What to know about Forex trading as a beginner?

You want to get into forex trading but you do not know all the specifics of this activity ? Carefree. In this article, I will introduce you to the specifics and fundamentals of this activity that will allow you to get started as a beginner. Online trading is access to financial markets from your web browser, in order to place purchase and sale orders.

Trading for beginners as well as professionals is above all buying or selling a financial instrument at a certain price to make money in the best case or lose it. In this article, I present to you everything a beginner needs before embarking on this activity. But before we begin, here's how to improve the conversion rate in your online store.

⛳️ What is Forex trading?

Forex trading is a practice that consists of buying financial assets with the aim of then reselling them at a higher price than they were acquired and thus realizing a capital gain.

Le trading is different from investing in particular by the investment horizon of the trader who generally positions himself on an asset in the short term. It is therefore more a question of speculation than of investment.

Trading is based on exploiting price variations that may exist on an asset while the trader remains positioned: from buying to selling but also from selling to buying in the event of a short sale, and this variation can be amplified to maximize its gains (be careful, in the event of losses, the latter will also be higher) thanks to the leverage effect practiced by using derivatives.

There are professional traders working for major financial institutions, but trading is also practiced by individual traders or proprietary traders who trade on online brokerage platforms with amounts they own, for their own account.

This form of trading developed a lot at the turn of the 2000s, with the development of online brokerage enabled by the rise of the Internet.

Trading is a practice that consists of buying financial assets with the aim of then reselling them at a higher price than they were acquired and thus realizing a capital gain.

⛳️ Difference Between Trading and Investing

Trading differs from investment in particular by the investment horizon of the trader who generally positions himself on an asset in the short term. It is therefore more a question of speculation than of investment.

Trading is based on exploiting price variations that may exist on an asset while the trader remains positioned: from buying to selling but also from selling to buying in the event of a short sale.

This variation can be amplified to maximize its gains (be careful, in the event of losses, the latter will also be higher) thanks to the leverage effect practiced by using derivatives.

There are professional traders working for major financial institutions. Trading is also practiced by individual traders or own-account traders who trade on online brokerage platforms amounts they own, for their own account.

This form of trading developed a lot at the turn of the 2000s, with the development of online brokerage enabled by the rise of the Internet. All this takes place on a Forex market.

⛳️ What is the Forex Market?

Forex is a portmanteau of foreign currency and exchange. Foreign exchange is the process of changing one currency to another for various reasons.

Generally it is for reasons of speculation, trade or tourism. The foreign exchange market is where currencies are traded.

Currencies are important because they enable the purchase of goods and services locally and across borders. International currencies must be exchanged to conduct foreign trade and business.

If you live in the United States and want to buy cheese in France, you or the company you buy the cheese from must pay the French for the cheese in Euros (EUR).

This means that the US importer would have to exchange the equivalent value of US dollars (USD) into euros.

The same goes for travel. A French tourist in Egypt cannot pay in euros to see the pyramids because it is not the locally accepted currency.

The tourist must exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate.

🔰 How to get started with Forex trading?

Forex trading is similar to stock trading. Here are some steps to get you started on the forex trading adventure.

🎯 Learn more about forex

Although not complicated, forex trading is a project in itself and requires specialized knowledge. For example, the leverage ratio for forex trading is higher than for stocks, and the drivers of currency price movement are different from those in stock markets.

There are several online courses available for beginners that teach the ins and outs of forex trading.

🎯 Create a brokerage account

Vou will need a forex trading account with a brokerage to start forex trading. Forex brokers do not charge commissions. Instead, they make money from the spreads (also called pips) between the buy and sell prices.

For novice traders, it is a good idea to set up a micro forex trading account with low capital requirements.

These accounts have variable trading limits and allow brokers to limit their trades to amounts as low as 1 units of a currency.

For context, a standard account lot is equal to 100 currency units. A forex micro account will help you get familiar with forex trading and determine your trading style.

🎯 Develop a trading strategy

Although it is not always possible to predict and time market movements, having a trading strategy will help you set general guidelines and a roadmap for trading. A good trading strategy is based on the reality of your situation and your finances.

It takes into account the amount of money you are willing to put up for trading and, accordingly, the amount of risk you can tolerate without becoming exhausted from your position.

Remember that forex trading is primarily a high leverage environment. But it also offers more rewards for those willing to take the risk. 

🎯 Always know your numbers

Once you start trading, always check your positions at the end of the day. Most trading software already provides daily trade accounting.

Make sure you have no pending positions to fill and that you have enough cash in your account to make future trades.

🎯 Cultivate emotional balance.

