Learning is key to getting started with forex trading, and it’s a field where your education never stops.
What is Forex trading
Forex trading is all about changing one country’s currency into another country’s currency, and for investors it’s also about trying to make a profit whilst doing this.
The forex markets are the largest in the world in terms of volume traded, and are also the most liquid, with daily volumes exceeding $3 trillion per day. It’s a market place where banks, businesses, governments, investors and traders come to exchange and speculate on currencies. Major currencies are allowed to float freely against one another, and the Internet has revolutionised the way in which the Foreign Exchange market operates and how traders can buy and sell currencies. Although there is no central marketplace, there is a decentralized market which allows traders to carry out transactions with different dealers. The forex market is also commonly referred to as the Currency Market, FX market, and Foreign currency market. Continuously operating, it is open 24 hours a day, 5 days a week with the major centres being located in New York, London and Tokyo.
The basic aim of any investor trading the markets should be to buy low and sell high or sell high and buy low. In most cases it’s as simple as that. In any forex transaction you execute you will be simultaneously buying one currency and selling another. Traders make money by speculating on the price of one currency against another. They do this in the hope that the currency they buy will gain in strength, or the currency that they sell, will weaken against its counterpart.
Who trades forex
Most currency trading is done by Private Banks, Companies, Governments, Central Banks, Hedge Funds and Individuals Investors.
The risks of forex trading
Forex Trading can be lucrative, however you should be aware of the fact that there are considerable financial risks involved in trading Forex. It is not suitable for all investors, particularly novices, and anyone considering trading should ensure that they are fully trained up and aware of how the market works. If you are unsure about anything you should always seek independent professional advice. A lack of understanding or wisdom can easily wipe out a trader’s entire profits and account. You should always carefully assess whether trading is appropriate for you in light of your experience, objectives and financial resources.
Advantages of forex trading
- With the markets open virtually 24/7 you can trade electronically whenever you want.
- It is the largest market in the world, with dense liquidity which allows you to easily get in and out of positions.
- With many brokers you can begin trading on the same day that you register with them.
- You do not need a large amount of money to start trading.
- You can trade from anywhere, as long as you have a computer and internet connection.
- The volatility of Foreign Exchange markets allows you to profit in any market condition.
This is the asking price at which your broker or the market will sell a specific currency pair to you.
The first currency quoted in a currency pair on forex
The bid is the price at which a broker or the market will buy a specific currency pair from you.
The value of one currency against another.
Means buying currency in the hope that the currency and market will rise so that you can then sell back your position at a higher price than what you bought for.
The deposit required to open or maintain a position.
Also called a point or points, this is the smallest increment of price movement a currency can make.
This is the difference between the sell quote and the buy quote or the bid and offer price.
Stop loss order
This is a order to your broker that is connected to a trade for the purpose of preventing further losses if the price of a currency moves beyond a level that you specify. It is commonly used to control your risk and limit potential losses.
Forex trading for beginners courses
There are many classroom based and online courses available out there that are suitable for people who want to start trading forex. They are ideal for both beginners who want to learn everything, as well as experienced professionals who require specialist training in specific fields.
Typical subjects taught on a forex course
- Ask Price
- Bid Price
- Currency Contracts
- Currency Conversion
- Currency Symbols
- Day Trading
- Exchange Rates
- Financial Resources
- Foreign Exchange Rates
- Forex Charting
- Forex Trading Terminology
- Fundamental Analysis
- Futures Markets
- Interest Rates
- Leveraged Trading
- Money Management
- Practice trading
- Price Action Trading
- Risk Tolerance
- Selling Short
- Technical Analysis Theories
- Trade Flows
- Traders Psychology
- World Currencies
You will learn how to
- Clarify your investment objectives.
- Take losses without becoming emotional about them and letting them affect your judgement.
- Develop trading strategies.
- Remain calm, disciplined and unemotional when making forex decisions.
- Calculate profit and loss.
- Keep accurate records of your trades.
- Not risk too much on a single trade.
- Set a risk to yield ratio.
You will learn about
- Buying and selling currencies.
- Internet based forex trading software.
- Geopolitical risks to currencies.
- How a countries economic strength or weakness can affect its currency.
- Forex currency pair quotes.