Beginner’s Guide To Forex Trading
The forex market is the world’s largest financial market, with over $5 trillion traded daily. It is open 24 hours a day, from Sunday evening to Friday night. If you’re new to forex trading, we’ll take you through the basics of what you need to know in our beginner’s guide to forex trading.
What Is Forex Trading?
Forex trading is the buying and selling of currencies on the foreign exchange market. The aim of forex trading is to speculate on the movements of currency pairs, and make a profit from the difference in the exchange rate.
For example, if you think the euro will rise against the US dollar, you would buy EUR/USD. If the euro rises against the dollar, you would make a profit. Similarly, if you think the euro will fall against the dollar, you would sell EUR/USD.
How Does Forex Trading Work?
The foreign exchange market is a decentralized market, which means there is no central marketplace where trades are conducted. Instead, currencies are traded electronically over-the-counter (OTC) between banks and other institutional investors. The forex market is open 24 hours a day, five days a week. This allows traders to trade forex around the clock, 24/5. There are 3 ways to trade Currecies;
1 Spot Trading
The most common type of currency trading is spot trading. In a spot trade, you buy or sell a currency pair at the current market price. The price you pay or receive is based on the bid/ask price of the currency pair at the time of the trade.
2 Forwards Trading
A forward trade is a contract to buy or sell a currency pair at a future date, at a pre-agreed price. Forward contracts are useful for hedging against currency fluctuations, as they allow you to fix the exchange rate for a period of time in advance.
3 Futures Trading
Futures contracts are similar to forward contracts, except they are traded on an exchange and have standardized contract sizes and settlement dates. Futures contracts are typically used by institutional investors, such as banks and hedge funds.
Factors That Influence Currency Prices
Currency prices are influenced by a range of factors, including economic news and data, interest rates, government policy and international events.
1 Economic News And Data
Economic indicators are released by governments and other institutions to provide information on the health of their economies. These indicators can have a big impact on currency prices. For example, if a country’s inflation rate is rising, its central bank may raise interest rates to try to control inflation. This would cause the country’s currency to appreciate in value relative to other currencies.
2 Interest Rates
Interest rates are set by central banks and have a big impact on currency prices. Higher interest rates tend to lead to currency appreciation, because higher interest rates provide a higher return on investment for holders of that currency. For example, if the US Federal Reserve raises interest rates, the US dollar will usually appreciate against other currencies.
3 Government Policy
Government policy can also have a big impact on currency prices. For example, if a country’s government announces that it is going to reduce its budget deficit, this would be seen as positive news and is likely to lead to currency appreciation.
4 International Events
International events can also influence currency prices. For example, if there is political unrest in a country, this may lead to capital flight and a fall in the value of that country’s currency.
Now that we’ve discussed what factors influence the forex market, let’s look at the trading hours.
Forex Market Hours
The forex market is open 24 hours a day, five days a week. This allows traders to trade forex around the clock, 24/5. The different trading sessions are:
1 Sydney Session: 10pm – 7am GMT
2 Tokyo Session: 12am – 9am GMT
3 London Session: 8am – 4pm GMT
4 New York Session: 1pm – 10pm GMT
Let’s discuss each of these sessions.
The Sydney session begins at 10pm GMT and ends at 7am GMT. This is the first session to open each day, and it is often seen as a continuation of the previous day’s trading. The main currencies traded in this session are the Australian dollar, New Zealand dollar and Japanese yen.
The session begins at 12am GMT and ends at 9am GMT. This is the second session to open day, and it sees the majority of activity in the Japanese yen. Other currencies that are traded in this session include the Australian dollar, New Zealand dollar and US dollar. This session is less volatile than the London and New York sessions.
3 London Session
The London session begins at 8am GMT and ends at 4pm GMT. This is the most active session, seeing a lot of activity in the Euro, British pound and Swiss franc. Other currency pairs that are traded in this session include the US dollar, Japanese yen and Australian dollar.
4 New York Session
The New York session begins at 1pm GMT and ends at 10pm GMT. This is the last session to open each day, and it sees the majority of activity in the US dollar. Other currencies that are traded in this session include the Euro, British pound, Canadian dollar and Japanese yen.
Now that we’ve looked at the different forex market hours, let’s look at 10 forex terminologies that you should know.
A pip is the smallest unit of price movement in the forex market. For most currency pairs, a pip is equal to 0.0001 of a cent. For example, if the EUR/USD moves from 1.2345 to 1.2346, this is a one pip move. The reason pips are important is that they are used to calculate profits and losses. For example, if you buy the EUR/USD at 1.2345 and it moves up to 1.2346, you have made a profit of one pip.
Leverage is the use of borrowed money to increase your investment. For example, if you have a $1,000 investment and you use leverage of 10:1, this means that you are borrowing $9,000 from the broker. This allows you to trade with $10,000, which is 10 times more than what you originally had. Leverage can be a double-edged sword, as it can lead to both profits and losses.
