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Learn Forex Trading - Beginner's Guide

 Learn Forex Trading - Beginner's Guide

Learn Forex Trading - Beginner's Guide
Can I teach myself how do you trade forex

Introduction

Pros and Challenges of Trading Forex 

Base and quote currencies

Forex Pair Categories

What is the Spread in Forex trading?

How to Read a Forex Quote?

Common Forex Terms

Different Ways to Trade Forex


Introduction


The Forex market is an excellent option, but it is deeply misunderstood in the midst of a continuous wave of deceptive marketing campaigns. It is expensive but has become a requirement for those who want to trade for a living. 


Low capital requirements and high leverage make it affordable for everyone, which increases its attractiveness. 


Forex trading is also ideal for automated trading solutions, while everything remains in place for successful trading, forex traders should treat it as a profession rather than a hobby if they want to succeed in it. 


The majority of retail Forex traders fail. The main reason is that new traders are replacing the need for education with unrealistic profit expectations. Another big mistake is trading with insufficient capital and using leverage without managing risk. 


The Forex market offers traders frequent trading opportunities, but dedication and a professional mindset must prevail to take advantage of them.


Pros and Challenges of Trading Forex 


Before new traders determine whether forex trading is right for them, traders must take into account the pros and cons of forex trading. It can provide the insight needed to make an informed decision.


Beginner Forex traders should understand some of the elements before they get started in Forex trading.


We wish the list below provided an objective summary of these items


Pros of Forex Trading:


• The forex market creates countless trading opportunities every day، as it is the most liquid financial market. Traders can make money either way, and it offers all trading strategies with excellent trading conditions.


• Low capital requirements and high leverage make it affordable for traders of all sizes of portfolios. Most online brokers have low or no deposit requirements, allowing clients to deploy a portfolio-building strategy that suits their needs.


• Limited selection of assets for just over 100 currency pairs provides more supervision and focus on Forex trading. Most traders prefer to trade only a few currency pairs to avoid overexposure, as many currency pairs are correlated.


• Forex trading is decentralized and takes place 24/5 and begins informally with trading in Australia and ends with trading in New York. 


London remains the dominant commercial center, emerging hubs consist of BRICS and ASEAN member states, and other major hubs include Tokyo, Zurich, Hong Kong, Singapore, Frankfurt, and Paris.


• Unlimited educational content can be accessed for free، providing valuable lessons. It includes currency trading for dummies courses, more details on how to trade forex lessons, and specific versions such as UK Forex Trading for Beginners.


• A rich support infrastructure is available for novice Forex traders، including tens of thousands of analysts، signal providers، and account managers.


• Forex trading is ideal for automated trading solutions, which reduces the gap between individual and professional traders. While it is expensive, everyone who is interested in trading forex to earn a living should consider it an investment.


Forex Trading Challenges:


• One of the most misunderstood and misused trading tools is leverage. The majority of market participants offset them with trading losses in the retail sector. 


It cannot be emphasized enough that the lack of risk management leads to losses and is not a leveraged trading product.


• One of the most important challenges is the amount of misinformation، especially for new retail traders. 


Still, other challenges remain such as false promises of profits from small portfolios, lack of knowledge, and limited time spent trading. They create dozens of new traders who find nothing more than losses and disappointments.


• Forex trading is considered one of the least respected professions, as not many people consider it as such. 


They take it wrong and fail to understand that successful Forex trading is one of the most in-demand professions.


• New Forex traders give up the learning part of foreign exchange trading، ignore risk management، and prefer to use limited resources for trading. 


Forex trading requires an understanding of basic aspects such as geopolitical events, central bank policy, and economic reports. Technical indicators for forex trading are equally important, and how they interact and complement the other is the most defining aspect of a profitable Forex trader.


• Scams and fraud on new retailers, ignoring the facts. They follow social media marketing campaigns and fall victim to avoidable misconduct, including from dozens of brokers.


Base and quote currencies


Forex is traded through currency pairs, which consist of two currencies, for example, EUR / USD. The first currency is the base currency, and the last one is the quote currency. 


The price of EUR / USD 1.2220 means that for 1 euro, traders will get 1.2220 dollars. Traders always buy or sell one currency for another, which forms the basis of forex trading. 


A buy order, or buy in the EUR / USD pair, will generate profits if the price goes up and lose money when it falls. An order to sell or short sell in the EUR / USD pair does the opposite and gives traders a profit if the price falls and losses if it increases.


