It is always best to understand the risks involved in forex trading and how the leverage increases the potential loss of your capital. The investments are very risky and are not suitable for everyone. When you get involved in forex, do not invest all of your money, as you can lose it all within a few seconds if you do not know what you doing.
It is always wise to seek advice and find experienced trustworthy people to help you with the basics all the way up as you climb up the ladder. Knowledge is power and thus it is best to read and understand what you putting yourself into. Do not rush to trade, it might sound exciting at first, and a lost trade doesn’t feel exciting.
This financial market allows you to trade not only currencies but also CFDs, indices, and commodities.
1. Getting Started
Forex Trading – can be very complicated for a lot of people, which may as well include me. I cannot begin to explain how I managed to blow all of my accounts and bear in mind, all those accounts were free NON DEPOSIT BONUS accounts. If you keep blowing your account, you’d wanna quit trading, and that’s just how I’ve felt so many times.
2. Learning and understanding Forex
Yes, forex is very risky, your capital is always at risk – only if we can bear that in mind – The name FOREX – is derived from the words – (For)eign (Ex)change, which is the exchange of one foreign currency for another – and that’s the basic business of forex trading. However, it doesn’t stop there, as one dwells in deeper – you begin to understand the complexities of Trading in the Financial Market. (See my blog – What is Forex Trading)
3. Basics of Trading
In Forex, we have buyers and sellers – this transaction is usually followed by another related business known as SWAP, but that’s another topic for another day. In forex, a buy is referred to as “go Long” and a sell is referred to as “go Short” – having said that – a Buy position is based on ASK and a Sell position is based on the BID.
4. Opening a position
Forex is traded in pairs (currency pairs) – The first currency is called the base, and the second currency is the quoted or term currency. Remember that any position you take whether it’s a sell or a buy its focus is on the base currency. When you sell – you sell the base currency and buy the term currency when you buy – you buy the base currency and sell the term currency. (Understand the importance of reading quotes in forex).
Say you have a currency pair EUR/USD. Remember that traders go long or short. If you believe the EUR will be stronger than USD, you Buy the EUR – in this case, the EUR is bullish whereas the USD is bearish. If you believe the EUR will weaken, as a trader – you sell the euro and thus you will profit.
6. Terms Used in Forex Trading
I have reasons to believe that we have discussed in short detail What is Forex Trading – now I wanna get into terms used in Forex, some of which might sound familiar.
In forex, as a trader, you need to choose a broker that’s honest and trustworthy – and preferably choose a broker that’s regulated. You need a broker in order to start trading. A broker what’s standing between you and this huge financial market that has a turnover reaching US$ 4 trillion if not more. A broker gives you a path to currency traders, this allows you access to the trading platforms – where you can sell/buy your currencies.
This can be professionals, a group of people or amateur who individually trade behind a computer screen at the comfort of their own home.
Pips are the points calculated to confirm your loss and/or your winnings. Pips are usually the last 2 digits after the decimal point. If 1 pip = $1 then 10 pips would be $10.
The minimal traded amount is referred to as a lot. There are three types of lots – Micro (0.01 lot -1000 incremental volume units, eg 1000, 3000, 5000), Mini (0.10 lot -10000 incremental volume units, eg 20000, 30000, 80000), and Standard(1 lot -100000 incremental volume units, eg 300 000, 900 000, 1200000).
Leverage is one of the best benefits of forex, however, this also makes trading very risky. In forex, you do not need $100 000 to trade one standard lot. if your initial deposit is $1000 with a leverage of 1:500 (this means your borrowed capital amounts to $500 000). This means your broker invests $500 000 for you, thus you can trade pairs worth a lot with a minimal deposit.
It is best to take full advantage of most of the trading orders to get the best out of forex. Understand the concept of a Stop Loss, of which it minimizes the potential capital loss, whereas the Take Profit is a type of order used when your profit target is reached, locking your profit, and the trailing stop, is a technique used to move the stop order to lock your profit – and minimizes potential loss.
Hedging is a type of technique used to Buy and sell the same currency pair to minimize potential loss by locking your floating loss.
Averaging is used to buy/sell the same currency pairs at the same lot sizes to minimize potential loss and hopefully reach BREAK EVEN POINT (BEP) – this is done after having lost a trade by a few pips.
In order to open an order, there’s a required margin needed temporarily held by your broker, up until the order is closed, then after the margin will be credited to your balance again.
There is a liquidation procedure which is faced by so many traders around the world, this procedure is mainly executed by the broker, this happens when the trader’s margin falls below your broker’s minimum margin requirement, this also plays a role in preventing your account from reaching a negative balance.
This is realized when your broker starts to close your open orders one by one until there’s enough margin to handle your losses.
It is important to understand Forex Quotes – there are two prices in every currency pairs, namely: Bid and Ask, a BID is the selling price while Ask is the buying price. The difference between Bid and ASK is called a spread.
It is best to know how to handle risks in forex by using all the techniques, strategies and testing a few tools, also, having a trading plan works best when you are headed to a more professional trading environment. Know your target, trading days, hours, strategies, techniques used, and get to understand the importance thereof.
The Market is very liquid, and thus, one can trade whenever you want when it’s convenient for you as long as the market is open. The market is open 24 hours a day for 5 working days.
The freedom to open and close position anyhow you want makes the market very liquid and an interesting environment that everyone might be interested in.
These tools will help you on the technical side of the analysis. Helping you as a trader to make a through the speculation of the market. There are a number of indicators used in this market, and such tools can be very useful.
The Market is analyzed by one of the two ways, technically and/or fundamentally. Technical Analysis involves tools such as Indicators whereas the fundamental analysis involves news announcements.
Swap is the related business that’s followed after one has opened a position in forex. The Swap can be the interest earned / interest paid when a trader has opened a position for over 24 hours.
It is wise to open a demo account as a beginner, to learn all the basics of trading and this is a great way to learn forex trading risk-free.
MT stands for Metatrader – and it is the most used trading platform in the world. MT4 is the most popular whereas MT5 is still seen as a newer version.
The difference between the two is the layout, however very similar. There are more features on MT5 than there is on MT4. it’s best to know which features will be beneficial for you. If MT4 has been working well for you, there isn’t a need to upgrade.
7. Are you ready to Trade?
Remember – Forex is not some sort of a game or a gamble, this field is more professional than you can ever think. Have a trading plan, and learn to Analyze the market. Every now and then Open the Economic Calendar and see the news announcements.
There’s nothing wrong opening a demo account as a beginner – in fact, it is one of the best ways to learn how to trade, and be careful who you trust your money with. Be wise when choosing a broker.
8. Ready to Trade with Real Money But Risk-Free?
I suggest the FBS $50 No Deposit Bonus (If you do not like the free bonus with all their complicated trading conditions, FBS isn’t that complicated) – But there are a number of other brokers offering the free deposit bonuses. You can try them all, and use all of the knowledge acquired.