What is Forex Trading? A Beginner’s GuideWelcome InnerCircleAnalysis ❤️ .
Do you want to understand What is forex trading the right way?
We know that understanding forex can be a terrifying thought specially when you don’t have any previous background of finance. Guess what – you are not alone.
Having taught over 100,000+ users forex trading, we have decided to create a step-by-step guide on how to start forex trading for beginners without any technical knowledge.
The process is easy to follow whether you are 20 years old or 60 years old. Just follow the guide step by step.
Before moving forward, Let me define what is forex?
What is forex?
The word forex is derived from two words foreign & exchange. The word foreign here refers to foreign currencies, so basically it is exchange of various currencies. You give one currency & take the other one.
In the old days, this exchange of currencies used to be for traveling to other countries or purchasing goods from abroad. And all this exchange of currencies used to happen in physical locations like banks or money exchanges.
You must be wondering how you can make money from the exchange of these currencies. Take a deep breath, the world has evolved, till now you have just understood what is forex. Your money will be generated in the next step of forex trading.
What is forex trading?
Forex trading is the process of buying a currency, with the intent of selling it when its price will go up. Its just like buying any physical asset in the market & then selling it once its price goes up. The hike in the price of any particularly asset is dependent on demand & supply mainly along with other various economic factors.
Same is the case of currencies in forex trading. You buy any particular currency on your analysis of various economic & technical factors with the belief that price of this currency will go up in near future. Once the price goes up, you make the profit.
But forex trading is not all about profits. You can have loss too if the price of your bought currency goes down.
This buying & selling of currencies happen in pairs, understanding that now will get too complicated for you. But don’t worry, we have covered that too in next section of what is traded in forex.
For the purpose of buying & selling these currencies digitally from the comfort of your bed, different mobile & web apps provide services. These digital facilitators of your currency trades are called brokers in the world of forex trading. They receive your orders digitally & provide them to banks & other financial institutions.
So more or less, forex trading happening nowadays is just like the exchange of physical currencies that happened in the old days only at banks & money exchanges.
The only difference is that today exchange happens digitally via brokers & the major purpose is to earn money on the exchange of currencies unlike the old days where the purpose was to import goods from a certain country.
So till now you have understood why it is called forex trading. Because here exchange of foreign currencies happens just for trading.
What Is the Forex Market?
The overall ecosystem of buying & selling currencies electronically is called the forex market. You will be surprised to know that this forex market has no physical location/office or any central International regulatory authority.
But this does not mean that online forex brokers are not regulated anywhere. Good brokers which are trustable are regulated by relative finance authorities of the country in which they are operating. So to keep your money safe, you have to always go with regulated brokers.
But due to lack of regulations in some countries some brokers have to go unregulated but this does not mean that they are a scam.
What is Traded in Forex
As explained in the definition of forex trading, different currency pairs are traded in forex. For example one of the pairs is USD/JPY. When you buy this pair you have actually bought USD against Japanese Yen.
You must be thinking about the role of the Japanese Yen here. In Fact in the background you bought JPY first & then with that JPY you bought USD.
If the price of USD goes up & you close that trade. So now you can sell that USD back to market & you will get more JPY than that you initially invested.
Similarly you can also sell USD/JPY, this sell actually mean you have bought the Japanese Yen with the USD. Now once price of JPY goes up, you can close the trade & earn the profit this way too.
What is the Size of Forex Market?
Forex market is the largest market in the world with daily trading volume of 6.6 Trillion USD according to Central Bank Survey of FX conducted in 2019. And this 6.6 trillion means this amount of currency is bought & sold everyday. We are already near to enter 2024, so you can imagine this number will have increased too.
How Much Money You can Make from the Forex Trading?
As you have already got the numbers of daily trading volume, so sky is the limit theoretically. But practically speaking based on our experience, on average any good forex trader can earn 10% of their invested capital per month. This number can vary, but a professional forex trader earn that much.
And that too will not be constant journey. Some months you will be earning 20 to 50% or even 100% of your invested capital, but for some months you will be loosing too at the same pace. Its important to mention controlling your greed in this market is very important aspect of the learning forex trading.
In sophisticated language let me say that risk management is the key to success.
So till now, you will have got the boarder picture of what is forex trading & how money can be made from the forex trading. To practically master this art, you have to learn more. Don’t worry we are here to guide you step by step.
Forex Terminology
Your next step in the journey of forex trading should be learning some basic terminology of forex trading which we have enlisted below with the compact easy to understand definition’s.
(01) Buy/Ask – Buy & Ask are both similar terms. Buy is the minimum price at which you will be able to purchase any currency pair in your broker account.
(02) Sell/Bid – Sell & Bid are similar terms. Sell is the maximum price at which you will be able to sell any currency pair in your broker account.
(03) Lot – Lot is the quantity of currency you will be purchasing or selling. Its just like unit of quantity.
(04) Leverage – Leverage is the buying power provided to you by broker so you can buy or sell more currency than the available amount in your account.
(05) Pip – Pip is the smallest change in value of any currency pair.
(06) Take Profit Limit/TP – It is a feature provided by your broker to you with which you can set limits in your account to close any opened trade once it reaches certain profit limit as set by you.
(07) Stop Loss/SL – It is a feature provided by your broker to limit your loss. Once you set stop loss limit, your trades are closed automatically once they hit certain loss limit as set by you.
(08) Spread – Technically its definition may vary, but simply it is the fee charged to you by broker for opening your trades.
(09) Fundamental Analysis – It is analysis & prediction of any currency pair price in near future based on the data of economic events worldwide.
(10) Technical Analysis – It is analysis & prediction of any currency pair price in near future based on the historical data of forex charts.
We hope that you found our tutorial on What is forex trading to be helpful. If you liked this article, then please share with your circle so others can get benefit too.
Join us on Telegram 👉 t.me/InnerCircleAnalysis
