There’s no doubt that Forex trading is growing in popularity. This trend is driven by the fact that the modern day trader now has access to myriads of tools for trading. This is geared towards making life easier for the professional and novice trader alike. Forex trading provides benefits to its investors. These include 24 hour market, High liquidity, low transaction cost. Also ability to use leverages, plus you can go high or low on any market.
Why Trade Forex Trading
Electronic Forex Trading started as early as technology advancement in the 1990s when some banks started opening their own trading platforms to stream live quotes to their clients so that they could instantly execute trades themselves.
Statistically speaking, there are more than 10 million forex traders online or 1 out of 750 people. These trades generate approximately $5.5 Trillion+ US Dollar on weekdays.
These numbers don’t lie. They only point to the fact that Forex has been evolving and the benefits of trading the foreign exchange market are significant and they keep new traders coming into the market daily.
Forex Trading for Beginners
Forex trading involves 6 currency pairs(4 major and 2 minor) and 100s of exotic pairs of developing nations like sections in Asia, Africa, the Middle East and the Pacific.
Online Forex traders can access the Forex exchange market 24hours but there are 4 main Forex trading sessions in which the market is most active.
Since Forex trading is available to everyone, there are local regulatory agency in place to ensure that all traders, regardless of where they come from are able to participate safely and secured.
What sets Forex market apart from most market is that the Forex market is extremely liquid. This is a result of the vast number of participants involved in trading at any given time. The forex industry is always evolving to become the number one trading market in the world.
What is Forex Trading
When trading Forex, you are buying one currency by using another. Therefore, the FX trader is trading currency pairs and not each currency individually. Take for example the EURUSD, when buying the pair – it means you are buying EUR using (selling) USD. When selling the pair – it means you are buying USD using (selling) EUR.
There are a number of currency pairs to choose from when trading forex. These include 4 major currency pairs ( EUR/USD, USD/JPY, GBP/USD, USD/CHF) and 3 minor currency pairs (AUD/USD, USD/CAD, NZD/USD).
In addition to this, there are exotic pairs, which is a major currency, paired alongside the currency of an emerging economy, such as the Mexican Peso, Hong Kong dollar, and many currencies from countries outside the Euro area.
The currency pair are quoted as a relative value of one currency in terms of another currency. The currency that is used as a reference is the “quote currency,” while the one quoted in relation to that currency is the “base currency.”
So, for instance, we have the EUR/USD (euro versus US dollar) pair. Here, EUR is the base currency, while USD is the quote. A EUR/USD rate of 1.2100 means that €1 is equivalent to US$1.2100
Forex Trading Chart
While trading Forex, there are a number of comprehensive charting systems that tracks the movements of thousands of currency pairs in the global Forex market.
These charting systems are available in a variety of forms. These include candlestick, bar charts, line chart.
A simple line chart draws a line from one closing price to the next closing price.
When strung together with a line, we can see the general price movement of a currency pair over a period of time.
A bar chart is a little more complex. It shows the opening and closing prices, as well as the highs and lows.
The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid.
The vertical bar itself indicates the currency pair’s trading range as a whole.
The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.
Candlestick charts show the same price information as a bar chart, but in a prettier, graphic format.
This Charting system still indicate the high-to-low range with a vertical line.
However, in candlestick charting, the larger block (or body) in the middle indicates the range between the opening and closing prices.
Traditionally, if the block in the middle is filled or colored in, then the currency pair closed lower than it opened.
In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the block is the opening price, and the bottom of the block is the closing price.
If the closing price is higher than the opening price, then the block in the middle will be “white” or hollow or unfilled.
How does FX Trading work
You can start trading Forex market very much like any other market that trades assets such as stocks, bonds or commodities. The way you choose to trade the forex market will determine whether or not you make a profit. You might feel when searching online that it seems other people can trade forex successfully and you can’t. It’s not true; it’s just your self-perception that makes it seem that way.
The number one thing that hangs most traders out to dry is the ability to use a trading feature called forex trading leverage. Using leverage allows traders to trade in the market using more money than what they have in their account.
For example, if you were trading 2:1, you could have a $1,000 deposit in your brokerage account, and yet control and trade $2,000 of currency on the market. Many forex brokers offer as much as 50:1 leverage. This can be dangerous. New traders tend to jump in and start trading with that 50:1 leverage immediately without being prepared for the consequences.
Trading with leverage sounds like a really good time. It’s true that it can increase how easily you can make money. But the thing that is less talked about is it also increases your risk for losses.
If a trader with $1,000 in their account is trading with 50:1, this means they would be trading $50,000 on the market, with each pip being worth around $5. Assuming the average daily move of a currency pair’s price is 70 to 100 pips, in a day your average loss could be around $350. If you made a really bad trade, you could lose your entire account in three days, and of course, that is assuming that conditions are normal.
Assuming that you can manage not to fall into the leverage trap, the next big challenge is to get a handle on your emotions. The biggest thing that you’ll tackle is your emotion when trading forex. The forex market can behave like a rollercoaster. It takes a steel gut to cut your losses at the right time and not fall into the trap of holding trades too long. Forex trading should be a formula and a method that is enacted consistently and without emotion.
When traders become fearful because they have money in a trade and the market’s not moving their way, the professional sticks to her trading method and closes out her trade to limit her losses. The novice, on the other hand, stays in the trade, hoping the market will come back. This emotional response can cause novice traders to lose all of their money very quickly.
Fundamental analysis is a way of looking at the forex market. It involves analyzing economic, social, and political forces that may affect the supply and demand of an asset.
The idea behind this type of analysis is that if a country’s current or future economic outlook is good, their currency should strengthen.
Technical analysis is the framework in which forex traders study price movement.
The theory is that a person can look at historical price movements and determine the current trading conditions and potential price movement.
Technical analysts look for similar patterns that have formed in the past. They will form trade ideas believing that price will act the same way that it did before.
Technical analysts use charts because they are the easiest way to visualize historical data.
Forex Trading Tip
One of the absolutely best tips for trading forex is to begin with small sums, and low leverage, while adding up to your account as it generates profits. There is no justification to the idea that a larger account will allow greater profits. If you can increase the size of your account through your trading choices, perfect. If not, there’s no point in keeping pumping money to an account that is burning cash like an furnace burns paper.
There are free education area where videos, webinars, tutorials, ebooks and articles are published regularly to get traders up to speed on how to make money trading Forex.
In addition to this, traders should lay hands on demo and real accounts, meaning that you can practice and when you’re proficient enough, you can simply switch to a live trading account.
Our best advise for you
After making up your mind to trade forex, it is impossible to overemphasise the importance of the choice of broker. That a fake or unreliable broker invalidates all the gains acquired through hard work and study is obvious.
After researching these brokers extensively, we arrive at the conclusion that they meets and even exceeds our criteria for selecting the best Forex brokers on the internet. Not only are they flexible, but they also provide excellent user experience. In addition. they offer a wide range of tools and assets to trade.