An Ultimate Guide To Forex Trading

What is Forex?

The foreign exchange market is also known as “Forex” or the “FX market” is the world’s most traded market, with a turnover of $5.3 trillion per day. It is a marketplace where currencies are traded.

Forex is traded 24 hours a day, 5 days a week worldwide. For Forex, there is no centralized marketplace, currencies trade over the counter in whatever market is open at that time.

About Currency Pairs:

Forex is always traded in currency pairs, for example, USD/CAD. The first currency (USD) is called the ‘base currency’ and the second currency (CAD) is known as the ‘counter currency’.

Currency pairs divided into three groups:

• Major: These pairs contain the US dollar as either the base or

counter currency. For example EUR/USD

• Minor: The currency pairs which do not contain the US dollar

are known as minor currency pairs. For example GBP/JPY

• Emerging: These are made up of a major currency paired

with an emerging or small but strong economy. For example

USD/NOK, USD/HKD

Major Currency Pairs:

• The Dollar/Japanese Yen (USD/JPY)
• The Euro/Dollar pair (EUR/USD)
• The Australian Dollar/US Dollar (AUD/USD)
• The British Pound Sterling/US Dollar (GBP/USD)
• The US Dollar/Swiss Franc (USD/CHF)
• The New Zealand Dollar/US Dollar (NZD/USD)
• The US Dollar/Canadian Dollar (USD/CAD)

How Forex Works:

Trading Forex involves the buying of one currency and the simultaneous selling of another.

For example, if you think the British Pound (GBP) is going to rise against the U.S. Dollar (USD), you can buy the (GBP/USD) currency pair low and then sell it at a higher price to make a profit. But if you buy the British Pound against the dollar (GBP/USD), and the U.S. dollar strengthens, then you’ll in a losing position. So, it’s important to be aware of the risk involved in Forex trading.

Benefits of Forex Trading:

• Low Transactions Costs
• High Liquidity
• 24 hour Market
• No Commissions
• Low Barriers to Entry
• No Education Barriers

Factors that affect Foreign Exchange Rates:

1.Inflation: A country with a consistently lower inflation rate results in rising currency value while a country with higher inflation sees depreciation in its currency value.

2.Interest Rates: Higher interest rates provide higher rates to lenders, thereby attracting more foreign capital, causing an appreciation of the exchange rate.

3.Government Debt: Government debt may influence the forex currency exchange rate. If markets fear a government may default on its debt, then Foreign investors will sell their bonds in the open market causing a fall in the value of the exchange rate.

4.Speculation: Suppose a country’s currency value is expected to rise, investors will demand more of that currency to make a profit shortly. Because of this, an increase in currency value comes a rise in the exchange rate as well.

Major Forex Trading Risks:

Let’s discuss one by one:

• Interest Rate Risk: If the country’s interest rate falls, the currency will weaken, due to this more investors withdraw their investments.
• Leverage Risk: The higher your leverage, the better your profits. But, always keep in mind that your losses can also increase the higher your leverage gets.
• Transactional Risk: This risk is associated with communication, handling and confirmation of a trader’s orders result in a loss.
• Settlement Risk: It occurs because of the difference in time zones on different continents.

Steps to learn how to trade the market:

1. Take Forex Trading Course: Education is the first step in starting your success journey in the Forex Market. make your base strong by joining the best Forex training course.
2. Find the best broker: A Forex broker allows a trader to open a trade by buying a currency pair, and close the trade by selling that same pair. Try to choose the best broker for forex trading.
3. Use a demo trading account: By opening a demo trading account, practice trading before investing the real money. It gives you the ability to practice trading without the pressure.
4. Start Trading with real money: After these steps, you can start trading in the Forex Market with real money.