You’ve probably heard about Forex trading before, but haven’t got any idea what it actually is and how it functions? In case you want to learn all about it, first you need to get the basics. In this article we will introduce you to Forex and its market before we get to the point
where you’ll become fluent in Forex trading.
Let’s get started, shall we?
Forex Introduction – Quick Guide for Beginners
In order to understand Forex trading better, it’s essential to know the basics. Forex (FX) defines the worldwide electronic, decentralized marketplace for trading international currencies and currency derivatives. It excludes any physical location and it refers to foreign exchange.
The Forex Market is a place where these currencies are traded and it is considered to be the largest market on the planet due to trading volume. The reason why Forex happens to be the most liquid market in the world is because people there are exchanging trillions of dollars per day and it’s usually done through Forex brokers, banks, and financial institutions.
A Forex broker can be a currency trading broker, or a retail forex broker, as well as the financial services company that gives access to a platform which is used for foreign currencies purchase and sale.
What is so unique about the Forex Markets in general?
One of the main advantages of the foreign exchange market, or as you now know it as the Forex Market, is that it excludes any kind of physical buildings like trading venues. Instead of them, we have a series of connections that are made through computer networks and trading terminals.
It’s the only trading market on the planet that functions 24/5, continuously without interruptions. Compared to other markets, the Forex Market is more opaque, meaning that currencies are traded in OTC markets and it means that the disclosures are not mandatory.
Forex Trading – Full Guide
First thing you need to know about Forex trading is that it may seem a bit complicated and that trading currencies is definitely known to be very complex. especially if you are a beginner. The reason for this is that forex instruments are not standardized and that there are various degrees of regulation for the interbank market.
This market refers to banks which are trading with one another worldwide. They are providing bids and offers for particular currencies, while the mechanism of pricing is primarily based on supply and demand.
According to large trade flows, it’s very hard for so-called ‘rogue traders’ to have any influence on currency price. Small and unregulated forex brokers trade with small retail traders which can re-quote prices.
Nevertheless, it is possible to expect some regulations in the future, but it’s yet to be determined. Until then, it’s advisable to retail investors to check on available account protections in case of a market crisis.
Getting Started with Forex Trading
Now that you are familiar with Forex in general, it’s time to get started with Forex Trading Principles. Here is the step-by-step guide on how to start trading in the best way.
- The most important thing to know is that you always need to read about Forex and learn all there is to know in order to become a real, professional trader. It is a project that demands attention and knowledge in the first place.
- The second important thing is to set up a brokerage account in order to get started with trading. Instead of charging commissions, forex brokers are earning money thanks to pips (spreads) between prices of buyers and sellers.
- Once you set the account, you need to have a proper trading strategy. This means that you have to be aware of your financial situation and what is the exact amount of money you are willing to trade. This also includes the amount of risk you are willing to take.
- Check your trading positions at the end of every day. It’s essential that you are always on top of your numbers. Also, keep an eye on your positions. It’s crucial not to have any pending positions that require filling. Remember that for any kind of future trades you need to have a sufficient amount of money on your account.
- Get ready for emotional rollercoasters – As a beginner (and later) you can expect a lot of emotional ups and downs with Forex trading. Missing reports about GDP numbers can be frustrating as well as questioning about whether to hold onto your position to gain profits. It’s a real rollercoaster of emotions when it comes to financial losses. That’s why it’s essential to remain calm in these situations because they will eventually pass.
Quick overview of Forex Trading
Forex is traded in 3 specific markets: spots, forwards, and the futures. The largest of these markets is definitely the spot market. The main reason for its trading is hedging and speculation. It’s a non-stop market where dealers, brokers, and banks allow very high amounts of leverage which means controlling large positions with little money.
The bottom line is to get to know the macroeconomic fundamentals driving currency values in order to become a profitable Forex trader.