Forex trading is an exciting business and it is one of the best engagements for you if you want to make some extra cash for yourself. This is why we have set up our platform; to enlighten you on very important things you need to know about Forex trading in New Zealand.
We have discovered that people can make a living from Forex trading if they have the right information. This is why we put the information here together. Our focus is to open the eyes of the general public in New Zealand to what Forex trading can offer. We hope to help you to see what you are missing so that you can get on the train without further delay.
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Learn the Forex trading Basics
If people tell you that Forex trading can bring a lot of money, they are telling the truth. However, you need a lot of knowledge to make it happen. Forex trading can help you to make a lot of money. Be that as it may, Forex trading is not a get rich quick scheme. It is also not some magic solution to riches. We open this platform to let you know a couple of very important things about Forex trading. With the help of the information we offer here, you will not make mistakes like many others. If you are new to Forex trading, the information we provide here can be o use to you. Those who have years of experience in Forex trading can also benefit from the information we provide here.
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Financial Markets Authority (FMA)
Forex trading in New Zealand (NZ) is popular among residents. Before any forex brokers in New Zealand can accept forex or CFD traders as clients, they need to become authorized by the Financial Markets Authority (FMA), which is that the financial regulatory body in New Zealand. The FMA’s website is fma.govt.nz/.
What is Forex Trading NZ?
Forex trading stands for foreign exchange trading. You can also call it FX. The market is decentralized. It allows individuals to buy and sell currencies across the globe. Buying and selling of currencies in the Forex market occur over the counter (OTC). The trading equally occurs through the interbank market and not a centralized exchange.
Many people participate in Forex trading without knowing it. When you order goods from another country, you are taking part in Forex trading. This is because you will have to change your home currency to the currency of the other country first. Those who go on vacation to another country are also taking part in Forex trading unknowingly. What makes Forex trading so attractive to so many people?
- The Forex market is huge and the daily turnover is high.
- The trader can have access to so many currencies from different parts of the world.
- The Forex market also records a high volatility.
- The transaction cost is equally very low.
- Trading activities take place 24 hours per day in the Forex market. The Forex market is also open 5 days of the week.
The outstanding feature of the Forex market
The Forex market is similar to many other demand and supply markets. If European citizens that have Euros need US dollars, they will have to sell their euro and buy the US dollars. This will cause a rise in demand for US dollars. It will also cause a fall in demand for the Euro. The law of demand and supply will automatically kick on. This will cause the value of the US dollars to rise and that of the euro to fall.
Factors that move the market
The demand and supply examples we gave above contribute to volatility in the Forex market. Macro-economic events are also responsible for driving the Forex market. Good examples of such macro-economic events are:
- Election of a new president
- Prevailing interest rate
- Debt to GDP ratio
You can find helpful information about this on an economic calendar. The economic calendar will show you how the macroeconomic events are affecting the currency of a particular country. The economic calendar is always up to date on every important economic event that takes place globally. The economic calendar will also show you the impact of each event on the currency.
Factors that make Forex Trading NZ highly attractive
Thanks to the Forex market, it is now easy to exchange currencies through the interbank market. So many groups of people take part in Forex trading. Some of them are:
- Private individuals
- Retail traders
- Large institutions
The Forex market opens 24 hours of the day and 5 days of the week. The market in one trading session opens as another one closes and this occurs round the clock. This is because time differs from one part of the globe to another. The market opens with the Asian trading sessions. When it closes, the European and UK trading sessions kick in. After that, the United States trading session comes up. There are times that these trading sessions superimpose. So, the US trading session is the last trading session for the day. The Asian trading session is the first for the day.
The Forex market is the most liquid of all the markets in the world today. Studies show that the average trading volume per day in the Forex market is $5.1 trillion. This is in line with a report from BIS Triennial Survey of 2016. As a result of this, traders can enter and exit a trading position fast. There are always many buyers and sellers in the Forex market round the clock.
How does Forex Trading NZ work?
Forex trading follows a basic rule that every Forex trader must know. You buy a currency if you feel its value will rise and you sell the currency if you feel otherwise. When you buy a currency pair, you are said to go long. When you sell, on the other hand, you are said to go short.
Who are those trading Forex?