Forex Pair Categories


Currency pairs in the Forex market fall into three distinct classes, majors, minors, and exotics. Most major currency pairs remain pegged to the US dollar, the world's reserve currency. The three exceptions are EUR / GBP, EUR / CHF, and EUR / JPY.


Therefore, the ten major currency pairs consist of EUR / USD, the most liquid currency pairs in the world, GBP / USD, USD / CHF, USD / JPY, the three commodity currencies USD / CAD, AUD / USD, and NZD / US dollar, and three pairs. 


Non-US currencies EUR / GBP, EUR / CHF and EUR / JPY. Most of the traders prefer the ten, as they remain the most liquid and carry the lowest spreads. 


It is suitable for short-term trading strategies such as scalping and accounts for more than 85% of the total daily trading volume.


Minor currency pairs consist of any non-USD pairs between the major currency pairs. Some examples include GBP / CHF, AUD / JPY, and AUD / NZD. They are less liquid, have a lower volume of trading, and profit is clearly higher. 


They offer excellent opportunities, but traders must post different strategies. Exotic currency pairs represent all other assets in the forex market. USD / BRL, USD / INR, USD / TRY, USD / SEK, EUR / PLN, EUR / ZAR and EUR / CZK are seven examples. 


Emerging market trading offers excellent cross-currency diversification trading and access to higher interest rate environments for carrying trade but comes with unique combinations of risks and challenges.


What is the Spread in Forex trading?


The spread in forex trading refers to the difference in the buy (bid) and buy (ask) price of a currency. The asking price is always higher than the bid price, traders face a loss when opening a position.. 


Brokers apply profit margins to currency pairs, which represent their profits. The initial spread for EUR / USD, which is derived from supply and demand on the interbank market, is usually between 0 pips and 0.1 pips. 


Forex brokers that deploy an ECN implementation model provide clients with access to it with a commission charge per volume. 


We recommend ECN trading to most traders, as it enables all trading strategies, and most Forex brokers offer a volume-based cash discount program, which reduces the ultimate forex trading costs.


Forex market makers offer commission-free trading with higher spreads. The competitive rate is 0.4 pips for the EUR / USD pair, which has the lowest profit due to the liquidity and frequency of trading. 


Anything up to 0.7 pips is acceptable, while traders should avoid anything higher than that. The spread of foreign exchange trading remains one of the most important costs of direct trading. 


On the base account denominated in USD, 1.0 pip in EUR / USD equals $ 10. So, if the EUR / USD price moves from 1.2220 to 1.2221, the trader who bought this currency pair has a floating profit of $ 10, and the trader has a floating loss of $ 10. 


Buying 1 lot of EUR / USD at 1.2220 with a difference of 0.7 pips will show an immediate loss of $ 7 without the price action.


How to Read a Forex Quote?


Reading forex quotes is simple and straightforward. Each of them consists of two values, sell (bid) and buy (ask), while the difference is the spread. 


For example, EUR / USD, the Euro is the base currency, and the US Dollar is the quote currency. Traders who want to buy 1 EUR in US dollars need $ 1.22389, the asking price, to do so. 


Those who want to sell 1 euro will receive $ 1.22382, the bid price. When there is only one value, it always indicates purchase (demand).


Long short


Buying and selling in the forex market is an exchange of the base currency for the quote currency, hence the name of the foreign exchange market, usually abbreviated to Forex or FX. 


Forex traders can benefit from the price movement in either direction. Those who want to buy a currency pair will do so at the buy (ask) price and those who sell at the ask (bid) price.


A buy, long or long position refers to buying a currency pair. Merchants who buy will do so at the Ask (Ask) price offered.

 

Selling, selling, or taking a short position refers to selling a currency pair. Merchants who sell will do so at the advertised (bid) selling price.


Flat or Square


Stable forex traders are those who do not have positions in the forex market, which means that they are not exposed to price action. Quadrature is the closing of the open position, which leaves the portfolios fixed. 


Each industry has unique terminology that often confuses newcomers. They are usually covered by a forex glossary, which proves the best resource. Numerous forex guides that traders can refer to for assistance.


Common Forex Terms


This allows new traders to better understand the educational materials and speed up the learning process. It is to understand the most common Forex terminology and thus reduce the learning curve.


Points, Shares, and Margins


The pip is the fourth decimal point in quotes for a currency that is not related to the Japanese yen, or the second decimal point in rates linked to the Japanese yen. 


In the EUR / USD example, given the selling price of 1.22382, figure eight is a pip. An increase to 1.22382 leads to a 1.0 point advance.

