The foreign exchange (also called forex or fx)
market is more than buying and selling currencies to make a profit. There is no
such thing as typical fx trading. Different methods are used
to create a profit, depending on personal preference of the trader. One method
is Contract for Difference (CFD) trading. CFD is a method of trading the forex
that allows the trader to not just profit from the end price of a given
currency, but from the changes in the price of a currency.
Typical online CFD trading might go something like
this: A trader enters into a contract to purchase euros in a standard lot of
10,000 at a value of $1.50 (USD) each. The trading period ends with the price
at $1.55. The profit is $0.05 each, which totals $500 for the lot, minus the
pip spread that the broker charges.
Although a trader may enter into a CFD
intentionally, he or she doesn’t need to consciously trade
CFDs. Technically, all forex transactions are CFD trades. The goal for all
traders in all transactions is to buy low and sell high. A trader entering the
market with a buy or sell order at the time of purchase is known as the price
entry. The profit or loss happens when the trader exits the trade and pays the
pip spread. Knowing what the marketis going to
do next depends on the skill, knowledge and experience of the trader, as well
as how the trader uses the information at his or her disposal.
Generally, CFDs are entered when there is a trend
noted in the forex market. The forex trend is an extended view of
the direction of the market. Instead of drastic highs and lows, there appears
to be a slower, consistent movement in a particular direction. The forex rate
can trend in one of three ways: It can go up (bullish), down (bearish), or
sideways (consolidation). A bullish (or long) market is a trend upwards (higher
highs and higher lows). A bearish (or short) market is a trend downwards (lower
highs and even lower lows).
This information may seem overwhelming to
the beginner forex trader, but by taking small steps, the new forex
trader will begin to understand that each piece of information fits into the
puzzle of what makes a trader successful.
Forextips.com is committed to educating the forex
trader in all aspects of foreign currency trading. Click hereto get information on a free forex webinar to help
you maximize your success in the forex market.
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