Forex trading for beginners | Currency trading | Your Complete Guide to 2022!
Currency
trading for beginners can be very challenging. This is mostly due to the
unrealistic expectations common among new traders. What you need to know is
that currency trading is by no means a
get-rich-quick scheme.
This
article is our complete guide on forex trading for beginners . On this page,
you will receive an introduction to the currency trading market , how it works,
and key terms of trading, along with the benefits of trading different
currencies.
In
this article we'll cover how you can get started with currency trading(including choosing the best trading company and trading platform), the basics
of risk management, the different ways you can analyze the forex market, and an
overview of the most popular currency trading strategies . At the end of this
guide, you will have the knowledge you need to start testing your trading
skills with a free demo account, before moving on to another live account.
What does currency trading mean?
Forex
, or foreign exchange market, is a market in which foreign currencies are
traded. To simplify the concept of currency trading for beginners , we will
take the following example, when you convert your local currency into another national
currency for your next trip, you are selling the local currency and buying
another foreign currency at a certain price or a certain number of units of the
first currency for a certain number of units of the second currency at that
time Rhombus and this is a simple example of the process.
An
estimated 6.6 trillion US dollars are traded in the forex trading market every
day between governments, banks, companies and speculators.
Knowing
how forex trades and how the market works is very important, because the
combination of participants is what actually creates the market you are trading
in, the relative weight of a trading party is measured by the amount of money
they manage in that market - from multi-billion dollar investment funds , to
private traders With a few thousand dollars in business.
Currencies
are traded in pairs, and the movement of currency pairs in the forex market
measures the value of one currency against another. For example, the EUR/USD
currency pair measures the value of one euro in terms of its equivalent in US
dollars. When the value of the pair increases, this means that the value of the
euro has increased against the value of the US dollar. When the value of the
pair goes down, this means that the value of the US dollar has increased (or
the value of the Euro has decreased).
By
trading Forex and CFDs, traders can take profits from these currency movements.
What are the traded forex pairs?
In
currency trading , foreign currency pairs are divided into major, minor and
exotic (non-traditional).
The
major forex pairs consist of the most traded currencies, namely:
USD -
US Dollar
EUR -
Euro
JPY -
Japanese Yen
GBP -
British Pound
CHF -
Swiss Franc
CAD -
Canadian dollar
AUD -
Australian Dollar
NZD -
New Zealand Dollar
A
major currency pair is the pair that has any of these currencies paired against
the US dollar, such as EUR/USD, USD/JPY or GBP/USD.
Minor
currency pairs consist of these major currencies that do not include the US
dollar. These pairs include:
EUR/GBP
EUR/CHF
AUD/NZD
and
others
And
finally, exotic (non-traditional) currency pairs where exotic pairs include one
major and one exotic currency, such as:
Hong
Kong dollar (HKD)
and
the Norwegian Krone (NOK)
and
South African Rand (ZAR)
and
Thai Baht (THB)
When
learning forex, many beginners tend to focus on the major currency pairs due to
the wide daily volatility and tight spreads. But there are many other
opportunities in the global financial markets - from major and exotic foreign
currency pairs, to opportunities to trade CFDs in the stock market,
commodities, energy sources, global indices , and others depending on your
preference.
How do prices work in currency trading?
In this
article, we will seek to teach currency trading for beginners . In forex
trading (or currency trading), you will
see that both “bid” and “ask” prices are quoted.
Bid
price is the price at which you can buy the currency.
The
ask price is the price at which you can sell the currency.
To
clarify trading operations:
If you
are buying a currency on a trade, what you hope is that the currency pair will
increase in value, so that you can sell it at a higher price and make a profit
on the difference.
If you
sell a currency in a forex trade, the opposite is true - the hope is that the
price of the currency will go down, so you can buy it back at a lower price,
which means you'll profit from the difference.
The
number quoted for FX rates depends on the current exchange rate in the market,
or how much of the second currency you will get for 1 unit of the first
currency (for example if the quoted rate of EUR/USD is 1.68 then you can
exchange 1 euro for 1.68 USD Interview).
Source:
TradingView
How
liquid are forex pairs in forex trading?
If the
way that traders make a profit is by taking advantage of the difference between
the bid and ask price of currency pairs, the next logical question is, how far
can you anticipate the movements of any given currency?
This
depends on how liquid the currency is, or how much is being bought and sold at
a given time. The most liquid foreign currency pairs are the ones that have the
greatest amount of supply and demand in the forex trading market, and this
supply and demand is generated by banks, companies, importers, exporters and
traders.
The
major currency pairs tend to be the most liquid, and the EUR/USD moves an
average of 90-120 pips per day.
By
contrast, the AUD/NZD moves 50-60 pips a day, and the USD/HKD only moves an average
of 32 pips a day (when looking at the value of currency pairs, most will be
listed in five decimal points.
The
pip is 0.0001, so if the EUR/USD moves from 1.16667 to 1.16677, that would be a
1 pip change. The major forex pairs tend to be the most liquid and therefore
offer the greatest short-term trading opportunities.
