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The Beginners Guide to Trading Forex
Forex has become one of the most-talked-about and popular forms of trading around. Not only is it relatively simple to understand, but you are also able to trade with a lot, or very little money, depending on your budget.
The foreign exchange may sound intimidating, but there is no reason to fear this useful trading and investment opportunity, especially when you know what you’re doing.
What is Forex?
Forex stands for foreign exchange, and it represents the buying and selling of currency. Traders choose a currency pair, dollars/pounds, for example, and will use their dollars to buy however many pounds the exchange rate gets them.
You make a profit through exchange rate changes; If $10 buys you £15, you will purchase the pounds, and when your £15 becomes stronger against the dollar, you will sell them back for $12, for example. You will then make a $2 profit.
Starting your trading journey is much easier than you think. You don’t need to do much more than register an account, deposit some money and then begin trading.
Open an Account
Opening an account is as easy as finding a reputable broker and putting in your details. You will need to register with a brokerage, and with hundreds of reputable ones across the globe, you are sure to find the right one for you.
Forex is all about trading pairs. Most brokerages will offer dozens of trading pairs to choose from, while a few could have as many as a hundred. These pairs will cover the big currencies such as the US dollar, pound, euro, etc., as well as second and third-tier currencies like the yen, franc, and so on.
These unique pairings are referred to as “exotic pairs” and can often present large profit opportunities, especially when you trade currencies from developing countries.
Find Your Strategy
Strategies will be discussed later on, but it is essential that you find which strategy works for you as soon as possible. This will allow you to focus sooner and therefore make better and more informed choices from the start.
Speaking of being informed, currencies are affected by everything from natural disasters to governmental scandals. This means you need to stay on top of the news and see how your currencies are changing and be able to make trades or changes if disaster strikes.
The last thing you need to learn is to rid your trades of emotions. The markets change constantly, and knowing not to panic and when to make logical trades is the difference between being successful and failing overnight.
Basic Trading Strategies
There are multiple trading strategies to choose from, but two of the easiest to learn, and therefore great for beginners, are a scalping strategy and a day trading strategy.
Scalping trades are trades that are done throughout the day and rely on the subtle changes in exchange rates. These fluctuations are often only a few cents, but profits build when you do them over and over again.
Scalp trades may be easier to do, but they require a lot of time and effort as you need to invest several hours every day if you want to make a serious profit. Scalp trades also require an eye for patterns and therefore become easier as you become more experienced.
Day trades are exactly what it says on the can. Positions are held for a few minutes or hours, and you take your profits at the end of the day. Day trades are very similar to scalp trades but happen over a more extended period.
Day trading does require some technical analysis skills and knowing what you are looking for in technical indicators. However, these types of trades are brilliant for beginners as you can invest a small amount of money and use your profits for trading the next day.
Trading Forex: Leverage
One interesting aspect of forex brokers is that they offer leverage. In simple terms, leverage allows clients to trade with large amounts of money, even if their budgets are small. Brokers will offer 10x, 20x, or even 50x leverage, meaning your $10 will be worth $500 if you use 50x leverage.
Since profits in forex trading can be as little as 2 or 3% at times, 3% profit on $1000 is a much bigger profit than 3% on a $10 trade. It is necessary to inform yourself about your broker’s leverage terms and conditions, but it is one of the best ways to make a profit when your budget is relatively small.