Forex is a global decentralized market for currency trading, which is the largest liquid market in the world and one of the most popular markets for exchange trading. We will show you how trading at the exchange “Forex” is organized, what to start with if you have never worked with exchange before and what a beginner can expect.
How the market is organized?
The main currency here is the American dollar and trading is based on the formation of currency pairs, for example, euro and dollar, pound and dollar and others. Currency pairs are denoted by the ratio of the base (traded) currency to the quote currency – for example, EUR / USD. The quote itself is denoted by a fraction, for example: 1.1015 – this means that the value of 1 euro is 1 dollar and 10.15 cents.
In addition, it is necessary to note one more purely psychological fact: many beginning traders perceive trade on “Forex” as gambling. However, trading at the exchange is not a casino and not a bank. The profit here does not depend on luck and is not guaranteed, that is why it requires cold calculation and certain knowledge most part of which you can get only on your own practice.
How to begin Forex trading?
Choose a broker
The very first step, which should be made by a future trader, i.e. a person who buys and sells assets at the exchange market, is to get access to it. Since a natural person cannot trade at the exchange directly, it is necessary to use the services of a broker – a company dealing with all related matters: from opening a separate account for trading to buying and selling assets directly on behalf of the client.
We discussed how to choose a broker in a previous article. An important point to consider additionally is whether the broker works with Forex, because there are companies that do not operate in this market.
Open and fund an account
The next important step is to open a Forex account, which will be used for trading. By the way, there are two types of accounts, and both can be useful to a beginner trader.
- A real account is a full-fledged trading account that will hold real funds used to buy and received from the sale of currency.
- A demo account is a separate account with virtual funds that can be used for virtual trading using real, live quotes. The essence of a demo account is to help a novice trader get accustomed to the exchange market without losing real money. More experienced market players are advised to switch from demo to real account only after several weeks of active and successful trading.
You can deposit the account by different ways, and the amount depends on the conditions, set by the broker. These accounts can be either “full accounts” requiring the deposit of several hundreds or thousands of dollars, or so-called “cent accounts”, the minimal allowable sum on which in rare cases, but nevertheless can be only 5-10$.
Decide on the type of management
There are three types of management, and each of them is good in its own way:
- Independent trading – the “classic” trading method, where you yourself monitor the situation on the market and make decisions about buying/selling currencies based on your own experience. This is the most profitable method, but requires full involvement and, often, a lot of time.
- Automated – in this case all operations are carried out by a robot – a special program, acting according to a preset algorithm. Does not require the presence of a person, but can not give the same level of income, as it is difficult to algorithmically allocate the “ideal” moment for the purchase and sale of the crane.
- Trust management is an additional service from your broker, where you transfer the right to trade to a professional trader for a small percentage of each trade, which makes the trader also interested in maximizing his income.
Choose a strategy
A strategy is a methodology for buying and selling assets. There are quite a lot of strategies. For beginners, three basic strategies can be singled out, depending on time and frequency of transactions.
- Short-term trading (scalping) means frequent small transactions. In spite of small profit from each of them, the total sum of profit in such trading can be rather impressive. The main drawback is necessity of constant market monitoring, but this variant can be considered as ideal for beginning traders.
- Mid-term – resale of currency is carried out within several days or weeks. Time expenditures for trading are less, but theoretical knowledge and ability to use statistics are required.
- Long-term – assets are resold every few months. Trading is carried out for large sums. Requires the study of global trends and serious deepening of statistics.
Choose a platform
The most modern and productive method of trading at the exchange – through special trading platforms, carrying out the fastest transmission of electronic orders through the Internet. Accordingly, the most important parameters of a platform are the speed of processing commands, additional functionality (for example, different statistics and charts) and the availability of a platform version for different operating systems, for example, in the form of an application for a smartphone so that one can monitor changes in the market and carry out Forex transactions at any time.
Today there are a huge number of platforms, but beginners can be advised to start work with one of the largest and most famous – FTMO. Read more about the FTMO platform in our FTMO review.