Do you already know what is a forex trading? If not, then you can learn forex trading beginners here. Let’s start by getting to know what Forex is.
What is Forex (FX)? The basic understanding of what forex or foreign exchange trading is is foreign currency trading with the aim of making a profit.
An example of this forex trading is, when buying on the EUR/USD pair it means that you are buying the EURO currency and at the same time you are selling the USD currency. This is the first thing you should know if you want to learn forex trading beginners.
Also read: 5 Components of How to Become a Professional Forex Trader
Learn What is A Forex Trading For Beginners Traders
Maybe there are some of you who think that forex trading is an activity related to exchanging foreign currency at a money changer.
Actually, this is not wrong, but this is the conventional way by using the services of a money changer or doing it directly at the bank.
Forex trading referred to here is the activity of buying and selling foreign currencies in the interbank market online to get a profit.
Forex trading is not an activity to earn profit just like a business and investment, but it can also become a profession like professional workers.
Foreign currency trading on an international scale is not only carried out by individuals but involves many parties such as central banks, multinational companies and there are also individuals who have large amounts of assets such as George Soros. They are all gathered in a market that we call the forex market.
Also read: What is Forex Money Management For Beginner Trader?
Difference Between Forex and Stocks
Although both are part of the financial market, forex and stock investments are two different trades.
Forex trading trades currencies where trading uses leverage so that it can minimize capital with a greater value.
While stocks trade stocks with a larger capital than forex trading. In addition, stocks have a limited stock market opening time according to the stock exchange working hours Monday – Friday which is divided into two sessions.
While in Forex trading the market is fully open 24 hours starting from Monday-Friday. And there are many trading platforms available to help you.
Also read: 3 Forex Trading Mindsets That Influence To Be Successful Trader
Forex Traded Currencies
Actually there are quite a lot of currencies traded in the forex trading market, but there are 8 major currencies that are widely traded and become the driving currency of the economy with moderate price movements around the world:
- USD: Dollar, from the United States
- EUR: Euro, used in European countries
- JPY: Yen, from Japan
- GBP: Pounds, from the UK
- CHF: Francs, from Switzerland
- CAD: Dollar, from Canada
- AUD: Dollar, from Australia
- NZD: Dollar, from New Zealand
The currency symbol consists of 3 letters, where the first 2 letters are the abbreviation of the country and the third letter is the abbreviation of the currency used by that country. Every price movement of the above currencies will always be monitored by traders:
- JP: Japan, Y: Yen
- AU: Australia, D: Dollar
- GB: Great Britain (UK), P: Pounds Sterling
Also read: Learn About How to Read Forex Chart Patterns for Beginners Traders
Contract Size and Leverage
Contract size or contract value is a standard contract that is used if we want to make transactions on a regular basis, which is 100,000 units of currency.
While leverage can be interpreted as loan funds provided from brokers to traders so that traders can have greater purchasing power.
The relationship between the two is, by using leverage, it makes it easier for traders to trade at the same value as the contract size.
Example:
Buy 1 lot on EURO currency, leverage used is 1:500
Margin = Leverage x Contract Size
= (1:500) x 100,000
= 0.02 x 100,000
= 200
So to make a transaction worth 100,000 EURO, using leverage you only need to spend $200. As a novice trader do you already understand this?
Also read: Forex Price Movements: Pivot Points, Support and Resistance
What is the Forex Market?
Basically, the forex market is a meeting place for sellers and buyers or also known as forex traders with currency as their trading commodity. Each market participant can act as a buyer as well as a seller.
Where market participants are multinational banks, central banks, large corporations, governments of any country, financial institutions, speculators, etc.
One of the things that novice traders should know when learning forex trading is the opening hours of the market. The forex market is open 24 hours from Monday – Friday which is divided into 3 trading sessions:
- Asian Session: 05.00 – 16.00
- European Session: 13.00 – 22.00
- American Session: 20.00 – 05.00
These three market sessions make trading always open 24 hours for 5 days in 1 week. You can trade whenever and wherever you are.
Also read: What is Forex Trendline Analysis
Trading Illustration
In carrying out its trading, forex trading has a very simple principle, namely to profit from the difference between the buying price and the selling price, buying at the lower price and selling at the upper price (and vice versa).
For example, we will use the currency EUR/USD. The euro is currently at a 1.13000 price position. Within hours the euro rose 10 points to 1.13100.
Where per increase of 1 point the value is $10, so with an increase from 1.13000 to 1.13100 the profit obtained is 10 points x $10 = $100.
Risks in Forex
Having many advantages does not mean that forex trading has no risk. Forex trading can be said to be a double-edged sword where we can get quite large profits but at the same time, we as traders can also get quite large losses too.
This risk absolutely cannot be avoided or eliminated. The risk will still exist but you can do risk management to be able to minimize the risk, especially for beginners.
With good risk management, you can manage trading well and can measure how much profit or loss you get from forex trading activities. Or you can study with a demo account provided by the trading platform to understand things in this world.
So that’s a little knowledge that you must have when learning forex trading beginners. Hopefully, you can apply it well and go from a novice trader to a reliable trader.
