Forex Trading Guide: An overview
Have you ever heard of the term “Forex Trading” or the “Forex Market” and wondered what all the hype is about? Have no fear; in this Forex Trading guide, we are going to give you an overview of everything you need to know about Forex trading and how you could benefit from it!
Below you will find information on the standard terms you may encounter while learning about the market, steps you should follow if you’d like to get involved, some of the top online platforms, as well as some tips and tricks to get you started.
In the most basic, watered-down explanation, Forex trading is exchanging currency from one country to another. For example, Forex Trading could consist of converting euros to US dollars. You may be asking why someone would convert their currency to a foreign currency.
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Well, to answer this question, people who engage in Forex Trading are hoping to make money off of the shifts in currency value. Let’s say that you have been tracking the market in Italy and believe the euro’s value will increase.
You decide to exchange $10 (USD) into euros and wait to see how the value of the euro shifts. After a week, the euro’s value increases, so that when you exchange the euros back into USD, you’ve received $15, meaning you’ve made $5 from the Forex Trade.
Foreign currency exchange is kind of like the stock market, except instead of investing in companies and business, you’re investing in foreign currency with the hope that it will increase in value when you exchange it back to your nation’s currency. Similar to trading stocks, currency worth across the world continually fluctuates depending on a nation’s economic stability, the flow of currency that comes in and out of the country, and political factors, so trading decisions will require strategy and intuition.
Is forex trading Good for beginners?
How do I start trading forex?
Learn forex trading step by step guide
Learn forex trading step by step
Here we will highlight the general steps of initiating Forex Trades. Please note that this isn’t a comprehensive guide, and we recommend that you read more than just this article to develop a well-rounded understanding of the Forex Market. Now onto the steps!
Step 1: Learn all there is to know about the process.
Once you’ve acquired an internet connection and device, you’ll want to familiarize yourself with Forex Trading. Many terms may appear daunting at first, but once you familiarize yourself with them, the process will be much easier. We’ve provided you with a brief overview of the jargon just below this paragraph.
Some of the Jargon:
- Broker: The person who will connect you with the Forex market; this person will perform the transactions that you request.
- Order:Think about this term as if you are placing an order with your Broker, and the order contains the transactions you’d like your Broker to perform for you.
- Pip: Point in percentage, or the smallest denomination of change in the currency exchange rate.
- Currency Pair: The currency of your capital and the currency for which you are investing in.
- Capitulation: end of an extreme trend where investors extract their investments.
In addition to familiarizing yourself with the jargon outlined above, you’ll want to familiarize yourself with the trading process (which you’re doing now), including the aspects involved, such as the strategies and market analyses.
There are four common types of trading strategies (1) scalping, (2) day trading, (3) swing trading, and (4) trend trading. Scalping is a quick strategy; a person who uses this strategy attempts to earn a profit by investing and extracting money from the market quickly to gain many small profits. The day trading strategy is similar to scalping, but there are fewer short-term moves; a day trading strategist never leaves an investment in the market overnight out of fear for the risk.
A swing trading strategist bases their decisions on the market analysis. They will invest when the currency value is low and extract their investment when the value is high. Typically swing trading strategists will leave their investments overnight and take signals from the market analyses.
Finally, trend trading strategies are the most long-term. Investors who use this strategy look for trends in the market and extract their investment when they feel the upward trend is over. Obviously, the latter two types of strategies are riskier than the first two. None of the four strategies listed are superior to others; it really depends on an investor’s comfort level and how familiar they are with the market analyses.
This leads me to my next point, make sure you are familiar with market analysis charts. Taking the time to familiarize yourself with the data can help you make informed decisions and predictions on your investments. There are two standard forex market analyses that you should be familiar with – technical analysis and fundamental analysis.
Technical analysis is used to help investors predict trends so they can plan their market moves. Fundamental analyses assess a currency’s value by examining the intrinsic value or looking at qualitative (descriptive) data and quantitative (numerical) data. Trend trading strategists tend to rely on fundamental analysis, whereas swing trading strategists rely on technical analysis.
