WHAT IS FOREX TRADING AND HOW DOES IT WORK
Forex, short for foreign exchange or FX, is the market where traders buy and sell various world currencies. It is considered the largest and most liquid financial market in the world. It has no centralized location since all transactions are made via electronic networks of traders, institutions, and banks. The forex market is active 24 hours and five days a week and has major financial centers in New York, London, Sydney, Tokyo, Zurich, Frankfurt, and Hong Kong. Exchange rates fluctuate continuously because even if the trading day ends in the U.S., the day will just start for Japan.
Currencies are important in carrying out business transactions and trade. If you are from the U.S. and you go to France for a vacation, you will have to exchange your U.S. dollar to euros to be able to enjoy their services or goods. Then, if you are returning to the U.S., you will have to exchange your leftover euros to dollars. In simple terms, you are selling one currency to buy another. However, most transactions involving currencies are done for speculative reasons, specifically to make profit.
There are hundreds of currencies in the world, but in forex trading, transactions are mostly made using major currencies such as:
US Dollar (USD)
Euro (EUR)
British Pound (GBP)
Japanese Yen (JPY)
Canadian Dollar (CAD)
Australian Dollar (AUD)
These currencies are listed as pairs when trading e.g. EUR/USD, GBP/USD, USD/JPY. The first currency listed is called the base currency, while the second currency listed is the quote currency. A currency pair signifies how much of the quote currency is needed to buy one unit of the base currency. For example, the EUR/USD pair is quoted 1.17939 which means that 1 euro = USD 1.17939.
How does forex trading work? Traders take advantage of the price movements of currency pairs. Since exchange rates change constantly, traders can easily buy or sell a currency. This is also the reason why the forex market is the most liquid among the financial markets. The trading volume is extremely high, making it easier for traders to speculate how the price can change over time.
But before you can trade forex, you need to equip yourself with the right skills, enough capital, a great broker, and a well-thought-out strategy. All of these factors should not be forgotten to be successful in forex trading.
Can I Teach Myself To Trade Forex?
Learning forex can vary from one person to another, but the best way to start is to read about it. It is important to know the basics first and then move on to the technicalities. Researching and understanding about trading styles and strategies are also vital in becoming a successful forex trader. Are you a long-term or short-term trader? Do you perform well under pressure or do you need a longer time to make decisions? Knowing your trading personality will define your trading style and you will be able to learn the appropriate strategies that will suit it.
Once you know how you work, the next step is crafting your plan and laying down your rules. This is the part where you have to design a system that is aligned with your personality and goals. Risk management should be a vital aspect of your trading system because this will prevent you from incurring losses more than necessary. Of course, your plan will only work if you follow it dutifully.
In trading, experience is your greatest teacher. Beginners are advised to open a demo account where they could practice their trading system. This way, you will be able to distinguish your system’s strengths and weaknesses and how forex trading works as a whole. Over time, you will be able to understand how you can exploit the changes in currency prices to make a profit by using different strategies.
Trading is a complex industry and it will take some time before you will be able to get the hang of it. Practicing and testing your strategy over and over again is the key to success. You can start with a demo account and then move to live trading once you are comfortable and ready. Do not expect instant results when you are just starting. There is a high chance that you will experience losses in the beginning but do not be discouraged. Trading is not an easy journey, but with patience and determination, you will be able to master forex trading by yourself.
Is Forex Trading Good For Beginners?
Anyone can start forex trading provided that they are armed with knowledge beforehand. Since it is the most liquid financial market in the world, the trading volume is high, meaning a lot of traders buy and sell currencies every second. No one should jump into trading without preparations and practice. If you are a beginner, make sure that you already have an in-depth understanding of forex trading. Granted, you may lose money when you are just starting to trade, but as you continue, you will gain more experience that will help you reduce your losses and make profits instead.
Forex trading will be difficult but it does not mean that it is impossible to learn it. Everyone had been beginners at one point in our lives and, as time passes, we learn how things work and then become proficient at them. That also applies to forex trading.
How Difficult Is Forex Trading?
It is only natural for beginners to find forex trading difficult. But in general, forex trading can be difficult due to the risks that come with it. Many people believe that forex trading can give them easy money so they just dive in without knowing how the market works and how to trade wisely. You need to have sufficient tools, skills, and knowledge before you should trade. If not, you will just find yourself confused and overwhelmed. Some do not employ risk management tools that will protect them from incurring losses which makes forex trading difficult for them. The market can move anytime against them and without the proper tools, losses are inevitable.
Educating yourself beforehand and gaining enough experience by practicing constantly will make forex trading easier even if it would take you months or years.
HOW TO START FOREX TRADING
Can I Start Forex With $5 – $10?
Some might have heard that you need a lot of money to start forex trading, but this is a misconception. A reason why forex trading is great for beginners is that you can already trade even with small capital. Several brokers let you open an account for as low as $5. However, you should be careful when finding the right broker for you since many of those who accept lower minimum deposits are scammers.
As a beginner, it is better if you start forex trading with a small amount of capital because it will help you lessen the risk you might sustain. You are still learning the ropes of forex trading and by trading small amounts, you will get the much-needed experience until such time that you are already confident to trade with larger amounts. As you go on, your skills will also develop which will help you minimize your losses.
Trading with a small capital is also a great way to start testing a new strategy. This is useful for beginners and professionals alike. If you feel like trying out other strategies that will give you profitable trades, then starting small allows you to do that without worrying about losing a lot of money.
