The factors mentioned above can also cause a currency to decline. For example, the currency of a country with low inflation will generally rise because that country's purchasing power is higher relative to other currencies. Even natural disasters such as earthquakes or tsunamis, which put a strain on a nation’s economy, can have a negative impact on a currency.
If traders are positive on the prospects for the Yen, they would expect the number on the right to go down – i.e. the Yen would be getting stronger against the Dollar. Traders would be buying less Yen with a Dollar as the Yen got stronger. Similarly, if the Yen was expected to weaken, forex traders would expect the Yen number to go up, reflecting the fact that the dollar could buy more yen.
Since forex is traded on margin, you only have to deposit a percentage of the full amount you wish to trade. Our margins start from 0.20%, which could be referred to as 500:1 leverage, as the value of the full position would be 500 times the value of the deposit required to open the trade. When trading on margin it's important to remember that your profits or losses are based on the full value of the position, not just the percentage you deposited, so you can lose more than your initial deposit.
Foreign exchange (forex) or FX trading involves trading the prices of global currencies, and at City Index it is possible to trade on the prices of a huge range of global currencies. Currency trading allows you to speculate on the movement of one currency against another, and is traded in pairs, for example the Euro against the US Dollar (EUR/USD).
It's important to remember when looking at forex that a higher currency makes a country's exports more expensive for other countries, while making imports cheaper. A lower currency makes exports cheaper and imports more expensive, so foreign exchange rates play a significant part in determining the trading relationship between two countries. There are a variety of factors at play in this relationship and they all contribute in some way to whether the strength of a currency declines or improves in relation to another. Understanding the influencing factors gives traders insights they can incorporate into their forex trading strategies.
To what extent fundamentals are used varies from trader to trader. At the same time, the best FX strategies invariably utilize action. This is also known as technical analysis. When it comes to technical currency trading strategies, there are two main styles: trend following, and counter-trend trading. Both of these FX trading strategies try to profit by recognising and exploiting price patterns.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
This article outlines 8 types of forex strategies with practical trading examples. When considering a trading strategy to pursue, it can be useful to compare how much time investment is required behind the monitor, the risk-reward ratio and regularity of total trading opportunities. Each trading strategy will appeal to different traders depending on personal attributes. Matching trading personality with the appropriate strategy will ultimately allow traders to take the first step in the right direction.
Using the (CCI) as a tool to time entries, notice how each time CCI dipped below -100 (highlighted in blue), prices responded with a rally. Not all trades will work out this way, but because the trend is being followed, each dip caused more buyers to come into the market and push prices higher. In conclusion, identifying a strong trend is important for a fruitful trend trading strategy.
A forex trading strategy works really well when traders follow the rules. But just like anything else, one particular strategy may not always be a one-size-fits-all approach, so what works today may not necessarily work tomorrow. If a strategy isn't proving to be profitable and isn't producing the desired results, traders may consider the following before changing a game plan:
Risk warning: Trading Forex (foreign exchange) or CFDs (contracts for difference) on margin carries a high level of risk and may not be suitable for all investors. There is a possibility that you may sustain a loss equal to or greater than your entire investment. Therefore, you should not invest or risk money that you cannot afford to lose. Before using Admiral Markets UK Ltd, Admiral Markets Cyprus Ltd or Admiral Markets PTY Ltd services, please acknowledge all of the risks associated with trading.
What happens when the market approaches recent lows? Put simply, buyers will be attracted to what they regard as cheap. What happens when the market approaches recent highs? Sellers will be attracted to what they view as either expensive, or a good place to lock in a profit. Therefore, recent highs and lows are the yardstick by which current prices are evaluated.
Forex traders evaluate currencies and the countries much like how equities and companies are evaluated to get a clear idea of the currency’s value. The value of a currency changes due to many factors such as economic growth of the nation and its financial strength. All this information is analyzed by the forex traders to evaluate the value of its currency. Fundamental trading strategies cannot be easily mastered by a newbie forex trader. Given below are some trading methods that use fundamental analysis.
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