Forex, which stands for Foreign Exchange, is simply the process of buying or selling a currency in exchange for another.
For example, when you go to Japan and you need money to purchase products or services over there, you’re going to need that country’s currency, a Japanese Yen. So, you go to the money exchang and exchange your greenbacks for a stack of Japanese Yen. In this situation, you are already participating in the global foreign exchange market.
The foreign exchange market is the world’s biggest decentralized market, trading trillions of dollars in a day around the clock. This market offers opportunities for many financial gains in trading currencies, which is why many people seek to become Forex traders.
That said, the wealth of information out there regarding forex trading can be pretty overwhelming for those who want to start. This guide will help explain the fundamentals of forex trading and how forex trading coaching can help kick start your journey into the world of currency trading.
Forex Trading In A Nutshell
In its most straightforward concept, Forex trading involves pairing up two currencies and predicting which one of the two is going to increase in value compared to the other one in the pair.
Take, for example, the USD/JPY pair. It shows you how many Japanese Yen it takes to buy one US Dollar. Symbols like this are used to designate specific currency pairs, most common of which are EUR/USD, GBP/USD, AUD/USD, and more.
The demand for certain currencies can go up or down in value against other currencies at any given time. The causes of a currency’s value movement can be anything from interest rates to significant political events to public debt.
As a Forex trader, you’ll be looking to take advantage of these fluctuations in different currencies of the world. You can gain profits when the value of your chosen currency increases in relation to the other currency in your pair.
How To Start Placing A Forex Trade
To start Forex trading, you need to sign up at an online Forex Trading platform, one of the most popular being Meta Trader 4. After signing up and logging in, you will be able to avail their various currency pairing options.
The broker you choose to trade with makes the difference between making a good trade or a bad one, so make sure to select the right broker based on reliability, ease of use of trading tools, the availability of trading educational materials, and most of all, regulatory compliance.
Start with smaller investments upon joining the market for the first time. That way, you can manage and minimize risks while still learning the ropes about Forex trading.
How To Look At A Forex Graph
When you go to a Forex trading platform for the first time, it can be pretty confusing, especially on which currency to track.
However, it’s a lot simpler than it looks. When you pick a currency pair, the currency that comes first (the one on the left) is the one that you’ll be tracking. In the case of a USD/JPY pair, it is the USD’s value that you believe will go up, while the other currency will lose value. In this case, it’s the Japanese Yen. You can then sell your USD at a much higher price than your initial investment.
Traders use different strategies to speculate on the next price action (when it’s going up or down). The most common strategy is divergence day trading. While looking at a graph in your chosen trading platform, you can add little graphs on the bottom. These graphs are called indicators.
One indicator you can use is the relative strength index or RSI. The RSI indicator’s smaller graph usually follows the same path of the original graph, but when you see a discrepancy between the two graphs like if the pattern of the original graph is going up, while the pattern of the RSI graph is going down, this creates the divergence which supposedly tells you where the price is going next, depending on the type of divergence. You can learn more about this by taking forex trading classes.
Though many people have made Forex Trading their bread in butter, it will require some level of skill before a beginner can profit from it consistently. It takes learning and applying trading strategies repetitively, which could sometimes result in losses.