How trade Forex : Guide for beginners
Forex trading, or foreign exchange trading, is the process of exchanging one currency for another in order to generate a profit. It’s one of the most popular forms of investing and can be an incredibly lucrative way to make money.
At its core, this foreign exchange market serves practical purposes, such as helping businesses that need currency to conduct international trade, or individuals who need to exchange their currency before travelling.
Here we’ll take a look at what you need to know about forex trading and how to start.
How to trade forex : what you should know ?
What Is Forex Trading?
Forex trading is the simultaneous buying of one currency and selling of another. These two currencies make up what is known as a “currency pair”. When you trade in the forex market, you are essentially betting that the value of one currency will increase or decrease relative to another.
For example, if you believe that the US dollar will strengthen against the euro, you would buy the USD/EUR currency pair. If the dollar does indeed strengthen, you will make a profit on your trade.
Forex investors seek to take advantage of price fluctuations in currencies, both up and down, in order to make gains by buying and selling one currency against another.
That’s why it’s important to learn how to manage forex risk by choosing a broker with the right risk management tools.
Why Should I Trade Forex?
There are many advantages to trading forex. One of the biggest is that it is an extremely liquid market, meaning there are always buyers and sellers available to trade with. This means that you will never have to worry about not being able to find someone to trade with. Another advantage is that you can trade from anywhere in the world, as long as you have access to a computer and the internet. Finally, forex trading is a great way to diversify your portfolio and potentially increase your returns.
What Do I Need To Know To Get Started?
In order to get started with forex trading, you’ll need to learn some basics about the different types of currencies, how they are traded, and the various tools available to help you make successful trades. You’ll also need to understand the risks associated with forex trading, including leverage, margin requirements, and currency fluctuations. Once you have a good understanding of these concepts, you’ll be ready to open a trading account and start trading.
Why invest in forex?
Investing in forex offers opportunities such as :
Ability to open up and down positions using derivatives products.
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High volatility
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Leverage to amplify gains
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A wide variety of currency pairs
Ability to execute hedging transactions
Multiple ways to invest via a range of trading platforms available online
A market that is open 24 hours a day, 5 days a week, from 10pm on Sunday to 11pm on Friday (Paris time).
Who trades forex?
Once you’re ready to start trading with actual money, you’ll need to choose a trust advisor to work with. There are dozens of brokers out there offering different features, fees, and services, so it’s important to do your research and find one that suits your needs. Look at things like spreads, commissions, customer service, and payment methods when making your decision.
The most important players in the forex market are :
Central banks
Hedge funds
Brokers
Governments
Investment funds
Traditional banks
Professional investors and individual traders
How to trade Forex : methodology
Forex trading is characterised by the purchase of a base currency and the simultaneous sale of another quoted currency. While forex trading used to be carried out by brokers, it is now possible to trade price movements online using Turbo24 and CFDs. Here are five key points to remember about how forex trading works:
1. Understanding the currency market
The forex market is managed by a global network of banks spread across four major trading centres, covering different time zones: London, New York, Sydney and Tokyo.
There are three types of foreign exchange markets:
1a. The spot foreign exchange markET
Allows for the physical exchange of a currency pair that takes place at the exact moment the transaction is settled or shortly thereafter.
1B. The forward foreign exchange market
Both parties enter into a contract to buy or sell a currency at a pre-defined price and quantity, which will take place at a certain date or during a certain period in the future.
1C. The foreign exchange futures market
Both parties enter into a contract to buy or sell a currency at a pre-defined price and quantity on a specific date in the future. Unlike forwards, a future contract is legally binding.
1D. What influences the forex market?
The forex market is mainly influenced by supply and demand from different players such as
Central banks
The supply of currencies is controlled by central banks. Their various measures can therefore have a considerable impact on the forex price.
Economic data
Good or bad economic news from a certain region of the world can cause the demand for a currency to rise or fall.
Market sentiment
Market sentiment is often a reaction to current events and can play a major role in currency prices.
Choosing a currency pair to trade
Here are the steps to follow when trading forex:
2. Choose a currency pair to trade
Decide whether you want to ‘buy’ or ‘sell’ the chosen currency pair
- Set your stop and limit orders
- Open your first position
- Monitor your forex trading
3. Close your trade and take your profit or loss.
- Choosing to buy or sell the selected currency pair
- When you trade a currency pair, you buy the reference currency and sell the quote currency.
4. Using stop and limit orders
There are different types of orders you can set to manage your risk when trading currencies.
Automatic Forex Trading
Automatic trading allows you to open many positions in a short period of time by using a stand-alone computer trading program (Forex auto trading software) that executes pre-set rules for opening and closing positions, while removing the emotional aspect of your decision making.
