The value of a currency is dependent on the demand for currency. Different countries have different currencies and for the purpose of trading goods and services, it is necessary to have currency of that particular country. Traders make use of these forex strategies with aim to make profits. Trading of currency is usually carried out in pairs and the rate at which they are exchanged is termed as currency exchange rate. Currencies are traded 24/7 and this makes it very volatile.
There are two different currencies in the trade – base currency and counter currency (also called quote currency). The exchange rate is the ratio of base currency and counter currency and its value is what the buyer should pay to purchase the base currency.
There are three types of exchange-rate system – fixed, semi-fixed, and free floating. The fixed one is less volatile because of government intervention in the market. In the semi-fixed rate, the price of the currency varies within a range. In a free-floating system, the price of the currency is fixed by the supply and demand in the trade market.
Important Currency Trading Tips
Some of the most important currency trading tips, which should be kept in mind, is:
1. Leverage of exchange rate– Leveraging in the system should be applied carefully. Excessive leverage will land the trader in trouble. Those traders who can sense Forex signals or who use reliable automated currency trading robots can employ maximum leverage.
2. Stop orders and Limit orders– Stops orders can prevent from making huge losses. Stop order is executed when price reaches the preferred price. Limit order enables to enter a fresh position or exit the present position. However, limit order is difficult to be executed because of the volatile nature.
3. Fundamental and Technical analysis– Technical and fundamental analysis are useful to estimate the currency price fluctuations. Fundamental analysis involves assessing factors responsible for the fluctuation, while technical analysis involves study of charts and graphs to plot the price movements. From these it is possible to assess the highest price; opening price, lowest price, and closing price can be calculated.
4. Analysis of leading indicators– The leading indicators send Forex signals, which should be interpreted and analyzed for better results. Similarly, employing an automated Forex trading system is also beneficial. The automatic systems ensure Forex trading without any human intervention. Such automated currency trading systems are becoming popular these days. However, this system should be constantly monitored for better results. In addition, one should go for the most appropriate systems that are popular and enjoys good reviews.