Check out the complete guide for Forex beginner including how to start foreign exchange trading for starters, terminology(basic terms), and trading strategies.
Forex Beginner Guide : Forex Trading for Beginners
Terminology
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How to Trade Forex for Beginner
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What is Forex?
Foreign exchange market, called Forex, is a spot market where individuals directly trade foreign currencies (foreign exchange) and refers to over-the-counter foreign currency futures trading. General currency exchange involves exchanging domestic currency and foreign currency, but Forex is a financial transaction in which the ‘base currency/counter currency’ is traded as a pair and generates profits through exchange gains.
The Forex market is currently the financial market with the most money flow in the world, and its size exceeds approximately 100 times the daily trading volume of the global stock market. It is traded around the world almost 24 hours a day. The Bank of International Settlements (BIS) conducts a survey of global foreign exchange markets every three years. The bank reports its findings in what is known as the BIS Triennial Survey. The latest BIS Triennial Survey reported all foreign exchange transactions globally at an average of $5.3 trillion per day.
To understand how big this figure is, we need to compare it to other global capital markets. The daily trading volume of OTC derivatives is approximately $2.1 trillion, the US bond market trades approximately US$800 billion per day, and the most quoted US stocks trade approximately US$200 billion per day.
Forex is made up of a combination of currencies from eight countries, including the US dollar and the euro. Buying means buying the base currency and selling the counterpart currency at the same time, while selling means selling the base currency and buying the counterpart currency. For example, buying EUR/USD means buying EUR, the base currency, and selling USD, the counterpart currency, and selling AUD/CAD means selling AUD, the base currency, and buying CAD, the counterpart currency.
Forex trading allows individual investors to earn high profits with a small investment amount because they can generally trade up to 50 to 400 times the amount held by leaving only the required margin of 0.25 to 2% to a futures brokerage company. However, on the other hand, if you do not have sufficient investment skills, you may suffer large losses. Therefore, what is most important is sufficient practice and understanding of the market.
