What is forex trading?
Let’s first try to understand about forex trading in simple terms.
Forex trading ultimately involves buying one currency for another. Those currencies are traded in pairs, such as EUR/USD (Euro/US Dollar) or USD/JPY (US Dollar/Japanese Yen). In these examples, Euro is being traded against the US Dollar and US Dollar is being traded against the Japanese Yen. The ultimate goal is to profit from the fluctuations between the two currencies.
Different types of currency pairs:
- Major pairs – The major currency pairs involves the most commonly traded currencies called EUR/USD, GBP/USD, USD/JPY, and USD/CHF. These pairs solely account for the majority of forex trading volume.
- Minor pairs – The minor pairs include the US Dollar but still involve major currencies, such as EUR/GBP or GBP/JPY.
- Exotic pairs – The exotic pairs include the currencies of emerging markets. These include pairs like, USD/TRY (US Dollar/Turkish Lira) or USD/INR (US Dollar/ Indian Rupee). However, these are less liquid and more volatile.
Important Forex Trading Concepts Every Beginner Must Know
1. Pips (Percentage in Points)
A pip is the smallest price movement in the forex market. It represents the change in value between two currencies. In most currency pairs, a pip is equivalent to 0.0001. For example, if the EUR/USD pair moves from 1.1050 to 1.1051, that’s a one-pip move.
Why does this matter?
Understanding pips is crucial because it helps traders measure profit and loss. When you buy or sell a currency pair, the movement in pips determines how much money you make or lose. For example, if you trade 1,000 units (a micro lot) and the currency moves by 10 pips, you would make or lose $1.
2. Lot Size and Leverage
Whenever you trade in forex, you don’t buy or sell in individual units of currency but in lots. A single lot refers to the size of the trade. It has further three types:
- Standard Lot
- Mini Lot
- Micro Lot
In a standard lot, you get 100,000 units of the base currency. In the mini, you get 10,000 units, and in the micro, you get 1,000 units of the base currency.
Now, it is time to focus on Leverage. So, Leverage allows traders to control a larger position with a smaller amount of capital. For example, with a 100:1 leverage, a trader can control a $100,000 position with just $1,000 in margin. While leverage can amplify profits, it also increases the risk of losses, and beginners should approach leverage with caution.
3. Bid and Ask Price
While trading in forex, you’ll encounter two prices for each currency pair. One is the bid price, and another is the ask price.
- Bid Price: The price at which the market will buy the base currency (i.e., the first currency in the pair). This is the price you receive when you sell.
- Ask Price: The price at which the market will sell the base currency. This is the price you pay when you buy.
The difference between the bid and ask price is called the spread. For example, if the EUR/USD bid price is 1.1050 and the asking price is 1.1052, the spread is 2 pips.
4. Market Orders and Pending Orders
When placing trades in the forex market, you will need to understand the difference between market orders and pending orders.
- Market Order: This is an order to buy or sell a currency pair at the current market price. It is executed immediately.
- Pending Order: This is an order to buy or sell a currency pair at a future price. There are several types of pending orders, including:
- Limit Order: You set a price at which you want to enter the market. It’s used when you want to buy at a lower price or sell at a higher price.
- Stop Order: This order is executed when the price reaches a specific level, and it’s often used to limit losses or lock in profits
5. Types of Market Analysis
To succeed in forex trading, you need to master three key types of market analysis:
- Fundamental Analysis: Focuses on economic indicators like interest rates, GDP, and inflation to predict currency movements.
- Technical Analysis: Uses price charts, candlestick patterns, and indicators (e.g., RSI, Moving Averages) to forecast trends.
- Sentiment Analysis: Gauges market mood to understand whether traders are generally optimistic or pessimistic about a currency.
How does the forex market work?
To understand its workings. Let’s first be aware of its timings.
So, the fact is that the forex markets are open 24 hours a day/5 days a week. This sums up the plenty of opportunities it offers. Also, traditionally, the forex market was dominated by institutional firms and large banks, but its popularity among retail traders has significantly grown over the past decade.
To your surprise, the forex markets don’t have any physical buildings (trading venues). Instead, markets operate by the mechanism of connected trading terminals and computer-based networks. Usually, the participants of the market are institutions, financial product banks, commercial banks, and retail investors worldwide.
Which is the best forex trading platform for beginners?
When it comes to the best forex trading platform for beginners, then nothing comes in front of the Finsai Trade. It is the best trading platform due to its user-friendly interface and easy-to-understand tools. Not only this, here, beginners can also learn about forex trading via its tutorials and webinars. This adds up to its charm and also entitles it as the best platform to learn forex trading.
Do you have a low budget for forex trading? No worries, as the platform also offers zero-commission accounts to decrease expenditure after profits. With demo accounts available, users can even practice without risking real money.
Conclusion
Have you read everything? Great. From very basic concepts of forex to the best platform for it, you’re now very well aware of everything. You only need courage now. Download it, and start your trading journey with Finsai. Good luck and happy trading!
