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A Comprehensive Guide To Currency Trading

Currency trading - or forex trading - is the world's largest financial market that operates 24 hours daily. It involves exchanging international currencies at a given price to support cross-border transactions. The currency trade business works day and night, depending on location and market preferences.

Many participants in the currency trading business bring stability to the forex market. Currently, the traded volume stands at USD$6.6 trillion, which covers daily international currency transactions. 

Meanwhile, anyone can venture into the currency trading business after learning how the industry operates. However, expert traders highly recommend researching more about the market and risking what you can afford to lose due to the volatile nature of the business. 

On the other hand, brokers exist as links to the trading floor. Also, they offer several instruments and currency pairs to traders through platforms or terminals such as MetaTrader 4 (MT4). However, reviewing brokers' credentials is crucial to ensure you invest through the right channel. That'll help you safeguard your portfolio and pivot your currency trading business.


What Is Currency Trading?

Currency trading is the exchange of international pairs at a given price in the foreign exchange market. People buy and sell goods and services on the global market by converting to facilitate trade. 

The exchange of currency pairs to support your transaction is called currency trading. For example, if you're in the United States and want to buy goods from Canada, expect to change your US dollars to Canadian dollars to facilitate your trade. Nevertheless, more currencies are being traded in international financial markets. 

Here's some additional information to better understand how forex trading works:

  • Pips And Pipette

A pip is an abbreviation of price interest point—the slightest movement a currency pair can make during market price action. A pip is equivalent to 1/100 of 1%, and the pip figure appears in a four-decimal point number (0.0001) on a trading chart. One percent of an underlying currency quote (any traded currency pairing) is divided once when the market is in session. 

On the other hand, a pipette is an additional decimal point figure to a pip on a given currency pair. However, the pipette on JPY (Japanese Yen) is quite different since it has fewer digits after the decimal point.  


  • Volatility 

Sudden price movements are known as volatility. It shows how active market participants are during the trading sessions. The market drivers can push or pull currency pairs depending on the supply and demand of transactional resources.

When the price action scurries downwards, the market is said to be highly volatile. Hence, you can quickly lose your trading capital. So, research and understand what causes volatility in the market before risking your money.


Trading Sessions

Currency trading is a 24-hour business with brokers and traders participating in foreign currency exchange. It also depends on the market location and the volume of currency pairs traded when the market opens. 

The following is a breakdown of trading sessions:

  • London Session

The London session opens from 7:30 a.m. to 3:30 p.m. in the Greenwich Mean Time zone (GMT). It's one of the overlapping trading sessions in the forex market. Currency trading during this session is highly volatile and liquid following a slugging Tokyo trading session. 

Significantly, you must study currency pairs traded during the London session to take advantage of the market performance. Experts look for currency trading signals that can influence trading in the New York session, which opens soon after the London session. 

Savvy traders are keen to follow the London session for hyper-volatile currency pairs comprising EUR/GBP and GBP/USD. If well understood, traders can collect significant profit from price action involving these pairs.


  • New York Session

The New York session opens from 8:00 a.m. to 5:00 p.m. in the Eastern Time zone (EST), which is 1:00 p.m. to 10:00 p.m. in Universal Time Coordinated (UTC). It covers transactions involving underlying economic activities around the countries under USA's banner. 

The US dollar is the predominant currency due to the volatility experienced in the session. By the time the New York session opens, most currency trading markets are closed. Hence, traders are looking for opportunities in the upcoming trading session. 

You can participate in currency trading opportunities through US-registered brokers. This ensures safe participation in the New York session while protecting you from fraudsters.


  • Asian Session

The Asian session comprises New Zealand, Australia, and Japan. It opens earlier than the rest of the trading sessions, which usually start at 10:00 p.m. and go on to 8:00 a.m. in GMT. 

Due to low trader participation, the market is mainly range-bound. Meanwhile, the currencies experiencing volatility are the Japanese yen, Australian dollar, and New Zealand dollar. 

The trading sessions vary depending on the locale and the business operating hours within the host countries. You can rely on brokers to connect your currency trading business with all the sessions.


