Forex is a global decentralized market where currencies are exchanged for another currency. In a more simplified way, you buy a forex currency pair and exchange it with another currency pair. In the Forex market, you can trade many currencies of major countries such as US Dollar, British Pound, Australian Dollar, Euro, Japanese Yen, etc
The forex market is open 24 hours and 5 days a week, during the business days, and closes during the weekends. The forex market is one of the largest financial markets with trading volume, liquidity, and value. The foreign exchange market has a daily volume of more than $5 trillion per day and is the largest market in the financial industry.
The major financial centers on the forex market are London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. The United States dollar is the most traded forex currency pair followed by Euro, Yen, GBP, etc.
How you can make money with Forex trading?
In the forex market, you trade the market by buying or selling currencies. For e.x, if you buy the currency pair EUR/USD at the value of 1.08200, and then close the order at a higher value than 1.08200, you have made a profit from that trade. The profit of the trade depends on the spreads, lot size, entry price, close price, and more.
You need to have a forex trading strategy that can improve your trading skills. There are different ways that you can choose your trading style like day trading, swing trading, or scalp trading.
The bid is the value (price) that your forex broker will buy it when you open a buy (long) order. Each broker offers the Bid and Aks price. For example, if the Bid and Ask price on EUR/USD is 1.08200/1.08198, you will buy the EUR/USD at the price of 1.08200 because that’s the Bid price. The Bid price is always higher than the Ask price.
The Ask price is the opposite of the Bid price. If the Bid and Ask price on EUR/USD is 1.08200/1.08198, your broker will execute the order at the price of 1.08198 because that’s the Ask Price. As we mentioned, the Ask price is lower than the Bid price.
Spread is the difference between the Bid and the Ask price. Here’s an example, if the Bid price on EUR/USD is 1.0800 and the Ask price is 1.0797, then the Spread is 3 pips. There are two types of spreads, Fixed Spread and Floating Spreads. Fixed spreads remain unchanged and don’t get affected by the important economic news.
Floating spreads are different than fixed spreads, as they float during the important economic even news.
Percentage in points (Pip) is the unit of measurement between the change value of two currencies. For example, if you opened a trade on EUR/USD at the price of 1.08100 and closed it at 1.08105, then you have made a profit of 5 pips.
To start currency trading in the foreign exchange, first, you need to choose the lot size of the open position. 1 standard lot is equal to 100,000 units. A mini lot equals to 10,000 units and a micro lot equals to 1,000 units.
To trade a standard lot of 100,000 requires a $100,000 balance on your trading account. But with leverage provided by the broker, you can trade 100,000 lots with a balance of $1,000. The $99,000 balance will be covered by your broker, and the standard leverage is 1:100.
When you open a standard 100,000 lot units, the $1,000 amount you deposit is called “margin”. The margin protects the account balance from the negative balance with a margin call and a stop out level.
The stop loss protects your account balance by stoping the open trade on a selected price level. For example, if the price of EUR/USD is 1.07500 and your stop-loss price is at the 1.07550, then your order will execute at the 1.07550. The stop loss doesn’t guarantee accurate price execution for you as a forex trader.
And in some situations where important economic events occur, the stop loss will not be executed at your stop-loss price. With the stop-loss, your account balance is protected from margin call outs or stop out levels.
With take profit, your order is closed automatically when the price reaches your take profit price. If you set the take profit price at 1.08100 and when the fx trading market reaches that price, your order will be closed automatically.
What platforms you can trade Forex?
You can trade Forex on mobile, desktops, tablets, etc. The most popular trading platforms are MetaTrader 4, MetaTrader, 5, cTrader, etc. MetaTrader 4 was released in 2005 and is the most used platform for trading. It allows you to trade directly from your computer, laptop, phone, or tablet.
The platform has charts from all forex currency prices that show the Japanese candlestick chart. It offers many advanced features or tools to do technical analysis of the financial markets. You can trade the forex market with a demo account that stimulates using live exchange rate data.
MetaTrader 5 is a new version of MetaTrader4, and MetaTrader 5 was designed to offer more advanced features and tools, so the trader can analyze the currency market much easier. The cTrader platform is similar to MetaTrader platforms, but it’s made in recent years and offers many more features. It uses a clean and modern design and allowing you to trade many forex currency pairs.
What are Forex Brokers?
To start trading forex currency pairs, you need to use a forex broker. The broker “acts” as a mediator between you and the network of banks. Before you start trading forex, first you need to create an account on the broker website, verify it with your account information, and then fund the account.
All forex brokers offer a paper demo account, which helps you to trade the foreign exchange by not using real money. The forex broker offers a standard of 1:100 leverage and different forex trading platforms.
Finding the right broker for you can be challenging, and you need to make sure the broker is regulated. Some of the most popular regulated forex brokers are Pepperstone, Oanda, IG, FxPro, Forex.Com, FBS, XM, etc.
However, there are other brokers that don’t hold a regulation license, and you always need to check for regulation and analyze the broker by reading feedback, reviews. etc.
When it comes to selecting the best forex broker, you need to study the broker’s commissions, spreads, deposit and withdrawal fees, leverage, etc.