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Step 2: Forex trading how much money to start?
After you feel comfortable with the ins and outs of Forex Trading, you’ll need some capital to begin trading. The amount of money you need to initiate Forex Trading depends on the Broker you enlist to help you (more on that below). Luckily, there is a wide range of minimum deposits, so you’ll likely find one that meets your budget.
After some research, it seems the absolute minimum you can begin trading with is $10USD. If you are short on capital, I recommend finding a broker who doesn’t require a deposit, as this is a cheaper alternative. For those of you who have more capital to invest, there are brokers who require larger minimum deposits of $100 – $500. The amount that you choose to invest initially is a personal choice, so don’t feel like you have to invest mass sums of money if you’re not in a position to do so.
Step 3: Find A Broker
As I alluded to in the previous step, you will need to find a Broker to get involved in Forex Trading. Luckily, or unluckily depending on how you look at it, everything related to Forex Trading is done online. The upside of this system is that it’s accessible, and you can trade wherever; the downside is that it can be challenging to find a reliable Broker.
The internet is full of scammers. When searching for a Broker, you must make sure that you find a registered and licensed Broker. Consider their terms and conditions and seek out reviews from trustworthy sources. Do your research to ensure the Broker you choose is reliable. Don’t skimp on this step of the process! We have provided a list of a handful of reliable Brokers, but this list is not exhaustive, and those included may not meet your needs. Think about how much capital you want to invest, how much research on the market you wish to access, and how comfortable you are with a complicated trading platform. Your answer to these questions will help you personalize a list of Brokers to meet your needs.
Suggested Starting Place for your Forex trading Platform List
- CMC Markets – Has a nice range of features.
- IG – For US Investors
- XTB Online Trading – For people who want to start with small capital
- City Index – good all around platform
- Saxo Bank – for people who are interested in the market research
Step 4: Practice Makes Perfect
One of the perks of Forex Trading is that you will have the ability to open a mock account with no real stakes. This will provide you with the chance to practice trading and develop a personal strategy before investing your real money. Your access to this account will not be unlimited, so use the time you are allotted resourcefully. Truly practice and make sure you familiarize yourself and feel comfortable with the process. Before moving on to this step (and the step directly before this one), I recommend that you make sure you feel comfortable with Forex Trading strategies, that way, you can use the mock account to its fullest advantage. If you come to this stage with little knowledge of potential strategies, you’ll spend more time learning those while learning the platform, and the mock platform will lose some value for you.
Step 5: Start Trading
Finally, after all of the steps outlined above, you may open a live Forex Trading Account and start your real, live trading. Some Brokers will allow you to transfer your mock account into a live one so that it’s a seamless process; if this is of interest to you, make sure you find a Broker who has this process. As I mentioned earlier, some platforms may be more complex, so you must find one within your comfort zone. After you’ve been granted a live trading account, you can deposit money into the account and have fun!
Can you Get Rich By Trading Forex?
The steps seem easy enough, right? You may be asking, “Can you get rich by trading forex?” Of course, we can’t guarantee anything because life is incredibly unpredictable (I’m looking at you 2020!) However, as with anything in life, the more passion and commitment you put towards something, the more it will pay off. Someone who gets involved in Forex Trading without much research will likely make less than someone who has invested the time into learning about the market and strategies. Someone who wishes to succeed in the Forex Trading Market will go beyond the outlined steps above. They will continue to seek out resources and information on Forex Trading to enhance and refine their strategies and skills.
As the cliche goes, knowledge is power, and you can convert that power into possibly monetary gains, but it will take effort. Nothing is easy. Don’t be discouraged if you don’t make mass amounts of money instantly; trust yourself and the process. There are dozens of stories scattered throughout the internet of investors who started with nearly nothing and built up their wealth. Things don’t happen overnight, so if you are interested in Forex Trading, make sure you’re ready to be patient.
We hope this article served as an excellent initial Forex Trading guide for you. Are there any questions that we didn’t answer that you have? Please comment below, and we’d love to answer any questions you may have. Happy trading, friends!