We will explain things like, what Forex trading is, and how trading works. Also, what is a Forex broker and how to choose one. How to read the prices and much more.
After completing this tutorial, you will be ready to start the intermediate level tutorial. The intermediate tutorial covers analysis and forecasting: Forex Technical Analysis Tutorial. We ask you to be patient while reading, especially in the beginning. If you feel that a topic is not clear keep going, it will be clearer by the end of the tutorial. If you have any questions after completing, please drop it in the comments section. It is at the end of this page.
Trading is the action of buying and selling a product, aiming to generate profit,over a short period of time. And that what makes trading different than investing. Investors usually hold their positions trades for a longer period, more than a year. A security is any tradable asset. Such as Microsoft shares, or the Euro currency, or commodities like oil or gold. In this Forex Trading tutorial for beginners , our main focus is the Forex market. The Forex market is where currencies trading happen.
Trading Forex allows you and me individual retail traders to speculate bet in the currencies market, also called the Forex market. To be able to do so, we need to open a trading account with a Forex broker, then we can start buying or selling currencies, aiming to generate profits.
In Forex, we simultaneously buy and sell currencies. Simply, just like if you want to travel from the U. Simply, Forex Trading is exchanging a currency with another currency aiming to generate a profi t. In the USD and Japanese Yen example we just mentioned, since you exchanged your bucks to Japanese yen, you would generate profit if the Japanese Yen rose in value against the U.
After a couple of months, the exchange rate changed to 90 Yen for every U. S dollar. Scalpers enter the market for seconds or few minutes then exit. They buy a product then sell it for a tiny profit. And keep repeating the process This trading style is not recommended. Trading happens in the marketplace. The Forex market is the largest financial market.
What liquid means in simple words, is how fast you can sell a product. It is that if you have more buyers and sellers in a market, you are likely to sell your product much faster. Buying and selling stocks happens in the stock exchange.
If you are looking to trade stocks, your trades will be processed through one of these stock exchanges. So, it is a physical entity that facilitates the trading of shares to investors.
Accordingly, the stock market is a centralized market , where the exchange is the center. Unlike the stock market, the Forex exchange is a decentralized market. It is called the over-the-counter market OTC. Instead, trading is done through a computer network with no centralized physical location. The Forex market is a network of multiple banks and financial firms that exchange currencies directly or indirectly. At highest levels, major banks trade directly with each other.
These major banks are called the interbank market. At the next levels, small sized banks trade indirectly with major banks through an electronic brokerage service. Next are the brokerage firms, hedge funds, and regular corporations.
And finally, the retail Forex traders Individuals. For example, if a retail trader placed an order to buy euros at a broker, the broker passes this order to a bank at the higher level which has sizable amount of euros. The bank executes this transaction by selling the broker the euros, the broker then reflects that in my trading account. This happens instantly through a trading software. Usually higher level firms like banks, provide lower level firms or clients liquidity, and therefore they are called liquidity providers.
In Forex, you can trade mainly currencies. The value of one currency against another currency. In the past decade, Forex brokers have expanded their offering to include other types of instruments.
If you open a trading account with any good broker nowadays, you would be able to trade several types of products. For example:. Forex trading tutorial hint: When you are ready to start trading, always look for brokers that have a wide variety of instruments. You never know where the opportunity resides. And here comes the role of a Forex brokerage firm. To be able to start trading, you must open a Forex account with a Forex broker.
The Forex market maker is a company that is always ready to buy or sell a financial instruments, and sets both the sell and the buy prices for their clients. They make transactions at these prices with their customers. If you want to sell, the Forex market maker will be the buyer and if you want to buy it will be the seller. Market makers must take the opposite side of your trade. Simply if you want to travel from the U. The first price is the selling price called Bid as well and the second one is the buying price.
The difference between the bid and ask prices is called the spread , and it goes to the Forex broker as sort of commission on the trade. We will discuss price quotes later in this tutorial. ECN Forex brokers provide access to the inter-bank market by using an electronic system that passes prices from multiple liquidity providers to clients.
