Why Trade Forex?: Advice and Tips for beginners

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If you are new to Forex trading, then there are a number of pointers you need to remember to ensure that you trade only on the right currencies.

Through the course of this guide we will detail: what Forex is, how it works, how to trade successfully… essentially everything you need to know to make your transition into Forex trading every bit of the success you want it to be.

What is Forex?

Short for the ‘Foreign Exchange Market’, Forex trading is all about buying and selling currencies. Over $3.2 trillion exchanges hands every day, making it one of the largest financial markets in the world.

No other market can confidently say that they trade currencies 24 hours a day. Offered through a singular global network, the accumulation of the US, Australia, New Zealand, Hong Kong, Singapore and the UK ensures that the Forex market continues trading 24/7.

Why should I sell currencies?

For one of two reasons:

1. 5% of all daily turnovers occur through companies and the government who buy/sell products/services in foreign countries. Once sold/bought they need to convert these foreign currencies into their own domestic currency
2. The other 95% are accumulated through trading for profits or ‘speculating’

What currencies are involved?

Although 85% of daily transactions involve trading with the Australian dollar, the British pound, the Canadian dollar, the Japanese Yen, the Swiss Franc and the US dollar, you can choose to trade on any of the following currency pairs:

• EUR/USD = Euro/US Dollar
• GBP/USD = Pounds Sterling/ US Dollar
• USD/JPY = US Dollar/ Japanese Yen
• USD/CHF = US Dollar/ Swiss Franc
• USD/CAD = US Dollar/ Canadian Dollar
• AUD/USD = Australian Dollar/ US Dollar
• NZD/USD = New Zealand Dollar/ US Dollar

What does USD/JPY actually mean?

What you will often see on the Forex market is 2 numbers i.e. 115.37/115.40.

The 1st number represents the bid you are willing to place on a currency, whilst the 2nd number stands for the offer/ask that the trader is prepared to sell at.

Now when USD’S, EUR’s etc get involved it gets a bit more complicated. To explain it in its most simplest terms, lets use the following example of USD (1)/JYP (115).

Here USD represents the base currency (which is always 1), whilst the 115 for the JPY stands for the amount of Yen needed to equal one US dollar. With us so far?

Using this example should the currency quote go up it means the dollar has appreciated in value and if it has goes down, then the opposite has occurred.

What are the best ways to trade?

With most platforms you will come across 2 specific routes: Forex Fundamental analysis and Forex Technical analysis.

• Forex Fundamental Analysis: happens usually a couple of times a day. Here a currency pair will steadily move along all day long before suddenly jumping by up to 10pips in a minute. When this happens it will continue to move strongly for an hour.
• Forex Technical Analysis: is a technique where you learn the forex market by using charts and indicators to predict the future prices of a security.

What influences currency?

It is true that when it comes to the Forex market you need to be aware of what is happening around you. Why? Because currency pairs are seriously influenced by supply and demand in reflection of:

• current interest rates
• economic performance
• sentiments towards ongoing political situations
• perception of future performance of one currency against another

Your goal as a trader is to use this information to help spot which currency will rise/fall in value against another and make a bid.

You can go either way. On the one hand you can choose to bid on a currency which you think will rise in value, whilst on the other you can bid on a currency which you think will fall.

What is leverage?

It is easy to get confused with leverages as they play an important role in your trading strategy.

First of all, should you choose to trade with $100, you will not receive $100 worth of that currency. Instead this figure will be multiplied by a leverage that will give you sums of up to $40,000.

Now this isn’t real money that you can take away straight away. The key to leverage's is understanding the profit percentages you will receive when the currency fluctuates and moves in your desired direction.

Important points to remember…

There is a lot to take in when you are first starting out on the Forex trading market, and it won’t be easy becoming as profitable as the top traders you see on the web (well, not straight away).

To be a success you need to be prepared to put in a lot of work as well as ensure that you remain dedicated, disciplined and committed to expanding your knowledge base in money management.

That is why we thoroughly recommend that you first sign up to a course; read tonnes of eBooks, research your platforms and the background of your broker first before you sign, and open a demo account.

It is important that when you take that first step to trading you are 100% confident that your trading strategies will work. Practice, practice, practice… before you begin trading with real money.

To help, here are a few quick reminders:

1. Forex is a 24hr market - meaning you have got every chance to take advantage of profitable markets at any time of the day
2. Forex has the highest liquidity – as a trader you can enter/exit the market whenever you want. There is no minimal execution barriers
3. Forex has the highest leverage – you can experience leverages of up to 400
4. Forex has got a low transaction cost - retail transaction costs (bid/ask spread) is less than 0.1% i.e. 10 pips. With larger dealers you will find spreads of less than 5 pips
5. No one can cover the market – even large central banks do not have the power to control market prices for an extended period of time, meaning everyone has got a chance to be successful

Top Trading Tips

1. Never add to a position that is losing
2. Always determine a stop and profit objective before you enter into a trade (Never place stops based on market information)
3. Open a demo account – practice makes perfect, and with paper money you won’t have to worry about making losses
4. Remember: following trends is safer than betting against them
5. Don’t trade for trading – there will be times where a lack of liquidity or excessive volatility will make trading pointless
6. Have at least 2 accounts – a real account and a demo. Learning doesn’t stop even when the money starts rolling in. Keep practicing…
7. Examine the daily charts, the four hour charts and the one hour charts
8. Don’t trade the time frame that is offered – choose to trade the pattern instead i.e. reversal patterns, hesitation patterns and breakdown patterns
9. If you have got the right amount of money opt to have two trading lots instead of just one – the more trading lots you have the safer it will be.
10. Remember trading is risky! Don't risk anything that you cannot afford to, you should have a budget and stick to it.

Remember if you're new to FOREX to use one of the demo accounts to learn how that software works and familiarise yourself with the market. FOREX trading can involve significant financial risk even for experienced traders.