Forex trading involves buying and selling of currency pairs based on a specific price. While it can provide high returns, beginners might find forex trading difficult.
Here’s all you must know about forex trading as an amateur
How Do Currency Markets Work?
While shares or commodities trade on the exchanges, forex trading is done between buyers and sellers in an over-the-counter (OTC) market. Primarily, there are three types of forex market-
Forward Forex Market
A forwards agreement refers to buying or selling a specific amount of a currency at a set price. The trade needs to be done at a specific date.
Future Forex Market
A futures agreement is the same as a forwards agreement. However, a futures agreement is legally binding.
Spot Forex Market
This market refers to a currency pair’s exchange that takes place on the spot where the trade is made.
What is a Base and Quote Currency?
The currency that is listed first in a forex pair is called a base currency. The quote currency is listed second in the pair. For instance, the pair of GBP/USD refers to buying the Great British Pound and selling the US Dollar.
What is the Spread in Forex Trading?
The difference between the buy and sell price is called the spread. If a trader wants to open a short position, then he/she must trade at the sell price. The sell price will be lower than the market price. In case a trader wants to open a long position, then he/she must trade at the buy price. The buy price will be higher than the market price.
How Should Beginners Start Forex Trading?
Create a Trading Strategy
Having a trading strategy can help traders meet their goals. When creating a trading strategy, traders should consider their financial situation.
Select the Right Forex Platform
Selecting the right forex platform is essential for forex trading. But traders should understand their financial requirements before choosing a forex platform.
Fund the Trading Account
Once a trader selects a platform, he/she needs to open an account with it. After that, he/she needs to fund the account. The funds in the account can be used for forex trading.
In conclusion, it’s important to understand the forex market and create a strategy before beginners start forex trading. This can help traders fulfil financial goals.