How to get to grips with the fast-paced forex market

Julie Brownlee, Fsp Invest, 25 Feb. 2014

Tags: forex, forex market, forex trading, trading forex, stock markets, currency pairs, how the forex markets work, trading, currencies, market,

Starting to trade forex can be a daunting experience. It can take a little while to get to grips with how and why the markets move. But there are some simple connections that new forex traders can overlook. By knowing and understanding them, your trading could benefit. Read on to uncover what these are…

Electronic trading had a huge effect on financial markets across the world, Richard Hill in Forex Round-Up explains…

Instead of financial markets working separately, electronic trading meant they could work like one huge linked market.

This means that there is usually a link between what’s happening in other financial markets and the price movements in currency pairs

To demonstrate this, let’s look at the link between all the US dollar pair currencies.

When the US dollar increases in value, the price also tends to increase against all the other currencies. So when you’re starting out, it’s a good idea to only trade one US dollar currency pair at a time.

So it wouldn’t make sense to short the pound by the dollar and at the same time, short the Australian dollar by the dollar. That’s because these pairs are denominated in US dollars. And if the US dollar increases, the pound and Aussie dollar would normally both fall in value.

By taking on more than one US dollar currency pair, you’re increasing your risk. If the dollar moves against you, both of your trades could lose.

Watch the stock markets

There is also a strong link between forex price movements and the world’s stock markets. By knowing what’s going on in the markets, it can help your forex trading.

And that’s partly down to the fact that many huge forex trades take place to convert funds in and out of the world’s stock markets.

For instance, if a country’s stock market is rising, often that country’s currency will rise in value. And the opposite is true.

There are some other links to look for…

If global markets are on the rise, the US dollar tends to drop. And if global markets start to fall, the US dollar will rise. This is because investors will start to run, dump their shares and convert their proceeds back to US dollars.

Of course, this is a very simplistic view, but it gives you an insight into the workings of the forex market.

So there you have it, how to get to grips with the fast-paced forex market.

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