Foreign Currency Exchange Basics Uncovered

foreign currency exchange

Foreign currency exchange is now a $4 trillion/day business, flowing primarily through the world’s central and commercial banks. As a capital market, it’s one of the world’s largest and most complicated. Approximately 80 currency pairs are traded around the clock through a vast network of interconnected pricing computers. Through your forex bank or broker, you can access this network, too. However, before you get to the point of doing any trading, you may wish to fortify yourself with some background knowledge concerning the regional differences in this market as well as the individual trading subtleties of any currency pair that catches your eye. No worries; most of what you might want to read is available on the internet, usually for free.

When you do start trading, try to keep it simple. Trade a trend off of a daily chart. Use a “Donchian channel” to find the trend and a “Williams Alligator” to find when to enter and exit a trade. Confirm the “Alligator’s opinion” by using a “SMI Ergodic” indicator.

What Is Foreign Currency Exchange?

Foreign currency exchange is the pricing of one country’s currency relative to another. For instance, CAD/JPY means the price of a Canadian dollar in comparison to the price of the Japanese yen (which will be expressed in one number carried out to five digits). Theoretically speaking, since there are 182 currencies used by the country members of the United Nations, the sky is almost the limit in terms of potential currency pairs. In reality, however, approximately 80 currency pairs are widely traded, but your bank or broker will probably only support you in trading 20 of them. Major currency pairs include the EUR/USD, GBP/USD, USD/CHF and USD/JPY. Other pairs that have high trading volumes include EUR/JPY, EUR/GBP, AUD/USD and USD/CAD.

Essential Resources For Trading Foreign Currency Exchange

Forex resources are derived primarily from three sources. First, the central banks of the world are surprisingly forthcoming, with a huge amount of economic and monetary data (and, increasingly, very opinionated commentary) as well as lively press conferences. Second, many commercial and investment banks (e. g., Barclays, Deutsche and Goldman Sachs) offer free, public reports on a wide variety of forex-related topics (including trade recommendations). This information is frequently reported on such news sites as Reuters and Bloomberg. Last but not least, the internet is filled with past and current forex traders who are willing to take the time to educate you about their point of view. Some are excellent; all need to be taken with a grain of salt.

Basic Strategies To Start Trading Foreign Currency Exchange

Beginning traders should try trend trading. Not only is it relatively easy to do, but the probable duration of each trade saves you from peering endlessly at your computer every day. Here is what you do. Open up a daily chart of your favourite currency pair. Put a “Donchian channel” on the chart. Now, you should see the trend pretty well. In order to trade that trend successfully, slap on what is known as a “Williams Alligator” followed by a “SMI Ergodic” indicator. When the “Alligator’s” lines start to cross over, that’s when you have a trade opening up. If the “SMI Ergodic” indicator confirms the cross-over, you are good to go. If not, just wait for the next cross-over.


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