Forex trading for beginners can be difficult. In general, this is due to unrealistic but common expectations among newcomers to this market.
The first question that comes to everyone's mind is: how to learn forex from scratch?
Don't worry, this article is our definitive Forex beginner manual.
forex beginners
This Forex beginner guide includes:
An introduction to the Forex market
How does the currency market work
The key terminology: spread, leverage, pip, etc.
the benefits of trading Forex and the risks
how can you start trading in Forex
the best broker's choice
How to choose the best trading platform if you are a beginner in Forex
the basics of risk management and management
the different ways you can analyze the Forex market
An overview of the most popular types and strategies of Forex Trading.
When you finish reading this Forex tutorial for beginners you will have all the information you need to get started.
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Before getting more fully into how to learn Forex, we must explain and be clear about what Forex is.
Forex, or the forex market (also called FX for short) is the market where currencies are traded. In its simplest form, a currency transaction can be, for example, when you change your local currency to a new one for an upcoming vacation.
Throughout the market in general, about 5.3 billion dollars are quoted daily between governments, banks, corporations and speculators.
Knowing how the industry is projected is important, because the collective combination of all participants creates the market in which it operates.
Currencies are traded as pairs, and the movement of currency pairs measures the value of one currency against another. For example, the EURUSD currency pair measures the value of the euro against the US dollar.
When the value of this pair increases, this means that the value of the euro has increased against the value of the US dollar. When the value of the pair decreases, this means that the value of the US dollar has increased (or the value of the euro has decreased). By trading with Forex and CFDs, traders can make a profit or loss with these currency movements.
Although after reading the Beginners Trading course, you are no longer a "Forex rookie", we advise you to start trading with a free demo account (click below) before trading with a real account.
Demo account
Forex for beginners- Best currency pairs
Forex currency pairs are known as major, minor and exotic.
The main currency pairs are formed by the most frequently traded currencies, which are:
USD - The US dollar
EUR - The Euro
JPY - The Japanese Yen
GBP - British Pound
CHF - The Swiss Franc
CAD - The Canadian Dollar
AUD - The Australian Dollar
NZD - The New Zealand Dollar
An important currency pair is one that contains any of these matched currencies against the US dollar, such as EURUSD, USDJPY or GBPUSD. There are also pairs made up of these main currencies that do not include the US dollar. These pairs include:
EURGBP
EURCHF
AUDNZD and so on.
Finally, exotic currencies are any currency that we have not mentioned before, such as:
the Hong Kong Dollar (HKD)
Norwegian Krone (NOK)
the South African Rand (ZAR)
Thai Baht (THB)
Exotic pairs include an exotic currency and a main currency.
When learning to invest in Forex, many beginners tend to focus on major currency pairs due to their daily volatility and tight spreads. But there are many other opportunities, from exotic currency pairs to trading opportunities with CFDs on stocks, commodities, cones and indexes.
The amount of markets in which you invest depends only on you. Although we advise you not to focus on a single market or instrument. Market limitation can lead to overvaluation, so be sure to diversify your investment.
Forex for beginners - What are CFDs
If you have been previously researching forex trading, you may have seen the term "Forex CFD" at some point.
There are two ways to trade Forex: use CFDs or Forex spot
Forex Spot
It involves buying and selling the real currency. For example, you can buy a certain amount of pounds sterling and exchange it for euros, and then, once the value of the pound increases, you can exchange your euros for pounds again, receiving more money compared to what you originally spent on the purchase .
CFDs
The term CFD means "Contract for difference", and is a contract used to represent the movement in the prices of financial instruments. In terms of Forex, this means that instead of buying and selling large amounts of currencies, you can benefit from price movements without having to own the asset itself. Together with Forex, CFDs are also available in stocks, indices, bonds, commodities and cryptocurrencies. In all cases, they allow to operate with the price movements of these instruments without having to buy them.
If you are interested in knowing how CFDs work in greater detail we recommend the following article: What is CFD Trading
Key terminology to learn Forex
Before continuing, let's recap the key concepts needed to learn how to trade Forex if you are a beginner:
Pip
A pip is the base unit in the price of the currency pairs, or 0.0001 of the quoted price. So, when the offer price for the EUR / USD goes from 1,1667 to 1,1677, that represents a variation of 1 pip.
Spread
The spread is the difference between the purchase price and the sale price of a currency pair. For the most popular currency pairs, the spread is often low, sometimes even less than a pip!
For peers who do not trade as often, the spread tends to be much higher. Before a foreign exchange transaction becomes profitable, the value of the currency pair must exceed the spread.
Margin
The margin is the money that is retained in the trading account when opening an operation. However, because the average "Retail Forex Trader" lacks the margin necessary to operate with a volume high enough to make a good profit, many Forex brokers offer their clients access to leverage.
Leverage
This concept is essential for beginner Forex traders. Leverage is the capital provided by a Forex broker to increase the volume of operations of its clients.
In Forex, the nominal value of a contract or lot is equivalent to 100,000 units of the base currency. In the case of EURUSD, it would be 100,000 euros.
If you use a leverage rate of 1:10 and you have 1000 euros in your trading account, you can negotiate a currency pair worth $ 10,000.
If the operation is successful, leverage will maximize your earnings by a factor of 10. However, keep in mind that leverage also multiplies your losses by the same degree.
Therefore, leverage should be used with caution. If your account balance falls below zero euros, you can request the negative balance policy offered by the broker.
Only ESMA regulated brokers can offer this protection. Going to this protection will mean that your balance cannot move below zero euros, so you will not be indebted to the broker.
Forex for beginners - Price quote
When you trade Forex, you will see that the prices of 'Ask' and 'Bid' are quoted:
the ask price is the price at which you can buy the currency
the bid price is the price at which you can sell it
One of the things you should keep in mind when you want to learn Forex from scratch is that you can trade both long and short, but you have to be aware of the risks that come with being a complex product.
Long operation
The purchase of a currency with the expectation that its value increases and profit from the difference between the purchase and sale price.
forex for beginners - purchase
Source: MT5 EUR USD, H1. Data range: from July 29, 2019 to August 8, 2019. Held on September 20, 2019. Please note that past performance is not a reliable indicator of future results
Short operation
You sell a currency with the expectation that its value decreases and you can buy at a lower value, benefiting from the difference.
forex for beginners - sale
Source: MT5 EUR USD, H1. Data range: from August 23, 2019 to September 4, 2019. Held on September 20, 2019. Please note that past performance is not a reliable indicator of future results.
The price at which the currency pairs are quoted is based on the current exchange rate of the currencies in the pair, or the amount of the second currency that you would obtain in exchange for a unit of the first currency (for example, if you could change 1 EUR for 1.68 USD, the purchase and sale price would be on either side of this number).
If the way in which the brokers make a profit is by charging the difference between the purchase and sale prices of the currency pairs, the spread, the next logical question is:
How much can you expect a particular currency to move?
This depends on how the liquid currency is or how much is bought and sold at the same time. The most liquid currency pairs are those with the highest supply and demand in the Forex market. It is the banks, companies, importers, exporters and traders that generate this supply and demand.
The main currency pairs tend to be the most liquid, with the EUR / USD currency pair moving at 90-120 pips on an average day and, therefore, providing the most opportunities for short-term trading
In contrast, the AUD / NZD pair moves between 50 and 60 pips per day, and the USDHKD currency pair only moves at an average of 32 pips per day (when observing the value of the currency pairs, most will appear with five decimal points).
The main Forex pairs tend to be the most liquid. However, there are also many opportunities between minor and exotic currencies, especially if you have some specialized knowledge about a particular currency.
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