One of the most common types of investment is forex trading. You need to have particular expertise, though, in order to truly master this “game.” We’ll explain the fundamentals of forex trading for beginners in the article that follows, making it easier for you to comprehend what it is. What traits does the forex market possess? …
What is Forex?
Forex or FX is an abbreviation of Foreign Exchange. In a broad sense, this is the process by which money flows from one country to another with a certain conversion rate (also known as exchange rate, foreign exchange rate). This can be done directly or through indirect activities using money sources such as purchases, travel, etc.
In fact, at the present time, participants can exchange rates of 600 different products such as commodities, precious metals, stocks, cryptocurrencies, indices, etc. However, in the content. In this sharing, we will refer to Forex in a narrow sense. That is, the process of direct exchange of cash flows and currency rates. Specifically, you will evaluate the volatility of exchange rates between currencies and decide to buy or sell the currency of your interest. Then, over future arbitrage, you can either profit or lose.
Example: At the moment, the exchange rate between the US dollar and the British pound is 1:0.72 (1 USD = 0.72 pounds). You predict this rate will decrease in the next two days so decide to spend £ 2.88 to buy an additional 4 USD. After two days, the possible cases are:
- If the volatility is as expected, for example USD/ £ is 1:0.8, selling 4 USD will give you £3.2 and a profit of £0.32.
- If the volatility is wrong from the prediction, for example USD/ £ is 1:0.6, when selling 4 USD, you will gain 2.4 pounds and lose 0.48 pounds.
- In case USD/£ stays the same, you break even. However, this is often unlikely because the exchange rate will be constantly fluctuating.
What is the Forex market?
The Forex market or Forex market is a place where anyone can make FX transactions. The FX market has some of the following characteristics:
- It is a global trading market
First, this is a global trading market. That is, no matter where you are in any country, this region can participate. This trading market is open 24 hours a day, 5 days a week (Monday to Friday).
The FX market is open international time, open in Wellington, New Zealand (on Monday morning). It then moved on to markets in Asia, including Tokyo and Singapore, and finally London before closing in New York on Friday night. This is one of the reasons why Forex trading becomes the most attractive investment channel today.
- The market with the largest market capitalization today
If you don’t know, the market capitalization of the Forex trading market is in the trillions of dollars. In just one day, the average total trading volume is estimated to be more than 6 trillion USD. These are extremely large numbers, many times more than stocks.
- It’s a free market
Currently, the FX market is not controlled by any government. More precisely, no country can “force” the cash flow to change at will. Because, currency represents the strength of the national economy. However, the government can monitor and manage the activities of Forex trading floors by building a legal corridor to ensure transparency and fairness.
What is Forex Trading Platform?
After knowing Forex and the Forex market, let’s learn about Forex trading platforms. Forex trading floor is a place to provide information and services related to Forex trading activities .
In essence, this is only a place to reflect the fluctuations of exchange rates on the global FX market, but it is not built with the ability to affect the changing trend of money flow, the trading trend of traders. FX investment (trader).
In a nutshell, if the Forex market is a general trading activity, the FX exchange is a market in the market. Currently, Forex is an OTC decentralized exchange. That is, the exchanges make exchanges, trade online instead of fixed.
This creates a great advantage for the parties involved because they can “ingame” anytime, anywhere. However, the point that traders, especially new players should note, is to find reputable and quality brokers, and avoid participating in fraudulent Forex trading floors. Some brokers you should join are: MetaTrader 4, MetaTrader 5, cTrader,…
Guiding Forex trading for beginners
In the forex trading for beginners guidance, we will share two important things. One is the trading mechanism, the other is the Forex trading process.
Forex trading is done on the basis of predicting exchange rate movements of foreign currency pairs and making reasonable buying/selling decisions to make a profit. It sounds pretty simple, but doing it right and making a profit is not easy.
First, the currency value conversion rate of each country is influenced by many factors including: economic strength, state policies, etc. The judgment of exchange rate increase/decrease should be considered on reference, sum of these factors.
Second, the object of each transaction is currency, in pairs. Each currency pair has a “base currency” in front of it and a “counterweight” behind it. The base currency is the currency that remains constant when determining the price of the currency pair. For example, in the EUR/USD pair, EUR is the “base currency” and the USD is the “counterweight”.
Third, in the reality of Forex trading, not all currencies can be “mixed” with each other. Currently, there are 3 types of currency pairs to trade:
- Major currency pairs (Forex majors): EUR/USD, GBP/USD, AUD/USD,…
- Cross pairs: EUR/JPY, GBP/JPY,…
- Exotic Pair: USD/DKK, USD/SEK,…
Each type of currency pair will have different advantages and disadvantages in terms of trading power, liquidity or simply can be traded or not. You need to learn these factors carefully before entering a trade.
Forex trading process is done through the following steps:
- Step 1 : Find a reputable Forex broker.
- Step 2 : Register your Forex account.
- Step 3 : Download trading software MT4, MT5,…
- Step 4 : Deposit money into your account.
- Step 5 : Make the transaction.
Select a currency pair => Decide on an order (buy/sell) => Monitor trading position => Close trading position.
- Step 6 : Finish the transaction.
If the transaction is profitable, you withdraw your money, if it is burned, continue the rotation from step 4 onwards.
Above are the sharing of Forex trading as well as forex trading for beginners guidance. Hopefully, through the article, you have the most basic knowledge about this potential investment market. Please visit forexsfxgroup blog daily to update more useful information about finance and business!