Trading on the foreign exchange market is becoming more and more popular, and the number of users willing to make money on this is only increasing every year. However, it is important for the beginners to learn the basic principles of correct trading so that they won't immediately lose their money and could get the first profit.
To begin, one needs to figure out what the financial market is. The term Forex itself can be translated from English as FOReignEXchenge - an international currency exchanger. This is a global financial system, where each participant can exchange one currency for another, and also get the opportunity to make a profit on the difference in their rates.
It is worth noting that Forex is just one of several types of financial markets. Traders can also trade securities on stock exchanges, as well as crypto currencies, commodities, precious metals, energy resources and some other assets.
According to Forex rules, a private actor cannot independently enter into purchase and sale transactions on the exchange. Therefore, contacting a broker is a mandatory procedure that every beginner will have to face.
Legal entities most often act as brokers. But sometimes private actors can also take on this role. They act as intermediaries between different parts in the global financial system.
The activity of each broker and dealing center is carried out on the basis of licenses and is controlled by the relevant regulators:
To start trading, a novice trader must register on the broker's website and open a special account. Brokers, in turn, provide trading platforms opening access to the foreign exchange market and the entire range of financial assets, as well as providing the ability to conduct transactions.
A Forex lot is a unit of measurement expressed in terms of the amount of funds that a trader uses to enter into a transaction. Usage of such a system significantly simplifies the calculation, and also allows to control risks when working with different assets.
There are several types of lots:
In other words, if a foreign exchange market participant enters into a deal worth 1 micro-lot, he buys an asset for 1000 units of the base currency.
Forex brokers, as well as specialized analytical services, provide traders with access to exchange rate charts. They display real-time price behaviour of different currencies in relation to each other.
There are several main types of business charts:
Every beginner needs to learn how to "read" charts. This is a required base that will provide for successful and profitable trading.
Of course, this question is of interest to almost every beginner. The trader's profit is formed as the difference between the purchase price and the selling price of the currency.
Consider the following example:
In the same way, forex trading transactions are carried out in pairs to any currencies. If necessary, you can borrow money.
In a general definition, “margin” is the difference between the selling price of an asset and its cost.
In the field of trading, margin trading is executing leveraged transactions, provided by a broker or another market participant. If desired, margin trading can be carried out with credit leveraging. It allows you to trade the sum exceeding your total deposit.
In this case, you will be able to open a trade in the amount of $ 500. At this time, your USD 100 serve as collateral security, which the broker blocks on the account at the time of opening of the trade.
Another advantage of margin trading is the ability to open bear transactions:
The difference between selling and buying is your net profit.
In other markets, margin trading provides for the possibility of loan granting in the form of securities, crypto currencies and other assets.
Before you start entering into transactions in the financial market, it is necessary to go through several mandatory stages.
First of all, a beginner should decide on a partner company that will act as an intermediary while entering into transactions.
When choosing a broker, it is recommended to consider the following parameters:
There are many more similar characteristics, and each trader has his own preferences, based on which he chooses a broker. It is worth assessing such factors together. The criteria should not cross each other out, on the contrary, they only complete the picture and help to choose a more reliable company.
Forex trading is carried out using a terminal – special software that can be installed on a PC or smartphone, as well as used via a browser. Today, MetaTrader 5 is considered the most advanced and popular terminal. It can be downloaded from the official website: https://www.metatrader5.com/.
Before you start making transactions, it is worth carefully studying and mastering the trading platform. You can also find the guide on the official website.
And we recommend all our readers to visit our trading school. It contains a lot of useful materials about Forex trading and in particular about using the MetaTrader 5 terminal.
If necessary, you can install additional applications in the terminal: advisors, indicators, scripts, etc. This is special software that allows you to improve and simplify trading.
We also invite you to visit our shop, which presents quality software: Advisors. If you want, you can download and test it for free.
After installing and studying the terminal, you can start trading on the foreign exchange market. Experienced traders recommend using a demo account for the first time. In this case, you get virtual money that you can spend on any transactions.
A demo account is a good opportunity to learn more about the characteristics of a currency platform and to develop an own strategy for earning money. The money is charged to it free, has no value and cannot be withdrawn.
In use of a demo account, a trader can get his hand in the market and start getting a stable result. After that, you can open a real account, enter a sum against it and start conducting transactions.
Some brokers provide the possibility for opening a cent account. Its advantages is that it makes it possible to work with small sums, so the loss of a deposit in the event of an unsuccessful transaction will not be a tragedy for a beginner. Subsequently, when the cent account also starts to bring in profits, a participants in the foreign-exchange market can open a dollar account.
As for the deposit, it should be increased gradually. It is not recommended to get carried away and to "fill" your account with money after the first successful transactions. The best option for a beginner would be to limit himself in time – no more than 2 hours a day on the stock exchange.
The first task that a trader should for himself is break-even. You should not immediately stretch for large sums at the initial stages of trading.
Before you start trading for large sums, you need to master basic skills:
Only if the break-even is passed, the trader can think about how to increase his income. It is important to reach a trading level at which earning become stable. This can be done by closing a large number of transactions with a small profit. This option has less risks.
But this does not mean that there cannot be negative transactions in the trading process. Losses are an integral part of trading. And the main task of a successful trader is to make his profit higher that his losses.
In most cases, the currency chart defies expectations, but sometimes situations arise when the price begins to move in a specific range. In this case, we are talking about the formed support and resistance levels.
A Forex trading strategy is an integrated analytical system that increases the chances of earning income. Of course, there are no ideal schemes, and each is associated with certain risks. But there are a number of simple strategies that are good for beginners.
There are other strategies for earning income. However, the main rule of successful trading is still precisely the preservation of a sober mind. You should not be led by your emotions, so as not to waist money.
Trading on the foreign-exchange market has its advantages and disadvantages.
The advantages include:
The disadvantages include:
You should not consider the Forex trading as a source of passive income, much less – as a "freebie". Because in the absence of proper analytics, the market will immediately cease to be profitable.
Forex is a unique financial system with its own rules and opportunities, knowledge of which will allow you to achieve the desired result. However, before you start trading, it is important to carefully study the pros and cons. Otherwise, instead of making the desired profit, you can lose your invested money.