Forex Trading For Beginners

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If you are looking for a way to make money – FOREX trading may be something worth considering. The foreign exchange market (FOREX) is the largest and fastest growing exchange market in the world which trades all major world currencies. Nearly three trillion dollars is traded each day. The FOREX is open 24 hours daily. An individual trader can react to news when it breaks, rather than waiting for the opening bell of other markets when everyone else-has the same information. This allows traders to take positions before the news details are fully factored into the exchange rates. High liquidity and 24 hour trading permit market participants to take positions or exit regardless of the hour. There are FOREX dealers in every time zone, in every major market centre (Tokyo, Hong Kong, Sydney, Paris, London, United States, etc.) willing to continually quote buy and sell prices.

Liquidity

In the foreign exchange market there is always a buyer and a seller.  Liquidly is a powerful attraction to any investor as it suggests the freedom to open or close a position at will 24 hours a day; the FOREX is the most liquid market in the world. FOREX trades in currency pairs, which backs one currency against another (EUR/USD, JPY/USD, etc.). Every open position represents the buying or selling of a currency. For instance, an investor believes the Euro will appreciate against the US dollar, and then the investor will sell the dollar and buy the Euro. This is selling short. However, the investor would be buying long if the dollar was purchased and the Euro was sold.

Leverage

Another great aspect of the FOREX market is the leverage. Trading FOREX is done in lots of $100,000 USD of the foreign currency. This gives the trader more buying power, but a margin account must be opened with a broker in order to trade on the exchange. This is essentially borrowed money and makes FOREX extremely risky.

Practice for beginners

Beginning investors who are interested in trading FOREX are strongly advised to practice with various simulations and options that use “fake” money in order to gain experience. The FOREX market can fluctuate regularly, and currency traders need to understand how to react to the ever-changing FOREX market.

Currency traders analyze the changes in a currency through candlestick charts. These charts indicate changes within a currency during a various time periods. This is typically done with software, but physical charts can be used as well.

Candlestick charts

An open candlestick indicates a bullish indicator. If the candlestick is dark, this is a bearish indicator. A bullish indicator is shown when the currency opens near its low and closes near its high. The bearish indicator is the opposite, opening near the high and closing near its low.

Once the trader understands the candlestick chart, it is time to place an order. It is important to do it in this order. Placing a trade prior to understanding how FOREX works can be detrimental to you and your bank account.

Placing orders

Market orders are trades placed by a buyer or seller to a currency broker for whatever the quote is at the time of the trade. Buyers are looking to purchase low (BID) as sellers want to sell high (ASK) – similar to any other investment. This is where a Bid/Ask spread comes from. Limit orders is an order placed to a broker for a specific price or target. The broker will then wait for the right time to execute the trade. Limit orders are the primary order executed by traders, roughly 80 to 90 percent, to avoid slippage in the price. Slippage is the change in price at the point of execution from the point the trader seen previously before placing the trade.

Stop orders are trades that are places above or below the current market, and it is used to enter or exit the FOREX. This form of trading is subject to slippage, as market orders are. Usually, traders use stop orders to exit the market at a specific price just before the market turns. This is a hedging technique to preserve profits and avoid losses.

So there you are, a quick beginners guide to FOREX trading! The most sensible thing to do if you think this is something you might try is to get onto those simulators and take plenty of professional advice...