What is Forex?
Forex is short for Foreign Exchange. This simply means the exchange of one currency to another. In the past, rich people, large corporations, major banks, and other interested parties would hire their own brokers just for the purpose of swapping currencies at a currency exchange.
To cite an example, a US-based company with business dealings in Japan would need to convert their earnings into US dollars. The company would need someone to handle the exchange. Now, another company has business transactions in the US, but would need Japanese yen. These two companies can help each other out through a middleman who will make some profit on the side.
With the advent of the computer age, it became apparent that trading currencies can be quite a profitable endeavour, and currency trading, as it is known today, started.
To the uninitiated, a simple way to explain how Forex works is this: You obtain a certain amount of foreign currency, and wait for it to appreciate in value. Then, you exchange it back to your local currency. This way, you make a profit without working hard for it. Since exchange rates constantly change, your goal is to take advantage of the volatility.
Forex Trading History
The ancient Egyptians and Greeks first traded goods as well as currencies with molten gold and silver coins, the value of which was determined by the coins’ size and weight. Half a millennium later, the Roman Empire established a monopoly on currency trading by centralizing currency minting. Today, a similar monopoly-like, centralized structure exists in the form of central banks coming up with regulations and monetary policies.
In the Middle Ages, copper was the most popular metal used for minting and trading coins. This paved the way for the minting lower-value coins. Today’s American 1-cent coins are minted from 97.5% zinc and 2.5% copper.
It was about this time that the oldest bank in the world, Monte dei Paschi, was established in Italy, with the sole function of facilitating currency transactions.
Around 500 years ago, the first forex market was started in Amsterdam, and this made it possible to trade currency freely. This helped provide stability to currency rates. From the market in Amsterdam, forex trading all over the world was facilitated.
1875 saw the introduction of the Gold Standard that limited a country’s capacity to mint national currency to an amount equal to the gold it has in its reserves. The purpose of the Gold Standard was to help guarantee a currency’s value. It ended at the end of WWI, when countries printed more currency to support their expenses. The Bretton Woods System, the God Standard’s successor, was introduced during WWII.
Trading signals are indicators that prompt forex traders to buy or sell currencies at a specific exchange rate.
In terms of returns, forex trading can be quite a lucrative proposition. However, to improve your chances of success, you need access to reliable tools that can help you save many hours of waiting and watching for the right entry and exit points. Forex signals can help in this regard as they allow you to pre-determine the limit- and stop-levels of your trading positions.
Basically, forex trading signals are buy and sell indicators that will alert traders on ideal market entry or exit points that are about to emerge. Various providers of forex signal services constantly monitor the market, and send recommendations to traders via their smartphones or computers whenever a positive trade becomes available. Trading signals are sent via SMS, email, or an app.
Different indicators are used to generate the signals. These include SMA (Simple Moving Average), MACD (Moving Average Convergence Divergence), volume indicator, and Bollinger Bands.
Many successful day trading strategies depend on getting live, high quality forex signals at any time during the day or night. Thus, it is important to work with a trusted and reliable signals provider.
A successful day trading strategy depends on receiving high quality live Forex signals any time of the day or night, so working with a trusted exchange partner is critical.
How to Get Started?
You can start trading in Forex in 3 easy steps.
Step 1: Open a trading account with a forex trading broker. – To make trades, you need an active trading account. First, you need to choose a reliable and trusted broker to work with. There are numerous reputable online brokers like eToro, 24Option, and BDSwiss. The application process is often secure and simple. You can apply online anytime just by filling up an online form.
Step 2: Fund your forex trading account. – After opening a trading account, the next step is to deposit funds into your account. The initial deposit amount and the minimum amount for subsequent deposits, as well as the options on how to fund your account will depend on your broker. Detailed information is usually provided on the broker’s website.
Step 3: Begin trading. – You can start trading right after funding your account. You broker may offer various ways to trade forex such as through CFDs, spot FX, and spread betting, among others. Just log in, choose your currency pairs, and open a trading position. To help you get started, brokers often offer access to powerful and easy to use platforms, streaming charts, live price feeds, and forex news.
Trading Risks and What to Avoid
There are common mistakes that traders, especially beginners, commit when trading forex. Here are some of the pitfalls that you should avoid:
Risking a Large Capital – Most traders hope to gain significant profits. This is why there are people who are willing to risk a lot of money just on one trade, believing that the higher the risk, the higher the potential gains. This doesn’t always hold true. As a rule, avoid risking more than 1% of your total trading fund on a single trade. Even jaded traders follow this rule of thumb.
Unrealistic Expectations – Trading markets are very volatile and prone to considerable risks. They may also move in a choppy, unrealistic and illogical manner. The sooner you accept that markets can be very erratic, the better. Thus, you must develop the right strategies to cope with the unexpected market changes.
Considering Trading as Gambling – You must treat forex trading as a business venture, and not gambling. While you can expect to lose from time to time, you must be realistic about your profit goals, and keep your patience.
Staying Focused on Obstacles Instead of the Strategies – Avoid concentrating too much on the reactions and obstacles. Instead, stick to your trading strategies and maintain discipline in trading. Refrain from switching strategies frequently. It is best to focus on one strategy. You can practice your strategy using a dummy account first, before trying it on a live account.
