The OTC (over-the-counter) foreign exchange market, unlike most financial markets, has no physical location or central exchange and trades 24-hours a day through a global network of companies, banks and individuals. This means that currency prices, offering multiple trading opportunities, are constantly fluctuating in value against each other.
At the City Index, depending on whether you think the currency’s value will go up or down, you can speculate on the future direction of currencies, taking either a long or short position. How to trade the EUR / USD currency pair with CFDs is shown in the video below.
Forex Market Hours
We must look at what a 24-hour day in the forex world looks like before looking at the best times to trade.
The forex market can be divided into four main trading sessions: the Sydney session, the Tokyo session, the London session, and the New York session, the favorite time for Trump to tweet.
The forex market has, historically, had three peak trading sessions.
Instead of attempting to trade the markets 24 hours per day, traders often focus on one of the three trading periods.
This is known as the “3-session forex system”.
The Asian , European, and North American sessions, which are also known as the Tokyo, London, and New York sessions, consist of these sessions.
Some traders prefer to distinguish sessions from continental names, while other traders prefer to use city names..
(We prefer to use names for cities, but continents are also cool.)
FX Trading steps
1. Choose a currency pair
Decide which pair of currencies you want to trade. With over 65 currency pairs to choose from, it is important to pick a trading opportunity that is right for you.
The technical and basic research tools of the City Index can help you spot currency trading opportunities to suit your trading style. In order to help manage your risk, we recommend taking your time to understand the amount of price volatility associated with the currency pair.
2. Decide on the type of FX trade
- City Index Spread Betting, CFD or Forex Trading offer three ways to trade forex. Each has its own specific stake size:
- You trade pounds per point movement in spread betting,
You trade a quantity of CFDs in the base currency unit (currency on the left) in CFD trading. If you trade GBP / USD, for example, your stake would be in pounds, while your stake would be in US dollars in USD / JPY
You buy lots in Forex trading, in the base currency unit (currency on the left)
- If you trade GBP / USD, for example, your stake would be in Pounds, while your stake would be in US Dollars in USD / JPY (the minimum stake size is 1000)
Learn how to calculate profits.
- A pip measures the change between two currencies in value. Typically, one pip is equivalent to 0.0001 of a value change. If your EUR / USD trade moves from 1.546 to 1.547, for instance, your currency value has increased by 10 pips.
- Multiply the number of pips by the exchange rate that your account has altered. This calculation will tell you how much value has risen or decreased in your account.
Develop a trading strategy
Developing and sticking to a strategy that works for them is crucial for any trader. Traders tend to construct a strategy based on either technical or basic analysis. Technical analysis focuses on statistics, such as past prices, volume, and many other variables, generated by market activity. It uses charting and other similar technologies. Based on economic, financial, and Federal Reserve data, Fundamental Analysis focuses on measuring the value of an investment. A combination of both technical and fundamental analysis is used by many traders.
The thinking trading platform provides technical analysis and fundamental research and commentary from third parties, as well as many tools for generating ideas. Paper Money ® can also be used to practice your trading strategy without risking capital. In addition, explore a range of tools to help you formulate a strategy for Forex trading that works for you.
Three Ways to Trade Forex
Most forex trades aren’t made to exchange currencies (as you might do at a currency exchange while travelling), but rather to speculate on future price movements, similar to stock trading. Forex traders, like stock traders, try to buy currencies whose values they believe will rise in relation to other currencies and sell currencies whose purchasing power they believe will fall.
There are three different ways to trade forex that will suit traders with different goals:
- The spot market. This is the primary forex market, where currency pairs are swapped in real time and exchange rates are set based on supply and demand.
- The forward market. Instead of instantly executing a trade, forex traders can enter into a binding (private) contract with another trader to lock in an exchange rate for a specified amount of currency at a later date.
- The futures market.
Similarly, traders can choose to buy or sell a predetermined amount of a currency at a specific exchange rate at a future date using a standardised contract. Unlike the forwards market, this is done on an exchange rather than privately.
Forex traders who want to speculate or hedge against future price changes in a currency use the forward and futures markets. These markets’ exchange rates are determined by what happens in the spot market, which is the largest of the forex markets and where the majority of forex trades are executed.