 

An increasing number of Forex brokers offer five decimal rates, known as pipettes. Each drop consists of ten pipettes. The price move from 1.22382 to 1.22383 equals one pipette. 


Since the crude spread for EUR / USD is 0.0 pips, which means that the bid (bid) and buy (ask) prices are identical, the smallest quoted increase is 0.1 pip or 1 pipette.

 

Currency sizes are expressed in lots. 1 lot is equal to 100,000 currency units, and if a trader sells 1.0 lots in the EUR / USD pair, he is referring to the exchange of 100,000 euros for the US dollar. 


In other words, the trader exchanged € 100,000 and received $ 122,382, using the EUR / USD example. On the base account in USD, 1.0 pip against 1.0 lots of EUR / USD equals $ 10. 


A small lot is 10,000 currency units or 0.10 lots, while a micro lot is 1000 currency units or 0.01 lots, which is the minimum trade size for most brokers.


Since forex trading is available on margin accounts, traders do not have to pay the full amount of the position value, but only the required margin. 


Margin requirements depend on the currency pair and the broker's jurisdiction. The European Union forced the brokers to take a non-competitive stance, limiting the leverage to 1:30, equivalent to a margin requirement of 3.33%. 


The UK may revert to the 1: 500 standard after the end of the Brexit transition period. It is available in Australia and all other trade-friendly regulatory environments and has a margin requirement of 0.50%. 


Instead of requiring $ 122,382 a transaction, the trader should have the required margin of $ 611.91, or 0.50%. A 0.01 lot trade requires $ 6.1191, allowing traders with relatively small deposits to trade forex.


What is a bid?


The bid is the selling price of the currency pair. It is almost always below the asking price except for the ECN broker in times of extreme market turmoil. 


Traders buying a currency pair will exit their positions at the bid price, while traders who sell will enter at the bid price and exit at the asking price.

 

What is Ask?


Ask is the buy price of a currency pair, and is always higher than the bid price. Short sellers in a currency pair will close their positions at the asking price, while sellers with long positions will do so at the bid price.

 

What is the spread?


The spread is defined as the difference between the bid and asks the price., they include the middleman. At ECN brokers, traders have access to the raw spreads available on the interbank market, which are obtained from multiple liquidity providers.

 

Risk / Reward Ratio


The risk/reward ratio displays the acceptable risk of a specific reward. For example, if a trader places a take profit at 50 pips of a Forex (bonus) trade and places a stop-loss order at 20 pips (risk), then the risk/reward ratio is 1: 2.5. 


Divide the potential profit by the downside potential. Most traders seek minimums between 1: 2 and 1: 3.

Learn Forex Trading - Beginner's Guide 1
How do you trade forex for beginners?


Different Ways to Trade Forex


Many methods of foreign exchange trading, investment, or speculation, or trade forex. The next four points represent most of the daily trading volume.


1. Futures Contracts - Currency futures contracts are contracts that establish a specified exchange rate on a future date and a commitment to delivery. 


It is well-regulated and less liquid but allows companies to control expenses. It first appeared on the Chicago Mercantile Exchange (CME) in 1972.


2. Options - options contracts give the holder the right but not the obligation to obtain the base currency pair on a specific date on the expiration date. Traders often use options to hedge their positions.


3. ETFs - ETFs entered the scene in December 2005, when Rydex, now Invesco, launched the Euro Currency Trust. 


ETFs provide traders with passive assets to participate in the forex market. It can consist of a single currency or a currency basket.


4. Spot FX - This is the essence of the decentralized forex market, while the above three trade-in central markets with regulatory oversight. 


Forex spot is an over-the-counter (OTC) product, traded 24/5, and refers to the spot exchange of a currency pair at market rates.


Forex market analysis


Forex market analysis is one of the most important, frequent, and required tasks in foreign exchange trading. Successful traders use technical analysis, fundamental analysis, or a combination of the two to determine trading opportunities, entry levels, stop-losses, take profit values, and exit prices. 


You must understand both and learn to use them together, which will improve your forex trading results.


Technical Analysis


Technical analysis uses past price action, chart pattern formation, and sports indicators to determine future moves. It is very suitable for short term trading strategies but requires good research and trial and error testing. 


Automated trading solutions are excellent for assisting traders with technical analysis in the form of an advertisement that forms the basis of quantitative trading.

 

Fundamental analysis


Fundamental analysis is optimized for long-term patterns and consists of geopolitical events, central bank actions, and economic reports. 


All aspects remain unpredictable as analysts attempt to determine the intrinsic value and currency pairs with disconnected data communication. The economic calendar is one of the tools most used during the process.


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