Before you participate in online forex trading, you have to develop your forex trading strategy. Strategies are learned by doing but it also pays to understand the various aspects that make this business competitive. First, what do you exactly buy or sell when you do online forex trading? In essence, you are actually not buying or selling anything since it is a speculative marketplace. There are no physical exchanges of bills and coins. This is prevalent in online forex trading since it is all about data that you send or receive. The numerical values and connected based on the market price.
The existence of online forex trading is actually to serve as a facilitator in exchanging currencies to the other one, for those international and multinational corporations that always participate in trading with currencies for various tasks like paying for the cost of products, payroll, and other tasks. Of course, this particular activity is only around one fifth of the total volume. Much of the forex trading strategy will be used in managing highly speculative trading situations that are created or placed by hedge funds or those financial institutions who would like to express their own ideas about current economic and political situations across the world.
With online forex trading, you are actually trading in pairs and that means the forex trading strategy will have to manage two currencies where one tends to be long while the other one, short. This is where the forex trading strategy of the individual trader will be tested. If a trader sells the standard lot, of EUR/USD, in essence, he or she would have exchanged one currency for the other currency so this time, he or she will be short in EUR and long in USD. This concept also works for various goods but with online forex trading, it is all about numbers and so there are no actual currencies that are being given to anyone. While the forex trading strategy may seem very innocent and easy, the consequences of the lack of any forex trading strategy will reveal some realistic risks. Thus, having a solid forex trading strategy is still vital to ensure the success and competitiveness of the market.
In establishing your forex trading strategy, it is ideal to focus on the major trades. While it is possible to trade with more exotic currencies, still, much of the world is all eyes on the major currency pairs. These pairs include EUR/USD, GBP/USD, USD/CHF and USD/JPY. These are the major and most liquid currency pairs across the world. Apart from that, there are also those commodity pairs like USD/CAD, NZD/USD and AUD/USD. These 7 pairs, along with several combinations of currencies comprise at least 95% of transactions for the FOREX market. And also, since there is a limited range of trading tools, the foreign exchange market is actually more concentrated compared with the stock market.
Understanding the aspects of currency trading can help any new trader to be competitive in the market.