Such as banks and market makers connected to this electronic communication network ECN. ECN brokers provide the tightest spreads in the industry. An ECN broker usually charges a commission in addition to the spread on each trade made by clients. ECN stands for electronic communication network. ECN is an electronic trading platform that hosts bids and offers from different buyers and sellers banks, investors etc..
Hence the transactions are done electronically. To trade Forex, you need to open an account with a broker. Then using their trading platform, you can start making trades. But, before opening a real account, a common and necessary practice among new Forex traders is to start trading using a demo account. To open a demo account start by downloading the trading software. A widely used software to trade Forex is the MetaTrader platform.
It is used by most Forex brokers. We will use MetaTrader software as our default trading platform for this tutorial. You can download it here. Go ahead and open the MT5 terminal if it is not already open.
The default window should be like this:. Those are the main elements that you need to know at this stage. Go ahead and explore the terminal and just try, its demo money we do not have to worry :.
A currency quote is simply the current live price of the currency. The first currency is called the base currency, and the second currency is called the quote currency. You always buy or sell the base currency. Note: In the last example, the USD is not included in the pair. In Forex, a pip is the fourth decimal place of the price 0. If the price changed from 1.
For example, if the price changed from In recent years Forex brokers introduced a fifth decimal place for more precision. It is called a pipette. Peaks and Troughs — by Martin J. Strategy — Low-risk, high-return Forex trading by W. Trend Determination — A quick, accurate and effective methodology by John Hayden.
Introduction to Forex — by 1st Forex Trading Academy. This trading course intends to provide to all of the students analytical tools on the trading system and methodologies.
In this respect, the purpose of the course is to provide an overview of the many strategies that are being used in Forex market and to discuss the steps and tools that are needed in order to use these strategies successfully. A small e-book covering the basic and the main problems of Forex trading. On-Line Manual for Successful Trading — an introduction into every aspect of the Forex trading including detailed descriptions of the technical and fundamental analysis techniques, by unknown author.
The Way to Trade Forex — a 1st chapter of the book that will show you not only Forex basics but also some unusual techniques and strategies that can work for the newbie traders, by Jay Lakhani. Quick Guide to Forex Trading — a edition of the Forex guide for the beginners and private traders issued by Easy-Forex.
Chart Patterns and Technical Indicators — an explanation of the most popular chart patterns and some technical indicators, by unknown author. This is hedging against risk in its truest form. Hedging will give you some flexibility when it comes to enhancing your forex trading experience, but there are still no guarantees that you will be totally protected from any losses or risks.
While it can take some time to get your head around heading in the forex markets, the overarching concept is that it presents both outcomes. That is to say, irrespective of which way the markets move, you will remain at the break-even point less some trading commissions. More specifically, the spot trade is a spot transaction, with reference to the sale or the purchase of a currency.
Essentially, spot forex is to both sell and buy foreign currencies. CFD is basically a contract which portrays the price movement of financial instruments. So, without having to own the asset, you can still make the most of price movements, whilst also avoiding the need to sell or buy vast amounts of currency. CFDs are also accessible in bonds, commodities, cryptocurrencies, stocks, indices and of course — forex. With a CFD you are able to trade in price movements, cutting out the need to buy them at all.
This section of our forex trading PDF is all about forex charts. When it comes to a MetaTrader platform, traders can use bar charts, line charts and candlestick charts. You can usually toggle between the different charts, depending on your preferences, fairly easily.
The first record of the now-famous candlestick chart was used in Japan during the s and proved invaluable for rice traders. These days, this price chart is without a doubt one the most popular amongst traders all over the world. Much like the OHLC bar chart see below , candlestick charts provide low, high, open and close values for a predetermined time frame. Live forex traders love this chart due to its visual appearance and the range of price action patterns utilised.
