A Newbie’s Guide To The Basics of Forex Trading

Forex tradingForeign exchange, or Forex, trading is proving to be an attractive opportunity for women. Recent reports suggest up to 40% of European Forex traders are female and the gender gap is continuing to close. Those days you can trade from home or on the move; it’s a flexible income generating opportunity that suits the way many women want to work.

Most people believe they will make a profit as a Forex trader. Most do not. The more research and preparation you do the better you are likely to perform. It is important that you know the basics of forex trading before you get started. Undertaking online training or mentoring has to help too. Below we outline some of the basic concepts you’ll need to be familiar with before you get started.

Basics Of Forex Trading Online

Eight majors

Unlike the stock market where there are thousands of potential investments, the vast majority of Forex trading focuses on 8 major currencies.

  • United States
  • Eurozone (the ones to watch are Germany, France, Italy and Spain)
  • Japan
  • United Kingdom
  • Switzerland
  • Canada
  • Australia
  • New Zealand

Interest rates

Following and understanding interest rates is key to successful Forex trading. Basically when economies are thriving, inflation starts to rise and interest rates are generally increased to steady growth. Conversely when economies are struggling or flat-lining, interest rates are generally kept low.

Pairs

Trading in the Forex market is done in pairs. That is, you’re buying and selling two currencies concurrently. So you are selling one currency and using the proceeds of that sale to buy another currency at the same time. You have to pay interest on the currency you sell, at the rate set by the central bank of that country. You earn interest on the currency you buy.

Pips

A pip is the smallest measureable price change that a currency pair can make.  It stands for ‘price interest point’. Most currency pairs are priced to 4 decimal points so a pip is equivalent to 0.0001 of the currency.

Leverage

A particular feature of Forex trading is that brokers generally only require a margin deposit.  For example most brokers offer a margin of 100:1, so you provide just 1/400 or 0.25% of the funds required. Other financial markets, like the stock market usually require the full amount. Leverage means that your gains can be magnified, but on the other hand, so can your losses.

Have a game plan

Forex trading is no longer the domain of big banks and financial institutions. The internet and cloud computing have made it accessible to just about everyone. But while access is now very easy, this market remains volatile, and very complicated.

Your first step is to have a concrete game plan. Learn as much as you can and make use the automated Forex services available online.  After you have found your definite game plan and strategies, then it is down to you to make it happen. Keep learning and make the most of all the technologies available.

Image: Forex via Shutterstock

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