Forex is actually the acronym for Foreign Exchange Market. A global, over-the-counter or decentralized market for exchange of foreign currencies. You may not know it by name but if you have bought let’s say an imported bag from somewhere then you have been a part of forex already. However purchasing an imported item and trading in forex cannot be counted in the same way. For forex trade one needs proper knowledge about the market. It’s not like you need to know about everything in great detail but the basics should be under your command. So if you are a beginner then this blog is for you. Here, we will talk about forex trade for beginners and how it works.
FOREIGN EXCHANGE MARKET | OVERVIEW
When talking about the forex trade for beginners, it is necessary to have a basic idea about the topic. In a nutshell, forex is nothing but exchange of one currency for another. And any such transaction takes place in the foreign exchange market. For instance one can swap Indian rupee for dollar via forex. The swapping takes place by utilizing currency pairs which are priced in terms of one against another. For example, the trading currency pair USD/INR represents Indian Rupee versus US dollar and USD/CAD represents US dollar versus Canadian dollar. With each pair there is a price associated. To exemplify, if the price of USD/CAD pair is 1.5432 then it means that it takes 1.5432 CAD to buy a USD. So now if the value of USD will rise then the value of CSD will fall as more CADs will be required to buy one USD. The prices associated with each trading pair is irrespective of one another.
HOW DOES IT WORKS | TRADING IN FOREX
With trillions of dollars trade every day the forex market is probably the largest, most liquid market. The forex market is an electronic network of banks, brokers, institutions, and individual traders and there is no centralized location for trading. There are basically three different lots in which the currencies are traded namely micro, mini and standard lots.
The forex market is open 24 hours a day so you can buy or sell currencies according to your comfort. When someone is making trade in the forex market that simply means that he is buying or selling the currency of a country. There is no physical exchange of money. This is different from foreign exchange kiosks in which people exchange money physically. When a trader trades in forex his motive is to gain profit.
FOREX TRADE FOR BEGINNERS | THINGS TO KNOW
As a rookie in this field here is all you need to know about forex trade for beginners.
Basics of forex
The very first thing that you need to know is the basics of the forex market. We have already gone through the overview and working of the forex market but that’s not all. There is still so much more to it which you have to learn gradually.
Understand the currency pairs
There are two types of currency involved in the currency pairs. One is base currency and the other is quote currency. We can understand it better with an example. In this pair EUR/USD, EUR is the base currency. This currency is bought or sold in exchange of quote currency, which is USD in this case. There are other important terms like bid price, ask price, spread and pips in a currency pair about which you need to learn.
Set up a brokerage account
There are various web trader platforms that are specially designed for the beginners to make things possible for them. Platforms like Plus 500 and IG web traders come with easy functioning algorithms and help the beginners to set their feet easily.
Develop a trading strategy
Do some research and plan a less risky strategy. Trading in areas like the stock market and forex is not always about risk and luck it is also about the strategy. Before making any trade make sure to check the past performance of the currency. If there are any chances of unnatural fluctuations then wait for the right time to trade.
Increase the area of your knowledge
Keep yourself updated and learn as much as you can if you wish to make good money from forex trade. Learn about the different currency pairs like major currency pairs ( most commonly traded, and account for nearly 80% of trade volume on the forex market), crosses (pairs that do not include the USD) and exotic currency pairs (currencies from emerging or smaller economies, paired with a major country’s currency).
It is a known fact that these markets are accompanied by huge risks. You are prone to both profit as well as loss. So it is better to develop an emotional equilibrium to avoid any possible emotional breakdown.
Beginners are susceptible to mistakes and that’s how they turn into veterans. Keep this in mind but also make sure not to have a bite that you can’t chew. Do enough research work and increase the range of your knowledge and skills. Forex comes with great opportunities but risks as well.
Q : Is there any special qualification required for forex trade?
A : Any formal qualification is not necessary. However if your educational background is related to finance then things will be much easier for you.
Q : Are there any risks in forex trade?
A : Every investment with potential profit comes with risk. To mention some – exchange rate risk, leverage risk, liquidity risk etc.
Q : Do I need a license to trade?
A : Retail investors don’t need a license to trade in foreign exchange unless you are trading in bulk. However, in countries like India, forex trading is highly restricted and heavily monitored.