How to Trade Forex for Beginners?
Forex is foreign currency and trading coupled into one. The financial term of foreign exchange refers to the change from one currency to another for various reasons such as trading, commerce, and tourism.
The average forex trading volume was more than 5.1 trillion dollars, according to a recent report. It’s a profitable business for individuals as well as companies, and so, so many new traders are joining the forex community every day.
But how to trade forex for beginners? There’s an unofficial rulebook for that, and here’s how to do it.
How to Trade Forex for Beginners?
The foreign exchange market, aka the FX or forex market, is a marketplace that has a global range for exchanging one national currency with another.
This market has established itself as the most liquid and largest asset markets on the planet because of the global reach of commerce, trade, and finance, and it comes with unlimited possibilities of profit.
These national currencies are trades in pairs. Exhibit A- EUR/USD. The forex market is a spot or cash market. But it also appears as a derivative market as it comes with currency swap options and so on.
If you are an amateur in this trade, you should follow the following rules to make your life easier.
Organize your Investments
Here are steps to organizing your forex investments, which is better than groping in the dark.
You need to sign up for a brokerage account first and then fund your account by linking it to your bank account.
You must do a lot of research about the marketplace and make an appropriate strategy for your investments—research how the economy is going and make your plan accordingly.
Pick a profitable currency and place a buy order on it. Keep tabs on your investments as the forex market is as risky as they come.
The fluctuations in the forex market are very rapid, even more than the stock market, so keep focused and be prepared to change your approach whenever things suppose to go in the wrong direction.
Which Currencies are performing Best?
Before picking a currency pair to trade, you should know what is trending in the foreign currency markets. Some of the trending currencies are USD, EUR, AUD, CHF, CAD, JPY, GBP, etc.
From these currencies, pick a suitable currency pair. For being a successful forex trader, you need to have a clear concept about the currencies you’re trading in. Only a handful of currency pairs are worth taking the risk of trading in it. All currency pairs cannot be potentially profitable to all traders.
Know the Currencies’ Present Economic Condition
All the available currency pairs in the market have tight spreads except the USD/GBP currency pair as it has high volatility.
It is generally a wise decision to avoid currency pairs with a high spread. The healthy amount of spread to trade recommended by experts is zero to three pips. If the spread is over six pips, the pair becomes too expensive for trading and can lead to a larger amount of loss.
But it doesn’t necessarily mean that you should avoid pairs with very high spreads altogether. You should try risk management for your trade to better manage your risk factors and to trade effectively, efficiently, and sensibly.
Analyze the Recent Financial Report of Respective Currencies
We’re providing you the financial analysis of some popular currency pairs so you could have a better understanding of what to trade and what not to trade.
USD/EUR is the most popular currency pair in the market. The added bonus is, it has the lowest spread amongst all the currency pairs. And the best part is, it has very low volatility. If you don’t want any risks, choosing this pair would be a wise decision. There’s a lot of technical analysis on this currency pair that can restrain you so that you don’t make rookie mistakes.
USD/GBP has profitable pips that make it very popular, and the best thing is, it also comes with possible large jumps. But keep in mind that with the possibility of higher profits comes the probability of more significant losses.
This currency pair is categorized as a volatile currency pair. Many traders pick this as their trading pair as a lot of market analysis info is available on this online.
USD/JPY comes with low spreads and has the potential for high profits, which makes it very popular amongst traders. So you can also consider this as your trading pair.
Read Expert Predictions to Gain Ideas
Trading skills are achieved with persistence, perseverance, discipline, passion, and patience, as it takes a long time to excel in this.
Trading skills can be acquired with the ability to understand technical analysis and fundamental analysis.
Technical analysis is the method of presuming price movements by observing different indicators and PA, aka price action.
On the other hand, fundamental analysis refers to the method of presuming the price movements by observing news releases and macro-economical data very closely and carefully.
With the combined analysis of both the technical and fundamental analysis reports, you can pretty much foretell how the prices of your currency are going to move.
Purchase Your Targeted Currencies
Trade volumes between two nations change by the minute. So, the value of the significant currencies also keeps fluctuating at a rapid rate.
The popular currency pairs are mostly from countries with higher financial power. So, these currency pairs have the most volatility, which means their value or prices change the most times during the time span of a day.
Even though they have the best trading conditions as they come with a lower spread, it doesn’t necessarily mean they are the best trading pairs for you.
So, after selecting a suitable trading pair, purchase them and get into the trading business market.
Wait for Price Increase of your Purchased Currency
As the popular currency pairs are highly volatile, assuming you chose from the mentioned ones, their prices will increase at any moment.
So please wait for the price of your trading pairs to increase, and when it does, sell them quickly before it drops!
Sell Your Currencies at a Higher Price
The buying rate of foreign currency is called ‘bid,’ and the selling rate is called ‘ask.’ You make money from the spread between the bid and ask.
The bid is almost always lower than the ask, so whenever a higher bid occurs, you have to grab the opportunity and sell it!
There are many available pairs in the market. You can try several before you choose which one to stick to.
As forex trading is a risky business, you should first make a demo account with virtual currency to test which one suits you best and learn how to do real-life trading with foreign currencies.
If you are a total newbie in this field, hope now you know how to trade forex for beginners and can establish yourself as a successful forex trader. Happy trading!