What Is Forex Trading?

Basics of Forex Trading: How to Begin?

If you wish to do forex trading, there are a few steps that you may want to follow. These steps are explained below:

Research

Before you start your trading journey, it is imperative to know the basics of trading and the forex market. Without having the basic understanding about the processes and the operations, you may not be able to get your desired outcome. You can start by researching currency pairs, checking out historical charts, keeping track of economic trends, learning about the forex market, indicators and also learning about technical and fundamental analysis. Once you are well-versed with them, you can start your forex trading endeavor.

Select a Currency Pair

After you have completed your research, you can select a currency pair. Most traders usually start by trading the common pairs made of major currencies. However, it must be noted that you can trade in any currency pair that is available, if you have the funds. It is also necessary to understand that when you select a pair you will be buying one currency and selling the other at the same time.

Check the Spread

When you select a currency pair, you will notice two prices. One price indicates the selling price of the currency pair and the other indicates the buying price of the currency pair. The difference between the selling price and the buying price is known as the spread. The spread is the amount that is charged by the dealer for initiating the trade. These spreads can vary from trader to trader.

Select Your Position

You can select a buy or a sell position depending on the market movement. If you believe that the value of the base currency (the currency that you intend to buy) will rise as compared to the quoted currency (the currency that you intend to sell) then you can enter the Buy position. If you believe that the base currency price will fall as compared to the quote currency price, then you can choose to enter the Sell position.

Forex Trading Strategies

A forex trading strategy is a strategy that a forex trader uses to determine the buying and selling of a currency pair. Traders can learn forex trading strategies to use and take advantage of. However, a good strategy is one that offers techniques to manage risks and at the same time enables the traders to analyze the market well, so that they can proceed with trading without any confusion. We have listed a few popular strategies that you can check to know more about forex trading basics:

Price Action

In this trading strategy, recent and actual price movements are studied to create technical trading strategies. Price action trading can be used as an independent strategy or together with another indicator. Sometimes even economic events are used to determine this strategy. Traders who adopt this strategy read the market first and then make trading decisions. They can also make use of multiple time frames to analyze market prices.

Scalping

Scalping is a short-term forex strategy. Traders who utilize this strategy attempt to make profit from the small price movements that happen within the forex market. Traders or scalpers buy and sell a currency pair while holding the position only for a short duration (seconds to minutes). This process is repeated throughout the day to generate returns frequently. This strategy also takes advantage of the fluctuating prices.

Swing Trade

Swing trading forex strategy is a strategy wherein technical indicators, which can suggest an impending price movement, are referred to buy and sell currencies. Swing trading positions can last from hours to weeks. The traders who adopt this strategy focus on technical analysis to track a currency and to find out when a swing will likely occur. Typically, swing traders attempt to make profit from the fluctuations of the currency price movements and are not concerned with the long-term value of the currencies.

Position Trading

Position trading is a long-term trading strategy. Traders who use this strategy hold the currency for a long term. The trader can hold it for months to years. Position traders do not focus on short-term price movements but rely on long-term trends with the expectation that the currencies will appreciate over time. Traders who do position trading also depend on fundamental analysis rather than technical analysis.

Day Trading

Day trading is a short-term trading strategy. Day traders hold positions for a short term and buy and sell currency pairs on the same trading day rather than holding them overnight. Traders who adopt this strategy rely on technical analysis and technical indicators to gain more profits.

Hedging

A forex hedging strategy is one that is applied by traders to reduce losses on foreign currency positions from any fluctuations in the exchange rate. The aim of this strategy is not to mitigate the risks and losses completely but to limit them to an acceptable range. Forex hedging can offer protection from currency risks such as inflation rates, fluctuating interest rates, among others. Some of the common forex hedging strategies are simple forex hedging strategy, multiple currencies hedging strategy and foreign options hedging strategy. To sum it up, forex investment or forex trading can be an exciting option for traders as they can offer opportunities to earn potential returns. However, like all investment products, traders are encouraged to know about forex trading, currency pairs, and economic trends before investing in the forex market. Traders may also want to check out the strategies which can help them make a better decision while making forex investments.

Frequently Asked Questions

Is forex trading good for beginners?

Forex trading is usually complicated, and it requires a thorough understanding of how the forex market works. However, whether beginners should opt for it or not will solely depend on their financial status and goals. It may help if a person has prior investing experience. Beginners may also want to be cautious as the forex market is highly volatile.

Is forex better than stocks?

Both forex and stocks are dependent on market movement and price fluctuations. Their prices also change much faster than other financial assets. Forex trading options can be explored by short-term traders while short to medium term investors can check out stocks. Also, investing in stocks can be less volatile as compared to forex.

What are the different forex strategies?

Some of the different forex strategies are:

• Hedging
• Scalping
• Position Trading
• Swing Trade
• Day Trading
• Price Action

Discover a world of wealth opportunities in Singapore

Join Citigold

Disclaimer:

This video/webcast/article is provided at your specific request and for general information purposes only. It is not intended as a recommendation nor an offer or solicitation for the purchase, loan, swap or sale of securities, financial products, services or currencies. Neither all nor part of this video/webcast may be reproduced or copied in any manner without the written consent of Citibank N.A. or its affiliates or subsidiaries ("Citi"). This video/webcast/article has been prepared without taking account of the financial objectives, situation, or needs of any particular investor. Any person or entity considering an investment should consider the appropriateness of the investment having regard to their financial objectives, situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment.

Investments are not deposits, are not obligations of, or guaranteed or insured by Citi, or by any government, insurance agency or other public institutions, and are subject to investment risk, including the possible loss of all or part of the principal amount invested. Past performance is not indicative of future performance; prices can go up or down. Investment products are not available to US persons.

Investors should be aware that it is their responsibility to seek legal and/or tax advice regarding the legal and tax consequences of their investment transactions. If an investor changes place of residence (including tax residency), nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change/s and to comply with all applicable laws and regulations as and when the same become applicable. Citi does not provide legal and/or tax advice. If you have any questions, please contact your Relationship Manager.

Please click on the following link for other important disclosures associated with this video/webcast/article, including but not limited to disclosures relating to certain risk factors and/or specific country disclosures that are applicable to you, depending on the country of your residence: asia.citi.com/wealthinsights/country-disclosures