How to Trade Forex – A Step-by-Step Guide.
We have listed each important step to take when entering the Forex Market. We showcase which factors to consider and what important steps to take when trading Forex.
This is a complete step-by-step Guide we will explain the process of Forex Trading for both Beginners and Pros.
In this in-depth write-up you will learn:
- How to Trade Forex for Beginners.
- Forex Trading for Beginners – Full Course.
- Learn Forex Trading – An easy-to-follow guide.
- Forex Trading – An Example.
- Forex Trading for Beginners in South Africa.
and much, much more!
Forex Trading – A Definition
Foreign exchange is the process of changing one currency into another for a variety of reasons, including commerce, trading, or tourism. The foreign exchange market is a global marketplace for exchanging national currencies.
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How To Trade Forex – A Step-by-Step Guide
- ✅ What is Forex Trading?
- ✅ Trading Forex – Step-by-Step Guide
- ✅ Forex Trading Examples
- ✅ Forex Basics
- ✅ The Foreign Exchange Market
- ✅ Forex Leverage
- ✅ Beginner Forex Trading Strategies
- ✅ Forex Trading Tips for Beginners
- ✅ Where to Trade Forex
What is Forex Trading – Explained
Foreign exchange trading or forex trading is the exchange of different currencies on a decentralized global market. The Process of Forex Trading is the act of speculating on currency price movements. This is done with the aim of making a profit. The Foreign Exchange Market is one of the largest and most liquid financial markets in the world.
Trading Forex – A Quick 6-Step Guide
1. Step 1: Open a spread betting or CFD Account.
In order to start Forex Trading the investor will be required to open a live or demo account with a trusted Forex Service Provider. This needs to be done in order to legally trade on price movements of forex pairs.
2. Step 2: Research FX Pairs
Investors should use News and Analysis sections to keep up-to-date with market news that may influence the currency pair that they are interested in trading.
3. Step 3: Decide what to Buy or Sell
Once an investor has decided which currency pair they would like to trade on and based on their research, the investor can now decide to Buy or Sell.
4. Step 4: Follow A Strategy
Before placing a trade, the investor should ensure that they have followed their strategy which should include risk management.
5. Step 5: Place a Forex Trade
The next step is for the investor to place a forex trade with defined entry and exit points. Traders should remember to use risk management conditions, such as a take-profit or stop-loss order.
6. Step 6: Close the Trade
The Final step is for the trader to exit the market at their forecasted limits.
Forex Trading Examples
When placing trades on the forex market, the trader will be trading the strength of one currency against another.
Example:
If a trader chooses to go long and but on the USD/GBP currency pair they will be speculating that the US dollar price will increase relative to the price of the Great British Pound. Alternatively, if a trader chooses to go short and sell on the EUR/AUD currency pair they will be speculating that the euro will weaken in comparison to the Australian dollar.
Example trades, as those mentioned above, are a useful way to learn the process of forex trading.
Forex basics
As a beginner in the Forex Market, it is important to understand the basics of the forex market. This includes Forex Terms to Know, Ways to Trade Forex, and how Regulatory Frameworks work.
Forex Terminology – Short Overview
- Micro Forex Accounts: Accounts that allow investors to trade up to $1,000 worth of currencies in one lot.
- Standard forex accounts: Accounts that allow traders to trade up to $100,000 worth of currencies in one lot.
- Ask: An ask is the lowest price at which a trader is willing to buy a currency.
- Bid: A bid is a price at which the trader is willing to sell a currency.
- Contract for difference: A contract for difference or CFD is a derivative that will enable traders to speculate on price movements for currencies without owning the underlying asset.
- Leverage: Leverage is the use of borrowed capital to multiply returns.
- Margin: Margin is the money set aside in an account for currency trade.
- Pip: A pip is a percentage in point or price interest point – is the minimum price move, equal to four decimal points, made in currency markets.
- Spread: A spread is a difference between the bid (sell) price and the ask (buy) price for a currency.
Three Ways to Trade Forex
There are three different ways to trade forex, which will accommodate traders with varying goals:
- The spot market: This is the method of trading in the primary forex market where currency pairs are swapped and exchange rates are determined in real-time, based on supply and demand.
- The forward market: Instead of executing a trade immediately, forex traders can select to enter into a binding and private contract with another trader and lock in an exchange rate for an agreed-upon amount of currency on a future date.
- The futures market: Traders can opt for a standardized contract to buy or sell an amount of currency that was predetermined at a specific exchange rate at a date in the future. This is done on an exchange rather than privately, like the forwards market.
The Foreign Exchange Market
Forex, FX, or Foreign Exchange is a marketplace where companies, banks, individuals, and governments can exchange currencies. The Forex Market is the most actively traded market in the world, with over $5 trillion USD traded on average per day. When trading currencies on the foreign exchange market, currency pairs will be split into major, minor, and exotic currency pairs.
- The major currency pairs on the forex market are EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
- Minor currency pairs, also known as cross-currency pairs, are pairs that do not include the U.S. dollar but do include at least one of the world’s other three major currencies.
- Exotic currency pairs basically consist of one major currency like the USD, EUR or JPY traded against another currency of a lower volume
Forex leverage
When trading Forex with a spread betting or CFD trading account, investors will trade with leverage. This means a trader will only need to put up a small portion of the full trade value to open a position. This is known as trading on margin. However, a trader’s exposure in the market will be based on the position’s full trade value and it is very important to understand that both profits and losses are magnified when trading on leverage. Leverage in Forex is a way for traders to borrow capital to gain a larger exposure to the Forex market.
Beginner Forex Trading Strategies
Forex trading strategies are generally differentiated by timeframe and market-specific variables. Strategies include trading market movements in minutes or trading them over several days. Here is a Quick Overview:
- Forex Scalping: Forex Scalping is the process of holding multiple short-term trades and building profit based on small but frequent profitable trades.
- Forex Day Trading: Day Trading is the process of entering and exiting at least one trade per day by predicting daily market movements, looking to avoid overnight holding costs.
- Forex Swing Trading: Swing Trading refers to positions that are left open for several days with the aim to buy at ‘swing lows’ and sell at ‘swing highs’, or vice versa.
- Forex Position Trading: Position trading involves holding positions over long-term periods and ignoring short-term price fluctuations.
Forex Trading Tips for Beginners
- Have an understanding of both currencies that are being traded as part of the currency pair.
- Follow a strict trading plan.
- Test and Evaluate by using a Demo Account.
- Don’t be tempted to take profit as soon as it appears, or be afraid of making a loss.
- Choose a reliable trading Platform with trusted customer support.
Where to Trade Forex
Investors can trade forex via a spread betting or CFD trading account via desktop or mobile devices. The Forex Broker will generally make a selection of trading platforms, including a mobile trading platform available.
Conclusion
Once a Trader has an understanding of the Forex Basics, they can put their new-found knowledge into practice by using a Forex Demo Account.
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Frequently Asked Questions
What are the Risks every Beginner Trader should be aware of?
The Forex markets are among the most liquid markets in the world and events like economic instability can influence the Traders’ profitability.
Why do investors choose to trade currencies?
Companies and traders use forex trading for two main reasons: speculation and hedging.
Are the Forex Markets Volatile?
Yes, However, Forex markets are among the most liquid markets in the world and are less volatile than other markets.
Are the Forex Markers Regulated?
Yes, the Forex Markers Regulated are depending on the jurisdiction.
What is the first step to take when starting to Forex trade?
Self-Education is a very important first step when starting to trade Forex.
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