Forex traders are in two categories, which are:
Hedgers focus on avoiding extreme market movement in the exchange rate. Good examples are the big companies, like Exxon. They focus on reducing their capital exposure to movements in foreign currency.
On the other hand, speculators are risk-takers. They are on the lookout for taking advantage of volatility in the exchange rate rates. Good examples of this are retail traders and big banks.
How to read a Forex Trading NZ quote
This is one of the most important things to know before you start trading Forex. Being able to read Forex quotes will help determine the price at which you enter and exit a trade. A good example of a Forex quote is EUR/USD. The EUR in the pair is the base currency and the USD is the quote currency. You can also call the USD the variable.
The price of a currency pair comes in up to 5 decimal places. The first four numbers are the most important. The number on the left of the decimal point refers to one unit of the quote currency. The two digits after the decimal point refer to cents. The third and fourth digits after refers to the fractions of the cents. You can also call them pips. The number in the fourth position is the pip.
Benefits of Forex Trading NZ
There are so many advantages to Forex trading. We are going to open your eyes to some of these advantages below:
- Transaction costs are low: Forex brokers can make profits through the spread. They also make money through swap fees. Swap fees are fees you pay for leaving a trading position open overnight. They can also make money on deposit or withdrawal charges. The factors above make Forex trading to be cost-effective. This is especially because the fees are low. You may trade Forex with zero commission also.
- Low pip spreads: The spread stands for the difference between the bid-price and ask-price. The spread on major currency pairs is very low. So, the fee for trading such currency pairs is low. When you open a trade, it will open in the negative. That first negative value you get indicates the cost you pay for opening that trade on that pair. You will first need to overcome the spread before you can start making a profit. The spread is almost always low.
- Money making opportunities: Forex trading gives you opportunities to make some cool money for yourself. You can take speculative positions on currencies to make money. You can speculate that the value of the currency pair will rise or fall. You can also access so many Forex pairs when you trade Forex. So, the chance of making money is high. Be that as it mat, Forex trading is not a get-rich-quick scheme.
- Access to leverage: As a Forex trader, you will also have access to leverage. This can boost your profit a great deal. Leverage is like money you borrow from the broker for trading. If you use high leverage, you will be able to control a large trading position. So, you will only risk a fraction of the money needed to open that particular trading position. If you use a leverage of 100:1, for example, means that you can open a position of $1000 with just $100. The excess amount is from the broker. While leverage can enable you to make a profit faster in Forex trading, it can also increase your loss. So, you must use leverage with care. Leverage is a two-edged sword. You must always have good risk management before you use leverage.
Important Forex Trading NZ terms to bear in mind
Before you venture into Forex trading, you need to know some terms. Check below for some of the terms of importance.
- Base currency: This is the first currency in a currency pair. In EUR/USD for example, EUR is the base currency.
- Quote currency: You can also call it the variable currency. It is the second currency in a Forex pair. In EUR/USD, United States dollars is the quote or variable currency.
- Bid: The bid price represents the highest price a buyer wants to pay. The price is usually written to the left of the quote currency. They usually write it in red.
- Ask: It is the opposite of the bid price. It stands for the lowest price that the seller wants to accept. The price is usually written in blue. It is the price you will see when you want to buy a currency pair.
- Spread: The spread represents the difference between the bid price and the ask price. It is the actual spread on that particular Forex pair. The broker can also add its own spread to it.
- Points/ pips: A Pip represents one digit move in the 4th decimal place. So, the pip is the number you see 4 places to the right of the decimal point.
- Leverage: Leverage permits the currency trader to open a large trading position with a very small amount. Bear in mind that leverage can amplify profit and can also amplify losses. So, you must use it with care.
- Margin: This is the money that you need to deposit for trading. It is the money you need to open a leveraged position. It represents the difference between the full value of the position and the funds the broker is borrowing you.
- Margin call: This happens when your capital goes below a particular level.
- Liquidity: A currency pair is said to be liquid because there are so many participants that are trading currency pairs.
How to become a Forex nz trader
You need to build the mindset of a Forex trader for you to be successful. For you to be a successful Forex trader, you need to be fully aware of the risks and not just the reward. In this section of the write-up, we will show you one or two things to consider becoming a better Forex trader.
