What is forex trading?

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What is forex?

Forex is short for foreign exchange – the transaction of changing one currency into another currency. This process can be performed for a variety of reasons including commercial, tourism and to enable international trade.

The foreign exchange (also known as forex or FX) market refers to the global marketplace where banks, institutions, and investors trade and speculate on national currencies.

What is the forex market?

The forex market is by far the largest and most liquid financial market in the world, with an estimated average global daily turnover of more than US$6.5 trillion — which has risen from $5 trillion just a few years ago.

The forex market is open to buy and sell currencies 24 hours a day, five days a week and is used by banks, businesses, investment firms, hedge funds, and retail traders.

One critical feature of the forex market is that there is no central marketplace or exchange in a central location, as all trading is done electronically via computer networks. This is known as an over-the-counter (OTC) market.

Forex trading is the process of speculating on currency prices to potentially make a profit. Currencies are traded in pairs, so by exchanging one currency for another, a trader is speculating on whether one currency will rise or fall in value against the other.

The value of a currency pair is influenced by trade flows, economic, political, and geopolitical events which affect the supply and demand of forex. This creates daily volatility that may offer a forex trader new opportunities.

Online trading platforms provided by global brokers like FXTM mean you can buy and sell currencies from your phone, laptop, tablet, or PC.

How to start forex trading?

Although all the previous information was more or less enough to start off, it’s still important that we summarize it all here. Ways on how to trade Forex for beginners can be a bit confusing, which is why breaking them down into 5 key steps is essential. Here’s what people usually do.

1. Finding a reliable service provider

Forex trading is always done through a middleman. That middleman is usually a Forex broker. These companies come in various shapes and sizes, so the trading experience can be very different depending on which one a trader chooses. Going for a company that is licensed and has good customer reviews is mostly considered as the first step towards success.

2.Starting to trading with your own funds

Although demo accounts and no deposit bonuses provide risk-free trading, it’s important to consider how a trader’s psychology is developed. If you learn on the basis of not being afraid to take risks, it could turn out very badly when you start trading with your own funds for the first time. One of the primary Forex trading lessons for beginners is that fearing risk is an advantage and not an issue. This advantage is only gained through putting something you own on the line.

3.Only by using funds you can afford

Forex trading almost always starts off as a hobby or a side job. Beginners and veterans usually calculate how much they can deposit and not be too affected if they don’t get any payout from it.

4.Choosing a preferred software

There are dozens of types of software that traders can choose from. Most of them are designed to be very similar so that switching is not a problem. But choosing one and sticking to it is usually considered a good idea because you get to learn the software only once.

6.Trying new strategies immediately

Almost every trading Forex tutorial gives traders access to new strategies. Although it may seem that you understood the strategy from the first try, people usually apply these new strategies to their official accounts immediately. By trying the strategy in a real environment, rather than a demo account always helps in remembering the result.

Frequency asked questions on Forex trading

How do I learn Forex trading step by step?

There are many different approaches to how to start trading Forex in a sustainable way, whether it’s gathering theoretical knowledge in the first place, using a demo account, or starting live trading right away. 

Usually, the first step many traders take for learning Forex step by step is gathering initial theoretical knowledge. The online trading community is full of educational materials, be it e-books, tutorial articles, videos on-demand, online courses, or webinars. They explore various trading aspects starting from currency pairs all the way to technical and economic indicators. 

Another useful way to learn Forex trading step by step for free is to use a demo account. It allows you to trade just about any currency pair without any financial commitment. And if you want to take it to the next level, you can always turn this demo account into a live account, which introduces more realism into your trades. 

How do I choose a service provider?

Service providers are usually chosen based on taste and preferences. However, most people tend to pay a lot of attention to a company’s license. If they don’t have it, it could mean that they were not found worthy of one by the local government. In most cases, this is a sign that you should start searching for another one.

Other ways include looking at how many software systems they have for their customers, how much general market information they provide, what their previous customer score is and etc.

But no matter how the company may look on the surface, it’s still up to your preference as a trader if you want to start trading with them.

How do I do research?

Research is done by gathering information. People sometimes call it news Forex trading because it relies on fresh news so much.

What people tend to do is visit various websites that talk about the Forex industry. They look at the fresh news and try to determine what could happen in the market based on a new event in the world.

The news can be political, it could be about economics, or it could be in no way connected to the Forex market. It’s up to you to determine if this specific event could have an influence on your currency pairs. This is mostly done by analyzing what has happened in the past with the same event, and what is being planned for the future.

Or you could simply analyze what the majority of the market will believe, and follow that trend.

What software should I choose?

There are dozens of software types for beginner traders, but the majority of them are hard to see in the current market trends.

One reason why software is important when learning how to start Forex trading is because of how complicated it could be. You see, every software has its extra feature that helps them stand out. It could be dozens of screens that you can look at, or it could be automated trades that you can set.

Regardless though, it’s likely that the most common software you will find is MetaTrader 4 or MetaTrader 5. These two are the most popular in the market right now, with the majority of brokers using them.

What types of Forex trading software is there?

There are 3 types of software. They all have their names besides 1 and are optimized on Forex trading for newbies. There’s the WebTrader that can be used in your web browser. There’s the MobileTrader that can be used on any mobile device such as a smartphone or a tablet. And there’s the Desktop version which you will have to download and install on your PC or Mac.

Thankfully all of the software is designed to work well on both Android and iOS, so it won’t be hard to find something that suits your choice of brands.

Which currency pairs should I trade?

This also depends on where you live and how much knowledge you have about specific currencies. In most cases, beginner traders usually go for EUR/USD if they’re not sure about their native currency, or can’t find a broker that has a pair for them.

The EUR/USD is considered as one of the most stable ones in the market, which is why it has the most traders. Having two of the largest economies back this currency pair usually guarantees that there will be no huge changes in a single day. This pair can be found in almost every beginners’ guide to Forex trading and deservedly so.

Why shouldn’t I use leverage?

Leverage is a very useful tool, especially in Forex where exchange rates change very slowly and not too often. However, it could be extremely dangerous too if the broker that provides this leverage does not provide a margin call.

A margin call is when the broker automatically closes your trade if it’s too unsuccessful. If there is no margin call, there’s always a risk that you could end up owing the broker the funds it gave to you.

As a beginner, it’s best to avoid leverage completely before you learn at least a couple of high-chance strategies.

Why is trading with my own funds less risky?

This could be a bit hard to understand at first, but it all comes to learning how to control your emotions when trading.

You see, when a tutorial Forex trading experience takes the risk out of the learning process, you could end up thinking that it’s very easy. The reality is that Forex trading is one of the hardest things one can do and succeed at.

The tutorial helps you not care about the funds you use for trades, and therefore be a bit more liberal with how you use them.

But, when you use your hard-earned money, the risk starts to affect you and makes you a lot more careful. This method is usually done with very little amounts so that the risk is kept to a minimum. 

Check out our course on how to begin forex trading

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