When you begin to delve into the land of stocks and trading, you will be faced with many new terms and trading methods. One of those methods is Forex. Forex is a foreign exchange currency trading practice created to help provide stability in trading (Source: Trade City). While this is one of the most popular methods of trading, it does take time to learn.
Learning Forex is not difficult, but there are details that you need to be familiar with to make it a viable trading option for yourself. To be a successful Forex trader, you will need to know how to use various marketing strategies and be aware of worldwide currency rates.
In this article, you will learn the basics of Forex as well as tips and strategies that can help you as you delve into the world of Forex trading.
Is Learning Forex Difficult?
In general, trading can cause quite a bit of anxiety, especially when you start hearing terms you are not familiar with. When learning Forex, you will likely feel the same way. First, you need to understand that Forex is the term given to the foreign exchange market. When you begin learning Forex, you are joining millions of people worldwide that use Forex as their main trade method.
Because Forex focuses on the foreign market, you will need to be well versed in current rates of currency, especially those you intend to trade. Just like traveling to a foreign country and trading currency, you want to know the trade rate. Failure to educate yourself on the trade rate can cause you to lose a substantial amount of money.
First, Learn the Terminology
One of the key factors to your success with learning Forex is understanding the language used. Like anything, there are terms specific to trading that can influence the moves you make. Some of the most common terms you need to be aware of are:
- Quote Currency: When you are trading with Forex, you will be using a currency pair. Quote currency is one of the currencies included in this pairing. (Source: Investing Answers)
- PIP: The term PIP stands for Price Interest Point. The purpose of using a PIP is to determine the amount of change that is occurring over time with the currency exchange rate. (Source: 1 Onda)
- Currency Pair: A currency pair is the price quote of the exchange rate between two currency pairs. (Source: Baby Pips)
- Cross-Currency Pair: A cross currency pair does not contain U.S. dollars as one of the currency types. (Source: Learn Tradeimo)
Remember, Forex deals completely with currency and the use of currency pairs, so you need to be well versed in these terms to ease yourself into learning all there is to know about Forex trading. While these terms will not necessarily make you a trading wizard overnight, they can certainly help as you begin the process.
Where Do You Find Exchange Rates?
The exchange rate will have a huge impact on your trading, so you need to know the best place to find up to date currency rates. To ensure that you have the most current exchange rates, it would be advantageous to utilize the Bank of America Foreign Currency Calculator. This page is kept up to date so you can have the most relevant data at your fingertips.
What Do You Need to Know About Exchange Rates?
When trading Forex, you are essentially purchasing another country’s currency in the trade. Therefore, you need to know the two currencies you are working with and their current values. For example, if you are working with the American dollar (which you know the value of) and trading with the Canadian dollar, you need to know that a Canadian Dollar’s value is .7070. To secure 100 Canadian dollars, you will need to spend $70.70 in American currency.
While this may seem a bit confusing at first, over time, you will become adept at researching the currency values in the countries you wish to trade with, and your transactions will become seamless.
How Often Do Exchange Rates Change?
The exchange rate calculator will become your best friend when trading Forex. Exchange rates change throughout the day because they are based on the economic health of a country. As a result, the exchange rate that you see at 8 a.m. may be completely different by noon. If you are not keeping up with the fluctuations, you run the risk of losing a significant amount of money. (Source: Pure FX)
What Trading Strategies Should You Be Familiar With?
There are many different strategies that you will learn when it comes to Forex but three of the most used 1 Hour Trading, Daily Trading, and Weekly Trading. As you can see, the increments of time increase with each strategy, which means the way you handle the trade differs. This is where you need to take your time to consider the market changes.
The table below briefly details each of these strategies:
|1 Hour Trading||If you are just beginning with Forex, this may be a very challenging way to trade. While it can be a way for you to complete a large amount of trades in a short time, it requires a lot of diligence and constant monitoring of the stock market. You need to be able to think through trades quickly if you choose to use this method. Because of the rapid nature of the trading, it is not recommended for beginners.|
|Daily Trading||Day trading is a good middle of the ground method of trading. While you aren’t going to be monitoring trends for a long period of time, you will have enough time to think through your decisions before committing to a trade. Many investors like to think of day trading as a safer avenue because overnight market changes don’t impact you. However, being protected from nighttime drops also means that you cannot take advantage of the overnight climbs that frequently occur. If you are just starting with Forex, this may be a good route to go.|
|Weekly Trading||This strategy of trading is the least risky of all. Because you can see market trends that have occurred over a long time, you can make an informed trading decision more easily. The downfall of this strategy is that you may not be able to take advantage of high market days because you are looking at a weeklong model.|
How Do You Get Started with Forex?
When you begin to venture into the world of Forex trading, you must realize that success will not come overnight. Sure, some people seem to have a knack for trading and jump right into success. While this is possible, it is not likely. As with anything, Forex trading takes time, practice, and the development of a strategy:
- Time: Often, people see Forex trading as a fantastic way to make a lot of money in a short amount of time with a few clicks of a mouse. Unfortunately, it is not set up to work this way. Typically, it takes 3-5 years for an individual to see a profitable return on their trades (Source: Daily Price Action).