What a Forex nz trader does
A Forex trader takes long and short positions on any currency pair of his choice. The main goal is to make a profit. A Forex trader needs to be strategic in what he does. He also needs to ensure discipline. In fact, no undisciplined a forex trader can make a profit from Forex trading. The Forex NZ trader can use either a fundamental or technical approach to Forex trading. Some traders also use both types of trading strategies.
The Forex market is always on for 24 hours of the day and 5 days of the week. The market never sleeps while the Forex market is open 24 hours. There are periods when higher liquidity occurs than others.
What you need to be effective in Forex Trading NZ
Before you can be an effective Forex trader, you need to have adequate knowledge about Forex trading. Adequate knowledge ensures that you will be up to date in Forex trading education. The Forex market is dynamic. It means that you need to update your knowledge regularly for you to be profitable. In this section of the write-up, we will show you some of the things that can make you an effective trader.
Passion for trading
Before you can successfully trade Forex, you must have a passion for it. Only passion will enable you to open a trading platform every day to analyze and study the market. You must have a real interest in Forex trading for you to be successful. You also need a good understanding of monetary policy for you to be successful. Studies show that monetary policy is one of the major price action movers.
Anyone that prefers to trade EUR/USD, for example, needs to know about the activities of the US Federal Reserve and Bank of England. You need to know about the speeches and policy moves coming from those countries. This is because both the policies and speeches have a great impact on the Forex market. You should equally avoid betting against the US Federal Reserve and the Bank of England. You will be at the losing end if you bet against them.
Know the macro drivers
One other important thing to bear in mind is the macro driver. All currencies in Forex trading can have several macro drivers at any point in time. The Australian dollars and the New Zealand dollars are examples of currencies with several macro factors or drivers. The values of these currencies tend to gain when there is global growth. It reverses also if there is a global recession. Other factors that can drive these currencies are Australian monetary policy and major commodity prices. Political situations in New Zealand also have a huge impact on the currency.
Know how the currencies in a pair work
As a Forex trader, you also need to know how the base and quote currencies relate. You need to understand that one is working against the other. When you buy EUR/USD, for example, it means that you are buying the euro and selling the USD. The reverse of this is true when you are selling EUR/USD. Before you buy or sell the currency pair, make sure you know what is happening in the concerned countries. You may want to pay attention to the US/China trade war or the political situation in the United States. You also want to check the economic data from Europe before making a trading decision.
Proper money management is essential
If you must succeed in Forex trading, then you must be ready to invest some time in developing a good money management strategy. It is not the accuracy of your Forex trading strategy that matters. What really matters is the quality of your money management strategy. This is to say that you can use the best Forex trading strategy in the world and still record failure in Forex trading. If you want it to change from being a hobbyist to an expert trader, money management is essential. If you want to make money from Forex trading, you must have a good money management strategy. This is what makes the difference between a successful trader and an unsuccessful one.
You must have the right mindset
One other factor that can determine your success in Forex trading is your mindset. You must have the right mindset if you are to make a profit consistently. Strong self-discipline is a must for every Forex trader. You can only follow your trading strategy perfectly if you are self-disciplined. You should not blame someone else for your mistakes in Forex trading. Rather, you must hold yourself accountable and be ready to learn from your mistakes. The Forex market is dynamic. You must be ready to adapt to the dynamism and changes that will come along the line. Your trading strategies should also give room for these changes.
You need to be emotionally strong
Forex trading in NZ can be very difficult. There can be good days and bad days. The only thing that will encourage you to keep on is if you are very strong. You need all the strength you can get to get back on after a bad trading session. There is no way you will not face challenges in Forex trading. You must never quit when the challenges come but you must keep on keeping on.
How to start Forex trading
In this new section of the write-up, we will guide you on how you can start trading Forex.
Get a good broker
This is the first thing you need to do in your bid to start trading Forex. You need a good Forex broker. It is not enough to choose a broker, but it must be a reliable broker. The broker must be trustworthy and regulated. Bear in mind that the quality of the broker can determine if you will be successful in Forex trading. A good Forex broker will offer competitive pricing. It will also offer reliable customer support. The user experience on such a Forex broker will equally be outstanding.
