Forex trading can be challenging for amateurs because of the unrealistic but typical newbie expectations. The global Forex market is decentralized, unlike stocks where trading occurs in a stock exchange.
Big banks, corporations and governments are the biggest players operating the FX market and can cause significant price swings. Below we discuss the best Forex guide for beginners and answer the question is FXTM a good broker?
How Forex Trading Works
Forex Trading entails converting one currency to the other. These traders trade with each other via a group of computer networks and dealers that create a market for their clients.
Forex Traders place currency orders and have different exchange rates.
How to Earn Trading Currencies
Forex trading is like any other business where traders earn by buying an item and selling with a profit. This principle applies in FX trading, but the main difference is that traders buy and sell currencies, not physical products.
Forex traders earn money trading if the following things happen;
- If they purchased a currency pair that increased value with time
- If they sold a currency pair that decreased value with time.
Many factors determine the exchange rates, including; economic data, central bank policy, and political events. However, all these factors narrow down to the price action, and visual people can predict future trends by reading price charts.
Forex Trading for Beginners
The main foundation of forex trading is to understand different currency quotations and each exchange rate’s representation. The Forex market has its language and alphabet, and you must learn it to maneuver the market. Below we discuss the main terms used in Forex trading.
- Currency Pair
Every currency is abbreviated in three words. For example, you will get the currency pair USD/EUR if you combine the US dollar and the euro.
- Exchange rate
The exchange rate is defined as the cost of buying or selling a currency for another. It informs you how much you require to purchase a base currency unit. Remember, currencies are quoted in pairs, meaning one currency’s value stays relative to the other.
The exchange rate depends on the demand and supply law.
Pip means Price Interest Point and is the least price made by a currency exchange rate. The Pip is the last decimal in a quote.
- Ask Price
The asking price is the cost of a currency pair. Remember, these pairs use a two-piece system, explaining why you get two prices after pulling the order window.
The term spread is the difference between the asking price and the selling price. The Forex spread’s size relates to market volatility and liquidity.
The Forex market does not require traders to have the whole trading amount. They only need to cover losses using a small portion of their trading sizes.
Forex trading is a lucrative activity, especially if you master its basics. The above article has discussed a step-by-step guide for beginners willing to join this field.