When looking at the time it takes for an individual to become successful working with Forex, many factors come into play. If an individual has an unlimited amount of time dedicated to learning and trading Forex, they may become successful more quickly than an individual that dabbles with the trading method.
- Practice: When learning Forex, you will need to practice your trades to determine which are the most beneficial for you. Many seasoned investors suggest working with paper and pencil before you jump into the actual online trading.
Forex is unique because it offers a free demo option that you can use to acclimate yourself to Forex trading. While this is a great tool to familiarize yourself with some of the nuances of Forex, it is not the only tool you should use. Because you are not using your money, you may not take the trading process as seriously.
- Strategy Development: You will need to develop a trading strategy that works for you. When you begin looking for a strategy, the number of choices you have can be overwhelming. Again, taking the time to explore each option will benefit you in the long run. Even expert traders spend time reworking their trade strategies to make the best investments possible.
When it comes to finding the best strategy, you will need to research and spend time watching the market and how it fluctuates each day. It is also important to know that you may not be able to rely solely on one strategy alone. You will need to be flexible and attentive to the market.
Beginner Forex Trading – Micro Account
Forex creators know that not everyone is ready to jump in feet first to begin trading large amounts. They also know that people want to veer away from practicing their trading to get started. So, they have created what is called a micro account. This is an account best suited for beginners and those who are not trading large sums of money.
A micro account allows you to begin using actual funds while shaping your trading knowledge along the way. Because this account uses low sums of money, the risk is relatively low, making it beginner-friendly.
If you have spent time looking at Forex as an option for trading and exploring the demo trading platform, you may be ready to jump into the micro-account option. If this is the case, you will need to open a micro-account. As the name implies, it has an extremely low minimum deposit, which is typically $5.
The micro-account is formatted very similarly to the larger-scale version of Forex, minus the higher price point when trading. (Sources: FXOpen)
Who Uses a Micro-Account?
You may think that a micro-account is limited to beginners; however, many seasoned traders rely on using a micro-account to test their new trading strategies and patterns. Because the monetary investment is low, it is a great way to practice new strategies with exceptionally low risk.
Beginners rely on Forex micro-accounts to learn the ropes of investing before risking a large sum of money. When using a micro-account, it is important to spend time focusing on and exploring the various strategies you may want to use when trading larger sums of money.
The process of using a micro-account to learn Forex does not have a time limit. When you decide you are ready to move to a regular Forex account, you can always hold on to your micro-account.
Advanced Forex Trading
Once you have spent time learning the ins and outs of Forex trading, you may be ready to move on to more advanced Forex trading methods. Because there are so many different methods and strategies that you can use, it would be beneficial to look into Forex specific courses that are available online.
Some courses you can use to learn about Forex trading are:
If online schools aren’t appealing to you, several e-books may be more appealing:
No matter how you choose to learn about Forex training, there are many different options available to help grow your knowledge.
How to Start Trading
To begin trading, you will need to set up an account with a broker. The broker will set up the account; however, they will need a lot of personal information from you, including your social security number, income, and net worth. While these details may seem a bit intrusive when you are thinking about using your own money, they are required to protect you as an investor.
The broker will also share with you all the risks associated with opening and using a Forex account. Read these documents thoroughly; do not regard them lightly. They are strictly for your protection. (Source: The Balance)
Where Do You Find a Broker?
Finding a broker does not have to be difficult, but you need to be cautious about who you choose to use. Here is a list of brokers that deal specifically with Forex accounts:
You must find a broker you are comfortable working with. If you are new to Forex, you want to make sure you are working with someone who is well-versed in Forex’s details and is willing to walk you through the trade process.
If you begin working with a broker that is not asking for pertinent personal information or willing to explain the process of beginning with Forex explicitly, you may want to find a different broker. Not all brokers are willing to guide you step by step when it comes to Forex trading. While rather simple to learn, Forex may be difficult to navigate with little direction from the broker you choose.
How Long Does It Take to Learn Forex?
While it would be nice to give a detailed timeline about the length of time it will take to learn Forex, it is impossible to do so. Some people pick up on the nuances of Forex and learn trade strategies very quickly, while others take a significant amount of time wrapping their minds around the terms and strategies. As a result, you cannot compare your Forex journey to anyone else’s.
Forex can be a great way to earn money trading, but it is also high risk and could lead to financial ruin if you are not cautious. Nonetheless, knowing the implications of Forex trading should help you feel comfortable taking time to learn the ins and outs before jumping in.
Patience is Essential
When you decide to begin trading with Forex, you will need to be patient with the process. It is also important that you not compare yourself to other traders. The trading process is very ebb and flow, which means some variables will be out of your control. So, your journey with Forex will likely not look like that of another person.
Your broker will guide you the best they can, but while they can give you advice and direction, they have no control over how the market performs as far as growth patterns. Because of this, you must trust the process and understand the time it may take to see success and growth.
Forex trading is one of the top methods of trading currently. It is used by novice and veteran traders and is rather simple to learn. However simple it may be, it is important to understand that the length of time required to see trading success will vary by individual and circumstance. Taking time to learn the terms and strategies connected to Forex trading will pay dividends in the long term. No matter what stage you are in, learning Forex is not impossible; it just takes time.