Long-term Investment Strategies For Brazilian Forex Traders – Forex is the largest and most liquid financial market in the world, with trillions of dollars traded daily. Being an OTC market with no centralized exchange, it is also one of the least understood. In this article, we will tell you about the main points that you should know before taking part.
The first major foreign exchange market was launched in Amsterdam in the 17th century, where currencies were exchanged between parties from England and Holland. In the early 19th century, currency exchange was a major part of Alex’s business. Brown & Sons, the first investment bank in the United States.
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The Bretton Woods Agreement in 1944 required pegging currencies to the US dollar, which in turn was pegged to the price of gold. The agreement was concluded with the aim of preventing competitive devaluation of currencies and stimulating international economic growth.
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In 1971, the Bretton Woods Agreement collapsed after US President Richard Nixon announced the suspension of the convertibility of the US dollar into gold. In 1973, the world’s major currencies began to freely refer to each other.
In the mid-1980s, currency trading took place using a system called Reuters Dealing, which allowed banks to receive real-time currency quotes from each other. Forex trading began to enter the mainstream in the late 1990s. This was driven by widespread access to personal computers and the Internet, as well as brokers offering leveraged currency trading through their software platforms. Prior to that, the foreign exchange market was mainly the sphere of activity of large banks and financial institutions.
The foreign exchange market (forex) is a global decentralized market for trading currencies. It is the largest and most liquid market in the world with a daily volume of $6 trillion.
Trading is not centralized in a physical location or exchange, as in the stock and futures markets. Instead, different financial institutions trade currency among themselves through a global network known as the interbank market. This market is open 24 hours a day, 5 days a week (5pm EST on Sunday to 4pm EST on Friday).
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Forex trading involves the simultaneous purchase of one currency and sale of another. Currencies are traded in pairs, e.g. euro against the US dollar (EUR/USD). The first currency in the pair is called the base currency and the second is called the counter or quote currency.
So, if EUR/USD is trading at 1.14149, it means that 1 euro is worth 1.14149 dollars. The exchange rate is the amount of the quote currency (USD) equal to 1 unit of the base currency (EUR).
If you are optimistic and believe that the base currency in a currency pair will appreciate compared to the quote currency, you can buy (go long) the pair. If you are bearish and think the base currency will weaken against the quote currency, you can sell (go short) the pair.
The standard lot size in forex trading is 100,000 units of the base currency. For this contract size, each point (standard price increment) is worth $10. Many firms now offer access to trading in mini-lots of 10,000 and micro-lots of 1,000.
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Before you start trading forex, it is useful to spend some time studying the market and factors such as leverage risk. There are many great free resources available online to help you with this, such as the education section of this site.
To start trading forex, you need to open an account with a brokerage firm. This is usually a relatively quick and easy process that can be done online through the broker’s website.
It is preferable to work with a broker that is regulated by a higher level government body. For example, brokers regulated by the UK’s Financial Conduct Authority (FCA) ensure that client funds are kept in segregated accounts and provide protection against negative balances. In addition, there is a compensation fund in case of insolvency of the broker. At the same time, offshore forex brokers usually have very weak regulatory controls and are more risky to work with.
Many brokers require very low minimum deposits to get started. In fact, there is often a $0 minimum required to open an account. Due to regulatory requirements, some brokers now have a Know Your Customer (KYC) questionnaire as part of the application. This is aimed at ensuring that brokers understand your risk tolerance, market knowledge and overall financial situation. This may include some basic questions about currency trading and CFDs.
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Aspiring forex traders should be aware of overnight swap fees. This is a fee for holding a leveraged position overnight, and it can be significant. Another common fee among forex brokers is the inactivity fee, which is charged after the account has been inactive for a certain period.
Most brokers offer a free demo account where you can practice trading without risking real money. Before trading on a real account, it is good to develop a strategy and test it on a demo account. In addition, micro-accounts and flexible lot sizes allow new traders to practice with real money, minimizing risk. Starting a trading journal is great practice for new traders as it helps identify strengths and weaknesses and track progress.
Trading based on economic news is an example of a fundamental strategy. A trader can watch the US employment report and see that it came in worse than analysts had expected. They may then decide to buy EUR/USD based on the expectation that the dollar will weaken on the back of disappointing US data.
Technical strategies are based on the analysis of price data. Finding price breakouts in the direction of the prevailing market trend is an example of a technical trading strategy. The London Opening Range (LORB) is an example of such a strategy. At the London open, traders using this strategy expect the GBP/USD price to break above the recent high or below the recent low on the hourly chart, expecting the price to continue moving in that direction.
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Another basic technical strategy is trading using price action. Here, traders look for specific patterns on the charts that indicate the likelihood of a price reversal or a continuation of the trend in the same direction. Pin Bar is a popular reversal pattern. Here, the price makes a new high (or low) and then reverses to close near where it opened, indicating a lack of bulls (or bears) conviction.
Forex trading can be profitable, but statistics released by major brokerage firms show that most traders lose money.
The main factors that lead to losses for traders include improper use of leverage, lack of education and trading costs such as spreads or commissions. It should also be emphasized that timing the market and trying to predict short-term market movements is extremely difficult.
Margin is the initial capital required to open and maintain a leveraged position in the market. For example, a margin requirement of 1% equates to an available leverage of 1:100. This means that from $1,000 a trader can control a market position of $100,000. Margin is the percentage of the full value of the trade position that the trader must have in his account in order to place and hold the trade.
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Brokers have different margin requirements and available leverage depending on their location and local regulatory requirements. For example, traders with UK-based brokers have access to leverage of 1:30, reflecting a margin requirement of 3.3%. This is because 1:30 is the maximum leverage allowed by the UK’s Financial Conduct Authority (FCA) for standard accounts. Meanwhile, the requirements of offshore regulators are much less stringent.
Traders with accounts with offshore brokers often have access to leverage of up to 1:500 with a margin requirement of just 0.2%.
Using low margin requirements and trading with high leverage allows traders to dramatically increase their exposure to market changes. Trading with leverage involves a high level of risk. Often described as a “double-edged sword,” leverage can magnify both profits and losses.
A spread is the difference between the bid and offer (also known as the “bid”) prices of a currency pair. For example, imagine that EUR/USD has a bid price of 1.14123 and a bid price of 1.14133. This means that the best price you can buy EUR/USD right now is 1.14133 and the best price you can sell right now is 1.14123. In this case, the spread, the difference between the bid and offer prices, is one point. A point is an abbreviation for “point interest” or “percentage point” and is a unit of measurement that expresses a change in the value of an exchange rate.
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A pip is short for interest in a pip and represents a unit of price change in a currency pair. In most cases, points are the smallest increment in the price of a currency pair and are in the fourth place after the decimal point. A dropper is one-tenth of a point, usually at the fifth decimal place.
Forex trading has important advantages and disadvantages compared to other markets. Recent events
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