What is Forex? Your #1 Guide to Forex Trading

Online trading requires you to be versatile in all the trading instruments if you hope to succeed. This means you need to educate yourself in all the assets that you place trades on and diversify your portfolio. This diversity spreads out your risk and ensures you stand a greater chance of turning a profit on your investment. One instrument that you need to be well-versed in is Forex trading.

To put it simply, forex stands for Foreign Exchange. This is where currency exchange happens on a global scale. Due to different countries using various currencies, then there is a need to exchange one for another, especially when you're traveling overseas. The market for Foreign Exchange is one of the biggest in the world and experiences trades in the Trillions of dollars daily. This makes it one of the most liquid markets that can process even large orders in a matter of seconds.

The good thing about Forex trading that attracts most traders is the fact that it has low commissions and spreads. This makes it easy for even beginners to trade due to the low amount they require to get started. Anyone who has even the most remote interest in trading has come across the term forex at one time or another. This is where all the currencies in the world are traded facilitating exchange which is vital for the survival of global economies. No business or foreign trade can exist without currencies being exchanged which makes this trade very crucial to all people whether they realize it or not.

The one important fact to note about forex is there is no focal point where the trade occurs. All transactions are online where the trading in currency occurs. This is what is referred to as OTC (Over-the-Counter). All trades happen through computer networks that are connected in all corners of the globe and the market never closes. It's open for traders' 24/7 but only for 5 ½ days a week with trading happening in the major financial powerhouses of the world. These are Hong Kong, Tokyo, Zurich, London, Singapore, Sydney, among others.

Differences in time of day make the market active throughout.

How Does Forex Work?

A while back forex trading only happened when someone needed to exchange currency when traveling from one country to another. You exchange the money from your country with that of the country you're traveling to using the current rate of exchange. This is not the fact today even though it still happens as forex trading has evolved to an investment instrument. It has become so famous that many traders have it as part of their online investment portfolio.

If you have any interest in investing in forex then the best thing is to start by learning what it is and how it works. The truth is you're setting yourself up for failure if you don't take the time to learn about it before you start trading. With forex, you get to speculate on the fluctuating currency values always between two countries and not more than that. No matter how simple it might seem, you shouldn't go in blindly. Take your time to learn how it works and start placing trades slowly as you improve your skills. The rate of failure in this is very high mostly due to lack of proper training and over-confidence.

Getting it right from the start saves you from walking away with nothing. The first part of forex trading that you have to learn is how to use the leverage for forex trading. The leverage is crucial because it's what enables you to trade with more money than is available in your trading account. A good example of this is when trading 2:1 and only have $500 in your account, you still can trade with $1000 currency.

You need to understand the leverage and not go beyond what makes sense to avoid getting burnt. Trading by using leverage seems good on the cover but when you dig dipper you learn that it carries very high risk with it.

What is Base Currency in Forex Trading?

When trading in forex you have to understand the base currency. This is the currency that comes first in a pair that has been listed. This makes the currency that follows in the pair the quote currency. You have to sell one currency in forex trading to be allowed to buy another. This is how it works. This explains why in forex trading, currencies are quoted as a pair always. You get a code for every listed pair which is in the form of three letters.

In these three letters, two of them represent the region the currency is from and the third one is for the currency. An example of this is CAD/AUD. The base currency is the Canadian Dollar and the quote currency is the Australian Dollar. To keep trading sane using foreign currencies, traders have devised a way to categorize them making it easier for forex trading.

• Main Currency Pairs

These are the top currencies in the world that makes up the largest percentage of foreign exchange. You get pairs like AUD/USD, USD/JPY, GBP/USD, EUR/USD, among others. The USD always features in these pairs.

• Minor Pairs

These are still major currencies but are not traded as often and don't feature the USD. You get EUR/CHF, EUR/GBP, etc.

• Exotic Pairs

This involves pairing a major currency with that from an economy that is developing or emerging. Examples are GPB/MXN, USD/PLN, etc.

How to Make Money Trading on Forex

The main aim of investing in forex is to earn a profit. No one gets into trading with the intent to lose money. With this in mind, it's important to once more note the value of training before you start placing trades as a beginner. Learn how it works and take advantage of the demo account to sharpen your skills as much as you can before opening a trading account. Even when you start trading with real money, start small since most trades begin from as low as $1. Choose the best platforms like Olymp Trade and IQ Option for this where minimum deposit is $10.

