Forex also known a foreign exchange is a decentralized global market where all the worlds’ currencies are traded. Forex trading is the act of buying and selling currencies in the foreign exchange market. The foreign exchange market has grown with time to become the biggest, largest and most exciting financial market in the globe.
One of the most important basic knowledge one must have before going into the foreign exchange market, is the exchange rate between two countries.
What is an Exchange Rate?
An exchange rate relating to Forex trading can be defined as the rate at which a currency would be exchanged for another. This can also be regarded as the currency value in one country in respect to another country’s currency value.
A special channel known as the interbank market conducts the trading of currencies in the foreign exchange market 24 hours a day and 5 days a week.
As a beginner, you have to first understand the Forex market and how it works, having the understanding that the value rates of each country’s currency tends to variate often thereby making the exchange rates unstable. Investing in the Forex market would demand much of your time and attention and you must be into it and do research always.
Get started with Forex Trading
To be on the safe side, you are warned that not all Forex brokers are genuine. Forex brokers are firms that create a platform for traders to trade their currencies for other currencies. This foreign exchange brokers handle a very small portion of the volume of the general foreign exchange market. A thorough research on which Forex broker you are going to settle with is highly recommended.
Create an account with your desired Forex Broker
After finding a good and genuine Forex broker to settle with for your currency trading, go ahead with creating an account with them and make sure all important information are written down for future references.
Fund your Account
After creating an account with your preferred Forex broker, funding the account would be the next and suitable step, the minimum initial deposit most Forex brokers accept is $100. Funding could be done through a direct deposit or through your debit or credit card.
Have a domiciliary account
If you have this already, you can proceed to the next step but if you do not, a domiciliary account allows individuals and businesses to receive and make payments in foreign currency. This account would facilitate your international transactions and could be accessed through cash deposits or foreign currency cheque deposits. For effectiveness of your transactions, this account is very important because through it you can make a withdrawal of your profit at any time.
Acquire a high performing gadget
Starting a forex trading business would require a high performing gadget in order to ensure efficiency and accuracy in your business. Forex trading requires time commitment in order not to increase your risk of losing. Most times the lost people make is as a result of using some bad gadgets for operation. You will also need a very fast and reliable internet connection to aid you in attending to solutions and updates in the foreign exchange market quickly.
Start with the major currency pairs
The major currency pairs are USD/CHF, USD/CAD, AUD/USD, EUR/USD, GBP/USD and USD/JPY. These are the currency pairs that rookie traders go for and account for the majority of all speculative trading in FX. Please see below:
EUR/USD (euro/dollar) – “euro”
USD/JPY (U.S. dollar/Japanese yen) – “gopher”
GBP/USD (British pound/dollar) – “cable”
USD/CHF (U.S. dollar/Swiss franc) – “swissie”
You should not bother much on these pair below:
AUD/USD (Australian dollar/U.S. dollar) – “aussie”
USD/CAD (U.S. dollar/Canadian dollar) – “loonie”
NZD/USD (New Zealand dollar/U.S. dollar) – “kiwi”
Two main countries involved in Forex trading
The United Kingdom and United States are the world’s financial capital – where Forex trading has greater influence. This is the reason New York trading season and London trading season are the most volatile.
Terms in Forex trading
As a beginner, you will surely encounter with some terms in the Forex market but having prior ideas about these terms is necessary before resuming trade. As a potential trader, you must learn these terms before beginning trading. The `following terms below are the basic terms in the Forex market you need to understand:
- PIP: In Forex trading a PIP is an abbreviation for percentage in point and is used for measuring the exchange rate movement. The PIP is a numeric value that ultimately measures profit and loss. A single PIP is equal to 0.0001.
- Spread: This is the PIP (percentage in point) difference between the bid and the ask price of an underlying asset. In the cost of making a trade, a spread is required. To calculate the spread, subtract the bid i.e. the selling price from the ask i.e. the buying price.
- Leverage: This is the ratio which defines the loan amount i.e. the margin that traders are allowed to use to gain access to larger sums of trading capitals. A mismanagement of the leverage could cause a huge loss to you in the market so, it should be used wisely.
- Margins: A margin can be considered as the minimum deposit. This margin allows you access to a larger amount of capital.
- Slippage: While trading, sometimes you will notice a slight difference between the price you expect and the execution price.
Having a pre-knowledge about this basic terms and how to apply them in the Forex market, would aid you in a smooth trade.