When trading CFD / Forexs, there are four ways that you can make a return on your investment. These four ways include trading in currencies, stock indices, stocks and forex. This introduction shall give you all the information you need to know about getting started with trading currencies.
The movement of currencies is different from other assets as currencies are traded in pairs. This means that your trade will be based on two currencies that are consistently overtaking one another. Basically, you will be using one currency to purchase another currency. At any one time, there will always be one currency that is stronger than the other and the key to making a profit is in estimating which currency shall move up or down.
When trading CFD / Forexs, a trader will attempt to keep track of the movements of these currencies, as it is the fluctuations and balances that will determine whether one makes a good return. So how do you choose the currencies for trading pairs?
There are hundreds of currencies in the world, although, only a select few are chosen for the purpose of Binary Options Trading. These are known as the Majors. In regards to currency pairs, each of these majors are paired against the US Dollar. Only a small amount of all pairs are made without the US Dollars. The majors include the British Pound (GBP), Euro (EUR)., the Japanese Yen (JPY), the Australian Dollar (AUD), the Swiss Franc (CHF), Canadian Dollar (CAD) and the New Zealand Dollar (NZD). When paired with the USD, it is possible to carry out currency pair trades for five days each week, at all hours of the day or night. The broker that you choose will determine the hours which trading can occur.
Trading in currencies requires you to have access to information regarding the economy that the currency is directly related to. Changes in the economy, as well as in finance or politics will have a major influence on what is happening with a currency. This means that there are numerous external variables that can affect the strength or weakness of a currency. When positive things are happening in the states it is expected that the US dollar will become stronger, in the same way the Euro could weaken in case a European member country experiences sudden tough economic times.
Choosing to Call or Put
The decision to call or put when trading with currency pairs will be based on what is happening with the underlying asset. For most trades, the underlying asset is USD. When trading with another currency, when the USD goes up then you should call. When it comes down, you should put. Using this logic, you will find that the calls are profitable and make you money. If you made the right decision by putting, then it is also possible to get a return on your investment.
It is essential to keep in mind that the currency pair market can be quite volatile, which will affect your ability to trade successfully. This is because you may be prone to dealing with false moves which result in your making a bad trade. Paying attention to finance news can help tremendously to avoid this scenario.
Types of Pairs
There are some currencies that are more liquid than others, and therefore are better choices for traders who are still developing their skills. The most liquid currency pair is the EUR/USD. It is liquid as compared to all the other trading pairs, it has the highest trading volume. In addition, the market is very large making it easy to find both buyers and sellers.
The most volatile pair does not include USD, and that is the GBP/JPY. It is with this pairing that you have the chance to make a massive profit, or a very large loss. The reason that this pairing is so volatile is because it tends to move in the same directions, meaning that as one currency increases or strengthens, so does the other. Traders who are looking to make the most profits will often trade with GBP and any other currencies. The choice of currency pairs will depend on the broker that you have chosen.