Trading currencies is an activity most commonly known as Forex. Interestingly, the term Forex is synonymous with both the conversion of one currency into another and the entire market where this practice occurs.
Whilst the market typically works in pairs, such as USD/EUR, it’s actually an activity you can do all on your own (with a little guidance at first). We’re going to give you a handful of pointers to get you moving in the right direction so that you can become the next great trading mastermind.
So, what do you need to do to get yourself familiar with the basics of Forex?
Educate Yourself About Forex in General
Here are some questions that you can take away and research to give you some great foundational knowledge for Forex trading:
● What is a leverage ratio?
● Which 18 foreign currencies are most typically traded, and does having fewer products to trade make portfolios and activities more manageable?
● What drives price movement? Think of supply and demand, international news and geopolitical tensions, interest rates, government policies, and overall market confidence
● What are pairs and pips?
● How does currency trading differ from stock trading? (Consider that in Forex, you are always trading one currency for another, whereas stock trading actually involves buying and selling different stocks, so they require different skills)
● What is the difference between a micro-lot, a mini-lot, and a standard lot? ● Why do we need to exchange currencies for international business to function? ● What does OTC mean, and why is it essential to Forex?
● Why are London, New York, Zurich, Tokyo, Frankfurt, Hong Kong, Sydney, Singapore, and Paris key to the Forex market?
● What is a spread and how does it differ from a commission?
Where Can You Find this Information?
● The mighty search engine: Google
● YouTube: There are hundreds of Forex masters who share their knowledge for free. Be wary though, most of them are plugging some online course or subscription to secret signals or a mastermind group. You don’t need to join these things to become a good Forex trader
● Udemy: We found over 2,900 courses related to Forex on Udemy, with 875 targeted especially at beginners and over 450 of those published in English. Courses start from €14.99
That might seem like a lot of questions to think about to get you started, but you’ll have to take our word for it that answering those questions and taking advantage of the resources out there will give you plenty of theoretical knowledge. Now, let’s talking about the practical basics of trading currencies.
Opening a Brokerage Account
You won’t be able to trade Forex without a trading account at one of the various brokerages out there. Our advice to get you started as a beginner, where low-risk movements are most logical, would be to open a Micro Forex account that offers low capital requirements and allows you to trade in much smaller amounts than a fully-fledged trading account.
Strategy & Portfolio Management
We’ve encouraged you to educate yourself before you get started simply because the biggest risk you can take is to jump in with zero experience and simply hope for the best. A hope and a prayer won’t get you very far in this field, so learn how the pros time market movements, how they set alerts on prices and news, and how they manage their finances and tolerable risk. Find out which are the best apps for tracking the market, and which Twitter accounts provide the most digestible information. Learn about daily position tracking and accounting, ensuring that pending positions or cash availability don’t stifle your good work.
Good to know: Your strategy is yours alone, however, if having a strategy isn’t your strong suit, take a look at copy trading.
Some Concluding Thoughts About the Basics of Trading Currencies
One thing we’ve not yet explored is the emotional side of Forex trading. Perhaps that’s because it’s a huge topic that’s very individual to each trader. Some people are fraught with tension and anxiety whilst trading, whereas others are as cool as a cucumber. Some people have weak hands and lack discipline, making rash decisions, whereas others have strong hands and are committed to their strategy. As a beginner, you have a choice to make about which type of trader you will be. From here, we wish you good luck.