Forex for Dummies
Forex for Dummies: Basics of Currency Trading for Beginners
In the article below, you will learn all important aspects of the Forex for dummies. The foreign exchange market, also known as the currency market is one of the most popular markets in the world as many people and organizations trade in currency for a variety of reasons. The market also has a large number of traders, who speculate on the status of the currency. Those who want to start the trading will need to learn the basics. There have been quite a number of information in the market that will guide them. One Forex for dummies fact about this market is the availability of little or no “inside information” because all the price fluctuations are controlled by the market conditions, including the monetary flow and conditions of global macroeconomics. The other thing is that the fluctuations are real time as significant currency and economic news are released the same time, causing the same effects all through the market.
One important fact that will help you in understanding the trading is that the currencies are traded against one another. The pair of currencies constitute of one product that is expressed in the format “XXX/YYY”. The XXX is the price of one unit currency expressed in the value of YYY- the ISO 4217 international 3-letter Code, for example GBP/USD is the price of the British pound as expressed in US dollars.
Another fact is that a trader needs to keep in mind is that the Forex exchange has no single universal rate for currency pairs, since it is an interbank and over the counter market. The Forex market carries on its business 24 hours throughout the week, meaning that the all currencies in the world are continually traded. This means that the traders react to current developments in real time instead of waiting for the opening hours of the market, making Forex trading different from other types of markets.
Similar to other markets, there is a bid/offer spread, an important factor in Forex. This is the difference between the buying and selling price. Most of the time, the offer price (price at which at which the currency is sold to a wholesale customer) and the bid (price that is bought from the same wholesale customer) is usually low. However, this does not work with the retail customers as the spread is a little bit higher and Forex for dummies will highlight this. The brokers will offer their clients higher margin amounts, facilitating them to spend more money on the spread.
Each beginner trader needs to keep in mind five essential aspects of the currency markets before they start trading. They include:
- Forex Fundamental Analysis – this is the market analysis that only happens in line with the real events and data showing the macroeconomic conditions related to the currencies traded. It is not only used in Forex but also as a section of financial forecasting and planning in various ways.
- Forex Technical Analysis – this market analysis focuses on the data numbers in the market. The main use of this analysis is to predict the future market data as based on the technical data collected in the past.
- Money Management – with the information about the market, traders will not manage to make any money without a proper strategy for managing their money. Money management is emphasized in and it involves a number of rules that any trader needs to formulate. With the right strategy in Forex for dummies, the traders will increase their chances of making the most out of their trading.
- Forex Trading Psychology – Forex market requires that any trader in Forex master their emotions so that they can be successful in trading. There are quite a number of techniques that a trader can use to help them avoid the temptation of making spontaneous decisions as based on their emotions.
- Brokerage in Forex – One of the most important tools in Forex is a broker. The trader should ensure that the broker they have selected is professional and reliable. The broker should provide the trader with real-time information and at the same time execute the orders accurately and quickly. The trader considers the cost of the brokers and select the one whose commission is not too much.
Important Thing to Keep in Mind
With the knowledge of how trading takes place and the aspects that are essential in trading, the beginner traders need to keep a number of facts about Forex:
- Knowledge - it is important that all traders take time in learning what is the driving force behind the currency rates. This is important fact because it will influence the way you will trade, especially when there is current news that cause fluctuations in the market. There are quite a number of books with this information.
- Over Trading - Forex experience emphasizes that the traders know that trading using tight stops and small profit is more effective as compared to random trading.
- Reliance on Others – Forex experts recommend that you trade on your own or have someone else trade for you to get the best out of it.
- Trading Plans - having a trading plan is very important tip in Forex because it will guide you in trading.
- Exiting Trading – one thing about Forex is that traders should have a good and efficient exiting strategy.
- Trading Confidence is a very important factor in Forex - traders need to be courageous enough to benefit from successful trading and therefore Forex market warns against trading when you lack the confidence.