A Beginner’s Guide to Forex Trading

If you are a forex trading beginner, you may not be familiar with many trading concepts and basic terms. And you may not even know what forex trading is and how it starts. The following is a brief guide for forex trading for beginners.

1. Know what forex trading is and how it works

Forex trading is the process of buying and selling currencies to obtain capital gains. A forex trader buys a currency at a lower price and sells it later at a higher price for profits. However, a forex trader can also profit from a fall in price by short-selling the currency. The price of one currency is related to the price of another currency in a transaction, so you will always use two currencies at the same time. The price difference between currencies is where your profit or loss is.

2. Understand the terminology of forex trading

PIP: The smallest price change that can be made for a given exchange rate. Since the price of most major currency pairs is set to four decimal places, the smallest change is the last decimal point. The yen pair (JPY) is an exception, as it goes to the second decimal point.

Base currency: The first currency in a currency pair in a foreign exchange. It is also usually considered to be the national currency or accounting currency.

Cross currency pairs: A pair of currencies that do not contain US dollars in foreign exchange transactions. A foreign currency can be traded for another without having to convert it to US dollars first.

Currency pair: The quotation and pricing structure of the currency traded on the foreign exchange market; the value of one currency depends on its comparison with another currency. The currency pair shows how much quote currency is required to buy a unit base currency.

Quote currency: The second currency quoted in a currency pair in forex, which is known as the “second currency” or “counter currency.” In direct quotes, the quote currency is foreign currency. In an indirect quote, the quote currency is the domestic currency.

3. Choose the right broker

Before you start forex trading, you need to choose a brokerage company or forex trading platform. Look for a regulated broker with a history of at least five years. If your brokers comply with regulatory requirements, then you can be sure they are legal. They will help you with your trading, and many brokers also offer other financial services. Try to thoroughly research and read the reviews of various brokerage companies.

4. Analyze the world economy

Making money in trading currencies comes down to accurately predicting the trend of the global economy. To be profitable, you must convert the base currency to a quote currency set to appreciation and then convert the quote currency back to the base currency when the value peaks. Studying the trade status, GDP, and political environment of the countries you are interested in buying money will help to give you a clue about which currencies are worth investing in, and which countries are expected to have economic growth.

5. Make forex trades

Once forex trading beginners have determined the quote currency they want to purchase, they should place an order. Their brokerage company can offer online trading software that allows them to place orders for trading currencies. They can use many forex instruments such as margin calculators, pip calculators, profit calculators, economic trading calendars, trading signals, and foreign exchange currency converters.

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