How does Forex work, why is it so popular?

Forex (FX) trading is arguably one of the most popular forms of trading amongst investors, with a daily average trading volume of around $5 trillion.

In its simplest form, forex trading is the trading of one currency against another, known as currency pairs. This form of trading supports the conversion of any national currency into another, which means that as a result, it is one of the most active trading marketing in the world. This is just one of the many reasons for its popularity. To get the latest news about eToroPhilippines Review visits wikifx.com official website.

This guide aims to provide you with more information on forex trading and the elements which make it one of the top markets for investment.

Liquid Market

            A liquid market a one with many available buyers and sellers and comparatively low transaction costs. The details of what makes a market liquid may vary depending on the asset being exchanged. In a liquid market, it is easy to execute a trade quickly and at a desirable price because there are numerous buyers and sellers and the product being exchanged is standardized and in high demand. In a liquid market despite daily changes in supply and demand the spread between what the buyer wants to pay and what sellers will offer remains relatively small. To get the latest news about Chinabank Forex Philippines visits wikifx.com official website.

Understanding Liquid Markets

            Liquid markets are usually found in financial assets such as forex, futures, bonds, and stocks. Markets for high-priced tangible goods, such as luxury items, heavy industrial equipment, or houses are considered illiquid markets. But even financial securities can also be thinly traded depending on some factors including the time of day, the immediate conditions of a given market, or the relative visibility of the asset. To get the latest news about xTrendSpeed Philippines visits wikifx.com official website.

Leveraged Trading

            In FX trading, leverage trading refers to the use of credit —extended by the dealer or trading platform— aimed at magnifying the notional value of a position. If a trader has a given amount of margin in deposit, he or she is allowed to speculate on a notional amount that can be many times as large. To get the latest news about SM Forex Philippines visits wikifx.com official website.

The pros of leveraged trading

            As I have already alluded to, one of the advantages of leveraged trading is that it provides you with access to additional funds because you are borrowing money from the broker to gain more exposure to the market than you otherwise would.

            As you are exposed to a larger position in the market, you have the opportunity to magnify your returns. For example, let’s say you decide to enter into a forex currency trade on the AUD/USD dollar because you believe the Australian dollar will fall in value against the US dollar. Now let’s assume you decide to trade $500 on a margin of 0.5 percent, your exposure in the market would be $100,000. So you are now controlling a $100,000 trade using only $500 of your own money.

The cons of leveraged trading

Just as leveraging can magnify your profits, it can also magnify your losses.

            Let’s continue with the previous scenario but let’s say that instead of the Australian dollar falling, it rises against the US dollar. So you now find that your open position is sitting at $98,000 or a loss of $2,000 on your initial exposure of $100,000, which means you are down 400 percent.

            So, not only have you lost your initial capital of $500 but you are now required to cough up an additional $1,500, as the broker will have made a margin call on your account to cover the losses. Forex brokers will require you to maintain a certain amount in your brokerage account to cover margin calls in the event a trade goes against you

  • Short selling strategy

            Short selling is a strategy used by stock market traders to make a profit on shares they expect will lose value.

            This is an example of using short-selling to generate profit as a speculator. At other times, short selling is used by investors to minimize the impact of a significant drop in the price of shares they already own—this is a hedging strategy.

  • Short Sale Example: Ford Moto

            Ford Motor (F) showed three profitable short sale strategies in a single downtrend. The automaker carved the last leg of a bearish double top pattern in September and broke down, triggering bearish signals that momentum traders can use to sell short. The decline ended quickly, giving way to a bounce that failed at broken support, allowing pullback players to get on board. Price drifted back to the weekly low within an 8-day consolidation, encouraging range shorts to take positions. The stock then broke down, setting off a sequence that repeats entry signals for each strategy.

Location: Philippines

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