Finance

Forex trade – a brief guide

Being a newcomer in any sector or industry might be daunting and challenging. And if you have heard of the Forex market, and it sounds appealing to you, but you don’t know how to start, we are here to share a brief Forex trade guide. 

What is the Forex market?

For some of you who are not absolutely sure what Forex is, here is the explanation. It’s the most liquid and lucrative financial market for currency pairs’ trading. Created in 1971, it is a market that allows you to buy and/or sell currencies worldwide under the floating exchange rate, i.e., variable according to supply and demand. It is open 24 hours a day. 

The most-traded ones in this market are the US dollar, the euro, the pound sterling, and the Japanese yen. The trades are performed over the counter, meaning between the traders all around the world. It’s a decentralized market. The trading process takes place thanks to the ECN, an electronic communication network. It’s a network that enables the execution of trading orders.

How to start trading on Forex

Finding the regulated broker is generally the first thing to do when aiming to start trading on the Forex market. Forex brokers lists are the most relevant info resource for beginner traders. To choose the best of the best, don’t rush your decision. Compare them and pick the one that fits your trading plan.

A trading plan, the starting point of any successful trading

Having a plan entitles you to make sure how much you can afford to spend trading Forex. What is your initial capital, and how much can you afford to lose without staying bare as a bone after your first trade. According to your calculation, you will compare the spreads and commissions that various brokers offer to their clients. 

Use a Forex profit calculator, which will make your planning much easier. Commissions are generally applied on the Forex market per spreads, the difference between asking and buy currency pair prices. Read the terms of trading on specific brokerage websites carefully before opening a trading account.

Leverage and spreads in Forex

Forex benefits from strong liquidity and remains open continuously, allowing it to intervene and carry out transactions at any time. For the more experienced traders, Forex offers significant leverage that can multiply earnings dramatically. 

As we’ve already said, Forex financial intermediaries do not charge commission on transactions. They are rewarded on a spread basis. That is to say, the difference between the prices of the purchases and the sales, which turns out to be much less expensive than the commissions charged on the shares.

Regarding leverage, it allows you to borrow the money from the broker and increase your starting capital for trading positions. But carefully with this trading tool, since it’s a two-edged sword. It can lead to big profits but also big losses. 

Which currency pairs to trade?

Given that volatility is the main aspect of Forex trading and the source of profit for daily traders, choosing the more volatile currencies should be advisable. However, if you are just starting, rely on less volatile ones and usually traded pairs, popular as major pairs like USD, EUR, JPY, CHF until you gain confidence and learn more about more rarely traded currencies, also called exotic currency pairs. These are from the emerging economies with less stable currencies. Trade them after you perform the thoughtful fundamental analysis of the market.

The best way to learn more about currency pairs’ trading, the best strategies to apply as well as technical and fundamental analysis, is using free trading resources. Your broker should offer you these resources as a part of its service, as well as trading on a demo account where you trade in real market conditions without any penny invested.

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