It can be. The connectivity of the internet has democratised forex trading.
The proliferation of advance trading software gives retail forex traders tools that only professionals had in the past. You can execute automatic trading strategies (algo) forex markets, where buying and selling orders can be set up automatically.
You can trade currencies both ways – buy and sell – easily and leverage is easily obtainable from brokers.
Hence, the forex market is well suited to tech-savvy, independent thinkers. Interestingly, returns from the forex market can be largely independent to that of the stock markets. This is because factors influencing forex returns are different to that of stocks or bonds. There are periods when exchange rates are trending while stocks prices are static. Multi-asset funds are thus eager for these returns from the forex market because it helps to lower overall volatility.
There are also forex strategies that exploit interest rate differential. Broadly speaking, you first borrow from currencies with lower interest rates and then buy currencies with higher interest rates. This is known as the ‘carry trade‘. During 2003-2006 it was popular to borrow in Japanese Yen and buy Pound Sterling because interest rates were low in Japan and high in the UK.
What Forex Pairs Should I Trade?
For beginners (or even intermediate) traders, you should focus on key forex pairs that are liquid. This is because liquid FX pairs generally have lower bid-ask spreads. Also, these forex pairs are floating (most of the time anyway) and are not controlled by the central banks. The top five forex denominations are:
- USD-pairs
- EUR-pairs (Euro was born on January 1, 1999)
- GBP-pairs
- JPY-pairs
- CHF-pairs
This is followed by: CAD, AUD, SGD, CNY, MXN, among others. Countries with many commodity exports, such as Australia and Canada, are known as commodity currencies. The prices of commodities will impact their currencies to a certain degree.
You can read more on the most popular forex pairs for trading here.
Types Of Forex Orders
There are two main type of entry orders:
- Market orders ensure you are in the market quickly but your entry price may be subject to the prevailing conditions when you buy into it.
- Limit orders may give you better entry prices, but you may not execute the order. Prices may have simply run away.
Market orders are ones that you wish to enter straightaway (‘market’) or at certain levels (‘limit’) and there are advantages and disadvantages of each.
With over 35 years of finance experience, Darren is a highly respected and knowledgeable industry expert. With an extensive career covering trading, sales, analytics and research, he has a vast knowledge covering every aspect of the financial markets.
During his career, Darren has acted for and advised major hedge funds and investment banks such as GLG, Thames River, Ruby Capital and CQS, Dresdner Kleinwort and HSBC.
In addition to the financial analysis and commentary he provides as an editor at GoodMoneyGuide.com, his work has been featured in publications including Fool.co.uk.
As well as extensive experience of writing financial commentary, he previously worked as a Market Research & Client Relationships Manager at Admiral Markets UK Ltd, before providing expert insights as a market analyst at Pepperstone.
Darren is an expert in areas like currency, CFDs, equities and derivatives and has authored over 260 guides on GoodMoneyGuide.com.
He has an aptitude for explaining trading concepts in a way that newcomers can understand, such as this guide to day trading Forex at Pepperstone.com
Darren has done interviews and analysis for companies like Queso, including an interview on technical trading levels.
A well known authority in the industry, he has provided interviews on Bloomberg (UK), CNBC (UK) Reuters (UK), Tiptv (UK), BNN (Canada) and Asharq Bloomberg Arabia.
You can contact Darren at darren@goodmoneyguide.com