Forex trading for beginners is fraught with emotional roller coasters and unanswered questions. Should you have held your position a bit longer for more profits?

How did you miss that report on weak gross domestic product numbers that caused your overall portfolio value to decline? Obsessing over such unanswered questions can lead you down a path of confusion.

This is why it is important not to get carried away with your trading positions and to cultivate an emotional balance between profit and loss. Be disciplined about closing your positions when necessary.   

🎯 Start with a demo/practice account

Most major trading platforms offer a practice platform so you can try your hand at trading without spending your hard-earned money.

It would be a good idea to take advantage of such a platform so that you don't waste money while you're on a learning curve. During trading practice, you can learn from mistakes so as not to repeat them in real time.

🎯 Start with small investments

When you get into real-time forex trading after enough practice, starting small would be a good idea.

Putting a large sum of money into your first trade can be a risky business that could lead you to make impulsive decisions and lose money.

Investing in small amounts at first and then gradually increasing the lot size over time would be beneficial.

🎯 Keep a record

Keep a journal that records your successful and unsuccessful transactions for future review. This way you will remember past lessons and avoid repeating mistakes.

⛳️ How to spot forex trading scams?

From social media ads to creating fake websites, fraudsters are using increasingly sophisticated scams to trick investors.

They often promise once-must-have investment opportunities where traders can achieve exceptional returns overnight.

Scammers often disappear after receiving payment, leaving investors with nothing. Here are some telltale signs that can help you spot a forex trading scam before it's too late:

🎯 Unsolicited offers

If you are contacted out of the blue about a forex investment opportunity, it is likely a scam. Never give out your personal information or transfer money to the company if they do.

🎯 Unrealistic returns

Forex scams often promise high returns on your initial investment that are too good to be true. Any company offering get-rich-quick investment opportunities is likely to be fraudulent.

🎯 Social Media Ads

A growing number of scammers are using social media to advertise fraudulent investment opportunities. They often use images and videos of luxury items to entice people to invest.

You can find more information on common forex trading scams and how to avoid getting caught in our guide.

🔰 How to manage your forex trading risk ?

Currencies are constantly changing in value and as the forex market operates 24 hours a day. It is not always possible to keep an eye on the progress of your transactions.

There are automated tools you can set up in your forex account to help you manage the risk of losing money if the market is not in your favour:

Stop-loss orders: limit how much money a trader loses when a currency hits a certain value. Once a stop-loss order is triggered, your currency will automatically be sold at the next available market price.

Limit orders : allow an investor to set the minimum or maximum price at which he wishes to buy or sell a particular currency pair.

Limit orders can save you from having to watch rates and automatically buy or sell a currency when it hits your desired price.

🔰 Forex Market Terminology

The best way to embark on the adventure of forex is to learn its language. The Forex industry is full of unusual terms, acronyms and words that one can often leave one's head spinning for a bit.

Getting used to trading can be quite difficult when introducing new platforms such as MT4, MT5, etc.

Coupled with foreign terminology and not understanding such trading language, this can be a major obstacle to a trader's journey and profitability.

Read on for a guide to some of the basic terms every Forex trader should know to help them develop their forex trading knowledge.

🎯 currency pair

There are more than 180 recognized currencies in circulation and used in 195 countries. As traders, we can speculate on the performance of a certain currency by using a range of analysis and research to determine how that currency is performing in the market.

The way we trade these currencies is based on the performance of one currency against another – Forex Trading.

When selecting a currency to trade, you will notice that these come in pairs. Let's take EUR/USD as a case study.

If you were to “ the purchase » the EUR against the USD, you are betting that the euro will perform stronger than the US dollar.

Pairs are classified into 3 main groups:

Major Pairs – The 8 common pairs all contain USD as the base or counter currency and one of the following – EUR, CAD, GBP, CHF, JPY, AUD, NZD.

Crossed Pairs – These are 2 major currencies that do not contain the US dollar as a base or counter currency. These are known to be more volatile than the major pairs.

Examples include GBP/AUD, EUR/CAD and NZD/CAD to name a few.

Exotic Pairs – They are literally exotic currencies, lesser known currencies that can be extremely volatile in the market. These are in particular the Border South African, from forint Hungarian and Zloty Polish.

🎯 Leverage

Leverage is basically money borrowed from a trading account. Trading with leverage allows a trader to open a position with a high contract size with less expense.

High leverage trading is an efficient way to trade your favorite Forex pairs, cryptocurrencies and more without investing large amounts of capital.

Let's use a popular Forex pair as a case study and use GBP/USD. Based on a contract size of 100 per lot, an unleveraged trader would need around $000.

