Forex Trading for Beginners

Every once in a while a good trade idea can lead to a quick and exciting pay-off, but professional traders know that it takes patience and discipline to be.

Forex is a commonly used abbreviation for “foreign exchange”. It is typically used to describe trading in the foreign exchange market, especially by investors and speculators.

What is Forex? And Why Trade It?

You may not know it, but forex is actually one of the largest markets in the world, with over $4 trillion in average daily volume transacted.
This easily dwarfs the stock market. All the world’s stock markets combined average only about $84 billion per day.

Forex Background

The foreign exchange market is the world’s largest financial market, with an average daily trading volume of US$5.3 trillion. Forex trading involves the buying of a currency and the selling of another at the same time. This means FX trading always involves currency pairs. For example, if you have US dollars (USD) and you need Japanese Yen (JPY), you have to sell the US dollars to be able to buy the Yen.

The rate of exchange between different currencies are constantly fluctuating mainly due to the supply and demand between buyers and sellers. The forex market may also be affected by high-impact events such as central bank decisions and by the release of economic data from different countries.

Which Currency Pairs Are Traded Most Frequently?

The most liquid currencies generally come from countries with stable domestic politics and well-respected central banks. These currencies are traded most frequently and are known as the major currency pairs.

In the foreign exchange market these major currency pairs account for around 85% of the trading volume. These include EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD and USD/CAD

Why Trade Forex?

Forex market is one of the largest, if not the largest investment market, therefore it is volatile and very lucrative which can potentially be profitable if you know how to take advantage of its fluctuation. Unlike the stock market with limited trading hours, the Forex market has around the clock trading for 24 hours 5 days a week.

In addition, when you trade Forex you have the advantage of using a higher leverage that is not available for other financial investments.

What Are Some Of The Advantages That Forex Trading Has Over Trading Stocks And Other Markets?

The Forex market can be considered one of the fairest and most transparent markets in the world. There are no centralised exchanges (unlike stock exchanges), nor banks or any country that can control the whole FX market. At the same time, the large number of market participants and massive volume of trades that are being transacted on a daily basis means no single institution can manipulate the currency prices.

Forex Trading is Easy

Unlike other forms of investing, forex trading is easy to get started. When you compare what you need to get started trading forex with what you need to get started in stocks, options or futures trading, they all pale in comparison.

Forex Trading is Cheap

As you just read, forex trading doesn’t require you to deposit tens of thousands of dollars into your account just to get started. You can open an account and begin trading forex with as little as a $100 deposit.

The Ability to Trade Forex Anywhere, Anytime

Unlike your 9 to 5 day job, forex trading doesn’t restrict you to your desk or worksite. If you don’t want to be inside, then don’t be inside! Forex gives you the ability to trade anywhere, anytime. Trade wherever and whenever you want, it’s up to you.

Why Trade Forex?

Online forex trading has become very popular in the past decade because it offers traders several advantages.

Forex never sleeps: Trading goes on all around the world during different countries’ business hours. You can, therefore, trade major currencies any time, 24 hours per day, 5 days a week. Since there are no set exchange hours, it means that there is also something happening at almost any time of the day or night.

Go long or short: Unlike many other financial markets, where it can be difficult to sell short, there are no limitations on shorting currencies. If you think a currency will go up, buy it. If you think it will fall, sell it. This means there is no such thing as a “bear market” in forex–you can make (or lose) money any time.

Low Spread cost: Most forex accounts trade without a commission and there are no expensive exchange fees or data licenses. The cost of entering a trade is the spread between the buy price and the sell price, which is always displayed on your trading screen. Detailed information on charges and fees is provided in our Rate Card.

Unmatched liquidity: Because forex is a $4 trillion a day market, with most trading concentrated in only a few currencies, there are always a lot of people trading. This makes it easier to get in to and out of trades at any time, even in large sizes. But, be mindful of increased volatility as orders may be subject to slippage.

Available leverage: You can trade Forex and CFDs on leverage. This can allow you to take advantage of even the smallest moves in the market. Of course, leverage is a double-edged sword, as it can significantly increase your losses as well as your gains. FXCM UK offers different leverage for different tradeable instruments. Major currency pairs default to 30:1, non-major currency pairs, gold and major indices default to 20:1, commodities other than gold and non-major equity indices default to 10:1, individual equities and other reference values default to 5:1, and cryptocurrencies to 2:1. Please note that cryptocurrency products are only available to Professional and Eligible Counterparty clients.

International exposure: As the world becomes more and more global, investors hunt for opportunities anywhere they can. If you want to take a broad opinion and invest in another country (or sell it short!), forex is an easy way to gain exposure while avoiding vagaries such as foreign securities laws and financial statements in other languages.

 So, let’s start with what a basic forex trade looks like.

Major Global Foreign Exchange Market

Foreign exchange market refers to the Banks and other financial institutions, proprietary traders, large multinational companies, trading markets traded in various currencies through intermediaries or telecommunications systems.

At present, there are about more than 30 major foreign exchange markets in different countries and regions throughout principal continents. According to the traditional regional division, the markets can be divided into three major markets, namely, Asia, Europe, North America, among which, the most important is Europe’s London, Frankfurt, Zurich and Paris, America’s New York and Los Angeles, Australia’s Sydney, Asia’s Tokyo, Singapore and Hong Kong etc..

The Characteristics Of Forex Market

Unparalleled liquidity
Foreign exchange market is the most liquid market in the world with a trading volume more than $6 trillion a day, – its daily trading volume a month equivalent of Wall Street. The foreign exchange market works day and night, attracting traders to buy or sell currency all over the world.

