Forex Basics
What Is Forex Trading?
Forex trading is a form of investing, in which you buy and sell currencies with the goal of making profit. With forex, you can make extra income for yourself or even a full-time income. How much you can earn from forex trading depends a lot on the amount of capital you have. Lack of the capital isn’t a problem either because you don’t need much of your own money to get started. With funding programs, you can trade with more capital than you have. You’ll hear more about that in a moment!
Forex Market
The forex market is the largest financial market in the world, with an average daily trading volume of over $6 trillion. There you can trade currencies. The forex market operates 24 hours a day, five days a week, with trading sessions opening in different time zones around the world. This provides traders the opportunity to trade currencies at any time, making it a highly liquid and accessible market.
Currency Pairs & Quotes
Currencies are traded in pairs so you can’t buy or sell a currency without another.
Currencies are always quoted in pairs, such as EUR/USD or GBP/JPY. The first listed currency is known as the base currency. It always has a value of one. The second listed currency is called the counter or quote currency.
Candlestick Chart
A candlestick chart is a financial chart used to represent the price movement of an asset, such as currency, over a period of time. It is a popular charting tool used by traders and investors to analyze market trends and make trading decisions.
Here is an example of a candlestick chart without any markups or indicators.
The chart is made up of individual “candlesticks” that represent a specific time interval, such as one day or one hour. Each candlestick has a body and wicks or shadows at both ends. The body represents the difference between the opening and closing price of the asset over the selected time interval, while the wicks or shadows represent the high and low prices of the asset during that same time period.
The color of the body of the candlestick indicates whether the asset’s price has increased (usually green or white) or decreased (usually red or black) over the selected time period. By looking at patterns of candlesticks, traders can identify potential buying or selling opportunities and make more informed trading decisions.
You can familiarize yourself with the candlestick charts
TradingView is the world’s largest charting platform, where you can monitor many different markets and make your own analyzes.
Long & Short Positions
Forex traders can take long (buy) or short (sell) positions, meaning they can profit from both rising and falling currency prices.
Different Types of Forex Trading
Swing Trading
Swing traders hold positions for several days or weeks.
Day Trading
Day traders open and close positions within the same trading day.
Scalping
Scalpers hold positions for a very short period, usually just a few seconds or minutes.
Different Types of Analysis
Technical Analysis (TA)
Technical analysis in forex trading involves using past and current market data, such as price and volume, to identify patterns and trends that can help predict future price movements. Technical analysts use various tools and techniques to analyze the market and make trading decisions.
Fundamental Analysis
Fundamental analysis in forex trading involves analyzing the underlying economic, financial, and political factors that affect currency prices. Traders who use fundamental analysis believe that changes in these factors can drive price movements.
Both analyzes can be used together.
Risk Management
Risk management is the process of using strategies and techniques to minimize the potential for financial losses. It’s crucial in forex trading due to the market’s volatility and unpredictability. It helps traders minimize losses, protect their trading capital, reduce emotional impact, and improve trading discipline. Proper risk management techniques can improve the chances of success and help traders achieve their long-term financial goals.
Repeatable Processes
Traders need to develop repeatable processes to achieve long-term success. A clear and structured approach to trading helps traders stay focused, disciplined, and consistent in their decision-making, which can lead to informed and rational trades. By consistently following a process, traders can identify their mistakes, refine their strategies, and improve their performance over time.
Brokers & Prop Firms
Brokers
Forex brokers are firms that provide traders with access to the forex market. They act as intermediaries between traders and the market by executing trades on behalf of their clients. When choosing a forex broker, traders should consider factors such as the broker’s reputation, regulation, trading platform, fees and commissions, customer support, and available trading instruments. It’s important to note that forex brokers are regulated in different ways in different countries. Traders should choose a broker that is regulated by a reputable authority in their country or region to ensure that their funds are protected and that the broker follows ethical and professional standards.
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Account Types
Demo Account
Demo account is a simulated trading account offered by forex brokers for traders to practice trading without risking real money. It allows traders to test different trading strategies, explore market conditions and familiarize themselves with trading tools and indicators. Forex demo accounts are free, easy to open online, and offer virtual funds for trading. However, they do not replicate the emotional and psychological aspects of trading with real money.
You can open demo account
Live Account
Live accounts are real trading accounts where traders use actual money to trade currency pairs in the forex market. Live accounts offer various trading options and features, but carry the risk of real losses. Traders should have a solid trading strategy and risk management plan to trade successfully.
You can open live account
Funding Companies
Funding companies offer funding programs for traders to access more capital to trade the forex market. Traders need to meet specific criteria to qualify for the funding. Funding companies typically offer 5-6 figure funding challenge accounts. These programs can be a good option for traders who need additional capital to trade, but traders should carefully read the terms and conditions and have a solid trading strategy and risk management plan.
You can learn more about the topic here.
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Warnings
Scams
Scams can be encountered in many places and it’s good to be aware of them. Don’t give money to anyone you don’t know and don’t deposit money in untrustworthy places.
Unrealistic Content
On the social media you can see a lot of unreal content related to forex trading and the lifestyle it brings. It’s good to be aware that there is a lot of fake content that you should never compare yourself to. Focus on your own journey and you can use content online to motivate yourself to push towards your goals and dreams.
Final Words
Forex trading and trading in general is a really interesting field, but it’s important to understand the basics before diving in. As you have read all the chapters of the FOREX BASICS page, you’ve formed an image of what the forex trading is all about, the rest is in your hands. Good luck on your forex trading journey!🔥