This allows you to gain a better understanding of how live trading works before you take any big financial risks in the market. As the title suggests, this one is a bar chart, and each time frame a trader is looking at will be displayed as a bar.
In other words, if you are viewing a daily chart you will see that every bar equates to a full trading day. With this price chart, traders are able to establish who is controlling the market, whether it be sellers or buyers. OHLC analysis was the starting block for the creation of the ever-popular candlestick charts please further down.
It is a great tool for looking at the bigger picture when it comes to trends. The line chart arranges the close prices at the end of that time frame; so in this case, at the end of the day, the line will connect the closing price of that day.
In this section of our forex trading PDF, we are going to talk about the different ways in which you can sell and buy a forex position as well as things to look out for. When it comes to forex trading you can trade both short and long, but always make sure you have a good understanding of forex trading before embarking on trades. After all, forex trading can be a bit complex to begin with, especially when mixing long and short trades.
In a nutshell, going long is usually a term used for buying. So, when traders expect the price of an asset to rise, they will go long. When forex traders expect the price of an asset to fall, they will go short. This means benefiting from buying at a lesser value. To achieve this, you simply need to place a sell order. The current exchange rate of a forex pair is always based on market forces.
This will change on a second-by-second basis. As we noted earlier, you also need to take the spread into account, so there will always be a slight variation in pricing. For instance, if you exchange 1 USD for 17 ZAR, the sale and purchase price offered by your forex broker will be either side of that figure.
The currency pairs with the most notable supply and demand attached to them will be considered the most liquid in the forex market. The supply and demand aspect is thanks to the investment of importers, exporters, banks and traders — to name a few.
The most liquid currency pairs are therefore the ones in high demand. When you feel you are ready to take the plunge and begin live trading, you need to select a forex trading system. There is a vast amount of trading strategies for you to pick from. This is because investors, speculators, corporations and banks have been trading for decades. In this part of the forex trading PDF, we are going to explain a few of the strategies available to you. If you want to buy and sell currency pairs from the comfort of your home or even via your mobile device , you will need to use a trading platform.
Otherwise referred to as a forex broker, there are literally hundreds of trading platforms active in the online space. This makes it extremely difficult to know which broker to sign up with. In the below sections of our forex trading PDF, we explain some of the considerations that you need to make. You should also look out for analysis tools available to you. In some cases, this might be embedded, while some offer tools such as technical analysis and fundamental analysis.
This is because it will save you a lot of leg work having to move between different sites and sources of information. Crucially, both MT4 and MT5 are fast and receptive trading platforms, both providing live market data and access to sophisticated charts.
It is essential before you begin trading seriously that you fully trust the trading platform you intend on using. This is especially the case if you intend on using a scalping strategy, for example. However, if you like to trade, it is vital for your peace of mind and your finances that you are fully confident with the fast execution of data transfer. This is also the case with the precision of quoted prices, and the speed of order processing.
All of these things are going to help you to have a successful forex trading experience. To enable you to make the most of new opportunities, the ideal forex broker will be available to you 24 hours a day and 7 days a week, in line with the forex market opening hours.
To save you from having to request that your broker takes action for you, your forex broker should enable you to manage your account and your trades separately. By doing this, you will be in a much better position to quickly react to any shifts in the market, and hopefully, make the most of potential opportunities. This will enable you to gain better control over any open positions as and when they arise. It is important to ensure that your forex broker of choice is a reputable company, who will ensure that your personal information and trading funds are fully protected and backed up.
Segregation is frequently used amongst forex brokers as a way to separate your funds from the funds of the company i. So, no matter what happens to the forex broker, your money is safe and segregated. If you find that a forex broker is unable to do this, we would suggest you find a better broker as it is standard practice these days. All of the brokers listed towards the end of this forex trading PDF are regulated by at least one reputable licensing body.
In terms of getting set up as an online forex trader, the steps remain constant regardless of which broker you decide to join.
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