With Forex Trading
Discover the basics of forex trading with this comprehensive beginner’s guide. Learn all you need to know to start trading in forex market.
What is forex Trading?
Forex trading is the exchange of currencies to make a profit from fluctuations in the exchange rate. To open a trade, a trader must choose a currency pair, and the direction they expect the exchange rate to move. As the exchange rate between the two currencies changes, the trader can close the trade for a profit or a loss. More detailed information on how Forex trading works is here.
Forex trading is one type of Contract for Difference (CFD) trading. This is a contract between you and your broker to pay any difference in the price of the currency pair between opening and closing your trade. This means that neither you nor your broker need to hold any currency.
Other CFDs that you can trade include commodities, metals, equities, energies and many more.
All Forex trading is CFD trading, but not all CFD trading is Forex trading
What is the difference between Forex trading and stock trading?
When people think of trading, they often think of stock trading and believe Forex trading is almost the same thing. But this is incorrect.
Stock trading is the buying and selling of shares from individual companies. Forex trading is the simultaneous buying and selling of currencies to profit from the change in the exchange rate.
The Forex market is a global, decentralized, over-the-counter exchange and all transactions and participants are confidential. Stock markets are based at a single location and public records are kept of buyers and sellers.
Forex trading has a low cost of entry. To make serious profits, stock traders use large amounts of money, which is not an option for traders with limited incomes.
Forex trading is not investing. Forex traders never take ownership of the asset being transacted. With Forex trading, the trader is speculating on the future value of a currency pair and to call it an investment would be incorrect.
Understanding Currency Pairs
In forex trading, currency pairs represent the value of one currency relative to another. A currency pair is made up of two currencies, a base currency, and a quote currency.
The base currency is the first currency listed in the pair and is used to purchase the quote currency. For example, in the currency pair EUR/USD, the base currency is the Euro and the quote currency is the US dollar. The exchange rate between the two currencies represents the price at which one currency can be exchanged for another.
In this example, if the EUR/USD exchange rate is 1.2, it means that 1 Euro can be exchanged for 1.2 US dollars. Understanding currency pairs and how they are impacted by economic and political events is important for making informed trading decisions in the forex market.
How much do I need to start trading Forex?
Trading accounts can be opened for as little as 5 USD, though most brokers require a minimum deposit between 100 USD and 200 USD. But how much should you start trading with? The answer depends on how much you can afford and how much risk you are willing to take.
Risk management is a very important part of Forex trading and most serious traders agree that you should never risk more than 2% of your balance on a trade. If you have a starting balance of 100 USD, this means that you should never risk more than 2 USD on a trade.
Beginners should never use more than 2% of their trading balance on a single trade
Using the same formula, with an account balance of 2000 USD you can risk 60 USD per trade. Many beginner traders cannot afford to start with a balance of 2000 USD, but if you start with an account of 100 USD be aware that it is going to take patience and solid risk management to create a steady income stream.
Beginner traders should start with a minimum account balance between 200 – 500 USD. This allows traders to make small profits, while still maintaining a sensible approach to risk.
What is a trading signal?
A trading signal is a trade recommendation, issued by a professional trader or by a trading software/program. Forex signals provide all the information you need to take a trade on a given forex pair or other trading instruments, such as the opening price and opening time, the take profit target and the stop loss target.
Forex signals are live trading opportunities, which are sent through various means, such as SMS, other messages, or just showing on signal provider websites. Typically, forex signals provide the following information:
Long/Short Term Signals
Short term signals are normally traded within a timeframe of anywhere from 10 minutes to a few hours, and offer up pips ranging between 15 and 50 pips, based on the market movement. On the other hand, longer term forex signals are traded between 1 day and go up to a month and sometimes even longer.
These longer trades offer up a higher range of pips, from anywhere between 70-80 pips to 250 pips, and possibly even more, depending on market conditions. We at swish trading offers forex signals across a wide range of timeframes, suited for both short term as well as long term trading.
How to Start Forex Trading
The great thing about Forex trading is that everyone can do it. But just because everyone can do it, does not mean that everyone should do it. All serious Forex traders know that education, discipline, and strategy are essential elements of a profitable trading career. If you start trading Forex without these skills, you may profit from a few trades, but you will eventually lose.
Education, discipline, and
strategy are essential
If you prepare properly and you are ready to learn, Forex trading can be a great way to create a steady income. But, before we look at the more complex aspects of trading, let us look at the essential things you are going to need
A fast and stable internet connection
The Forex markets move fast, very fast, and if your connection is slow or drops out you are going to lose money. Winning trades can become losing trades in the blink of an eye. Many people trade on their mobile phones, but this should be used as a backup (or to check on open trades when on the move) and not as a primary trading platform.