How to trade in global markets?

Trading in the foreign exchange market

By Raed Alkhedr | @raedalkhedr | 1 July 2024

How to trade in global markets
  • Types of financial markets and the most common ones.

  • How to predict price movements?

  • Principles of technical analysis.

A financial market is any marketplace where securities are traded through the buying or selling of various types of securities. The primary purpose of trading in financial markets is to achieve profit, whether in the short term or long term.

These financial markets are regulated by independent regulatory bodies with strict rules and regulations. They have stringent and mandatory standards for reporting and compliance. Any violations by companies, investors, brokers, banks, financial institutions, or other licensed entities can lead to severe penalties and, in extreme cases, revocation of their license.

Types of financial markets:

Trading in financial markets includes stock markets, bond markets, foreign exchange market, the derivatives market (including options and futures contracts), the commodities market, and treasury bills, whether long-term or short-term.

Trading in the foreign exchange market:

The Foreign Exchange Market, abbreviated as Forex, allows traders to profit from changes in foreign currency exchange rates by buying low and selling high.

The Forex market is the largest in the world in terms of liquidity, with a daily trading volume of $6.6 trillion, surpassing other financial markets by more than three times the trading volume of the stock market. Contributing to its popularity and widespread use is the fact that the Forex market does not have a fixed location; it is a decentralized, over the counter (OTC) market.

How to predict price movements?

  1. Technical analysis
  2. Fundamental analysis
  3. Market sentiment analysis

Fundamental analysis:

Also known as economic analysis, it studies the supply and demand for price movements from a political and economic perspective, which plays a key role in the demand for a currency. When economic conditions improve, the demand for the currency increases, leading to a rise in its price.

Market sentiment analysis:

This involves analyzing traders' psychology, which affects currency movements. In other words, buy or sell decisions are made based on the overall market sentiment.

Technical analysis:

Technical analysis focuses on studying past and current price movements using charts to predict future price movements.

Principles of technical analysis:

  1. Market action discounts everything: This means that all reasons and factors leading to market movements are ultimately reflected in the price.
  2. Prices move in trends: Prices tend to move in trends: upward, downward, or sideways for periods before reversing when clear technical signals indicate a potential reversal.
  3. History repeats itself: Price movements reflect traders' psychology. Therefore, technical analysis relies on studying past price movements and recurring patterns that reflect traders' psychology during those periods, increasing the likelihood of historical events repeating themselves.