Most popular currency pairs in forex trading
While you can trade almost any currency pair in theory, there are certain pairs that are consistently the most traded. These are called Major pairs (it’s in the name) – they make up 80% of the entire trading volume in the forex market. These major pairs are associated with stable economies and therefore offer low volatility and high liquidity. Example of major pairs include the aforementioned EUR/USD, the USD/JPY (the US Dollar and the Japanese Yen), GBP/USD (British Pound and the US Dollar) and the USD/CHF (the US Dollar and the Swiss Franc).

24-hour trading
The forex market is open 24 hours a day and 5 days a week. As one part of the world wakes up, the centre of trading focuses around that section of the globe and slowly shifts between financial centres as the day unfolds throughout the world.
Open 24 hours a day and 5 days a week, unlike stock or bond markets, the forex market doesn’t close at the end of each day. Instead, trading just shifts to different financial centres around the world. The day starts with the Sydney session and moves to Tokyo, London, Frankfurt and finally New York before it is time for Sydney to do it all over again!

A Market without Physical Markets
The financial industry in Western industrial countries basically has two systems, namely central operations for centralized trading and merchant networks without uniform fixed locations. Stock trading is bought and sold through exchanges. Like the New York Stock Exchange, the London Stock Exchange, and the Tokyo Stock Exchange, which are the main trading places of stocks in the United States, the United Kingdom, and Japan, the financial products that are centrally traded, have uniform requirements for quotation, trading time, and settlement procedures.

A trade association was established and a code of practice was established. Investors buy and sell the goods they need through a brokerage firm. This is “A Market without Physical Markets”. Foreign exchange trading is conducted through a network of merchants that do not have a unified operating market.

It is not like a centralized location of stock trading. However, the network of foreign exchange transactions is global and has formed an organization without organization. The market is connected with advanced information systems by means of mutual recognition.

Traders do not have membership in any organization, but must obtain the same Industry trust and recognition. This kind of foreign exchange market without a unified venue is called “A Market without Physical Markets”. The global foreign exchange market trades an average of $1 trillion a day. Such a huge amount of money is the completion of liquidation and transfer under the supervision of such a centralized location without a central clearing system and without the supervision of the government.

A zero-sum game
In the stock market, if a certain stock or the whole stock market rises or falls, then the value of a stock or the stock value of the entire stock market will rise or fall. For example, the price of Japan’s Nippon Steel’s stock falls from 800 yen to 400. The yen, so that the value of all Nippon Steel’s stocks has also been reduced by half. However, in the foreign exchange market, the change in the amount of value represented by the fluctuation of the exchange rate is completely different from the change in the value of the stock.

This is because the exchange rate refers to the exchange ratio of the two currencies, and the change in the exchange rate is also a decrease in the value of the currency. Another increase in the value of money. For example, 22 years ago, 1 dollar was exchanged for 360 yen. At present, 1 dollar is exchanged for 120 yen.

This shows that the value of the yen has risen, and the value of the dollar has declined. From the total value, it will change and will not increase the value. And it will not reduce the value. Therefore, some people describe that foreign exchange trading is a “zero-sum game,” or rather a transfer of wealth.

Quality and speed of execution
Forex brokers offer stable quotes and instant deals, and investors can trade in real-time market quotes, even when the market is at its peak, unable to close. In the futures market, the uncertainty of the transaction price is because all orders are combined through a centralized exchange, thus limiting the number of traders, the flow of funds and the total transaction amount at the same price.

However, every quote of the forex broker is executed, that is, as long as the investor is willing, the order will be executed! There will be no such situation where the trade won’t be executed with quote in market!

No trading commission
In the futures market, in addition to the spread, investors must also pay additional commissions or fees. All financial products have a bid price and a bid price, and the difference between the bid-ask price is defined as the spread or the cost of the transaction.

No middleman
Spot foreign exchange trading, unlike stock trading, has no middleman who charges high costs. In foreign exchange trading, customers can trade directly in the foreign exchange market, and they can complete the currency trading with a simple click of the mouse, eliminating the cumbersome middleman steps and making the foreign exchange transaction convenient and worry-free.

What Is A “Pip”?

A pip is the unit you count profit or loss in. Most currency pairs, except Japanese yen pairs, are quoted to four decimal places. This fourth spot after the decimal point (at one 100th of a cent) is typically what one watches to count “pips”. Every point that place in the quote moves is 1 pip of movement. For example, if the EUR/USD rises from 1.4022 to 1.4027, the EUR/USD has risen 5 pips.

“Stock indices have ‘points’futures have ‘ticks’, forex has ‘pips’.”

The monetary value of a pip can vary according to the size of your trade and the currency you are trading. FXCM demo accounts typically trade in increments or “lots” of 10,000. A pip in a standard demo account in EUR/USD is worth $1.00 per lot. If you were trading 3 lots, you would have 3 pips of profit or loss per pip the EUR/USD moves, and, therefore, $3.00 of profit or loss.

How Leverage Works

As mentioned before, all trades are executed using borrowed money. This allows you to take advantage of leverage. Leverage 30:1 for major currency pairs allows you to trade with £10,000 in the market by setting aside only around £334 as a security deposit.

This means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account.

While leverage can be advantageous in increasing your profits, it can also significantly increase your losses when trading, so it should be used with caution. Start trading in small sizes so that you don’t take on too much risk.

Leverage is a double-edged sword.“Like with profit and loss, the trading station keeps track of margin for you.