This article introduces the basic concepts of forex trading, how it works and how you can get started. The following brief guide is geared towards anyone that is new to forex trading and wishes to explore the FX market. The guide will also provide a basic foundation of the underlying principles involved.
If you’re interested in entering the exciting world of forex trading, it is important to remember the following:
- Trade within your budget only.
- The forex market offers many profitable trading opportunities 24 hours-a-day.
- Learn more about the different currency pairs before trading.
- Be sure to partner with a reputable and reliable broker.
- Take the time to practice your trading strategies on a demo trading account.
After getting a clear picture of how the forex market works, you will be ready to begin trading.
Introduction to Forex Trading
Simply put, the foreign exchange market involves one currency being traded for another. Currency values are of major importance worldwide as money from different countries and unions must be exchanged for the purpose of international trade. For example, a person living in the US who wants to buy cheese from France will have to find a way to pay the seller of the cheese in Euros (EUR). What this means is that the importer of the French cheese into the US, will have to exchange their US dollars into the Euro equivalent at some stage to complete the transaction.
The same principle applies to travel as well. An English tourist visiting Kenya looking to venture out on a safari, cannot simply pay in Sterling. That’s because the GBP is not a locally accepted currency. The tourist would therefore have to trade their GBP for the Kenyan Shilling at the prevailing exchange rate. Since the value of different currencies are constantly fluctuating, a forex trader can profit by buying and selling those currencies if they can correctly predict its imminent change in value.
Define your Forex Trading Goals and Style
When venturing into the world of forex trading, it is essential to be aware of what it is that you would like to achieve. Then, align your goals and trading methodology to ensure that you are able realize those objectives. Every style of forex trading requires a different approach and comes with a different level of risk. For example, if you are nervous about going to sleep while having an open position, you may be better suited for day trading. On the other hand, if you feel you would benefit from a currency appreciating over a longer period of time, you may want to consider long-term, or ‘period’ trading.
CHOOSE A BROKER AND PLATFORM THAT SUITS YOUR STYLE
It is important that traders select a forex broker who provides a trading platform that will allow them to optimize their trading strategy. It is also of utmost importance that the forex trader choose a reputable broker, which means that they must take the time needed to research different brokers. The trader must know the policies of their broker and what type of financial instruments and tools they offer. For example, a broker who offers exchange-driven market prices is different than one involved in the spot market or over-the-counter trading. Reading each broker’s online profile will help you gain insight into their trading policies.
To successfully trade forex, like any other financial investment, it is important for the trader to avoid being overzealous or overly cautious. Instead, take calculated risks. Whenever the market does not move as the trader expects, they should be patient. However, when a potentially profitable trade presents itself, decisive action should be taken. By following these steps and continuously practicing, the trader can become more refined as well as more confident in their financial decisions.