Forex trading is the exchange of currencies in the foreign exchange also refered as forex market. It involves traders who buy one currency at low price through a broker and simultaneously sell when prices rise.
The foreign exchange (FX or forex) market is a global marketplace where traders exchange national currencies. Traders attempt to profit from forex trading by selling and buying currencies while actively speculating on the direction they are likely to take.
The forex market is open to buy and sell currencies 24 hours a day, five days a week and is used by banks, businesses, investment firms, hedge funds and retail traders.
This guide provides a simplified introduction to Forex trading, it explains how to start forex trading in few steps: Analysing the market, looking out for reliable broker, opening an account, testing your trading prowess, making a deposit, and exploring passive income options.
- Analyze The Market
One of the first things to learn when you want to trade currencies is how the forex market operates, which is very different to exchange-based systems such as shares or futures.
Research and analysis should be the foundation of your trading endeavors. Without these, you’re operating on emotion. This doesn’t typically end well.
When you first start researching, you’ll find a whole wealth of forex resources which may seem overwhelming at first. But as you research a particular currency pair, you’ll find valuable resources that stand out from the rest. You should regularly look at current and historical charts, monitor the news for economic announcements, check indicators and perform other technical and fundamental analysis.
- Look Out For A Reliable Forex Broker
You will need a forex trading account at a brokerage to get started with forex trading.
Forex brokers do not charge commissions. Instead, they make money through spreads between the buying and selling prices.
The first step to becoming a professional Forex trader is finding the right broker. The broker refers to an organization that allows traders to trade on the Foreign Exchange Market. A broker acts as the intermediary between traders and the interbank market. They provide traders with a trading terminal, trading instruments, and other conditions they need.
You can probably open an account with an online forex broker no matter where you live. Just look for one that meets your requirements as a trader and will accept you as a client.
When selecting a broker, ensure that they are licensed and regulated in your country, offer low commissions, and have favorable trading conditions. Additionally, different brokers are suitable for particular regions.
- Open an Account
After researching and settling on a broker, your next step is opening an account with them.
You cannot trade on the Forex market without opening an account with a broker because it stores your funds, allowing you to conduct trading activities.
To bring to your knowledge, there are two types of trading accounts; a demo account that works exactly like the real account but holds virtual money that is not real and real accounts which hold actual money and allow traders to trade on the Forex market.
After you’ve decided on a broker, you can deposit funds into a trading account. Most online forex brokers accept a number of ways to fund an account, including bank wire transfers, debit card payments or transfers from electronic payment providers like Skrill or PayPal.
- Test Your Trading Prowess
After completing all of the above steps, you now have a funded forex account and are ready to trade, it’s advisable to test your trading strategies first before embarking on the real deal. Most Forex brokers offer demo accounts where traders can test their trading strategies and practice trading without risking any funds.
Demo accounts work similarly to real ones by simulating trading conditions, allowing users to stake virtual money and realize the outcome later. They also give access to quote charts, open and close orders, and select timeframes.
Demo accounts prepare novice traders for the real thing, and once they are ready, they switch to a standard (classic) version. These accounts close at the end of the expiration date or when traders exhaust their virtual deposit.
Experienced traders can also benefit from demo accounts by using them to try out new strategies without losing money.
- Make A Deposit
After finding and knowing your way around a demo trading platform, it is time to move to the real thing. Therefore, make your first deposit and start trading. However, the amount of your deposit depends on several factors, which you must consider carefully.
When evaluating the amount of money you wish to deposit, one critical principle is starting with a small risk-free amount as you do not want to deposit a minimal amount that fails to realize sizable returns. Never depositing more money than you are willing to lose. Forex trading is lucrative due to its high liquidity. However, you can also make severe and disappointing losses. You don’t want to give up before you realize Forex trading’s full potential and benefits.