Forex, an abbreviation for foreign exchange, refers to the practice of exchanging one currency for another. Currency exchange ranks as the topmost traded commodity in the globe as it enables easy trading with minimal capital. In this write-up, we’ll be discussing in detail the basics of how you can get started with forex trading.
Understanding Currency Pairs in FX Trading
Currencies are always traded in pairs. When you want to exchange your AED for INR, two currencies are involved in the trade process. Each currency is identified by definite currency symbols. The U.S. Dollar is symbolized by U.S.D, EURO is symbolized by EUR, and Emirati Dirham is symbolized by AED, to name a few. The market price mentioned against a specific currency pair is how much it will cost to buy the second currency.
How Market Price is Determined
Most currency pairs move around 50 pips per day. The term pip is an abbreviation for point in percentage and refers to the fourth decimal in a currency pair. When the price of a specific currency pair moves from 0.8600 to 0.8650, it means a 50-pip movement has occurred. The profit you make from a trade invariably depends on the total amount of currency you’ve purchased.
Additionally, the first currency within a specific currency pair is always the directional currency. If the price of the INR/AED currency pair is increasing, it means that the value of INR is increasing compared to AED.
Choose a Trading Platform
Before getting started with the trading process, you’ll need to decide on the platform. Some of the most popular platforms for currency pair trading is the MetaTrader 4 and MetaTrader 5 platform. To download the platform to your device you’ll need to first register with a reliable FX broker.
Recommended Forex Trading Strategy for Beginners
Although you are aware of the terminology and theory behind forex trading, getting started with forex trading is always a difficult proposition for new traders. Listed below are some recommended strategies to get started with FX trading.
This is a long-term forex trading strategy and as the name suggests, uses breaks within the trading chart as a signal. When a market moves in between the support and resistance levels, the market is said to be in a consolidation phase. A breakout usually occurs when an entity moves out of this limit. Breaks can be a sign of a new trend, but it’s not something that is always guaranteed.
Using Moving Average as an Indicator
This strategy makes use of longer historical data when trading currency pairs. As a principle, the decision to buy and sell is determined based on the respective positions of short-term and long-term moving averages. While moving averages are not recognized as a guaranteed trading signal, it is often used as an indicator to buy or sell a given currency platform.
FX Trading Tips for Beginners
Listed below are a few handy tips that can help any new Forex Trader
Understand the Market
Any new trader first needs to take an initiative to educate himself. Learning in detail about various currency pairs and the reasons why a movement occurs can help to make better decisions during the trading process.
Formulate a Trading Strategy
Good traders always make decisions on a definite strategy. Apart from having a plan in place, it is important to stick to the plan. The success/failure of a strategy can only be determined based on its implementation over the long term.
Practice with a Demo Account
Before trading with a live account, it is highly recommended to understand the platform you are using and how to properly execute an order. You can register with a forex broker and take advantage of the demo accounts they offer for this purpose.
Do not go overboard with your trades, always stick to your plan, and never invest money that you cannot afford to lose. For this purpose, using stop-level options available within the given forex trading platform can be put to good use.
Take it Slow Successful traders are those who are consistent over a long period of time. Losses will occur along the way but with a solid strategy in place, you can more or less come out as a winner by being consistent over a longer period of time.