self-control is more important than complicated mathematical calculations.

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