Understanding forex trading
Forex trading is an avenue to make legit money online. It offers the opportunity to invest your money through a broker to predict the movement of currency whereby if your prediction is right, you win.
What is forex?
Forex means foreign exchange. But in the sense of forex trading, we are talking about currencies traded as an asset class. It involves the placing of one country’s currency against another according to demand in real life currency exchanges to facilitate trades among people of different nations.
In forex trading, the placing of currencies against each other is predetermined by brokers called currency pairs. For this reason, not all brokers offer the same currency pairs to facilitate your trade. An example of a currency pair is EUR/USD, which is placing currency of Europe against the US Dollar.
However, the market forces in real life determine the behavior of any of the currencies you trade, but what you have to do is study the market using available forex trading tools to ascertain the possibility of the currency going up or down to trade. Thus, you make money when your prediction becomes true in the line of trading, but when it didn’t go as predicted, you lose.
How to trade forex
Before you start trading forex, it is essential you know that Forex trading involves taking serious risks. Forex can make or break you financially, which requires being extra vigilant in the decision you make. For you to mitigate risks, you need to understand risk management in forex. Risk management helps to trade safely and confidently with great wins.
Since forex trading is somewhat risky, it is important to understand the basics before you begin trading. Doing so will give you the knowledge required to move to the next stage of making the choices necessary such as finding and choosing the right broker, using the trading chart and demo account, and much more necessary steps toward becoming a pro trader.
Learning tools of trading forex
In trading forex, there are tools to study and predict the movement of the market vis-à-vis the currency asset you intend to trade. One of these tools is a fundamental analysis which is the classic way of investing because it considers the economic conditions and interest rates.
Fundamental analysis is, therefore, an economic analysis for driving forex trading decisions. Another tool is technical analysis used in several of ways. It includes technical indicators, Fibonacci, and support and resistance. Trading tools give you the pleasure of trading as professional and build your confidence to accurately predict market movement in such a way that you can see what is coming before they do.
As a professional forex trader, you use your knowledge and skills of watching market movement to ignite many tricks and tips to beat the market in its game. As a pro trader, the more professional you become, the more money you are worth. Professionally, you can manage your risk and diversify your trading styles to the admiration of everyone in the industry.
What are the currencies traded?
It should be noted that all currencies of recognized nations are traded in the foreign exchange market, but only a few about 14 of these currencies are featured in forex trading, while only four currencies dominate the daily forex market trading.
You will notice the traded currency in abbreviation form such as USD for the US dollar. JPY for the Japanese Yen and GBP for the British Pound, while further on the line, you will find EUR representing Euro currency and CHF for the Swiss Franc. The AUD represents Australian Dollar, while CAD represents the Canadian dollar and the New Zealand Dollar uses NZD and the French Franc represented by FRF.
Whatever the currency you want to trade, forex trading always involves two pairs of currencies, one of which is being bought in exchange for the other. The above-listed currencies will be paired such as EUR/USD, GBP/USD, EUR/GBP, and USD/CAD and so on and so forth to provide a trading asset you will like to invest your money in either sell or buy according to your predictions of the market.
Ways to trade forex
Three unique ways exist to trade forex; these are the trading platforms you will come across as you learn the art of forex trading.
- Spread betting. It is based on currency market speculation 24 hours daily. It allows trading on price movements of different financial markets like indices, shares, currencies, commodities and many more assets using variable spreads of about 0.5pts, going long or short as the case may be.
- CFD trading. Known as Contract for Difference, it allows for speculation on the forex market based on an agreement between two parties to exchange difference in the opening and closing price of a contract. This Forex trading enables you to trade on live price movement in the market without owning the underlying instrument the contract is based.
- MT4 trading. This is the most popular forex trading platform of them all, known worldwide. It is a typical scene in most forex trading promo. The MT4 platform that stands them out ahead of other platforms such as Expert Advisors (EAs), One-click dealing, Custom indicators, and Professional charting package. Note that MT4 platforms differ from broker brokers, but understanding the functionality will help you in the choice of a broker to make.
Benefits of Forex trading
One way to earn living income online is forex trading. Forex can bring in so much financial breakthrough promises for the following reasons:
- High liquidity. Largest and most liquid financial market in the world
- Large market potential. Over $4 trillion daily activities and more than $1.5 trillion spot trading trades conducted
- Profit potential. High volatility nature that gives room for more trades and speculations for market vibrancy
- 24 hours market gives traders opportunity to manage their trading time
- Ability to trade in the market than the money you have is a benefit most traders enjoy from their brokers.
- Low transaction cost. The use of spread helps to absorb the cost as it’s inbuilt. When the spread is created, all costs are inclusive, and you can trade using the spread as your leverage.
Tips for starting in forex trading
There is an extensive list of benefits you can get from trading in forex, but there are cautions you need to exercise along the way. For you to be a successful trader, here are tips from professionals who have made their marks in the trade to guide you.
- Know thyself. This may look like something simple, but it’s far reaching if you know what that means. Trading in forex has some emotion issues attached to it. Since your money is involved, trying hard to protect your money may affect your trading decisions that may cause you financial harm. Therefore, for you to profit in forex trading, understanding the market is as important as knowing your loss tolerance level.
- Plan and stick to your plan. Unless you know thyself, sticking with your plan might be somewhat difficult. Therefore, take the time to plan what you want to trade before executing a trading plan. Planning means you need to give it the time it required to learn and understand before trying some strategic trade moves.
- Brokers are important, choose one carefully. Many traders who quit early and complained about losses happened because of bad brokers. You need to be aware of scams in the industry and unless you get a legit broker, keep on searching. You want to check a broker’s efficiency, the trading platform, the customers’ satisfaction, subscription to standard regulatory practice and many more issues relating to standard practice. Take time to check reviews of past customers to see how they rate a broker before committing to sign up with them.
- Start small. Forex trading is not a place to exhibit greed for money. You should be contented with small profit that is consistent and not one chunk big profits that may drain you of funds and throw you in losses.
- Pick the right account type and choose your leverage ratio carefully. It is important to learn and follow instructions carefully.
- Stay focus on a single currency pair. Forex trading is a long journey, so don’t rush on getting to your destination in a short time. When you start trading, focus on single currency pair and stick with it to understand the characteristics of the pair correctly. In such regard, find the most liquid and widely traded pair to go with and learn gradually.
- Commit to studying. Emotions, greed, impatience and over optimism or cynicism are attitudes you must put under control. The best way to control them is through careful research and learning about everything forex trading. The more time you commit to studying, the better you become.
Forex trading if well learned and executed can bring short term profit to improve your financial fortunes. The only challenge is the time to learn and master how it’s done. Once you gain mastery of forex trading, oh mine, you are on your way to making real money every day.