Forex trading for beginners: breaking it down to the basics

Are you still unconvinced about the benefits of the forex market and unsure if you got what it takes to succeed? Don’t fret because we’ll walk you through the basics in this forex trading tutorial.

What’s forex anyway?

Forex refers to the foreign exchange market, a network of financial institutions like hedge funds, banks and even retail traders i.e. the common folk exchange or trade currencies. A common example of trading forex is when you visit another country on vacation, and you need to exchange your local currency for the foreign one in order to be able to buy stuff.

So, for example, you sell your Rand for Euros at the denominated exchange rate and you’re off. Now while you were on vacation, the Rand dropped in value against the Euro and when you came back and tried to exchange your Euros for Rand, you got back much more than you expected. This is because the exchange rates fluctuate all the time and sometimes considerably and this is how forex traders make money. They take advantage of the price changes to buy and sell currencies and profit from the price difference. Consequently, the higher the move between the exchange rate, the higher the profit.

Trading in the forex market

Unlike the physical exchange of currencies, trading forex is actually a speculative asset. When you trade forex on the market, you speculate on the potential price change between two currencies. And this is important because currencies are always traded in pairs like EUR/USD and GBP/JPY and as we already mentioned it’s more beneficial if the currency pair has a lot of rapid up and down movements so we can profit from the difference of the exchange rate. Volatile currency pairs are highly attractive, but these markets are also quite risky if they move against you. For this reason, forex trading for beginners can be considered highly challenging.

The benefits

The forex market is the most liquid and largest financial market that ever existed. With a 5 million daily trading volume, the stock market can’t even compare. This incredibly large number of participators in a highly competitive market is an amazing advantage for forex traders because it means you can get the most favorable prices in milliseconds!

Trading on the forex market also has almost no limitations as it’s open around the clock excluding weekends and the minimum deposit limit to get started can be as low as $100.

It’s only as risky as you like it to be
While you can’t hear about forex without getting inundated about all the risks involved, the truth is that there are multiple ways to manage your risk exposure to the point that you are actually not risking anything significant at all.

It all comes down to risk and reward. The more money you are willing to risk or put in a trade, the higher the potential reward but also the risk to lose that money.
However, the platform also has a number of nifty tools to help you secure your profits while getting you safely out of a trade automatically if the exchange rate moves against your estimates.

The best thing? You can trade risk-free with virtual money as much as you want until you are ready to go live! Just sign up for a demo account and ask your personal account manager to point you to a forex trading tutorial!

Author's Bio: 

Trading Strategist at CM Trading Love writing about our industry this is a good article to start Forex Trading For Beginners