The Ultimate Beginners’ Guide to Forex Trading
Forex trading has emerged as one of the strongest, most prominent, and technologically advanced markets globally. Up to $6.6 trillion gets traded daily, something that attests to the market’s prominence. The forex market is enticing to many people, but few know how or where to get started. If you’re an aspiring forex trader, there are three pertinent things that you should learn. These are:
- What the forex market is
- How to make money from it
- Protecting yourself from losses as a beginner trader
You also need to know how you can progress from a beginner to an expert trader. That said, here’s the ultimate beginners’ guide to forex trading.
What is the Forex Market?
This is a decentralized global market, which allows you to trade multiple currencies electronically. Transactions occur between traders via computer networks 24 hours a day. Key participants in the market include international banks, central banks, hedge funds, commercial companies, and forex investors, traders, and brokers.
What Factors Influence the Forex Market?
Any beginner trader who wishes to be successful in the industry should understand the factors that shape it and how these factors affect the exchange rate of major currencies. These factors include:
- Political stability
- Economic growth rates
- Monetary policies adopted by the central banks of different countries
- Interest rates imposed by the central banks
- Exports and imports made by countries
It’s only after you’ve analyzed these factors and other trends in the market that you’ll be able to predict future trends. In doing so, you’ll be well on your way to becoming an expert trader.
Common Trading Terminologies
As a forex trader, there are common terminologies that you’ll come across. These include:
This form of trading involves the selling and buying of real currency. For instance, a trader can buy 100 Sterling Pounds and exchange it for USD. Once the value of the Sterling Pounds increases, the trader can exchange them for the dollars again. This way, he/she will receive more money than what was spent on the initial purchase.
This is the variance between the sale price and the purchase price of two currencies. The spread between the most popular currencies is often low. Conversely, the spread between currencies that do not trade as often tends to be high. For a Forex trade to be profitable, the currency pair should exceed the spread.
This is the capital that Forex brokers provide to their clients so that they can increase the volume of trades that they can make.
The money that gets retained in a trading account when you open a trade is known as the margin. However, since most retail Forex traders lack the requisite margin to trade at volumes that are high enough to make good profit, Forex brokers step in to offer clients the much-needed access to leverage.
Price and Quote
While trading, you’ll often see Bid and Ask prices.
- Bid prices are the prices at which you can sell your currencies
- Ask price is the final price at which you can buy a currency
Long and Short Trades
To make profits in the Forex Market, you need to understand what long and short trades are. In a long trade, you purchase a currency while expecting that its value will increase. This way, you’ll make profits on the discrepancy between the selling and buying price. In a short trade, you sell currencies with the expectation that their value will fall so that you can repurchase them at a lower price and profit from the difference.
Helpful Forex Trading Tips
Here are some tips that will help you make money in the Forex Market while protecting yourself from losses as a beginner trader.
Be On the Lookout for Trends
It is common to hear established brokers and traders saying that it’s better to wage against the trend to make money in the Forex market. However, the truth is that trend trading is reliable and puts you at less risk of losing money. Look out for free forex signals to keep yourself apprised with the latest industry trends.
Consider Mobile Trending
Mobile trading negates the need for you to stay in front of your computer 24/7. You can trade wherever you are and without sacrificing your work or family obligations.
Start With a Demo Account
The Forex market is synonymous with risk. However confident you feel about trading, you should always start with a demo account. With these accounts, you don’t have to worry about the obligations or spending requirements that most Forex brokers impose.
Avoid Trading the News
Many people have made money from trading before, during, or after the release of certain news. However, avoid taking that route as a beginner. Instead, wait until the dust settles before making any move.
The Forex market is undoubtedly lucrative. Beginner traders should focus on perfecting their art rather than making a quick buck. This will set them on the path of becoming Forex masters.