Stock market trading is perhaps one of the most volatile forms of speculation. Though one may use the generic term ‘stock market’, it can denote trading in stocks, bonds, mutual funds, forex, commodities etc. Online trading is one of the most attractive but complicated ways in which one can manage one’s wealth and investments. There are several market dynamics and variables to the trading of stocks, bonds, funds, commodities etc., that not everyone can be successful straight away. It needs considerable patience, perseverance and research before an investor can feel safe with his portfolio. Most investors who put their money or wealth in the online trading market have to be wary of several factors like international trends, market forces, industry growth, socio-economic factors and many other factors. There are several tools available through various platforms called regulēts brokeris, which help the investor to analyze the markets and take an informed decision about investing. Trading activity takes place online on a very large scale. The investors and speculators are normally glued to their computer from the time the trading starts till the closing bell, normally for five days a week. The Trading houses are referred to as Stock Exchanges, which are the ‘portals’ where the trading activity is monitored. There are specific indices for various categories of stocks, bonds, foreign exchange, commodities, metals, minerals and so on. Online trading is done by the investors/speculators through trading software which is made available by various stock-broking companies and institutions. In addition to the basic trading software, they also provide specific tools to the traders, like forex tools which pop up on the screen of the trading terminal, to enable the investors to take an informed decision about the stocks to invest in or the stocks to sell.
Factors affecting forex trading
Trading in foreign exchange assumes added significance because of the various factors which affect it, particularly the economic indicators. These are made public in the shape of Reports published by various government and non-governmental agencies. The reports normally cover the following economic indicators, which create an impact on foreign exchange trading:
- Gross Domestic Product, representing the overall health of the economy;
- Nonfarm Payrolls, which is released on first Friday of every month;
- The rate of unemployment as a percentage of the labour force actively looking for work;
- Federal Funds Rate, which is the level of interest rates;
- Consumer Confidence Index, which reflects consumer spending;
- CPI, or Consumer Price Index, which indicates the cost of goods and services, indexed to a base year;
- Industrial Production index, which measures the level of US output;
- Capacity Utilization, as a proportion of full capacity
- Retail sales, which gives an estimate of the dollar value of sales in the retail sector;
These indicators are so relevant once published, they can severely affect the trading in foreign exchange.
Trading tools a trader should have:
Similar to stocks, bonds, commodities, metals etc., foreign exchange is also subject to trading in the global markets. The investors and institutions who perform online trading activity can utilize the basic trading terminal software to get a bird’s eye view of the overall trading activity. The licensed stock broking company makes available the trading activity to the investor through customized software normally referred to as Trader Terminal. This is invariably supplemented through several tools to give an in-depth analysis, data and information to the trader. Some of the forex tools made available for trading are discussed below:
Forex Calendar: This is a free tool giving the traders the fundamental updates on the foreign exchange market. Through this tool, the trader can select the region and country for updates. The forex calendar lists the events of economic importance and their impact on the markets based on past data and the impact of the news event. The events which are impacting the markets could be interest rate announcements, job reports, the nonfarm payroll and banking minutes A large number of traders use the forex calendar as their main forex trading tool.
Autochartist: Financial markets such as forex, equities etc., are to be constantly monitored and analyzed for pattern formations. For this, Autochartist is the world’s most advanced tool for automatic identification of chart patterns and for giving statistical information about the instruments they trade. This tool also automatically generates market reports, which in turn enables the regulēts brokeris to provide timely reports to traders. This is normally available as a plugin to the trader terminal software.
Trading Terminal: This tool normally consists of three components, i.e., market watch, account information and order list. When trading in foreign exchange, the market watch displays separate tables for each currency which can be customized by the trader. This tool also enables the trader to place buy or sell orders for each currency. This tool also displays the pending and completed ‘buy’ and ‘sell’ orders during the session. The account summary shows key information about the trader’s account like balance, equity, floating profit/loss, margin and pending orders. The trader terminal is by far one of the most comprehensive tools used by the traders. Various stock brokers give different names and features to this tool.
Excel Trader: Those traders who are familiar with Microsoft Excel can connect Excel to the trading platform and can get prices directly in excel. This can be achieved through the use of algorithms and functions to build charts, analyze them and implement formulae.
Market Sentiment: Through this tool, the trader can get information on how many other traders are holding short and long positions. The trader can also decide whether he wants to join the others or what his chances are if he goes against the market trend.
Correlation Matrix: Correlation in currency trading refers to the impact of price changes in one currency to another. Several currency pairs are expected to perform similarly, so it is beneficial to have an idea of such trading instruments over specified time frames.
Reliable Charting Software: It is essential that advanced statistics and overlays regarding different aspects of trading are available at hand to the trader, to perceive the future of the market. These details can be obtained through reliable Charting Software like ‘The Fobonacci Sequence’, ‘The Stochastic RSI’ and ‘Bollinger Bonds’.
Most of the tools for trading are freely available online, and some are available for a price through the forex brokers. Trading consistently in the forex market can indeed be a challenge, and it is a fact that most retail traders lose money in the market. It is therefore important that one gains sufficient knowledge of the currency market, has a comprehensive trading plan and proper use of the forex trading tools.