What is the forex or foreign exchange market? How can you trade forex as a beginner? These are questions asked by many new traders, but the answer is simple. Forex is the global financial market through which traders and investors trade currencies, commodities such as oil, and stock CFDs from leading stock exchanges, precious metals such as gold and silver, and various digital currencies. The forex trading market is the largest financial market globally, where nearly $5 trillion is traded daily, making it one of the most liquid markets globally.
But how does the forex trading process work?
The forex markets allow traders and investors to buy and sell currencies, which affects the values of the affected currency pairs. For example, when traders buy the euro, they usually sell another currency such as the dollar to buy euros. Therefore, the euro’s value will rise while the dollar’s value falls as it is being sold.
The most significant moves in the Forex markets are driven by global institutions and governments that need large amounts of one currency to settle their transactions. Retail traders can profit from the moves made by governments by buying currencies that are rising and selling those that are falling. Some popular currencies include the euro, the US dollar, the Japanese yen, the pound, and the Swiss franc, which are typically paired against each other.
Is forex trading risky?
The answer is yes. Forex trading carries a high level of risk, but there are different methods that you can use to reduce and limit your risk exposure as a trader.
1. Always have an updated technical analysis perspective of the markets.
2. Constantly follow the fundamental news and events that affect the markets.
3. Stick to the right trading plan based on your personality.
4. Seek advice from expert traders who are willing to share their expertise.
5. Design a trading strategy that works for you.
As a beginner trader, it is advisable that you open and trade on a demo trading account with a trusted broker before opening a live account and risking your hard-earned cash. Trading on a demo account will familiarise you with the Forex markets and your broker’s services and will allow you to test your trading strategy. Once you are successful on a demo account, you can open a live account and trade real money.
Factors affecting the online trading market (Forex)
Some factors tend to impact the Forex markets as a whole as well as on individual currency pairs. The main factors are global political and economic events, especially in the largest economies such as the US, China, the EU and the UK, which tend to have a ripple effect across the financial markets.
The forex market is connected to all countries given that most countries trade with each other, which is why they are affected by political and economic events. The market operates 24 hours, five days a week, starting with the opening of Australian markets, then Tokyo, then London, and the New York markets, with the most active sessions being the London and New York sessions.
Forex trading steps
To invest in the online currency trading markets, you must follow a few steps to increase your chances of success as a trader by limiting your losses and increasing your profits.
1. Learn the principles of foreign exchange trading.
2. Know how to predict prices using support and resistance levels.
3. Learn how to use the MetaTrader platform.
4. Learn technical analysis and how to use indicators on charts.
5. Know how to identify the correct entry points to maximise your profits.
6. Learn how to minimise your risk exposure using proper risk management.
If you follow these steps correctly, you will gain extensive experience in trading the Forex markets, which you can use to become a consistently profitable trader. It might take time to build these skills, but you can use them for the rest of your life once you have these skills.
Advantages of forex trading or online trading (Forex)
Trading the forex or foreign exchange market has many advantages that are different from other investments, so they have attracted a wide range of traders and investors. Here are a few advantages of Forex trading:
1. Forex markets can be traded 24 hours, five days a week.
2. You can start trading with little capital.
3. The forex markets are highly liquid financial markets.
4. You can quickly profit from falling and rising prices.
5. You can trade from anywhere in the world at any time.
6. You can trade through a demo account and a real account.
7. You can use leverage to trade positions larger than your account.
8. There is a wide selection of currency pairs and other instruments.
Therefore, the Forex markets are a very distinctive market for traders and investors worldwide, given its many advantages over other asset classes.
Online trading strategies (Forex)
To achieve success in trading the Forex markets, you must follow a trading strategy aligned with your trading method, strengths and weaknesses. There are numerous strategies used by traders to trade and profit from the global financial markets, including:
1. A price breakout strategy set at a designated resistance zone.
2. Strategies based on the highs and lows.
3. Other breakout strategies.
4. The Recovery Zone Strategy.
5. Automated Strategies.
6. Moving Average Indicator Strategies.
7. Bollinger Bands Indicator Strategy.
8. Quantities double strategy.
Therefore, you must carefully analyse the state of the markets from all angles, whether it is the political angle or the economic angle, to ensure that you choose a trading strategy that suits you. Your strategy should also fit the current state of the markets to help maximise your profit opportunities and limit your losses.
Forex trading via brokerage firms
Brokerage firms (forex brokers) are spread worldwide to help traders and investors access the global financial markets. Brokers allow traders to trade different instruments, which they could not access otherwise. Investors can trade commodities, currency pairs, stocks, and other instruments for a small fee. You should choose a Forex and CFDs broker who can meet your trading needs based on the following criteria.
1. Globally respectable licenses such as the FCA and CySEC licenses.
2. It has integrated customer support service.
3. Provides trading ideas and advice on how to trade the financial markets.
4. Engages respected trading experts to teach its clients about the markets.
Therefore, you must follow all the steps outlined above to become a successful trader. You must understand how the fundamentals, including political events and economic releases, affect the markets and specific currencies. You must also understand technical analysis to identify the best trading setups and opportunities. You should also know how to minimise your risk exposures and trade the appropriate size for your account. Doing all the above consistently will help you become a consistently profitable trader.
High-risk investment warning: Trading Foreign Exchange (Forex) and Contracts for Differences (CFDs) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Any opinions, news, research, analysis, prices or other information contained in this presentation is provided as general market commentary and does not constitute investment advice.