By tracking your trading experience, you will establish criteria that your custom algorithm will then follow to place orders for you.
What is live forex trading?
Live forex allows you to take advantage of Direct Market Access (DMA) technology to seamlessly access quotes from a wide selection of global banks and liquidity providers.
Who trades forex?
Once you’re ready to start trading with actual money, you’ll need to choose a trust advisor to work with. There are dozens of brokers out there offering different features, fees, and services, so it’s important to do your research and find one that suits your needs. Look at things like spreads, commissions, customer service, and payment methods when making your decision.
The most important players in the forex market are :
Central banks
Hedge funds
Brokers
Governments
Investment funds
Traditional banks
Professional investors and individual traders
Getting Started With A Demo Account
Before you jump into trading with real money, it’s a good idea to start out with a demo account. A demo account allows you to practice trading without using any of your own money. This can be a great way to test out different strategies and become familiar with the platform before risking any of your own funds. Most brokers offer demo accounts, so you should have no trouble finding one to start with.
Developing A Strategy
Once you’ve chosen a broker and opened an account, it’s time to develop a trading strategy. This involves deciding which markets to trade, how much risk to take on each trade, and which trading strategies to use. Developing a strategy can take time and may require some trial and error, but having a plan can help you stay disciplined and limit unnecessary losses.
Staying Informed
The forex market is constantly changing and evolving, so it’s important to stay informed on current news and events. Economic data releases and political developments around the world can all have an impact on currency prices. Following the news closely and using analytical tools such as technical and fundamental analysis can help you make more informed decisions and stay ahead of the curve.
Risk Management
No matter how successful your trading strategy is, there will still be times when you experience losses. That’s why risk management is so important. You should always set a stop loss for each position to limit losses and use proper position sizing to ensure that your account won’t take too much damage if the market moves against you. Managing your risk effectively can mean the difference between success and failure. Forex trading can be a very rewarding and exciting way to make money, but it’s important to understand the risks involved and approach it with caution. With the right knowledge and discipline, anyone can become a successful trader. Start by learning the basics, practice with a demo account, and then carefully select a broker and develop a trading strategy that fits your goals. Above all else, remember to manage your risk and stay informed. Good luck!
What is the reference currency and the quote currency?
The reference currency is the first currency quoted in a forex pair. The second is called the quote currency. Each currency within a pair is designated by a three letter code, the first two letters of which designate the country or region, and the last letter represents the currency. For example the pair GBP/USD implies buying the British pound and selling the US dollar.
Currency pairs on FX
The reference currency and quote currency :- A PIP
- A lot
- Margin and leverage
Currency pairs in forex
- Forex trading involves buying a unit of the reference currency against selling the quote currency, which is why currency rates are always quoted in pairs.
- Major currency pairs: all contain the US dollar as either the base currency or the quote currency (EUR/USD or USD/JPY)
- Minor currency pairs: also known as crosses or cross pairs, often consist of major currencies except the US dollar (EUR/GBP, GBP/JPY)
- Exotic currency pairs: consist of a major currency and a minor or emerging economy currency (USD/PLN, GBP/MXN, EUR/CZK)
- Regional currency pairs: are classified by geographical regions, such as Scandinavia or Oceania (EUR/NOK, AUD/SGD).
What is a PIP?
The word pip stands for ‘point in percentage’ and is the unit of measurement used in the forex market to denote the smallest change in the price of a currency pair, i.e. the fourth decimal place (with the exception of Japanese yen forex pairs, where pip is the second decimal place). When the EUR/USD goes from 1.1000 to 1.1001, it is said to have increased by one pip.
What is a lot?
The lot is the unit of value that measures the size of a trading transaction. In other words, the amount of your investment will be larger or smaller depending on the number of lots you trade. In forex, 1 lot corresponds to 100,000 units of the base currency (EUR, USD, GBP…).
There are 3 different types of lots: the standard lot, the mini-lot and the micro-lot. The notion of a lot is different depending on whether you are trading a currency pair, a stock index, a commodity or a stock.
What is margin and leverage?
Margin is the amount of money you pay when you want to open and maintain an open position in the stock market. It is released when the trade is closed.
Leverage allows you to gain exposure to large amounts of currency without having to pay the full value of the position. Leverage in forex depends on the derivative you choose to trade.
The spot foreign exchange market: allows for the physical exchange of a currency pair that takes place at the exact moment the transaction is settled or shortly thereafter.
The forward foreign exchange market: both parties enter into a contract to buy or sell a currency at a pre-defined price and quantity, which will take place at a certain date or during a certain period in the future.
The foreign exchange futures market: both parties enter into a contract to buy or sell a currency at a pre-defined price and quantity on a specific date in the future. Unlike forwards, a future contract is legally binding