Every day forex trading gets more interesting and sees millions of users flood the market in the hope of making money. Though it seems simple, it has its fair share of risks like any other investment. Forex trading is buying and selling currencies. All you need to do is place a trade in the forex market and if you're experienced in trading, then this won't be hard for you at all. Beginners are not exempt from mastering this because all you have to do is practice and keep learning to improve your knowledge and skills. You might lose one money along the way but that's always a possibility to deal with in trading.

You exchange one currency for another in forex trading expecting a change in pricing meaning the currency you just bought will increase in value. This works in the following way:

Purchase 1000 Euros at the exchange for EUR/USD. The exchange rate is set at 1.1500 giving you a -1150 value in USD. The following week you decide to sell the Euros and buy back the USD and this time the exchange rate is 1.3200. This gets you a profit of $170.

Currencies are always in pairs in forex trading because every transaction for foreign exchange involves two currencies. There is the one being bought and the one being sold. Even at the exchange counter, you have to hand in your currency to receive the foreign one.

The currency at the start of the pair is the base and the one at the end is the quote. The exchange rate always informs you how much of the quote currency you must pay in order to buy the base currency. When it comes to selling, the exchange rate informs you how much if the quote currency you'll receive when you sell one base currency. Making money trading forex is something you learn for some time before you become an expert trader. The best thing you can do as a beginner is to find a good platform that has educative materials and a demo account to train on. The best like Olymp Trade has training materials and a demo account that comes with $10000 virtual funds for practice.

CFD Trading vs. Forex

Two assets that you're bound to come across while trading online is CFD and Forex. The best way to make money trading online is to diversify your trades. This means you have to understand each instrument and learn to distinguish between them. CFDs stand for Contracts of Difference and share some similarities with forex. The best way to understand the two is to look at the similarities and differences.

• When it comes to what they have in common, it's quite simple they are both instruments you can trade online.
• Also, you have to have a strategy in mind when you decide to trade in either of them. Going in blindly is not an option if you hope to turn a profit on your investment.
• The two share similar methods of pricing and charts when you trade on them on a platform.
• They make use of the Over-the-Counter trade execution which only functions online using bank networks. You can never find one specific location where the market has a physical central location.

Still, they are not the same and you should note all their differences as well to distinguish between the two.

• When it comes to CFDs, you are dealing with contracts that cover a wide range of markets including indices, metals, etc. forex on the other hand only deals with trading in currency, nothing else.
• With Forex, you get to only trade in one currency for another. CFDs are more flexible because you're allowed to choose several contracts that have a difference in the value of their increment and the currency involved.
• CFDs are influenced differently than Forex. CFDs require very specific factors to influence them like the change in demand and supply of a commodity. For forex, change is mostly influenced by events that happen on a global scale.

Forex Indicators

When it comes to Forex trading, the number of indicators is quite high but the truth is they are not magical in any way. They only assist you to make a decision and shouldn't be the main reason you make one. Traders expect too much from indicators and more often than not end up disappointed. Being new to forex can be overwhelming which makes quick answers very luring to a beginner. But the best solution is to learn as much as possible and take time while trading. Use forex indicators to assist you only. Forex trading can be great and profitable if done the right way but any experienced traders will tell you it takes time.

A forex indicator is a collection of calculations that traders use and are based on the rate of exchange together with the volume/interest of a pair of currency. Forex indicators help traders make crucial market analysis every day. This is important because you don't use guesswork to trade. You need to locate forex indicators to use them and some platforms provide them for their users. Still, the best place to locate them is by getting the MetaTrader 4/5 which is a very helpful software you can download for free.

There is no indicator that you'll find that contains a secret formula to help you place correct trades. It's important to repeat this point. The only thing you get from an indicator is information you already know delivered in a different format. It's a visual representation of the information you've seen before. But that doesn't mean you shouldn't be aware of the different indicators available in Forex trading.

Given there are so many types of indicators available, it's good to narrow down the list to the most important of the bunch.

1. Indicators of Volume

They help you by displaying the trades done in accordance with a movement in price. This benefits you highly because a large volume can be considered as a better signal than a smaller one. Examples of such indicators include the Ease of Movement, Force Index, Chaikin Money Flow, etc.

2. Indicators of Momentum

You can use this to indicate positions that have either been oversold or overbought which is very important when signaling a trend that's just starting. Here you get Stochastic, RSI, CCI, etc.

3. Indicators of Trend

Many traders tend to trade by following the trend and basing their moves on the information they gather. With this indicator, you can see what's trending and they include Parabolic SAR, MACD, etc.

