FOREX TRADING FOR BEGINNERS
We were all new at some things in life. In this article I will be discussing forex trading from scratch. To start with.
What is Foreign Exchange?
Just as it sounds. It simply means; the conversion of one form of currency (lets say USD)into another currency (lets say KSH). Forex or FX is just the short form.
Reasons for exchanging currencies
• To aid international business transactions.
• To trade the currency pairs for profit.
Common Terminologies used In Forex
Currency Pair; This is the combination of two different currencies that are traded in a forex market. E.g. USD/EUR, USD/JPY are called Currency pairs.
Pip; A base unit in the price of the currency pair i.e. 0.0001 of the quoted price in non-JPY currency pairs. For instance when the bid price moves from 1.15556 to 1.15566 it represents a difference of 1pip.
Spread; This is simply the difference between the purchase price and the sale price of a currency pair.
Margin; The amount of money retained in the trading account when opening a trade.
How does forex work?
Lets say that you want to travel to Egypt to visit the common pyramids.
You will need to convert your Ksh into the Egyptian Pounds because it’s the only form of currency that’s accepted in Egypt as a medium of exchange.
You will be required to give your Ksh in exchange for the Egyptian Pounds.
This is a global marketplace where national currencies are traded all over the world through computer networks.
Just like in a normal market where the prices of goods and services are influenced by the forces of demand and supply.
The movement of currency pairs depends not solely on these forces, but also influenced by other economic, social and political factors.
Bullish and Bearish Market
Bullish market; This is a market that is going up.
Bearish market is one which is going down.
For better understanding. Just like you would go to a normal market and buy some mangoes and resell them at a profit. In a forex market, currencies are traded against each other to make profit.
For instance, In a spot forex, the trading involves buying a currency at a price (Ask price) and selling the currency at a price higher price (bid price) normally at the current exchange rates.
Most used trading strategies include;
1.Swing Trading; This strategy focuses on large price movements which may take days or even a few weeks.
2.Intraday Trading; The trading strategy focuses on 1 hour to 4 hours price trends on main sessions each forex market.
3.Currency Scalping; traders who use this strategy buy and sell currency pairs between few seconds and few hours making large number of small profits to accumulate.
4.CFDs (Contract for Difference); Involves taking advantage of price movement without buying the currencies.
Forex has associated trading risks. They are leverage, transaction and interest risks. For one to maximize on returns, its important for one to adopt a good trading strategy with calculated risks.
Forex Trading Hours
The market operates 24hrs 5days every week and only closed on weekends. Trades can be carried out at any time because at least there is one market that is normally opened at any time of the day.
There are different trading sessions which overlap as below
• London and New York Session
1500 – 1900hrs. EAT
• Tokyo and Sydney Session
0200 – 0900hrs. EAT
• Tokyo and London Session
1000 – 1100hrs. EAT
Choosing Your Broker
Brokers are useful in that they connect every individual with the market.
There are various factors every trader should consider before choosing a broker.
They include with no exemption of;
1.The deposit and withdrawal process and the transaction fees charged.
2.Whether the broker is from your country and registered or not.
3.The number of currency pairs the broker provides.
4.The level of leverage provided.
5.The effectiveness of the customer service provided by the broker.
6.The terms and conditions of the broker.
7.The user reviews can also help you to chose an appropriate broker. Almost all brokers have an app on Google Play Store, you can check the reviews from there.
Its therefore imperative for a trader to chose a broker who will be of benefit to them.
- Most brokers Such as Metatrader 5 and Olymp will always provide a free demo account for every one who signs up with them. This helps so many beginners to practice before opening their live accounts.
As I conclude, go ahead and start learning more from books, online videos and free demo accounts.
You can also consider being couched by an experienced trader.
Basically, learn new skills everyday. Avoid brokers who promise you high returns. Don’t be driven by emotions of either greed or fear, be emotionally balanced. All the best in your forex trading.