However,
there are many opportunities between minor and exotic currencies as well,
especially if you have some specialized knowledge about a particular currency.
Basic
terms in forex trading education for beginners
Before
we continue, let's summarize some of the key concepts covered so far with this
list of key forex learning terms:
Pip :
A pip is the base unit in the price of currency pairs, or 0.0001 of the quoted
price. So when the bid price of the EUR/USD rises from 1.16667 to 1.16677, that
is one point of change.
Spread
: The spread is the difference between the bid price of a currency pair and the
ask price. For the most popular currency pairs, the spread is usually low -
sometimes less than a pip! For the pairs that are not traded frequently, the
spread tends to be much higher. Before a forex transaction becomes profitable,
the value of a currency pair must exceed the difference between the buy and
sell price or vice versa, depending on the type of transaction.
Margin
: Margin is the money available in a trader's account. However, since average
forex trading for beginners lacks the margin required to trade at a high enough
volume to make a good profit, many forex and CFD brokers offer their clients
the possibility to use leverage.
Leverage
: The leverage is the capital that a forex broker offers to boost the trading
volume of their clients. For example, if you use a 1:10 leverage ratio and have
$1,000 in your trading account, you can trade $10,000 worth of trading instruments.
If the trade is successful, the leverage will multiply your profits by 10
times. However, please note that leverage also multiplies your losses to the
same degree, so it should be used with caution. If your account balance drops
below $0, this may trigger the Negative Balance Protection settings (if trading
with a trusted ESMA regulated broker), which will close the position.
Fortunately, this means that your balance cannot move below $0, so you will not
owe the trading company.
What are the benefits of currency trading?
Now
that we have published an overview of currency trading for beginners, the
question is, why would you want to trade currencies or other financial
instruments?
There
are a number of reasons why people choose to start day trading. Some of these
reasons may include the possibility of earning additional money, for example,
from the comfort of your home, work office, or any place where you have an
Internet connection. One of the reasons for learning forex and trading is that
it is an opportunity to learn a new skill in your own time, or even a dream of
achieving financial freedom, and getting more Take control of your financial
future. When it comes to currency trading specifically, there are many
advantages that make these financial assets very attractive to trade.
Forex:
the largest financial trading market in the world
Forex
is the largest financial market in the world, with more than 6.6 trillion US
dollars traded every day. In other words, in one day, more money will be traded
in the forex markets than the value of Japan's GDP! Of these transactions, $254
billion is traded through CFDs and other derivative financial instruments.
Being
the largest and most active financial trading market in the world, it is also
the most liquid market in the world, which means that it is easy to engage in
currency trading for newbies and enter and exit trades. And for the most liquid
pairs, they can trade currencies at a very low cost (even as little as 1 pip!).
This also means that the currency market is very volatile, which creates many
opportunities for traders to profit from positive and negative moves in
currency trading.
Forex
trading around the clock
Forex
is the only financial market that never sleeps, meaning you can trade at all
hours of the day (or at night). Unlike global stock exchanges , which are
located in trading rooms, such as the New York Stock Exchange or the London
Stock Exchange, the forex market is known as an "over-the-counter
market" (OTC). This means that transactions are done directly between the
parties that own the currencies, rather than being managed through an exchange.
Thus,
currency trading was not limited to the working hours of any particular global
exchange.
However,
since the forex trading market is a global market, it means that there is
always a part of the world that is awake and conducting business and deals, and
during these hours , their currencies tend to have the most movement. For
example, currency pairs that include the US dollar experience the most movement
during US business hours (16:00 to 24:00 GMT), while the EUR, GBP, CHF and
other European currencies experience the most movement during hours. European
work, (8:00 and 16:00 GMT).
In
contrast, the Australian dollar, the New Zealand dollar and the Japanese yen
tend to be most active between 00:00 and 08:00 GMT. As a trader, this means
that you can trade at any time that suits you - if you work during the day,
there will be currencies available to trade before or after your working time.
If you have children and are at home during the day, you can simply choose a
different currency. In the forex trading market, you can trade 24 hours a day,
5 days a week.
Trade currencies on high or low prices
One of
the most common trading and investing philosophies is to "buy low, sell
high" - this is particularly the case with long-term investments, such as
investing in stocks or bonds , which rely on increasing the value of assets. In
the stock and forex market, you can also sell high prices and buy them low
again. This way, you can make profits on both the downside and the upside.
As
mentioned earlier, in stock trading with a buy position, the trader will open a
deal at the bid price, and will aim to close the deal at a higher price, making
a profit on the difference between the stock's purchase value and the selling
value. Another example of currency trading, if the bid price of EUR/USD is
1.16667, and the position is closed at a price of 1.17568, the difference is
0.00901, or 90.1 pips. (When trading 1 lot of 100,000 units, that would make a
profit of 901 USD).
