How to join forex trading
How to join forex trading
Forex trading is one of the most exciting and attractive investment markets because of the large number of financial institutions and speculators that generate an equally high amount of trading volume. The forex market enjoys more than $5 trillion in daily turnover and is far more liquid than all the other financial markets combined. Read on to discover how you can join millions of successful forex traders today.
It goes without saying that if you want to learn how to join forex trading, you must first understand how it all works and if this market matches your goals and risk profile. While trading forex may seem simple on the surface, it’s actually an involved method of speculation and the currency markets, while promising incredible profit potential, are inherently quite unpredictable and risky markets for beginner investors.
What’s traded on the forex market
Traders, both retail and institutional, along with central banks of various countries are what make up the forex market – where currencies are bought and sold. In fact, the majority of retail currency exchange takes place online and the trading volume is so vast that buyers and sellers can execute trades at the most favorable prices in mere milliseconds.
Currency traders, however, don’t go on the forex market to buy individual currencies – they actually trade currency pairs where the currency of one country is bought and the other is sold, simultaneously. The mission of a forex trader is to profit from the fluctuations in the exchange rate between these currency pairs.
Put simply, if you believe that the value of the euro (EUR) will rise against that of the U.S dollar (USD), you can buy the EUR/USD currency pair and make a profit if your prediction is proven correct. However, the opposite is true as well. If you think the value of the EUR will drop against that of the USD, you can sell the EUR/USD pair and still realize the same profit assuming the price movement was the same.
It’s easier to think of currency pairs as a single unit which can be purchased or sold even though it consists of two different currencies. This is because each currency’s strength can be rated when compared to that of another and this is how the exchange rate between two currencies is calculated.
It’s also important to understand that when trading currency pairs, you are merely speculating on the price movement of their exchange rate – you won’t be buying any of the underlying currencies and storing them in your account. Also, the bigger the movement of the exchange rate, the more opportunities you will have to maximize your profits.
Types of currency pairs
There are three types of forex pairs which are classed according to their popularity on the market.
- Majors: The major currency pairs which are the ones that consist of the U.S dollar as one of the currencies in the pair are the most popular and highly liquid pairs available. Therefore, these are the most profitable and cost-effective pairs to trade especially for beginners who wish to learn how to join forex trading for the first time. Some notable examples are the EUR/USD, USD/CHF and GBP/USD.
- Minors: The minor pairs are the ones that don’t include the highly valuable U.S dollar, but instead the other major currencies such as the British pound, the euro and the Japanese yen. While these pairs aren’t as highly traded as the majors, there is still enough volume to make transactions fast and affordable and therefore also have their advantages. Some of the minors are the EUR/AUD, EUR/GBP and the GBP/JPY.
- Exotics: The exotic currency pairs consist of the U.S dollar or another strong currency and the currency of an emerging market such as South Africa, Hong Kong and Singapore. These are the most unpredictable currency pairs and since they are also very thinly traded, they are the most expensive to trade. However, the sheer amount of volatility inherent in these exotic pairs can be very favorable for savvy traders who can make accurate predictions regarding their movements. The Exotics include the USD/HKD, GBP/ZAR and EUR/TRY.
If you are wondering where you can make your first currency trade, you first need to open a trading account with a reputable forex broker. With a trading account, you will get access to free trading platforms with live price feeds where you can monitor the exchange rates of all the currency pairs and their historical performance on the chart. Open a CM Trading account now!
Trading on the platform
While the trading platform may seem a little complicated at first, the main functions are quite straightforward and easy to grasp.
Trading on the MetaTrader 4 platform, which is the most popular platform in the industry and the one available at CM Trading for free, offers all the tools you require to conduct market analysis and trade both from your desktop and mobile devices.
The first thing you will see when you launch the platform and sign in with your trading account credentials is the live price feed with all the currency pairs and their ever-changing exchange rates.
Also, next to each currency pair you will notice that there are two different prices referred to as the Bid and Ask. These are important because the difference between these two prices is two the spread is calculated and the spread if the small fee you pay to your broker for facilitating each trade.
For example, the current Bid and Ask price for a EUR/USD trade is at 1.0923 and 1.029 respectively. Therefore, if you would be buying this pair, you would be buying at the Ask price of 1.0929. This is the current going rate for this currency pair on the market whereas the Bid price is the best price accepted by the market in case you wanted to sell.
By subtracting the Bid from the Ask price, you get the spread which in this example equals to 0.0006 points. This pricing is quite favorable, as if you wanted to break even, you would need for the exchange rate to move for only this small fraction. Anything past that point will be your real profit.
Forex traders always need to account for the spread in all their trades because the spread, no matter how low, can prove to be substantial as your trading frequency increases.
Market analysis: how to find opportunities in forex
You may be wondering how traders can identify or predict the market’s movements consistently which admittedly is one of the most difficult challenges a trader can face. Thankfully with the maturity of the industry and the proliferation of technology in the financial markets, traders today have an array of helpful tools at their disposal that can help them make a calculated guess regarding the market’s future direction and make their entries before a trend starts forming.
Market analysis in forex trading involves two completely different approaches, fundamental and technical analysis. Fundamental analysis is mainly focused on the performance of a country’s economy and any political or financial data that may affect investors’ confidence in its currency.
You may have already heard about inflation and unemployment rates and central bank monetary policies on the news and the reason why this news is so important is because of their impact on the currency markets.
In short, when the unemployment rate is declining and the economy appears strong, the underlying currency will likely start rising in value due to more spending and increased foreign investments. When the opposite is true, however, and the economy enter a recession and the outlook looks bleak, investments will dry up and the currency’s performance will falter on the global stage.
These are all important indicators that forex traders need to watch out for before trading a currency pair. Remember though, even when a currency is losing value rapidly, forex traders can still take advantage of the drop to enter a sell trade and profit from the downside movement.
The other approach in determining where the price will move next is commonly referred to as technical analysis. This approach utilizes the historical data from past price performance to help identify patterns in the market’s behavior and therefore predict its next move.
There are hundreds of useful tools called technical indicators included in most trading platforms and these can be used to gauge supply and demand in a currency pair, which zones are likely to be tested and therefore offer the best opportunities for a breakout and much more.
If you are interested in learning about how to trade the markets, you can sign up for a free trading account with CM Trading and get exclusive access to one-on-one coaching, a welcome bonus and the best conditions the industry has to offer.
Join the exciting world of forex today with an award-winning broker! Click here to start your journey.