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How Does Trading Work? | FXTM Academy (nationthailand.com)

How Does Trading Work? | FXTM Academy

Dec 18. 2020

 Online trading is a trendy occupation in Thailand. You can work from home, or anywhere you want. You are your own boss: only you decide when and how to work, and what targets to set. Trading in the largest financial market sounds fancy, but it is more accessible than one may think.

The Core Principles

Traders use software to connect to the markets. The biggest one is foreign exchange. Unlike the stock exchange, it has no physical centre — all operations take place online. The daily turnover is a whopping 6+ trillion US dollars.

In the past, only large institutions like banks and hedge funds were allowed to participate in Forex trading. Today, we are blessed with state-of-the-art technology. Trading is possible for any individual with internet access and a brokerage account.

The main principles of currency trading apply to other realms — e.g., stocks or derivatives. A trader’s goal is to buy low and sell high, and their profit is the difference between these two prices. In Forex, one may benefit from rises and falls.

How Forex Works

All currencies are traded in pairs, as they are valued against one another. Travellers need to exchange currencies all the time. Traders, however, do not need to visit an exchange office — they work using the software.

A currency combo may be classified as Major, Minor, or Exotic based on the economies it represents. Both Majors (e.g., EUR/USD) and Minors (e.g., AUD/CAD) are connected to robust world economies. Exotics, on the other hand, are linked to emerging and less stable systems (e.g., USD/ZAR).

If a currency (e.g., the Euro) is expected to grow, you can buy euros today and sell them after the price surges. If you have euros, and their value is likely to decline, you can sell what you have. Later, you can buy more euros back once they become cheaper. Traders buy instruments which they think will gain value, and short the ones they expect to fall.

Forecasting Trends

Traders buy and sell their instruments when they see fit.  How do they know when the best moment comes? There are two ways to approach forex analysis: technical and fundamental.

The first method is built around price charts with different timeframes. Traders look at price movements in the past to see patterns which can recur. For example, if they see a hammer on the candlestick chart, they conclude that the market is going to rise. Platforms from ForexTime have dozens of indicators and timeframes.

Fundamentals are factors like fiscal policies, changes in interest rates, geopolitical tensions, or oil prices. Traders monitor financial news to make predictions. For instance, when the central bank raises the interest rate, more foreign capital flows into the country, and its currency becomes more expensive. 

All this may seem daunting if you have little knowledge of finance. Fortunately, trading software is packed with tools for technical and fundamental methods. There are live quotes, news updates, economic calendars, and a plethora of charts and indicators.

How to Learn

Would you like to master the art of trading? First, choose a regulated broker with licences from reputable organizations like the FCA or the CySEC. Next, open a demo account — it is free and quick. This account unlocks the training mode of trading terminals (e.g., MetaTrader 4 or MetaTrader5). Practise at your own pace: explore the analysis features, trading instruments and risk management tools.

The same platform may give access to different markets, depending on your account; you may trade currencies, stocks, and CFDs through the same system. Different markets and styles require a different investment of time and money. Forex is a full-time job for day traders, while swing traders feel comfortable making a few moves throughout the week.

Other Opportunities

Stocks allow you to profit from the performance of the largest corporations, like Apple or Facebook. Unlike investors, traders do not hold on to their instruments for long periods — instead, they buy and sell frequently to capitalize on price changes.

Popular derivatives are CFDs (Contracts for Difference). CFDs are linked to underlying assets which their holders do not own. One may easily speculate on prices for crude oil, natural gas, stocks, indices, and even cryptocurrencies. No physical barrels of oil or crypto coins change hands.

Word of Caution

Education is free, so anyone can learn to trade. However, not every trader succeeds. Consistent profit requires a solid strategy, emotional control, and rigorous risk management. The market, be it Forex or stock exchange, is beyond any individual’s control. That is why demo accounts are essential. Fortunately, there are many effective techniques you can implement.