Learn Foreign exchange trading for beginners
The foreign exchange market (Forex, FX, Currency Market) is a global currency trading market. This market determines the exchange rate. It includes all aspects of buying, selling, and currencies at current or specified prices. In terms of trading volume, it is the largest market in the world.
What is an Online Forex Broker?
An online Foreign exchange broker is a company (brokerage firm) that arranges transactions between buyers and sellers, and the broker receives a commission after the transaction is completed or completed. In other words, he acts as an intermediary between the two parties in the purchase and sale transaction and charges a commission for his services as profit.
More about the Forex market
The Fx market determines the price at which one currency is exchanged for another, which is known as the exchange rate. The Fx market boasts the largest volume of any market in the world. What makes the Foreign exchange market unique? Well, the Forex market is a global decentralized marketplace. It is global in the sense that it operates in the largest financial cities in the world – Tokyo, New York, London, Hong Kong and many others. Because of this decentralization, the Forex market remains open 24 hours a day, 5 days a week – only on weekends.
Currency pair explained
The most widely traded currencies in the Foreign exchange market and their symbols include:
US dollar (USD)
Eurozone Euro (EUR)
Japanese Yen (JPY)
UK pound (GBP)
Australian dollar (AUD)
Canadian dollar (CAD)
Swiss franc (CHF)
Chinese Renminbi (CNY)
Swedish krona (SEK)
New Zealand dollar (NZD)
Since there is a Forex market to establish the exchange rate of currencies, the currency is traded in the Foreign exchange market in the form of currency pairs. For example, one currency pair is EUR / USD, the price of which reflects how much US dollars the Euro is worth. When you buy EUR / USD, you are saying that you believe that the euro will rise against the US dollar. If, however, you believe that the US dollar will rise against the euro, you should enter a sell order on EUR / USD.
Currency pairs are expressed as the base currency followed by the counter currency (or quote currency). This means that the price of a currency pair is expressed in the counter currency and denotes the amount of the counter currency required to trade for unit 1 of the base currency.
More than 87% of transactions in the Foreign exchange market are associated with the US dollar. Due to the popularity of the US dollar, seven currency pairs known as major ones have the US dollar as a component. They are:
Euro / US dollar (EUR / USD)
US Dollar / Japanese Yen (USD / JPY)
UK pound / US dollar (GBP / USD)
US dollar / Swiss franc (USD / CHF)
US dollar / Canadian dollar (USD / CAD)
Australian dollar / US dollar (AUD / USD)
New Zealand dollar / US dollar (NZD / USD)
Other major world currencies are paired with each other to form so-called cross-currency pairs, or simply “crosses”. They are:
Euro / UK Pound (EUR / GBP)
Euro / Australian dollar (EUR / AUD)
British Pound / Japanese Yen (GBP / JPY)
Swiss Franc / Japanese Yen (CHF / JPY)
New Zealand dollar / Japanese yen (NZD / JPY)
Exotic currency pairs are currency pairs such as USD / MXN (US Dollar / Mexican Peso) and EUR / TRY (Euro / Turkish Lira) that combine a major currency with the currency of an emerging economy. These currency pairs are not widely traded and can be very expensive to trade due to the difficulty in finding a buyer or seller to complete an order.
A pip is the smallest unit of measurement in the Foreign exchange market. In currency pairs calculated in Japanese yen, one pip is worth 01. In all other forex currency pairs, its value is .0001. Many brokers now show an extra decimal place, carrying USD / JPY from 3 decimal places and EUR / USD to 5, but this only exists with your broker and the Foreign exchange market, in general, does not see it.
Lot size forex
Traditionally, the size of the contract in spot forex has been several standard sizes known as lots. The standard lot size is 100,000. Later came the Mini series, which is a 10,000 currency unit and a Micro lot, which is a 1,000 currency unit. Many brokers assign Micro lots to smaller, more beginner-oriented account types and the default for all other accounts. Some brokers today even support odd lots, which means you can buy currency in almost any contract size.
Dividing the pip size of a currency pair by the price and multiplying by the lot size gives the value of each pip in your trade. For example, if you bought a USD / JPY standard lot at 106.83, your pip value would be: 0.01 (JPY pip size) / 106.83 x 100,000 = $ 9.36. This is not so important today as your Foreign exchange client calculates things like this for you.
Spreads are the difference between the price, the price the dealer will pay for the currency, and the demand, the price at which the dealer will sell the currency. This cost reflects the costs incurred by the broker in completing the trade. Foreign exchangetrading software usually displays the spread for you as shown above. If you subtract the rate from the request, you will find the difference according to spread 1.3.
Major pair spreads are usually very competitive between brokers and remain relatively small. The spread to more exotic and less widely traded currency pairs can get quite large and tend to vary a lot. The stock market also has a spread, but in Foreign exchange the spreads are much more transparent.
Margin or leverage is money given to you by your broker to increase the purchasing power of your account. Although margin accounts exist in the stock market, a margin account in Foreign exchange is much more common and easier to obtain.
While margin provides an excellent opportunity to use additional funds to generate more profits, it also increases risk. Wise money management dictates that you only risk a small percentage of your account on every position you take. A certain percentage of your margin should always be available in your account. If this amount is reached or even close, the broker can make a margin call, which is a request for you to deposit more money. In some cases, your positions may be closed immediately to meet the margin requirement. Therefore, treat margin with respect and do not abuse privileges.
In the Foreign exchange context, fundamental analysis is the study of economic and monetary factors that affect the value of currencies. It does this by analyzing government reports, economic statistics, and decisions made by central banks around the world. The premise of fundamental analysis is that markets may misprice an asset. If a currency is undervalued, it may be a good opportunity to purchase a pair of that currency to take advantage of the price change when the market is aware of its “true” price.
The economy and monetary systems of the world are quite complex. Understanding all the variables that play the fundamentals of currency prices can be difficult even for experienced analysts and can seem incredibly difficult for a beginner. There is another way to explain and predict price fluctuations in the Foreign exchange market.
Technical analysis trading
Technical analysis is the study of patterns that price has made in the past to determine what price will do in the future. The premise of technical analysis is that the current price reflects all known information about the asset. The expression of this information is the templates created by price action in the market.
Technical analysis uses charts. These chart templates are created by buying and selling an asset. Buy and sell pressures combine to form recognizable patterns that signal a specific event, such as a breakout or trend termination. We’ll take a look at a popular chart template below.
Types of risk management
Managing your account wisely is a skill that separates experienced, tested traders from newbies. It’s not hard to wipe your entire account if you trade casually, regardless of position size, margin, stops, or exit orders.
While many of us may dream of this big trade that makes us rich and changes our lives forever, the truth is that Foreign exchange is a slow, methodical way to make money when done successfully. Sound risk management entails setting a stop loss every time you open a trade, avoiding putting all your money in one position and limiting the use of leverage.