Are you looking for a guide to forex trading for beginners? If so, you’re in the right place because that’s exactly what this blog post covers. Click here to get all the details and start learning this valuable info!
Did you know that the foreign exchange market is the most traded market in the world?
Every day more than $5 trillion dollars are traded on average. This number is impressive, considering that daily forex trading is 25 times more than global equity.
If you are here it means that you might’ve heard about this type of trading, but have no clue what’s about. Or, maybe you just want to know what’s all the hype about it.
Don’t worry! We have you covered.
Ready for your forex trading for beginners guide?
Forex Trading for Beginners: Where to Start?
Before we get into how you can start trading on the forex market, we’ve to start with the basics. What’s the forex market? What is a foreign exchange?
The foreign exchange market, also known as forex, is the market where trading of currencies takes place. The transactions that occur in this market are known as foreign exchange. This type of transaction happens when you sell or buy a country’s currency in exchange for another country’s currency.
This type of trading usually happens for tourism or commerce. In today’s fast-moving world, this trading is necessary for the economy of many countries. Also, this market promotes the evolution of our globalized market, where all countries are connected one way or another.
This type of trading is usually done by investment and, commercial banks on behalf of their clients. Yet, they aren’t the only ones who are doing forex trading.
When it comes to trading, one of the most recent internet developments in this sector is trading platforms. Like the ones from this company have made forex trading accessible to anyone, not just the big players.
Traditionally, forex trading has been used by high net worth individuals, big companies, banks, and hedge funds. But, these trading platforms have given individual traders, the chance to get their hands dirty by trading in one of the most liquid markets.
How Does Forex Trading Work?
Trading currencies can be done in 3 ways. You can trade in the spot market, the futures market, and the forwards market. The largest of these 3 markets is the spot market.
The futures and forwards market are based on the real asset of the spot market. You might be a bit lost here, but don’t worry we’ll explain every market so you learn forex trading the right way.
Before trading platforms became available to individual investors, the futures market was the most popular. This market had been available to individual investors for a long time.
The Spot Market Aka the Forex All-Star
The spot market is the most popular market, that’s not only due to how accessible it is. What makes this market unique from the others is that here you actually trade currencies.
This market is driven by supply and demand. Some of the things that determine it are economic performance, reaction to ongoing political situations, and performance expectancy of a certain currency against another, among others.
When a trade is done in this market, it’s known as a spot deal. In this trade, one person agrees to deliver a certain currency to another person and, receives a certain amount of another currency at the agreed exchange value.
After the position closes, the settlement is in cash. The settlement of these trades takes 2 days, even though the spot market is known to deal with transactions in the present.
Forwards and Futures Markets: Forex Evil Twins
You must be thinking, that dubbing these markets evil twins is crazy. Yet, it isn’t far off from the truth. These markets don’t actually trade currencies.
Don’t read that last sentence again. You read it right the first time around. These markets trade contracts for claims on a certain currency type, at a specific price, with a future settlement date.
In the forwards market, the contracts are sold over the counter between two parties that agree between them on the terms and conditions of the transaction. The futures market is different because it isn’t determined by agreements between the buyer and seller.
In the futures market, the contracts bought and sold in this market are based on a standard size and, settlement date on public markets of commodities. An example of these markets is the Chicago Mercantile Market.
The specific details on these contracts, such as the number of units, settlement and delivery dates, minimum price increases, among others can’t be customized. Contracts in these markets can be bought and sold before they expire. Yet, futures and forwards contracts are binding and usually settled for cash for the forex exchange upon expiry.
Want to Start Trading: Now What?
So our forex trading guide has gotten you excited about currency trading, now what? How can you start trading?
To begin your journey in currency trading besides reading our guide, learning as much about forex as you can, and developing your investment strategy; you’ll have to get a forex trading account. You should know that there are 3 types of forex trading accounts.
The 3 types of accounts are the standard trading accounts, managed trading accounts, and mini trading accounts. The most popular type is the standard trading account. This account gives you access to standard lots of currency.
These lots are worth $100,000. You won’t have to put down $100,000 to get this account. It will depend on the margin and leverage rules.
Managed trading accounts are accounts that are managed by account managers. This means that you would put down the money and, all the trading decisions will be made by your account manager.
Mini trading accounts are similar to standard trading accounts, but instead, you’ll use mini lots. Usually, these mini lots are valued at $10,000; these accounts require you to put down less money than standard accounts.
Wrapping It Up
In today’s fast and accessible market, we can do almost every type of trading by ourselves or with the help of a broker. Forex trading might be a bit intimidating at first, but if you do your homework, and understand the basics you can add currency trading to your investment strategies.
Since our forex trading for beginners guide gave you all the basics, are you going to give forex trading a try?
Check our post on the best forex platforms for where to start trading.