Key Principles To Understand While Trading Currency Pairs
Picking a currency pair for trading depends on the personal preferences and the approach of the traders. Currency pairs are categorized based on the volatility and liquidity they offer and the volume of trades made as Major currency pairs, Minor currency pairs, and Exotic currency pairs.
Major currency pairs are more stable and offer high liquidity as compared to minor and exotic currency pairs. EUR/USD has the highest trading volume among other currency pairs. It is recommended that beginners should start trading with major currency pairs first and then switch to others.
Here are 4 principles that every trader should consider before trading live:
1. Understanding of the indicators:
Before starting to trade, traders should learn to read the indicators accurately. They should be well aware of the usage of the indicators while integrating them into the trading strategy.
Some of the common indicators used in forex trading are:
- Moving Average
- Relative Strength Index
- Moving Average Convergence and Divergence
- Bollinger bands
2. Setting the stop-loss:
Stop-loss is the critical risk management tool in forex trading. It is designed to prevent the trading account from unnecessary losses when the market moves in the opposite direction.
A trader can lose significantly if the market is highly volatile and the position is not being monitored actively.
By using a stop-loss order, one can close the position when the market moves unfavorably.
3. Understanding leverage in forex:
If you want to increase the potential rewards then leverage can be really supportive. But it is also necessary to understand the potential risks that are involved while trading leverage.
Different brokers offer different leverage ratios. It is very important to understand the concept and workings of leverage before trading it. Else it can lead you to blow your account or even into debt.
Some of the brokers that offer good leverage and are also regulated are:
4. Understanding the Economic and Political News:
Many brokers like Fxview and HotForex also provide an economic calendar that is integrated into the platform. It makes it easy for traders to find the right economic events or news and analyze the market before trading.
There are certain news websites that also track new releases from governments across the world that a trader can also refer to.
As a forex trader, it is important to understand all the trading concepts clearly in order to have a potentially successful trading journey.
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