Forex trading has been around for thousands of years, and today it is among one of the most profitable forms of investing you can do. Check this here. The forex market gives the ability to invest in foreign currencies, which means that by buying or selling a currency, you can make a considerable profit from its fluctuations. Currency goes up or down depending on many factors, such as a solid quarter or an upcoming event where interest rate changes might occur.
As you know, any major news events have significant effects on the market, and it takes quite some time until we achieve equilibrium again. In this article, I will give you four critical tips on controlling the market and making a profit from it. The four factors to be discussed are Time zone, price movement, money flow, and fundamental analysis.
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To understand why time zone is a critical factor in trading, you must first know that each currency trade has two different prices. One price is the bid, while the other one is an asking price. The difference between these values gives you your brokers’ margin, so he profits from every trade you do with him. You may think that since there can never be more than these two values for any forex pair (let’s take EUR/USD, for example), this has no impact on you as a trader.
But think about this for a second: What if you were trading during the night and we base your broker in New York while you are currently in Dubai? Because it’s nighttime in New York, most traders there have already gone home, and they can’t place any trades. This means that no one can push the price up or down, which causes equilibrium between the bid and ask prices.
As you might now know, every forex pair has different prices depending on the time of the day. It is imperative to know your broker’s location, especially if you are trading at night with no price movement.
Another factor that affects the forex market is how much money everyone wants to invest in one particular pair. This means that when more people invest their money into a specific currency than others, then, of course, its value will go up. It is exactly like buying shares in a stock market; when everyone wants to buy Microsoft stocks, then, of course, they will be expensive, and once again, this causes equilibrium between supply and demand.
Let me give you an example: Let’s say that an investor has heard rumors that Apple Ltd might increase their dividends by at least 15%. It means that the investor will try to buy as many AAPL stocks as possible before this happens. Because more people are looking to buy these shares, their price will increase, which causes equilibrium again.
Now let’s look at what happens when everyone wants to sell AAPL shares: Let’s say a blogger makes a post saying that Apple’s dividends might decrease by 10% instead of increasing it by 15%; since fewer people want to buy these stocks, then its value will go down and cause equilibrium once again. The same thing goes for forex trading; when more money flows into one currency, its price increases and vice versa.
Lastly is fundamental analysis. You’ve undoubtedly heard this term before, but if not, then here’s the definition: “in this type of analysis, a method is used to determine the value of a security by examining related economic, financial and other qualitative and quantitative factors”. If you are trading currencies based on fundamental analysis, then let me tell you right away that your chances of success will be close to zero. There can never be 100% accurate predictions about what might happen tomorrow or in one month, so your analysis might become invalid at any time.
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