Traders are also constrained in making a single trade with small capital. Some traders with huge accounts tend to get greedy because they know they can make many trades. This could lead to making unnecessary decisions especially if the trader is not disciplined enough. But with having only a small amount on your account, you will most likely be mindful of your trades. It is also a great way to instill discipline so that your emotions would not get in the way of your trading.
How Can I Make $100 A Day In Forex?
Yes, it is possible that you can make $100 a day, but it will all depend on your capital, trading strategy, and other factors such as market conditions. There is only a small chance that you will be able to earn $100 in a day if you are just a beginner. But even if you are already a seasoned trader and managed to do this, you might also lose it in an instant if you are not careful. When it comes to forex trading, your goal should be making consistent profits and not just making a profit on one trade. Ideally, if you really want to achieve that $100 goal a day, you will have to have a huge amount in your trading account while religiously following a well-thought-out strategy to support it.
But in forex trading, we should always try to be realistic. When you are starting, do not expect that you will produce profits in such a short time. You will earn money and lose some, but that is how you will learn how to find profitable trades in succeeding times. One mistake that new traders make is that they expect to get easy money from forex trading and that it can happen every day. This is not the reality of trading because one day you might make a profit and the next day, you won’t.
The best way to become great at forex trading is to focus on developing your skills and strategies. Since this is the most liquid market, many potential trades can be done and it will be up to you to find the most profitable trades among them.
How Much Are 100 Pips Worth?
In forex trading, you probably have encountered the word, “pip”. Pip is short for percentage in point or price interest point and refers to the smallest price movement between two currencies which is equivalent to 0.0001. It is also the last digit or the fourth decimal place in a forex quote as most currencies are quoted to four decimal places. For example, EUR/USD is quoted 1.1824 and then goes up at 1.1825, this would be one pip movement.
Always remember that if USD is listed as the quote currency (e.g. EUR/USD, GBP/USD, CAD/USD), the pip values are fixed. These fixed amounts are:
Standard lot: USD$10 or 100,000 units of currency
Mini lot: USD$1 or 10,000 units of currency
Micro lot: USD$0.10 or 1,000 units of currency
If the quote currency is not USD (e.g. USD/CAD, USD/CHF), divide the pip values above by the exchange rate of the currency pair you are trading.
For example, you want to know how much 100 pips are worth in the EUR/USD pair. Since the pip values are fixed, you just have to multiply 100 to the specific value. In a standard lot where 1 pip = $10, 100 pips x $10 = $1,000. In a mini lot, 100 x $1 = $100. In a micro lot, 100 x $0.10 = $10.
If you are trading the USD/CAD pair, you have to determine the exchange rate first and divide the pip value from it. For example, the USD/CAD has an exchange rate of 1.32. To find the value of a pip, you will divide $10 / 1.32 = $7.58. Thus, we can say that 100 pips in a USD/CAD standard lot are worth $758.
However, when you are trading against the JPY, there are some slight changes. For example, you want to find the pip value for the USD/JPY pair. After dividing the fixed pip amount by the exchange rate, you have to multiply the answer by 100 since the pip in JPY is located in the second decimal place (0.01). To illustrate, divide $10 (fixed pip value) / 105. 77 (exchange rate) = 0.095447 x 100 = $9.45. Therefore, we can conclude that 100 pips in a standard USD/JPY lot are worth $945.
CAN I MAKE A LIVING DAY TRADING FOREX?
Anybody who is interested in forex trading might have asked themselves if they could make a living doing it. The simple answer is yes. But before you would be able to do that, you have to know the basics, how the market works, what strategies are apt for your trading style, and other things that would help you navigate the forex market. For new traders, this shouldn’t be their primary source of income especially if day trading is going to be the preferred style.
Day trading is a very demanding trading strategy. You need to be in front of your computer most of the time since you are targeting the small price movements in the market. It will also require quick decisions in opening and closing trades. If you do not perform well under pressure, short-term strategies like day trading are not for you. But if you are determined to be a forex day trader, you need to hone your skills so that you can spot profitable trades in just a short time. However, it will take some time before you can actually make it as your primary source of income but it is not impossible. All you need is patience and determination in mastering day trading forex.
How Long Does It Take To Master Forex?
LEARN FOREX TRADING STEP BY STEP
Learn the basics of forex
Choose a reputable broker and open an account.
Find or download an online platform.
Plan a risk management strategy.
Learn how to analyze the market and the strategies professional traders use.
Start and practice trading.
Forex For Beginners PDF
Best Forex Trading Tutorials
As a beginner, it can be difficult to find the best resources to aid you in forex trading. There are many available resources online that offer different information. Websites such as Babypips makes forex trading easier by explaining it in a simple way. You can also refer to other websites such as Investopedia for more in-depth information.
You could also try enrolling in an online forex trading course to gain better understanding of the market. This course in Udemy will teach you everything there is to know about forex trading. All materials are kept updated so you don’t have to worry about missing the latest information.
FOREX TRADING BOOKS
Day Trading and Swing Trading the Currency Market by Kathy Lien
Forex Trading: The Basics Explained in Simple Terms by Jim Brown
Forex for Beginners: What You Need To Get Started and Everything In Between by Anna Coulling
How To Make a Living Trading Foreign Exchange by Courtney Smith
Currency Trading For Dummies by Brian Nolan
Technical Analysis of the Financial Markets by John J. Murphy
FOREX TRADING VIDEOS ON YOUTUBE
Warrior Trading
Finance Illustrated
Day Trade The World
Adam Khoo
Rayner Teo
Trading 212