Have a good knowledge base
You need a good background in the Forex market before you can start trading. You need to know how the trading capital works. You must understand things like leverage and margin. You must also know how to use them perfectly. You can open a leveraged position using margin. So, your exposure will be high if you have a smaller capital outlay. This knowledge will teach you to avoid excessive aggressiveness when opening a trading position. It will also teach you about the pros and cons of leveraging. This way, you can use it with care. It is better to use little or no leverage at all when trading Forex.
Start with a practice
You must never start trading Forex with a live account from the word go. Rather, you should practice for something with a demo account. It will help you a great deal and give you more confidence. Practicing with a demo account will help you to familiarize yourself with Forex trading. It will also help you to better understand your trading strategy. This will make you a far better Forex trader than ever before. Demo trading can help you to build a better trading strategy. It will also help you to better understand the broker. Demo trading will reduce the chance of losing your funds by the time you start live trading.
Start small in Forex
You should never trade Forex with money you cannot afford to lose. If you cannot afford to lose that money, then you should not trade Forex with it at all. You should also start small. Do not start with a huge amount of money. You can increase your capital by the time you gain adequate confidence in Forex trading. You should not put all your life savings into Forex trading. You should also not expect to make 6 figures from Forex trading from day one. The profit will come with time but will not come overnight.
When trading Forex, make sure you always use risk management. Do not forget to use stop loss and take profit when you trade Forex. You should not place any trade until you have carried out an in-depth analysis of the market. You can use both fundamental and technical analysis for trading if you so desire.
Knowledge is consistent
You must always increase your knowledge base in Forex trading. This is the only way via which you can make it in this challenging market. You must never stop learning. Bear in mind that the Forex market is dynamic. The only way to be up to date in this dynamism is to go for a regular update of your knowledge base. A strategy that wins today may record losses tomorrow. One of the best ways to avoid being caught up in this is to regularly update your knowledge about Forex trading. Additionally, you should keep a trading journal as a Forex trader. You can record your trades in the journal. This will enable you to learn from past trading decisions. It will also enable you to avoid past mistakes. There are no faster and better ways to learn than this in Forex trading.
You can learn a lot about Forex trading from so many free sources of information online. So, you can build extra knowledge in Forex trading without having to pay for it.
As a Forex trader, you need to know how to read economic news. This will help you to make a trading decision if you want to be a fundamental trader. Everything you need to know about fundamental trading is present in an economic calendar. The beauty of it is that the economic calendar is available for free. You can find it on any platform whatsoever. The economic calendar will tell you about upcoming news events. These news events can affect the fundamental analysis. They can also determine market movement.
Examples of information you can get from an economic calendar are details about the following:
- Non-farm payroll
- Consumer price index
- And so on
To make things very easy for the trader, the various events on the economic calendar are categorized depending on the impact of such news on the Forex market. A news event that will have a very serious impact is High Impact news; one that has a moderate effect is Medium-Impact news. A news event that has a mild impact, on the other hand, is Low impact news. Each of them has a color code to enable the trader to better understand each of them.
Reading economic news
As a Forex trader, you should know how to read the economic calendar. You should check the economic calendar each morning. This will allow you to familiarize yourself with the news events. You can even customize the appearance of the economic calendar for easier understanding.
Customizing the economic calendar will make it a lot easier for you to understand. So, you can make a better trading decision. You can also set the economic calendar to sync with your local time. It will help you a great deal. It will enable you to know when particular events will take place in your local time. This helps to remove the chance of confusion.
The following are the benefits of using an economic calendar:
- It gives you an extra feature that can enable customization.
- It will give you the opportunity to plan your trading ahead.
- It will also help to improve your risk management.
High impact news will almost always bring potential turbulences to the market. It can cause the price to fluctuate greatly. You will already know when such turbulence will occur if you check the economic calendar. This way you will be able to plan. It is left to you to take advantage of the great price movement when the high impact news occurs. You can also simply stay out of the market during that period until the turbulence is over. If you know what the indicators are during high impact news, it will not be difficult for you to take advantage of the situation. As a Forex trader in New Zealand, you must understand that there is almost always an agreement in movement between the Australian dollars and the New Zealand Dollars.
The information above can help a beginner in Forex trading NZ to kick start his trading adventure. With the information above, you will not have a problem starting off your Forex trading. Do not forget to always seek more knowledge so that you can make a profit consistently.