Traders
can also make short deals, where they sell their contracts at a high price, and
as soon as the price drops, they buy them at a lower bid price, and profit from
the difference. In this case, if the price of a particular share is 153, and
the sell position is closed at 150, the difference will be $3 per share. In a
lot (one lot) transaction (the value of one thousand shares) the profit will be
300 USD.
Low
cost of forex trading
Due to
leveraged currency trading, traders can access large parts of the currency
market with very low margin - sometimes as low as 1:500 of the trading volume
they want to access (based on leverage ratio of 1:500). Most forex trading
accounts have little (or no even) commissions.
Easy
access to the currency trading market
One of
the biggest advantages of currency trading is that it is one of the most
technologically advanced financial markets . While many of the global financial
markets can be accessed via legacy trading platforms, there is constant
competition in terms of software available for trading in the forex market. The
platforms offered by Admirals include MetaTrader 4 (MT4), MetaTrader 5 (MT5),
and MetaTrader WebTrader . MT4 and MT5 are available for Windows, Mac, Android
and iOS (for iPhone and iPad).
In
addition, Admirals provides traders with an enhanced version of MetaTrader,
known as MetaTrader Supreme Edition . With access to all these software, you
can trade stocks or forex from anywhere in the world - all you need is an
internet connection. With web-based electronic trading platforms, trading
applications and computer software, modern forex trading platforms are
available to all traders for all their trading styles. In fact, you can start
trading stocks and forex in a risk-free environment now with a free demo
account!
MetraTrader
4 supreme edition
7 Questions to Ask to Find the Best Forex
Trading Company for Beginners
When
it comes to choosing the best trading company, for beginners, it can seem like
a tough choice, with endless options. Here are the most important criteria to
consider when choosing:
1. Is the forex trading company licensed?
It may
surprise you to learn that the forex trading market does not have a central
regulatory body. However, this does not mean that you should choose a broker
without considering the issue of licensing. Instead, we recommend choosing a
broker that is regulated by the financial licensing authority in your area and
has additional licenses from abroad such as:
FCA -
UK Financial Conduct Authority
CySEC
- Cyprus Securities and Exchange Commission
ASIC -
Australian Securities and Investments Commission
SEC -
The US Securities and Exchange Commission.
Usually,
the licensed trading companies are proud of this and use it as a competitive
point for them with the rest of the trading companies.
The
benefit of choosing a licensed and regulated broker is that this will ensure
that you, as a trader, are protected to the fullest extent by the laws of your
country. For example, in 2018, the European Securities and Markets Authority
(ESMA) introduced a set of legislation protecting novice trading clients, which
all European forex brokers must comply with. This legislation includes limits
on available leverage, volatility protection, negative balance protection and
more.
It is
also important to consider the security of your money. With this in mind, we
recommend choosing a trading company that separates their clients' money from
their own, ensuring that the broker does not use your deposits for any of their
own financial activities.
It
also ensures that your funds will be available for withdrawal upon your
request. Finally, check if the broker offers a compensation service for
financial services . This service determines the amount of money that will be
compensated to you in the event that your broker or his bank goes bankrupt.
2. What is the quality of the services
provided by the forex broker?
The
services of the forex trading company you choose, and the trading platform, are
fundamental to ensuring the best trading results. If you were trading on a
platform that was slow and crashing regularly, for example, you might not be
able to enter or exit a trade at the price you wanted.
Instead,
it is important to look for a broker that offers high levels of liquidity, low
spreads, the ability to execute orders at the price you want (or as close as
possible), and advanced trading platforms that are easy to use.
Another
important component of the quality of service provided is the margin
requirements and the level of leverage available. While there is no need to
choose the highest level of leverage available when starting forex trading,
just knowing that the broker offers the highest level of leverage approved by
their regulators means that as your experience grows, you can start increasing
your leverage according to to your preferences.
3. What is the cost of currency trading
for beginners?
Since
currency trading can be an income generating activity, it is important to treat
your trading as a business - where you can think about how to increase your
income, how to reduce your costs, and how to reduce risk. With this in mind, be
sure to consider the costs of trading with any forex broker, before you choose
it.
Areas
to consider include:
Spread
Size: We have already discussed how the spread size affects your potential
profits, as any currency pair needs to cross the spread before a trade becomes
profitable. With this in mind, look for a broker that offers low spreads so
that it is faster and easier to cross the spreads.
Commissions:
It is better to choose a forex broker that does not charge a commission,
because the commissions will reduce your potential profits.
Minimum
Deposit: Many brokers will require their clients to make a minimum deposit when
opening a live trading account, so it is best to find the best broker with the
least amount of requirements. Admirals offers minimum deposits of €25.
When
you are looking for a currency trading company with the lowest costs, remember
that that alone is not enough, but a group of other factors must be considered,
as we mentioned, such as price differences, quality of execution, commission
and the minimum deposit. These should be the last points you keep in mind when
opening a long-term trading account. The best forex trading company for beginners
depends on elements such as the trading platform, quotes, set of available
tools, execution models, leverage offered and ease of withdrawal and deposit.
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