Currency Pair Breakdown 

Currencies traded in the foreign exchange depend on the underlying trading activities and the supply and demand factors such as interest rate, capital flow, and inflation, among others. 

The following are the main categories of currency trading:

  • Major Currencies

Experts consider the currency trading business drivers due to the large volumes traded in any given session. The major currencies are the most traded in the forex market. They're a collection of selected currencies that belong to the group of ten (G10) countries: EUR/USD, USD/JPY, GBP/USD, and USD/CHF.

However, the financial markets community added AUD/USD, NZD/USD, and USD/CAD to the list. So, it's crucial to learn the underlying factors contributing to these currencies' price movement before executing trades. Additionally, it's worth noting that the major currencies have US dollars in all pairs.


  • Minor Currencies

Minor currencies or cross-pairs combine currencies with one significant currency, not the US dollar. Liquidity and market participation are critical considerations that affect minor trading currencies. However, you must research pairs falling under the minor currencies banner. 

Here's a list used to identify minor currency pairs:

    • Euro and British pound sterling
    • Euro and Japanese yen
    • British pound sterling and Japanese yen
    • British pound sterling and Canadian dollar
    • Swiss franc and Japanese yen
    • Euro and Australian dollar
    • New Zealand dollar and Japanese yen


  • Exotic Currencies 

Developing economies can also participate in currency trade through a mix of major and minor currencies. However, they're often not traded due to their specificity and trader interest. In addition, they rely on seasonal or fundamental issues, such as news or social conflict in their locale. 

Here's how they look:

    • Euro and Turkish lira
    • US dollar and Hong Kong dollar
    • Japanese yen and Norwegian krone
    • New Zealand dollar and Singapore dollar
    • British pound sterling and South African rand
    • Australian dollar and Mexican peso

Meanwhile, it's crucial to research underlying factors that lead to such currency pairings and which trading sessions you can participate in. Also, you can determine if your market execution is profitable or not. In addition, you must review broker services concerning the currencies they offer through their trading platforms.


Market Analysis

Market analysis is one of the classic tricks for trading currencies in the forex markets. It helps to identify excellent and safe currency pairs and trading sessions for your capital. So, every trade execution is a well-planned move that can bring returns on investment.

  • Technical Analysis

The currency market is speculative, and it may require an examination of past events to determine or predict the subsequent price action. It involves reviewing the price charts of currency pairs and validating the movement by looking at the underlying factors, such as candlestick patterns. 

You can pick trends from the price action history and decide what qualifies your market execution. However, you'll risk relying on technical market analysis to open a trading position. Therefore, research the importance of technical analysis when trading currencies. You must learn the market drivers that can influence price fluctuations.


  • Fundamental Analysis

Traders are always keen to open or close currency trades by following the worldwide news. The currency trading market is susceptible to political, economic, and social matters attached to trading currency pairs. They significantly influence market volatility in any trading session. 

Fundamental and technical analysis can give information that's useful for trading decisions. However, savvy traders can use one of the two forms of market study to develop a trading strategy. Therefore, learn how to apply them before starting currency trading. 


  • Spread

Spread is the difference between the buy and sell rates of currency pairs. It's always determined by brokers offering intermediate services through their trading platforms. 

Depending on market participation and currency traded volumes, brokers can increase or decrease the price. This can affect your profits and losses since they charge commissions for the services and transactions through their platform.


  • Risk Management

Risk management is a critical component of trading currencies. You must be conscious when executing trades and be mindful of your capital as you open a trading position. Also, you need to take your profit however little and cut your losses as fast as possible. Market volatility can wipe clean your capital in seconds.


  • Trading Terminals

Forex brokers offer a multifunctional window to access the trading floor. You can trade several currency pairs at once and manage your capital when the trading sessions open. MT4 is the most common trading terminal in the currency trading business. 

Brokers offer demo accounts on MT4 for traders to practice market executions before going live in the currency trading market.


Final Thoughts

Currency trading can be challenging if you don't understand how the industry works. Learning and practicing strategies to pivot your market entries and exits takes significant time. You must research the currencies you'd like to trade and risk what you can afford. In addition, have a plan to guide your trades and ensure you use a registered broker when venturing into the business.