Margin is the amount of money that you need to open a position. For example, if you are trading with leverage of 10:1 and you want to trade a $10,000 position, you will need to have $1,000 in your account (10% of $10,000). This is known as the margin requirement. Another way to think of it is that it is the amount of money you are risking on a trade.
A lot is the standard unit of measurement in the forex market. A standard lot is equal to 100,000 units of the base currency. There are also mini lots and micro lots. A mini lot is equal to 10,000 units of the base currency and a micro lot is equal to 1,000 units of the base currency. Lot size is important because it is used to calculate the margin requirement. For example, if you are trading a standard lot of EUR/USD and the leverage is 1:100, the margin requirement will be 1%. If you are trading a mini lot of EUR/USD and the leverage is 1:100, the margin requirement will be 0.1%.
5 Long Position
A long position is when you buy a currency pair and hope that it will rise in value. For example, if you buy EUR/USD at 1.2345 and it rises to 1.2346, you have made a profit of one pip.
6 Short Position
A short position is when you sell a currency pair and hope that it will fall in value. For example, if you sell EUR/USD at 1.2345 and it falls to 1.2344, you have made a profit of one pip.
7 Take Profit Order
A take profit order is an order that you place to close a trade when it reaches a certain level of profit. For example, if you buy EUR/USD at 1.2345 and place a take profit order at 1.2355, your trade will be closed automatically when the EUR/USD reaches 1.2355 and you will have made a profit of 10 pips.
8 Stop Loss Order
A stop loss order is an order that you place to close a trade when it reaches a certain level of loss. For example, if you buy EUR/USD at 1.2345 and place a stop loss order at 1.2335, your trade will be closed automatically when the EUR/USD reaches 1.2335 and you will have made a loss of 10 pips.
9 Currency Pair (Base And Quote)
A currency pair is the two currencies that are traded in a forex transaction. For example, if you buy EUR/USD, you are buying the euro and selling the US dollar. The currency pair is made up of a base currency and a quote currency. The base currency is the currency that is being bought or sold, and the quote currency is the currency that is being used to price the base currency. In the EUR/USD example, the euro is the base currency and the US dollar is the quote currency.
10 Major And Minor Currency Pair
A major currency pair is a currency pair that contains the US dollar and has high liquidity. The major currency pairs are EUR/USD, USD/JPY, GBP/USD, AUD/USD, and USD/CHF. A minor currency pair is a currency pair that does not contain the US dollar and has lower liquidity. The minor currency pairs are EUR/GBP, EUR/JPY, GBP/JPY, CHF/JPY, and AUD/JPY.
How To Analyze The Forex Market
When it comes to analyzing the forex market, there are two main approaches that traders use: technical analysis and fundamental analysis.
Technical analysis is a method of predicting price movements by looking at chart patterns and technical indicators. Technical analysis is best used in conjunction with other forms of analysis, such as fundamental analysis.
Fundamental analysis is a method of predicting price movements by looking at economic indicators. Fundamental analysis is best used in conjunction with other forms of analysis, such as technical analysis.
The most important thing to remember when using these two methods of market analysis is that they are complimentary of each other, and both should be used in order to get a complete picture of the market.
Technical analysis is the study of price action in the market. Price action is the movement of price over time, and technical analysis is the study of how price action reflects the underlying supply and demand in the market. Technical analysis can be used to identify trends and reversals, as well as support and resistance levels.
The most popular technical indicators are moving averages, momentum indicators, and oscillators. Moving averages are used to identify trends, while momentum indicators are used to identify reversals. Oscillators are used to identify overbought and oversold conditions in the market.
Fundamental analysis is the study of economic indicators and their impact on the forex market. Fundamental indicators are released by governments and central banks, and they can have a significant impact on currency prices. The most important fundamental indicators are inflation, interest rates, and GDP.
Inflation is a measure of the overall price level in the economy, and it can have a significant impact on currency prices. Interest rates are set by central banks and they can have a major impact on currency prices. GDP is a measure of the economic activity in the economy, and it can also have a major impact on currency prices
How To Get Started With Forex Trading
So far, we have covered a lot of information about forex trading. Now it’s time to put all of that information into practice and start trading. Here are five steps that you can take in order to start trading forex:
1. Open a forex account – The first step is to open a forex account with a broker. A forex account is similar to a stock account, and you will use the account to place trades. There are many different brokers that you can choose from, and it is important to find a broker that is reputable and offers good customer service.
2. Learn about market analysis – As we mentioned earlier, market analysis is the key to success in forex trading. You need to understand how to analyze the market in order to make profitable trades.
3. Develop a trading strategy – A trading strategy is a set of rules that you will use to place your trades. Your trading strategy should take into account your goals, risk tolerance, and time frame.
4. Place your first trade – Once you have developed a trading strategy, it’s time to place your first trade. You can do this by opening a demo account with a broker and placing a trade using virtual money. This will allow you to get accustomed to the forex platform and test out your trading strategy without risking any real money. 5. Continue learning and growing – The last step is to continue learning about the forex market and growing as a trader. There are many different resources available, such as books, courses, and online forums. Continue to develop your trading strategy and risk management plans, and you will be on your way to success in the forex market.