Foreign exchange trading is when one purchases/ sells pairs consisting of international currencies. It is often referred to as forex or FX. In a nutshell, you just change one asset for an alternative and hope to benefit from the price changes.
This market isn’t like all the other markets. It doesn’t depend on one location. That’s why it works across all time zones. There is also a big diversity of tradable products that come through the network of banks and other international or domestic official bodies.
Things to know about FX
Forex is one of the most popular ventures for starting traders. This is because it provides great liquidity and easy access. Besides, to trade on forex, you don’t need to have huge capital. You can enter this market quickly and leave it any time you face unmanageable losses. FX works simply. Nevertheless, many beginners might be confused when starting to trade pairs. What is forex trading? What should one do to benefit? Which assets are available? These are the questions we are going to answer in the following recommendation regarding FX. Let’s get down to business!
The FX market depends on many factors. Currency pair prices can be impacted by global geopolitical and economic issues, domestic problems of certain institutions, the actions of big participants, and so on. It’s necessary to have a basic knowledge of the available assets. Here participants deal with currency pairs. You choose a pairing and purchase one asset and sell the other in hope that the currency you bought will increase in cost. Currency pairings are subdivided:
- Major pairs include the USD.
- Minor pairs – combinations of other global assets without the USD. Minor pairings can consist of Euro, Great Britain Pound, and others.
- Exotic pairs – the combinations of global assets with domestic ones. For instance, the USD/UAH (Ukrainian hryvnia) is an exotic currency pair.
When you take a look at the currency pairs, you should know that they consist of base and quote currencies. It’s quite simple to identify them. The base asset is the one that is cited to the left of the slash. Another currency is referred to as a quote currency.
What is the crucial difference and why should you be aware of this? In a nutshell, the base currency is the one you will buy and the quote currency is the one you will sell. The base currency is always 1, and it’s always the reference element.
For your better understanding, let’s take a look at a simple example. You trade the USD/EUR pair. You expect the USD to increase in comparison to EUR. In this case, you put a BUY order. On the contrary, if you believe that the USD will go down in comparison to EUR, you should put the SELL order.
This is the basic knowledge you should have in order to design an efficient forex trading strategy and be able to analyze the market.
Choose a forex broker
Trading is available via online forex brokers. Forex brokers are special platforms that provide access to foreign exchange and offer special tools that help analyze price movements.
Before you create a trading account with any broker, ensure that this is a reliable intermediary and that you are understanding the forex. Take your time to check whether the company meets the regulatory requirements of respectable financial institutions. This is a vital step since there are a lot of scams that can just steal your deposit.
If you found a regulated broker, make sure it doesn’t insist on taking aggressive and prompt steps. A forex broker should be an ordinary intermediary who earns on spreads and commissions.
To understand how a certain forex company operates and functions, you can read the reviews of other traders. Discover their positive and negative experiences to understand whether the trading conditions are acceptable and beneficial.
Practice on a demo account
Understanding the key principles of forex and having knowledge about this niche is good. However, you won’t gain real earnings without any practical experience. Find the platform that offers the possibility to trade on a demo account. These are special services that provide you with the possibility to act in real market conditions but use virtual money for this. These are free accounts that don’t require you to make real deposits. Thus, your losses will be virtual. This is a very useful learning tool because you can see which aspects of your trading strategy work and which should be improved. Remember that practice makes perfect!
Allocate a minimum capital
Once you’ve tested your forex trading strategy and skills on a demo account, you can make a real deposit. However, don’t be too outrageous. We recommend starting with a minimum investment. If you fund your account with a big amount of money, you can start making rash choices and lose all your capital. Remember about the risks. No one in the forex market is secure against losing money. Start with a modest amount and increase it over certain periods of time if you see that your strategy is effective and brings positive results.
Keep a record of everything
Last but not least, we recommend you keep a record of all your trades. This way you will be able to assess them later and see their cons. When you are aware of them, you have a great chance to avoid them in the future. Always learn from your previous lessons, no matter whether they brought positive or negative experiences to you.
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