If you want to start trading on the foreign exchange market, the very first thing to do is to learn the basics. You need to find out what forex is, how FX trading works, what currency pairs are there, and how to choose a currency pair to trade. In this guide, we’ve gathered all the relevant information you need to get started.
Forex, or FX, is short for foreign exchange – this is a global marketplace where banks, organisations, and investors trade national currencies. On the foreign exchange market, people trade currency pairs.
Currency pairs are divided into three categories. Majors are the most popular pairs with the lowest spreads and large trading volumes. For example, EUR/USD or USD/JPY.
Minor currency pairs refer to pairs that have less daily trading volume than the major forex pair but include at least one of the world’s major currencies. For example, EUR/NZD or AUD/NZD.
Exotic currency pairs have a currency of an emerging or developing nation and a major currency. These are USD/CNH, USD/MXN, USD/TRY, etc.
🔸Influence of Economic Factors on FX Trading
When choosing which forex pair to trade, traders pay attention not only to trading sessions and pair types but also to factors that affect the pair’s value. Economic factors are one of these. Traders monitor macroeconomic statistics, such as inflation, economic growth, GDP, and employment data. International trade figures, such as trade deficits and surpluses, also influence forex markets.
🔸Geopolitical Factors in Foreign Exchange
Understanding how politics affects the forex market is essential for traders. Geopolitical issues, like changes in political power, trade issues, and military activity, can significantly impact the performance of financial assets.
You can conduct a technical analysis to make a prediction on the further price movement of a particular currency pair. Technical analysis is used in the forex market to help traders identify potential trading opportunities based on past market behaviour and price patterns. Technical analysis helps traders choose currency pairs based on volatility, accurate entry and exit points, overbought and oversold conditions, and more.
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CFDs are complex instruments and come with a high risk of losing your money.