4. Indicators of Volatility

With this, the main item used is ranges that get to show how the price is behaving and what volume is behind a certain movement. This is important because a very big behavioral change that's unexpected is a good signal. Such indicators are the Average True Range, Bollinger Bands, etc.

The best Forex Trading Platforms

Make sure, especially as a beginner, you trade with only the best platform online that has your best interest.

IQ Option

Forex trading is very popular at IQ Option which is ranked among the best platforms for online trading. Kit's a reliable and trustworthy platform that is ideal for a beginner in this industry. On this platform, you not only get to learn about forex trading but can use the demo account to practice. It comes with $10000 in virtual funds. These funds help you learn how forex trading works before you proceed to trade with real money. There is even an option to top up the virtual funds.

Olymp Trade

With millions of users registered on this platform, no wonder it has such a high ranking. With this, it's managed to create a reputation for being honest in all its services. On this platform, you can engage in forex trading knowing you're dealing with a transparent company that is licensed and regulated. Here you also get a demo account and training information that is very useful. You can train on the demo account that comes with $10000 virtual funds on forex trading. After that proceed to create a standard trading account and start placing small trades as you learn more.

Binomo

Binomo is another great platform that is reputable and reliable which is why it has so many registered users and daily activity. On this platform, you can trade on various assets including forex safely. It employs the latest security measures to safeguard your information on the platform while giving you a fair trading place. On Binomo, take advantage of the free training and demo account to perfect your forex trading skills. On the demo account, you get $1000 virtual funds to practice with.

Binary.com

Binary.com gives you a platform you can trust and rely on while trading on forex. Your money is secure and accessible at any time you want. You can use all the information you learn and test it out on the demo account. For this platform, you get $10000 on it as virtual funds that you can use to practice.

MetaTrader 4 or MT5: Which Trading Platform Should You Choose?

MT4 and MT5 are trading platforms for forex that are popular among many traders. You can opt to use both or choose one. Still, the MT5 is an improvement of MT4 and was released back in 2010. There are major differences to keep in mind between the two that can help you decide which to use.

• The MT4 is characterized by only having 4 types of pending orders. For the MT5, you get two types of stop orders and 6 types of pending ones.
• The MT5 is able to offer more market commodities but depends on which platform it's being used.
• MT4 has fewer time frame charts than the MT5 that was upgraded to have more.
• The MT5 is now better able to keep you updated on economic events due to its inbuilt calendar for such events together with their expected impact level and other important factors. This is lacking in MT4 and means you have to keep a separate calendar for such events.
• MT5 has an upgraded EAs Strategy tester.

Forex Strategies Revealed

Having a strategy in Forex Trading is very important. You can't just start trading blindly without having a plan of execution in mind. There are very many strategies that you can use.

• The Bladerunner Trade Strategy

This strategy is named the bladerunner because it gets to cut the price of action into two. With this strategy as your main course of action, you require no off the chart indicators. Off chart indicators are the ones you get at the bottom of the chart for prices. You only need one indicator here which is the EMA 20.

• Daily Fibonacci Pivot Strategy

With this strategy, you have to use the Fibonacci retracements that permit you access to entries of trade daily with levels of pivot. Keep in mind the favorable parameters here which are 38% and 50%. These are the points of Fibonacci and have to be in daily confluence with the levels of pivot. It's a complex strategy and ideal for experienced traders.

• The Pop 'n' Stop Trade

As a beginner, this strategy is good to use because it's not very complex. You can use it to place your initial forex trades before proceeding to complex strategies later on. You get to employ breakouts with this strategy where you wait for a trade to breakout. This is normally from a tight range then you make your move. It's hard to pinpoint these exact moments, however, but if you do you can make a lot of money.

Automated Forex & FX Robots

With automated FX, you get to trade in forex by using computer software – Forex robots (trading bots). The software has a set of analysis that helps you determine whether to buy or sell. This has to follow some technical rules and you have to program the software to make trading decisions for you.

Conclusion

Like many other assets you trade online, forex trading can be very lucrative when done the right way. With that being said, it takes time to gain experience, therefore, as a beginner take your time to learn and practice. Forex trading only involves currencies.

Risk Warning

We understand the Forex industry is huge and volatile for people who lack basic knowledge about online trading. If you are a beginner, you should make this site your companion (and please practice trading skills on free demo accounts, don't invest real money if you are beginner: remember, Forex trading, as long as trading binary options, crypto or CFDs, carries a risk of losing money due to leverage. About 77% of retail investors lose money when trading CFDs). Read in other languages: RU.