What is Forex Trading? Quick Guide for Beginners

What You Need To Know Before You Commit 

The trading industry is huge right now. Maybe it’s because of the current state of the world and the work from home movement. Either way, it’s important to take the proper precautions before entering headfirst into a world that could be detrimental to your financial situation. 

It’s recommended that you do vital research on the market, its terms, and the way it functions. That way you’ll be able to put your best foot forward if or when you decide to invest in Forex Trading. 

We’ve put together a beginner’s guide to learning the ins and out of the market to get you started. Let’s dive in. 

What is Forex Trading? 

To put it simply Forex Trading is when you purchase a currency at the expense of selling another. This is done in an attempt to garner a profit by researching the market and predicting their future value. Think of it as heading to the bank to exchange currency for a trip to a foreign company, except you’re doing it strategically and based on the “value of a dollar.” This type of trading is what often drives the fluctuations in the value of different currencies. 

Forex Trading consists of three different Market places, the spot market, forwards market, and futures market. These markets aren’t your typical 9 to 5 and are open 24 hours a day on weekdays. There are plenty of forex brokers to chose from, if you’re interested in joining the market. Similar to how you trust your bank with investing in stocks for retirement savings plans, forex trading is commonly undergone by large corporations or institutions on the behalf of others. 

What is the Difference Between Forex and Stocks? 

You might know someone or even have some experience with the stock market. However, a common misconception or mistake is that Forex trading and the Stock Market are similar when in fact they couldn’t be more different. 

For starters Forex trading deals with currencies while Stock Market’s deal with the shares of a company or companies. This can already be the deciding factor of whether or not you want to chose Forex and Stocks, however here are some more difference between the two. 

Popularity 

Forex Trading is a hot topic today and is currently the more popular financial market globally. This is important because the more people participating in the trade the easier it is to buy or sell within the market. Essentially there will be more money and more possibilities flowing through a market with more traders. This also makes it easier to bail out of a trade and sell your assets quickly in cases of emergency. 

With the stock market you will only get this amount of easer with movement of assets when buying shares in larger companies, which are usually guaranteed money but not a huge amount. 

Hours of Operation

Like we mentioned before the Forex Trading markets are open 24 hours a day from Monday to Friday. On the plus side this allows you to be able to trade at any hour of the day no matter the time zone. However, this also means trading with Forex needs extra care as the market can drastically change at any given moment. 

Price Fluctuation 

We touched on this above, but how likely and often a market is often to see price changes should be integral when making your decision. Because Forex Trading is so accessible this makes it prone to price changes, and in some cases loss of assets. This is why its important to have a plan before trading in order to establish your limits and what you’re willing to risk. 

It’s also important to do research use analytic tools and keeping up to date with events around the world that alter the social or economic dynamic of a country. This can all effect how the Forex Market will function in the days or even hours following. 

How Do The Currencies Work? 

Currencies when trading with Forex always come in pairs. You will start with a base currency which will be listed to you first on Forex. The second is the currency you will be purchasing – the proper term is the quote currency. The data base will tell you how much of your base currency it will cost in order to purchase a unit of the quote currency. Each of these currencies have a code when trading so it’s important to do research on them. 

These currencies continuously fluctuate in value and it’ll be your job or the brokers job to “see into the future” and purchase the currency you are they believe will be worth the most. 

Tips For Getting Started 

Now that you’ve learned the basic it’s time to look at some things you can do to start your Forex Trading journey. 

Before doing anything, create a plan. Speak to experts and do all the research you can on the market. Because of it’s popularity information on the topic and in depth analysis is readily available. You have to be honest with yourself and know the risk and be ready for the possibility that they could occur. 

Next, you have to find your strategy. All the research will do you good but nothing will ever prepare your for the reality of trading. Just like how school doesn’t prepare you for the real world. You’ll have to learn how to grow your strategy over time and learn the ropes. 

This strategy will be a mix of theoretical knowledge and the analysis tools that Forex Traders are fond of. Ultimately it’s up to you to decide what strategy you feel more comfortable with. 

To get prepared you can consider starting a demo account to practice with until you feel confident you can actually make a profit in trading. Some people get caught up in the potential of making money and often head into things they’re not ready for. 

Overall, it’s best to lead all your trades and strategy with your head. Logic and technique is what will get you to the top. If you’re someone who leads with their heart and emotions its important to find way to avoid that happening. Nothing happens on whim in the world of trade.