Forex trading for beginners

Beginner’s guide to Forex trading

Have you always been interested in learning forex trade but didn’t know how? Then you are at the right place because here we will make understanding forex easy and simple for you. The forex market is unimaginably huge and trillions of dollars worth of currency are being traded on global forex markets every day. The global forex trading hub is the London Stock Exchange, with over 40% of currency transactions being conducted in London. Thanks to the internet, the basics of forex trading can be learned by anyone, but you need detailed information to help make an impact in the market. This is why we have crafted this ‘trading in forex for beginners’ guide where you will learn all the basics related to forex trading. Let’s get to the crux of things. 

Everything you need to know about forex trading

Forex trading is one of the largest and most liquid markets in the world. Well over 5 trillion USD worth of currency is traded on forex exchanges daily throughout the world. That is all nice and good, but what is forex and how does it work? To keep things simple and easy, just keep in mind that the process of any currency being traded against another currency is referred to as forex trading.

History of Forex trading

The oldest known trading system is called the barter system, and in this system, things are exchanged against each other. Salt and spices were a very popular medium of exchange because their prices remained relatively stable throughout the year. Ships would sail from their countries to come to a trading point and this was the beginning of global trade. As the barter trade progressed and the markets around the world grew, barter trade became too inefficient and confusing, and thus gold coins were introduced to streamline the trading process. 

Gold coins quickly caught on and they became the centerpieces of global trading. With the passage of time, gold started to become too inefficient, as it was heavy to carry and there was always the fear of theft. Around the year 1800, governments all over the world started introducing the gold standard. The gold standard dictates that the government would be able to redeem the amount of paper money in current gold’s value upon request. This was the beginning of paper currency that we see all around us. 

Everything you need to know about forex trading

Forex Terminology

To be a good forex trader, you should have a basic understanding of the market. Here are the most common terms you will come across:

·  Forex Account: The account used to make the currency trade. You can go for micro, macro, or standard forex accounts. Each has its own trading limit.

·  Ask:  Commonly referred to as offers, asks are the lowest prices at which you are willing to purchase a currency. This price is usually bigger than the bid.

·  Bid: Bids represent the price at which you are disposed to sell a currency. Typically lower than asks, demand can make the bids go much higher.

·  Bear Market: A bear market is one where the prices start to decline. It suggests a downward trend and is often a result of economic events such as economic depression or natural disasters.

·  Bull Market: Opposite of the bear market, it suggests an upward trend. It’s a result of an improved regional and global economy.

·  Leverage: Suggests the usage of borrowed capital to make a profit. It functions similarly to loans and may be used to give your position a boost.

·  Lot Size: Each currency is sold in a size referred to as a “lot.” The lot sizes can be nano, micro, mini, and standard.

·  Margin: Money set aside for currency trades. It will help assure the broker that even if your trade does not go as expected, you’ll be able to meet your monetary obligations.

·  Spread: Difference between the bid price and ask price. As forex does not charge a commission, the money is made through spreads.

Having a basic understanding of the forex world should help you reach success. Research on further terminology is recommended.

Basic Forex Trading Strategies

The world of trading is a big one. To be successful here, you need to use the best trading strategies. Here are the most common ones that traders use:

·  Scalp Trade: Holding the position for a couple of seconds or minutes, relying on price swings to make a small profit from each sale.

·  Day Trade: Short-term trades that are opened and closed throughout the same day. A position may be held for a couple of minutes, or it may go on for hours.

·  Swing Trade: Positions are held for longer than a day, sometimes for weeks. Profit is made through currency movements during political and economic developments.

·  Position Trades: Currencies are held for longer time frames, sometimes even years. It requires various fundamental skills of analysis on the currency movements.

Each trading strategy has its benefits and profit potential. The option is chosen based on the trader’s availability, along with their knowledge of currency movements.

