Introduction to the Forex trading:
What FOREX is
The foreign currency market, also known as FOREX or FX, is a global market for currency trading. As its daily turnover exceeding 5.3 trillion dollars, it is the largest and most exciting market in the world. Whether you sell 100 euros to buy USD in a bureau de change in an airport or bank or exchanging 100 million dollars to Japanese yens, both of these deals are FOREX ones. FOREX market players vary, starting from large financial institutions operating billions and ending with private individuals selling a couple of hundred dollars. Start trading on FOREX online
Thanks to the Internet, you can trade on FOREX in the same way as largest bank and investment funds traders do. All you need to have a good start is a computer with Internet access and a trading account with an FOREX broker.
How FOREX market works
On the FOREX market, one currency is exchanged to another. The key point is the exchange rate for that currency pair.
Perhaps, you have seen on the news:
Currency exchange rates may change in a blink of an eye, sometimes several times in a second; which is why deals occur at any time, 24h a day, five days a week. Currency rates reflect economic states of various countries. If things are going all right on the European market, say, better than on the US one, euro will rise in comparison with the dollar (EUR/USD ^) and vice versa.
How to earn money on the FOREX market
Here is an example of an FOREX deal. You want to buy 1000 euros using US dollars. You can make a deal instantly using the actual EUR/USD rate of 1.4500, so you need to pay $1450 to BUY that amount of euros. Later, the EUR/USD currency rate at which you can SELL euros for dollars can be 1.5500. You sell your 1000 euros and get $1550 in exchange. Your profit is $100. Alternatively, suppose, the EUR/USD exchange SELLING rate was 1.3500. As you have started with the deal for $1450, now you get only $1350. Your loss is $100. This is how you can either earn or lose money on the FOREX market.
What is hedging and how is it different to aggregation?
Hedging is an innovative trading mode which allows you to open several positions on the same instrument. Each position works at the actual market price and is opened as a separate position on the Pandex platform.
On the other hand, while trading using aggregation, you can open only one position for a particular instrument. Every new position on this instrument is added to the existing one, and the price will be averaged. So what are the benefits of hedging?
Risk management is an integral part of your trading strategy, and hedging becomes one of the most popular ways to achieve it. It can be used to protect opened positions and to reduce risks of unfavourable market movements.
By trading using hedging, you can open a few positions for the same instrument, which allows you to have both long and short positions. You risk management may benefit from hedging as having separate positions you have an opportunity to add to any of the opened positions or partially close it to protect a chunk of your profits or minimise potential losses.
What is netting?
Netting is consolidation (unification) of two or more positions to create a single index. The netting function is only available while you are hedging and cannot be used while trading using aggregation. Its main advantage is the ability to wholly or partially close a position without paying the spread pay twice. There are two netting functions available on the Pandex PRO platform:
Single closure (1) allows you to net two positions with different indexes. Using netting instead of a series of separate closures, you save the spread pay on the netted amount.
Multiple closures (2) consolidate several opened positions with different indexes. Using netting instead of a series of separate closures, you save the spread pay on the netted amount. Earlier positions are closed first with the execution price being the price of the last positions.
Two trading models, one platform
You will have an opportunity to switch models in the Settings tab by choosing between aggregation and hedging. Please, note, that change may only occur when there are no open positions or pending orders.
What is technical analysis?
Technical analysis is one of the ways investors use to predict price movements in the currency's country of origin. The technical analysis offers investors several approaches to trading. For example, the Fibonacci analysis and Elliott's wave theory are related to the Dow's theory, which states that the markets roll in a predictable way depending on individual patterns.
The technical analysis focuses on decrypting chart patterns and assuming that last price movements will repeat. Technical analysts ignore all fundamental information entirely and only pay attention to the price charts.
Specialists are looking for particular patterns, for example, the widely known head and shoulders or two-peak models, learning indicators such as moving average and consider shapes, such as basis lines or ones of the resistance as well as channels and more complex and hidden developments, such as flags or pennants.
Double tops and double bottoms are also a way to view charts. A double bottom is shaped as W on a graph. In theory, currency does not fall below the two lowest W points.
The double bottom stands for the price at which currency stops falling and starts growing as soon as it reaches the support level. It is also the level of resistance above which the currency in question cannot rise. It looks like letter M.
When a W chart appears, investors buy, when an M one does, they usually sell.
Why does the technical analysis work? If enough people draw a similar trend line, if enough of them support themselves on the same basis, a reaction occurs when this level of support is reached. Finally, we can tell you that the technical analysis works because many people follow it and consider to be a self-made prophecy for the exchange market trade.