The foreign currency exchange market (forex) is the most active and liquid decentralized market of financial instruments that hold tangible monetary value at any given time. The global forex market serves two main functions: Enabling international commerce and fostering trade competition by providing currency conversion and allowing people to profit from speculation in the exchange rate between different currencies.
There are several participants in the forex market, from day traders to commercial banks and from investment banking firms to central banks. Forex participants exchange nearly $4 trillion on a daily basis by taking different positions on the market. The sheer size of the market and the risk that participants face make a forex trading systems a necessity for all traders, particularly for those participants whose trading accounts may not be as sizable as those of hedge funds and investment banking firms.
Goal Of A Forex Trading System
The goal of any trading system involving any type of financial instruments should be to maximize opportunities for profit while minimizing risks. The key is in gaining as many pips as possible by selecting the proper entry points in the market and knowing when to exit the position gracefully. To do this, forex traders must learn a method and stick to it diligently. Failure to use a trading system when trading forex will very likely result in losing trades.
Typical Elements
- Currency pair analysis
- Money management
- Market conditions
- Entry and exit points
Fundamental and Technical Analysis
The basis for making a decision with regard to the best time a trader should take a position in the market comes from fundamental and technical analysis. Each of these two approaches has its own share of supporters and detractors, which is a strong argument for choosing a system that features one form of analysis over the other.
Some seasoned traders and forex market observers warn traders to not be easily swayed by either fundamental or technical analysis. To this end, some forex trading systems advocate reviewing signals created from both analytical methods. The idea is to not rely exclusively in one method while completely ignoring the other, or to not look too much into fundamental or technical details.
Choose A Good FX Trading System
Forex trading is a complex affair that requires you to understand the market first, before you can attempt to make money from it. However, it takes a long time to become a professional in this field. If you do not have the patience to acquire the necessary skills, you can opt for other solutions such as software.
The use of fx trading software enables you to leverage technology, in an effort to limit the overall risk of trading in the forex market. Thereby, you will be able to start trading immediately, as you learn how everything else works.
What to Look For
- User-friendly: An ideal forex trading platform should have an easy to understand interface to enable even the first-time users to find their way around. All the important forex trading features including ‘enter’ and ‘exit’ trade buttons, leverages, financial updates, as well as indicators should be reachable to enable you navigate the program easily.
- Dynamic Visualization Tools: The fx trading platform should have online forex charts, graphs, trading orders, and other visual tools, which will enable you to get a clearer picture and monitor your trades in real-time. Visualization is particularly important if you are an inexperienced user, who lacks the skills to interpret numbers fast.
- Automation: Forex trading requires you to constantly monitor the market and make split-second decisions to buy or sell, depending on the trends that you identify. For this reason, you need to spend a considerable amount of time trading. However, if you are not a full-time trader, and would like a solution that will enable you to have some free time to focus on other stuff, you can have an automated program do the work on your behalf. All that you have to do is to set your preferred trends and then leave the application running. You will receive alerts as soon as the software identifies any preferred trends. More importantly, an ideal platform should have “expert advisors” to help you in trend analysis.
- Mobile Integration: An fx trading platform that supports mobile integration is ideal since it allows you to trade, even when you are away from your computer.
Investors face great risks due to the unpredictable nature of the forex market. For this reason, most forex trading software will offer simulations, which enable you to learn and gauge your ability to trade without risking your money.
Reasons to Use A Forex Trading System
Forex trading software may refer to a computer-based client that traders can use to communicate orders to a retail platform, or it could refer to a specialized program that can interpret signals and automatically execute trades according to set parameters. Virtually all retail traders will use a forex client that they most install on their computers or smartphones, or else they can use a web-based platform. Choosing an automated forex trading system is not as common, but many traders are warming up to them when they realize that it is not an autonomous robot playing with their money.
Forex Trading Software
When traders shop for forex brokers to deposit their funds with, they tend to base their preferences on factors such as interest paid on inactive accounts, trading bonuses, the margins offered, the commission charged by the broker on each trade, etc. Few traders stop to think about the online trading platform and the client they will use.
Some forex brokers offer paper trading accounts to allow prospective traders to evaluate their clients and platforms. Everything that takes place in these accounts happens in real-time market sessions with the exception of the funds deposited and invested. These platforms are for traders to manage their funds and execute trades, but they may also include advanced features such as historical charts for technical analysis and components that generate trading signals.
Automated Forex Trading Systems
Algorithmic trading is all the rage on Wall Street these days; some of the biggest investment banking firms have been using it for years to squeeze more profits from their trading activities. In the world of forex trading, these programs are often called forex robots, and they essentially allow traders to set parameters and make adjustments to programs that automatically execute trades.
The typical default parameters of automated forex trading software packages are part of algorithms that promote low risk trading. These algorithms are in turned based on technical analysis methods and historical data. These forex robots are ideal in the sense that they can constantly watch the forex market, which stays open for business 24 hours a day during most days of the week. Certain principles of money management are often included.