Charts Used in Forex Trading

Forex trading uses a series of charts. Thanks to these charts, a trader will be able to make the right investment decision. Here are the most common charts that are often used in Forex trading:

·  Line Charts

Line charts show a currency’s closing trading price over a set period. This makes them a good option for identifying promising trends, with high results in the long run. The trends found in this chart may be used to come up with a strategy.

·  Bar Charts

Bar charts show specific time frames that are used for trading. They offer more information as compared to line charts. They represent one trading day, with the opening price, the highest and lowest values, and the closing prices. These are also known as the OHLC.

·  Candlestick Charts

Candlestick charts were very common in 18^th-century Japan, among rice traders. The upper point of the “candle” is used to show the opening price and the highest point value, whereas the lower area shows the lowest price along with the closing price.

A red or black candle is referred to as a “down” candle and it shows that prices are going through a decline period. On the other hand, a green or white candle is referred to as an “up” candle, and it suggests that prices are on the increase.

Are Forex Markets Volatile?

Forex markets are dependent on various factors, such as the economy of the country or its politics. If the country goes through some sort of economic instability, it will be noticeable in the forex values as well. This makes Forex some of the world’s most liquid assets.

That being said, Forex is also believed to be less volatile as compared to real estate. While home values keep changing on an irregular basis, currency values are steady. If no major economic events take place, then the volatility will not be as significant or concerning.

Are Forex Markets Regulated?

Regulations of the Forex market will often depend on the specific jurisdictions. For example, in the United States, the infrastructure is rather sophisticated. Forex trades are conducted frequently, which is why the markets are regulated tightly.

The authorities regulating this section are the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). That being said, because of heavy leverage use, some countries such as China or India may impose restrictions on the capital and firms used.

Europe is specifically popular among forex traders, and it holds the largest market. The financial authorities responsible for this are the FCA, which regulates and monitors all trades in the U.K. and more.

Forex market size

The sheer size of the forex market makes it one of the best markets to trade in. Apart from the size, the liquidity offered by the forex market also makes it one of the most attractive investment opportunities for many people. Discussing the size of the forex market is important because it will give the new traders an idea about how much money is there in the forex market and its solid roots. The size of the forex market is around $6 trillion, which means this amount of money is traded on forex markets throughout the world. When compared with other investment and trading alternatives such as bonds and company shares, forex markets simply dwarfs all of them. 

Forex vs stocks: key differences

Anyone considering forex trading might also be tempted by the prospect of stock trading. The stock market is also huge, and it can also return some handsome benefits, but the upsides offered by the forex market makes it one of the best available ways to trade. If we compare both markets on key parameters, the difference becomes very clear. For instance, forex can be traded 24 hours a day, 5 days and week versus 8 hours a day stock trading. Similarly, the forex market is very liquid, which means you can quickly sell your positions and convert your money into cash. On the other hand, the stock market is not nearly as liquid, and there are some complications associated with stock market liquidity. Similarly, the forex market usually has no or very minimal commissions as compared to stock markets, where brokers take a hefty commission. There are many other differences among the two markets and all in all, the forex market is a generally less complicated (although just risky) way to invest, at least in the short-term as compared to other markets.

How to learn Forex trading?

The concept of selling and buying currencies might sound enticing to you and you may be eager to start your own career as a trader, but before you do so, you should learn the basics of forex trading such as the concept of forex leverage, what does a forex trader do, how broker exchanges works, and what are the costs associated with forex trading. For this purpose, we have created some useful resources for you which you can find easily. 

How to start Forex trading?

Starting forex trading is very simple these days with the onset of electronic trading opportunities. In the past, the concept of forex trading was only of interest to governments, big corporations and hedge funds, but today anyone with a computer or mobile phone and some free funds can start forex trading. Of course, that doesn’t mean that forex trading is very simple and easy. The potential to earn money in forex exchange is indeed huge, but only if you know what you are doing. That being said, if you are interested to know how you can start forex trading as an individual trader the process itself is rather simple. You need to open an account with any of the numerous brokers, deposit some initial funds and you are all set to execute your trades.