Learn How to Trade Forex: A Beginner’s Guide

Learn How to Trade Forex

Forex, which means foreign exchange, refers to buying and selling foreign currencies. It involves simultaneously selling one currency while buying another. This is done Over The Counter (OTC), i.e., through various computer networks all over the world. Forces of supply and demand are the major forces moving the forex market. These currencies are traded worldwide in the major financial centers in London, New York, Singapore, Zurich, Frankfurt, Hong Kong, Sidney, and Paris.

It is easy to see why it is such a perfect place to make money and conduct easy financial transactions; it works 24 hours with no physical restrictions or demand for large capital as a factor for trading. Forex allows you to trade in the most powerful currencies in the world from the comfort of your bed.

It is pretty easy but also difficult, especially if you do not understand the market or know how to trade. There are a few things you need to know about forex trading.

1. Currencies are signified in symbols or abbreviations. For example, USD means United States Dollar, AUD signifies the Australian Dollar, GBP means Great Britain Pound, etc.

2. In the Forex trading market, currencies are traded in pairs, like EURO/USD. These currencies paired together are traded together; the value of one currency is given to the other because you are trading it for the other. The currency you are trading is usually listed first in the pair; in this case, the EURO is called the base currency, and the currency you are buying is usually listed second; in this case, the USD is called the quote currency. When trading, the base currency is worth 1. How much you will receive in the quote currency for 1 of the bases will be shown alongside. Example: 1 EURO/USD 1.5406 means you need 1.3406 USD to get 1 EURO.

3. In every pair, there is the Ask and Bid. The ‘Ask’ price is the buying price of the quote currency, and the Bid price is the selling price of the base currency. The difference between the two of them is called the ‘spread.’

4. Aside from the forex of demand and supply, other things affect the forex market; politics, news, the country’s economy, and present-day happenings.

5. You can decide to go ‘long’ or ‘short,’ but what does that mean? If you try to predict that the USD will increase in value, you buy it. That is called going ‘long’, but if you feel it will lose its value; and depreciate, you sell it. Selling currency is called going ‘short.’

6. We have something called a pip. What is that? It’s a short form for Percentage In Point; it is the difference in the exchange between the currencies in a pair. For example, if USD/AUD moves from 1.2345 to 1.2357, the pip is 2. It is usually the difference in the 4th number after the decimal, except for pairs involving the Japanese Yen.

Now, knowing these terminologies is not enough. You need to know the types of Forex markets that exist. There are three:

  1. Spot Forex market: In this market, trading is done on the spot for the current market price.
  2. Forward Forex market: A contract is set to buy or sell a specific currency at a future date.
  3. Future Forex market: This has the same futuristic character as the forward market but is more legally binding, and trading is done differently.

This is a lot of information and can be quite overwhelming. You may be wondering how to start ACTUAL trading. Starting forex trade, it is important to follow these guidelines:

Get an Account and a Broker

Forex trading is done via an account. This is like your Forex bank account; transactions you want to carry out would be done from here, currencies you buy land here, and the ones you sell go out through your account. These accounts are usually opened with a Forex broker. Getting a broker is not difficult, but you have to be careful; many fraudulent brokers are out there. So, you must be careful in your search for one. Look into their reputation. To be on the safer side, choose a broker that is popular and spoken well of by customers. Also, make sure their commission rates match your budget; nothing too expensive that you cannot afford.

Manage your Emotions

DO NOT trade with your emotions. People do not invest a huge chunk of their money by reasoning with their hearts or feelings alone. When deciding to go long or short, be reasonable about it. Do not let a huge win provoke you to make outrageous buys or a huge loss drive you to revenge by selling at the worst possible time.

Learn About the Market

These are the basics. You can start trading with this little knowledge, but as time passes, you WILL need to know more. From learning about the currencies in the market to knowing the right time to buy and sell a currency, there is much to learn about forex trading. I would not lie; this article has exhausted all the necessary information. You need to learn more. If you have the time, you can take one of the many crash courses online.

Study the trends, and follow sites focused on dishing out information on forex trading. For example, there are many currency pairs you can trade in, but you have to know which ones will suit you best. This is like an investment; you could make the wrong choices if you do not study it. Study the markets, their big players, and what causes the various currencies involved to rise and fall. Study to predict better so your future trades would not result in losses.