What is forex trading, strategies & opportunities

Forex trading offers various opportunities but requires a good understanding of the relevant drivers and tools. The Fineco platform and Powerdesk have a range of resources to help inform forex trading strategies and conduct currency trading.

Foreign exchange (forex) markets offer a rich source of trading opportunities. They are large, liquid and volatile, which means plenty of price action for traders who understand the various market influences and trading tools to exploit. Here, we look at how you can approach forex (or FX) trading on the Fineco platform. 

Forex trading is the buying and selling of different currencies on an exchange. Traders simultaneously buy one currency and sell another, converting one into the other. These two currencies are known as a ‘pair’.

There are a huge range of currency pairs available, accessible through the CFD FX tab on the Fineco platform. Among the most frequently traded are those with a Dollar base - the Dollar is the primary currency in every forex market: major currency trading options including Dollar versus Euro, Sterling or Yen. There are also commodity-based currencies such as the Australian Dollar, South African Rand or Chilean Peso, which are more influenced by the price of related commodities.

We suggest that new traders decide which currency market they are going to focus on and add them to their ‘favourites’ on the platform. As such, they will always appear on the left-hand side of the platform and traders can start building a picture of how the currency pairs respond to various market conditions and news.

The economic calendar is a primary trigger for forex market movements. It will include basic economic announcements such as GDP, manufacturing or consumer spending data for the various countries. Retail sales are another source of currency moves and it is also worth looking at central bank announcements. Even if interest rates don’t change, forex markets will often respond to forecasts, particularly from the US Federal Reserve. Employment data and debt figures can also change the trajectory of different currencies. For key dates, consult Fineco’s economic calendar, where all this information is housed.

‘Currencies and commodities’ news links directly to the Reuters platform and can be another valuable source to inform forex trading strategies. An announcement on, for example, UK GDP growth, will contain links to the data and analysis used to support the article. This will include, say, the performance of Sterling at key dates (such as the Brexit referendum, the UK leaving the EU and the pandemic slump). It will also show Sterling’s recent performance compared to other currencies.

It is possible to map this information onto more technical analysis to judge support and resistance levels, plus recent momentum. As we discuss below, these are vitally important for deciding how and when to action forex trading strategies.  

It is possible to build charts of recent price performance in specific forex pairs using the Fineco platform. This can help traders judge whether markets are breaking out of normal trading patterns and therefore whether there are potential opportunities in individual markets.

Fineco’s PowerDesk platform lets traders build a market map. By looking at long- or short-term price history, they can judge support and resistance levels for individual forex pairs. PowerDesk also has details of negative momentum versus positive momentum in the market for different time frames. It can also give an indication of market liquidity when trading futures, so traders can ensure best execution. If currency markets are trading between support and resistance levels, there are likely to be relatively few opportunities. It is only when they break out of this trading range that there may be opportunities to sell long or short on individual currency pairs. For example, if a currency pair has pushed through a specific resistance level and the next level is significantly higher, it is a higher probability trade.

Where there is less certainty, the system also allows traders to add on conditional trades. The PowerDesk functionality allows them to see the financial implications of different trades. These conditional trades may be stop loss or take profits – in reality ‘if it goes below this level, buy’, or ‘if it goes above this level, sell’. This can be particularly important for short-duration trades.

In our recent webinar FX trading: signals to combine and fundamentals to watch with Rakesh Shah, we consider some of these forex (or FX) trading strategies and how they might work in practice. This is a valuable starting point for forex traders. You can also find out more about Powerdesk, Europe’s most-used trading platform.