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By Dragan Lukic
Forex training covers many functional, strategic and specific subject matters which without it is impossible to trade. In this article however we discuss the basics to consider before these specific educational topics come into play to provide you with an insight into what Forex trading is all about.
The basics of Forex trading are subject to two principles – Supply versus Demand and Mass Psychology.
SUPPLY V DEMAND
In order to execute a trade on the stock market there has to be demand for a product to be bought and sufficient supply for it to be sold. However, this may not always be the case and as a result can effect the price of that product. For example, if the supply is high but there is less demand sellers would typically have to drop their prices for a trade to be completed. On the other hand, if the demand for the product is high but the supply is running low prices tend to generally increase.
Applying this rule to Forex Trading is quite straight forward. If the demand for the US dollar rises (perhaps due to the strengthening of the US economy) but the supply remains constant the result is an increase in price as buyers are willing to pay a premium.
MASS PSYCHOLOGY
As part of your Forex Training you should learn that traders at Investment Banks, Hedge Funds and Private Trading Houses are readily available to execute ‘buy’ or ‘sell’ orders for either their clients (retail funds) or their shareholders (proprietary funds). Traders use fundamental analysis through the use of macroeconomic indicators to determine trading positions on the financial markets. Their buying and selling decisions are mostly based on these indicators to determine what the market is telling them to do. That is, if these indicators on the Forex for example are producing more favourable buying positions than originally predicted, it normally indicates that the currency is strengthening and consequently traders will make the decision to buy. At the same time, if the indicators are leaning towards a more negative ‘feel’ in the financial market place the currency is usually sold.
Whilst Forex Training will allow you to apply your own style and ethic towards reaching financial goals on the Forex a basic rule still applies in mass psychology. If the majority of the Banks, Hedge Funds and Trading Houses are buying specific currencies, join the herd rather than going against all the major players in the financial markets. This will ensure that you do not single yourself out of the majority and allow you to follow what the market is doing and where it is going.
Another factor to consider on a basic level whilst training to trade on the Forex is that there are two types of trading – Speculation and Physical trading.
SPECULATION TRADING
Speculation trading is mostly based on your own interpretation of the market. In this instance we are simply assuming the outcome of a security. A great deal of analytically based guess work is usually applied to determine whether a security will go up or down. If the final decision points you towards the security going up, then we buy (go long). If we think the security will go down, then we sell (go short).
However these ‘guesses’ are based on the education gained from Forex training, fundamental analysis, statistical forecasting and modelling and key psychological indicators.
PHYSICAL TRADING
Physical trading can be defined simply as buying or selling of a tangible product. For example, in currency trading visiting a Bureau de Change to trade our Pounds to gain Euros. This is called a trade. Physical trading is therefore heavily induced by the supply and demand of a specific security.
About the Author: Dragan Lukic is a Forex trader at Forex Training Worldwide. For more information about our
Forex Trading Course
please visit our website
forextrainingworldwide.com
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