Learn To Trade Forex

For non-traders and those who are just beginning to learn to trade, forex trading can sound intimidating. Indeed, it can be complex in the beginning. But once you get the hang of it and take the definition of some important terms to heart, you can start to really learn to trade fx by mastering the strategies. Then, everything will be easy and enjoyable.

Probably the best way to start learning to trade forex is to understand exactly how forex trade works. Forex trade has one major objective: to exchange currencies based on speculation that the currency you bought in exchange for another currency will rise in value, as a result of market forces.

Forex Learning the terms
So how you begin to learn how to trade forex? To illustrate the dynamics of forex trading and get you to start learning forex, first, you begin with two currencies—the currency you have, which you will sell, and the currency that you want to buy, in exchange for the currency you are selling. This takes us to two of the most important forex trading terms that you have to learn right away: “long position” and “short position”. “Long position” refers to the practice of purchasing a particular currency, believing that its value will go up, enabling you to sell at a higher price and gain profit. “Short position,” on the other hand, refers to the strategy of selling the currency that you have, believing that its value will decrease, and hoping that you can repurchase it at a profit when its price falls further.

Two other concepts you need to learn forex trading are “open position” and “closed position.” Now this gets a little more complicated. You “open a position” when you take a long position by purchasing currency with the expectation that its price will increase. Eventually, when you feel that the price of your currency has risen to its optimum level and you decide to sell it out, this is referred to as “closing the position.” In short position, the application goes like this: you open a position by selling your currency in the belief that its price will decrease; you close a position when you repurchase the currency following the fall in price.

Now, one of the most common terms that we often encounter in forex trading is “day trading.” The term is often confused by non-traders and newbie trainers as referring to the investment market. Day trading in forex refers to short-term transactions entered into by traders who prefer opening and closing positions, all in one trading day, instead of extending the trade over a longer period.

Now that you have an idea of the different positions and an overview of how it works, you can move on to learning the details, first of which are the currency codes. The codes for the different currencies being traded have been set by the ISO. Some of the most prominent currencies are the USD (US Dollar), GBP (UK Pound); EUR (Euro).

You will know how once currency is valued as against another through a quote. Quotes come in this format: USD/EUR = 0.7416. The first currency, in this case the US Dollar, is the base while the second, which is Euro, is the counter, also called the quote currency. So you don’t get confused, remember that the base currency is a constant, and is always counted as one. In this case, if you want to buy US Dollars using your Euros, you will need 0.7416 Euros for US Dollar.

In real life, forex trading doesn’t look and sound as easy as that because the trader who is opening a position has to factor in his premium for the transaction. So that means when you look at a quote, you will not see one—but two—figures. A real quote looks like this: USD/EUR = 0.7325 0.7486. Here, the first number after the equal sign is the “sell” or “ask” quote, or the amount that you will get if you decide to sell your currency, and the second is the “buy” or “bid” quote, which represents how much you will spend should you decide to buy the currency. If you deduct the “buy” price from the “sell” price, you will get the difference, which in forex trading is called the “spread.”

Note that when you look at quotes, you will see that each figure has for decimal places. This, too, has some significance. The fourth decimal place represents the minimum amount by which a change in the currency price can be effected. Each unit in the quote price is called a “pip.” The example above shows you five pips.

As we said, don’t expect to get a full grasp of forex trading as soon as you decide that you want to learn forex currency. If you remember the basic terms and concepts that you’ve just learned, you will surely get the hang of it faster.

Why you should learn forex
Are you starting to feel like learning forex trading is not your cup of tea? Not so fast. There are many reasons why today’s aggressive and successful money market investors are hooked on forex trading. Following are five them, which might just encourage you to learn forex trading.

First, like your local convenience store, the forex market never closes. Most of the trading floors in different countries only operate for a minimum of five to a maximum of eight hours every day from Monday to Friday. But because of the dynamic nature of foreign currency, the forex market has to be open 24/7 so traders can play their forex portfolio based on global economic trends as they happen, and also choose their most convenient time for trading—whether it be morning, noon, afternoon, evening, midnight or dawn.

Second, forex trading costs lower than trading in other markets. For example, in the equities market, traders are required to pay a spread, on top of the commission that’s due the broker, which can be anywhere from $20 to $100. These are not required in forex trading because the process is lodged online, forex trading being a highly electronic and automated market. As such, forex traders need only to pay the spread. The fact that the forex market is a liquid market adds to its attractiveness.

Third, forex trading allows trading on high leverage. Let us take the equities market again as an example. A professional equities day trader typically trade on a leverage of approximately ten times his capital. On the contrary, a forex market trader can trade at about 100 to 200 times his capital. There is, however, a disadvantage that comes with high-leverage trading: while it can potentially result in extremely high profit, it can also cause equally high losses.

Fourth, the forex trading market enjoys limited slippage. The electronic nature of forex trading makes it possible for traders from all over the world to exchange different currencies real time, at real-time prices based on real-time quotes. The significance of this lies in the fact that it is almost always the case that the price you are quoted at any given time is the actual price that you will pay if you decide to buy. In contrast, other markets are characterized by high slippage.

Fifth, in forex trading, you can profit both from the rise or fall of the markets. If you know how to play your cards, and you play them well, forex trading can generate income rates that other markets cannot. For example, equity markets move with the rise and fall of trends. In contrast, the forex market only depends on the movement of the two trading currencies, such that if one currency is down, then the other will necessarily be up. As such, any trader can profit from the rise or fall of the market, with a little foresight and strategy.

Other important terms
Before you go out into the forex world, here are some more important terminologies that you have to familiarize yourself with:

“Bid,” as we previously mentioned is the price that an investor offers to purchase a currency with another currency. This is also commonly known as “bid price” or “bid rate.”

“Overnight position” refers to the long or short position that a trader takes in a particular currency at the end of the trading day.

“Value date” refers the date of maturity when the currency will be settled, which is typically two business days from the day of trading.

More information on forex learn trade
So you want to learn to trade forex? There are lots of information that can help you learn forex trading online that you can explore. There are also many resource websites that offer to help you learn forex trading free.The most important to keep in mind when learning forex is that as in other markets, there is really no fool-proof way of guaranteeing profit in every forex transaction. But again, if you strategize and watch the market movement carefully, you can be as successful as any professional trader can be.