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An Introduction To Forex Trading For Beginners

Education / 6 Min Read
27 Nov 2020

If you’re new to the world of investing and trading, you’ve probably seen the word “forex” appear quite a lot. It is the world’s largest and most liquid market, trading more than $5 trillion every day!

With such a large trading volume, this makes it one of the most exciting markets to trade in, and is also the best market to practice live-trading skills. It is not only easy to start small and scale up, but you also have the ability to control your initial risk on each trade.

If this sounds interesting to you, stay tuned to learn all the forex trading basics you need to know.

What is forex trading?

Forex trading, also sometimes known as “FX” trading, simply refers to the foreign exchange market. Essentially, this means buying or selling currencies you hope will move either up or down relative to another currency. 

A thing to note is that currencies are always traded in pairs. For example, if you think the American Dollar (USD) is going to increase in value compared to the Australian Dollar (AUD), you could place a trade to buy the USD/AUD currency pair, and if the USD rises, you will make a profit. It is an investment strategy that provides an opportunity to speculate about price fluctuations based on global news events.

Unlike shares, forex markets are open 24 hours each day from Monday to Friday, which allows traders the flexibility of choosing when to trade. It is also very low-cost compared to other types of investment that reduces barriers to entry.

How do I trade forex?

There are no set rules when it comes to trading forex. It is accessible to everyone from new traders to seasoned traders, and everyone has their own preferences! Some place several trades a day, some hold trades for several days, while some place trades sparingly and hold them for months. 

Currently, the majority of players in this space are big banks, including commercial banks and central banks, as well as investment managers, hedge fund managers, and corporations. As such, forex trades have the power to cause big ripples, affecting everything from interest rates to competition and exports. 

Although individual investors only make up a small percent of all trades, it is becoming increasingly popular, as it is seen as a great way to diversify your investment portfolio. However, it can be a complicated marketplace, which means it is important to take time to learn the ropes. This is vital as trading does come with risk and you should always exercise caution!

How can I start trading forex?

The forex market is one of the most highly-regulated financial sector in the world. Due to its unique structure, the only thing to note is that trading most actively occurs when London opens, as that is when most of the major currency pairs are traded. 

With that in mind, to start trading only requires you to follow these 5 simple steps: 

  1. Conduct research and decide which broker you want to work with.
  2. Set up an online account with the broker to begin trading.
  3. Deposit some funds into your newly created account via the broker’s offered payment methods.  
  4. Download the broker’s trading platform. Another option is to download a platform that works with the broker like MetaTrader.
  5. Last but not least, make your very first trade! 

The main reason brokers exist is to provide you with easy access to the forex market. Thus, the biggest advantage to choosing a local forex broker is that they will understand the market, and be in a great position to adapt and respond quickly to any changes. 

However, do not just choose any broker. It is important to do your research, and choose a reputable broker with a license, good reviews, and a strong community to prove legitimacy as there are risks of scams.

Moreover, these brokers will provide you with the necessary education in the initial phases of your investment journey, which allows you to figure out what works for you and what does not. Besides education, they will also offer you access to a practice account to learn the ropes, without any risk, before placing your first real-world trades. This saves you a considerable amount of time, and as a result, you may start seeing profits sooner than expected! 

Once your online brokerage account is ready, you can equip yourself with certain tools to help you with your trading.

What are the key forex trading tools?

The most important forex trading tools, when you’re first getting started, relate to research. You need to learn all the ins and outs of the market so you can develop your own unique trading style.

Here are some recommended tools you will need to look out for in the beginning:

  1. Forex Trading Platforms. Every Axi account gives you free access to powerful platforms and trading tools designed to help find your trading edge. Learn more about our trading platforms here.
  2. Keeping a trade journal to record your thoughts, emotions and observations. You can read more about the benefits of a trading journal here.
  3. PIP calculators are a tool used to help you calculate the value per pip ("percentage in point" or" price interest point") in your account’s currency and the currency pair you are trading to better manage your risk per trade. 
  4. Forex Volatility Calculators are used to generate the historic volatility (the range of price changes) for specific currency pairs over a given time frame. Understanding volatility is important as it influences trading decisions, strategies, and determines the level of risk undertaken by a trader.
  5. Currency Correlation is a neat little tool to help you understand if the currency pairs you are trading are correlated. For more insight into how to use this tool, check out this link.
  6. Time Zone Converters are used to assist you with viewing the open and close times of the major markets in your local time zone.
  7. Financial Newswires are a great tool to stay up-to-date with breaking news stories, latest information and stock-market results. Check out Axi’s blog as we provide daily market analysis pieces!
  8. Economic News Calendar Tool. Keep track of all the most important world events, news releases and market indicators. You can view them here with Axi’s Forex Economic Calendar.

When should I start looking at forex trading strategies?

Once you’ve got your head around the concept of forex trading, and you understand how the market works, it is time to talk forex trading strategies. Everyone takes a unique approach but their strategies often share some common threads. Here are some popular themes that you might like to consider:

  • Trend trading: This is a common and simple strategy that involves identifying potential trends and jumping on board to exploit momentum. It is often a medium/long-term strategy.
  • Range trading: This involves identifying key support and resistance areas where price is likely to bounce off this level rather than break through it. It works well during periods of consolidation when there is no clear trend.
  • Swing trading: This is a strategy where traders attempt to predict the tops and bottoms that currencies will hit, and choose long and short positions accordingly.
  • Position trading: This means holding a position for a long period of time - from several weeks to even years. Position traders can use both technical and fundamental analysis.
  • Day trading: This is at the opposite end of the spectrum to position trading, because trades may only last a couple of minutes or hours, and will be complete before markets close.
  • Scalp trading: This refers to a strategy in which traders profit off tiny price changes. They may hold positions for only seconds. 

The best strategy for you will depend on the time you have available, how often you have the opportunity to place trades, and your personal investment goals. Have a look at our newly launched ebook series as we discuss this further in the final one! 

Ready to start your forex trading journey?

It may all seem very daunting at first but rest assured that Axi is here with you along every step of the way. We have an entire repository that will guide you on learning how to trade, which consists of a wide range of online courses, video tutorials, seminars, and eBooks. Moreover, if you still have certain doubts or any questions about getting started, please do not hesitate to contact our award-winning customer service team!

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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