130,000 / 500 (dollar rate) = $260

Using leverage of 1 / 500, a trader can open a position of just $260,00. The trader now controls $130 with only $000.

🎯 Buyer/seller price

The bid price is the price at which a trader is willing to sell a currency pair. The ask price is the price at which a trader will purchase a currency pair. These prices are displayed on the left side of MT4 in the “ Market Watch ».

The difference between the bid price and the ask price is called the spread.

🎯 Be long/short

When a trader takes a position long on a currency pair, the first part of the pair is bought while the second is sold. Go long or buy currency means you expect the price to rise.

That is AUD/USD. Buy the Australian dollar against the US dollar – expect the price of AUD to rise.

When a trader goes short, the first currency is sold while the second currency is bought.

be short, is to “sell” half of a currency pair in the hope that the price will fall.

🎯 Margin

Margin is the initial capital a trader must put up to open a position. Margin also gives a trader the ability to open a larger position size. When trading with margin, the trader only needs to bid a percentage of the total value of a position to open the trade.

Margin opens the door to leveraged trading but, beware, margin amplifies both profits and losses.

🎯 PIP

The acronym PIP stands for Percent In Point. The PIP is the smallest movement reflected in an exchange rate on a currency pair. The PIP is the 4th decimal on a price quote for a currency pair. It is used to measure value.

For example: AUD/USD The price is 0,6876

This means that 1 Australian dollar will buy you around 0,6876 US dollars. If the PIP increased from 0,0001 to 0,6877, it would mean that you can acquire a little more US dollars for every Australian dollar.

🎯 Batch size

A lot in Forex trading is the size of the trade/position you will open.

1 Lot in standard Forex trading on a currency pair is the equivalent of 100 units of the base currency of the pair. If we look at EUR/USD, that means opening a trade in USD would mean the trade size is $000. EUR being the base currency. 1 standard PIP is worth $10

This means an incremental move of 10 pips in a buy trade would represent a gain of $100.

🎯 Bullish / Bearish

Market sentiment provides insight into the performance of a particular market or the stock market as a whole. When market sentiment is bullish, it means the price is increasing. When market sentiment is bearish, it means the price is falling.

An easy way to tell the difference is that bulls have horns and throw things up in the air when provoked. Price up. When bears are provoked, they stand on their hind legs and destroy objects. Decreasing prices.

🎯 Forex account

A Forex account is the account you use to trade currencies. Depending on the lot size, there can be three types of forex accounts:

Micro forex accounts: This is an account that allows you to trade up to $1 worth of currencies in a single batch.

Mini forex accounts: These accounts allow you to trade up to $10 worth of currencies in a single batch.

Standard forex accounts: These accounts that allow you to trade up to $100 worth of currencies in a single batch. Remember that the trading limit for each lot includes the margin money used for leverage. This means that the broker can provide you with capital in a predetermined ratio.

For example, they can put up to $100 for every $1 you put up to trade, meaning you will only need to use $10 of your own funds to trade currencies worth $1.

🎯Ask

An ask is the lowest price at which you are willing to buy a currency. For example, if you place an asking price of $1,3891 for GBP, the figure mentioned is the lowest you are willing to pay for a book in USD.

The ask price is usually higher than the bid price.

🎯 Offers

A bid is the price at which you are willing to sell a currency. A market maker in a given currency is responsible for continuously offering offers in response to buyer requests.

Although they are generally lower than the asking prices, in cases where demand is high, the prices offered may be higher than the asking prices.

🎯 Bear market

A bear market is a market in which prices fall for all currencies. Bear markets mean a downward trend in the market and are the result of depressing economic fundamentals or catastrophic events, such as a financial crisis or natural disaster.

🎯 bull market

A bull market is a market in which prices are rising for all currencies. Bull markets signify an uptrend in the market and are the result of upbeat news about the global economy.

🎯 Contract for difference

A contract for difference (CFD) is a derivative that allows traders to speculate on currency price movements without actually owning the underlying asset.

A trader betting that the price of a currency pair will rise will buy CFDs for that pair, while those who believe its price will fall will sell CFDs relating to that currency pair.

The use of leverage in forex trading means that a CFD trade that goes wrong can lead to heavy losses.

🎯 spread

A spread is the difference between the bid (sell) price and the ask (buy) price for a currency. Forex traders do not charge commissions.

They make money from spreads. The size of the spread is influenced by many factors. Some of them are the size of your trade, the demand for the currency and its volatility.

🎯 Sniping and hunting

Sniping and hunting involves buying and selling currencies near predetermined points in order to maximize profits.

Brokers engage in this practice, and the only way to catch them is to network with other traders and observe patterns of such activity. Before you leave, here is a premium training that allows you to build your business online.

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