Improper Positioning – As mentioned, the market is quite volatile. Various events that occur throughout the world can have an impact on your trades. While the effect of a specific decision or event can be foreseen, its implications cannot always be accurately predicted. Thus, it is best that you take as secure trading positions as possible that would not be jeopardized by external events.
Placing a Position at Closing – Forex markets tend to be quite volatile on Fridays. A lot of things may happen that can affect trades made on Fridays. This is also true at month-end. It is best that you avoid trading right before the time of closure. If you open a trade at closing, you have no choice but to stay with your position until the next trading day. An unexpected incident or market gap may happen, which may cause significant losses.
Trading Right after the Break Out of a Significant Event or News – Markets are often observed to act erratically after an important event or news breaks out. Because reactions may be far-reaching, incurring huge losses is possible. It is therefore prudent to wait until the market stabilizes and develops a steady trend.
If you are planning on making a career out of Forex trading, you need to have a good grasp of the various aspects of the craft, many of which are very specific and would require extra attention. These include the topic of Forex trading signals.
While having a basic understanding of these signals would help, gaining a good appreciation of their significance and practical use can help improve your chances of trading success. If you have been trading for some time, you probably already have some ideas on what constitutes good signals of Forex trading.
We have taken it upon ourselves to take away all uncertainties about the topic, and help you determine the right signals to use.
First, let us define what a Forex signal is. A Forex signal, basically, is a recommendation developed by a human analyst, a Forex trading robot, or software. A signal contains information on a solid trading opportunity on a currency pair, with a pre-determined time and price.
Forex day trading signals are generated in real time. Thus, the method and timing of notifying a trader is crucial. Some of the more popular notification methods are by SMS, RSS, email, websites, and social media accounts like Twitter. This website is intended to give a detailed overview and good understanding of forex signals.
Types of Forex Signals
The type of Forex signal is dictated by its specific function, as well as how it operates in general. Technically, signals can be categorized into two types that are always available in the Forex markets. These are automated and manual Forex signals.
Manual Forex Signals
To use manual forex trading signals, you need to spend a lot of time in front of your computer, on the lookout for signals that will help you decide to purchase or sell a specific currency. You will come up with a decision based on your understanding of the signal you spot, and this can take a lot of your time.
Using daily forex signals is interdependent on manual trading. As a human trader, you are able to analyze the forex markets in a manner that a trading program can’t. A trading software is unable to determine when the market is moving in an awkward and unpredictable way. This way, it cannot prompt you to pull out of unfavorable trading positions.
On the other hand, a human trader is equipped with experience and skills, and is not limited to mere programmed settings and codes. An experienced trader sometimes relies on his gut feel in determining whether or not specific trades will be gainful.
Automated Forex Signals
When using automated signals, it is important to remember that as a trader, you only give commands to the software on what signals to search for. This eliminates human psychological stress in the process. The software program will interpret the proper action to take automatically – whether to buy or sell a currency. If the software or robot was programmed properly by an experienced professional, it can produce accurate results.
Compared to a human trader, a robot is capable of processing a lot more data. This means you can handle multiple currency pairs and transactions at any given time. You will also have the means to monitor all the charts you want all day and all week. You will not miss any important signal this way.
Buying Forex Signals
Both automated and manual Forex day trading signals have their own sets of pros and cons. Thus, most Forex experts would recommend using a hybrid service that combines the best of both types of signals.
If you intend to buy forex signals online, make sure that the provider offers free trial. Legit providers will let you test the information they offer before making a decision to buy. This way, you will have the opportunity to determine whether the signals are of good quality, and will benefit you in the end.
Likewise, deal only with vendors who can provide past, audited results. After all, it would be easier to trust companies who validate their info compared to those who refuse to allow prospective clients a free trial option, and access to evaluated results. Top Forex signal service providers would have no problems with these requests.
Main Forex Signal Systems and Their Characteristics
There are various services available under the forex signal umbrella. For one, there are paid signals generated by a provider either via personal analysis or through automated analysis using algorithms. There are also paid signals originating from multiple systems or various sources. Finally, there are trading software managed by forex robots. These generally supply the best signals. Ultimately, however, the best signals for you are the ones that meet your particular needs.
Following are the features offered by different forex signal providers:
- Forex trading account management
- Forex signal analysis help, and access to supporting graphs for interpretation
- Access to training and educational resources
- Trial period either for free or a discounted rate
- More interaction between client and provider through special forums
- Availability of trading history
- Approximate entry, exit, and stop loss figures for different currency traders
It is worth mentioning that there are some market players who provide unreliable and fake forex signals online. These may cause you significant losses. Thus, it is important that you only deal with reputable companies.
Final Word on Forex Signals
To sum up everything that we covered in this section, it is important to keep in mind that successful application of Forex trading signals requires, at the very least, a basic understanding of the Forex trading process. There are many signal providers and opportunities that you may encounter online. However, you will not benefit from them if you have no concrete idea on what you are dealing with.
We are hopeful that before you finally make your initial trade, this site has helped equip you with a good understanding of Forex signals and their proper use. When applying either automated or manual signals, you need to understand bot the advantages and disadvantages that these signals come with.
No signal can guarantee 100% profit. However, if you use the signals properly, you improve your chances of gaining profits. It would help if you consider the type of signal to use, as well as your trading skills and particular style.