Forex Guide

In trading, there are many investment possibilities, one of them is speculation through CFDs in the Forex market, where the Euro vs. Dollar cross (EUR/USD) is one of the most valued now by traders and investors around the world.

The euro and the dollar are the most influential currencies in the market since they correspond to two great economic powers such as Europe and the United States. It should be noted that in Europe there are 19 countries that have the euro as their currency.

Before investing or trading, it is essential to be very clear about some concepts in order to follow the investment strategies in the best possible way and avoid risks to a greater extent, therefore, at ForexDominion we bring you all the information and basic concepts related to the Euro Dollar currency pair.

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Have you ever noticed that when a certain currency pair rises, another currency pair falls? Or that sometimes when one pair falls, another pair seems to copy its movement and falls too. If the answer is yes, you have witnessed an example of a Forex currency correlation.

What is currency correlation?

In the financial world, correlation is a statistical measure of how two securities move relative to each other.

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The Forex market has been particularly active since the 1970s. It has become the world’s largest financial market, with an average daily trading volume growing from around 1.2 trillion in 1995 to 5.1 trillion in 2019, according to figures from the Bank for International Settlements.

Although large financial institutions and banks are responsible for a substantial part of the trading volume in this market, modern technology has also made it accessible to a broader customer base. Forex brokers have developed easy-to-use online trading platforms, which have simplified the trading process, and made it available from almost anywhere in the world.

In fact, 9.6 million people worldwide are now online traders – that is, 1 in 781 people.

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What a limit order?

A limit order can be defined as a trading order given to the broker or dealer to buy or sell an asset at the specified price or better.

As a limit order is executed only at the specified price or better, a limit buy order will be executed only at the specified price or at a lower price, while a limit sell order will be executed only at the specified price or at a higher price. In both cases, a limit order is only executed if the market price reaches the limit price (price specified in the limit order) or passes it, which means that a limit buy order is accepted only if the limit price is less than the current market price and will be executed if the price falls to the limit price or to a lower price. A limit sell order will be accepted only if the specified limit price is higher than the current market price and will be executed only if the market price goes up to that limit price or up to a higher price.

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Stop hunting is called the practice that consists in forcing the positions of retail traders, causing a movement in the price action, up or down, until the price reaches the levels where stop-loss orders have been placed. This leads to stop losses being executed in such a way that retail traders are expelled from the market while another investor benefits from it. It is a strategy used mainly by large financial institutions that have enough capital to buy and sell and influence market prices.

The fact that traders place their stop loss levels at key points such as supports or resistances, relevant moving averages, Fibonacci levels, or integer figures, allow the stop hunting to be carried out.

In other words, the large market participants extend the price considerably with the sole purpose of activating the automatic protection closures (Stop Loss Orders) of retail traders.

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In Forex different participants trade currencies, buying and selling in order to profit from changes in the exchange rate. In this article we will see what is the exchange rate, different systems (fixed exchange rate and flexible exchange rate) and why some exchange rates fluctuate and are traded on the Forex market and others not.

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What is liquidity?

In economics, business or investment, liquidity is the ability of an asset to be converted into cash quickly without losing its value.

Thus, market liquidity can be defined as the ability to buy and sell an asset without causing a significant movement of the price. It can also be defined as the facility to exchange an asset for products and services, cash being the most liquid asset since it can be used immediately for any economic transaction. However, there are cases in which money is not the most liquid asset, for example, in countries with high inflation or hyperinflation, the population tends to stop using the currency in favor of a foreign currency or the use of other system of exchange of goods and services such as barter, leaving a hole of liquidity for its national currency. In other cases, they turn to other assets, such as in Venezuela, where people turn to Bitcoin precisely because of hyperinflation.

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