Forex Trading for Beginners
If you are reading this article, “Forex Trading for Beginners“, you are probably new to forex trading. And again, probably, you need to learn about many terms and basics before going into forex trading yourself. So, in this article, we will talk about some of the most important terms you need to know to do forex, after we talk about simply “How to Trade Forex for Beginners” and Forex Trading for Beginners. Let’s get started to forex trading tutorial.
Some investors in this market, especially the ones that work with small budgets, do not work with a broker. Therefore, the only way to carry on investments for them is to know the general rules of this market on a certain level. This is quite a challenging task. So, we recommend that you work with a broker. However, even if you work with a broker, you still should know the general rules of the forex market. Our website has the information you need for the topics such as “What is a broker”, or “How to work with a broker”. You can use the search tool and find them easily.
First thing first, What is Forex Trading? The term “forex” is a portmanteau word made out of the term “foreign exchange”. You may see the letters “FX” in some places, this is just another short way to write “Forex”.
The main idea of forex is trading different currencies with each other. The goal is buying a currency while it is cheaper and selling it while its price is higher. This is basically how you make some profit with forex. The logic of this shopping is the first learning on the Forex Trading for beginners.
Forex Trading for Beginners: Exchange Rate
As you can imagine, the prices of each currency are determined in other currencies. You can understand the value of a currency by looking at much you can buy of that currency with your currency. We call this value “exchange rate” between those two currencies. For example, if you can buy 2 Australian Dollars with your 1 Euro, this means that “Euro/Australian Dollar exchange rate” equals to 2, it is this simple. But of course, normally, you don’t see rounded numbers like this in exchange rates.
Forex Trading for Beginners: Codes and Pairs
You will see the exchange rates on forex platforms written in short currency code pairs, like; EUR/USD, USD/JPY, or without the slash like; AUDUSD, GBPUSD. These three-letter codes represent the currencies. You probably already know some major currencies. USD for American Dollar, EUR for Euros, or GBP for British Pounds, etc.
You can find a list of these three-letter currency codes on our related page; “Forex Currency Codes”.
When you will see these currency pairs in forex trading market, you can understand that the value they show is the amount of the second currency (right side) in the pair, with the base currency (right side) in the pair. As in the example, we look at earlier; in forex platforms “Euro/Australian Dollar exchange rate equals to 2” would be shown as “EURAUD = 2”.
In forex market, the most traded pairs are known as “major pairs”. And they are the pair that you trade USD with other major currencies of the developed counties. EURUSD, USDJPY, GBPUSD, USDCAD, USDCHF, AUDUSD and NZDUSD are the biggest major pairs you can trade in forex.
Forex Trading for Beginners: Minor Currencies
Similarly, If you trade two of the major currencies other than USD, it is called a “minor pair”. So, EURCAD, AUDEUR, GBPJPY, JPYNZD, or GBPAUD, all are minor pairs. Minor pairs are also quite popular in forex, but not as much as major pairs.
But, of course, you are not limited to these major pairs. You can also trade currencies of still developing countries. In the forex trading market, these currencies are called “minor currencies” or “exotics”. And, if you trade a minor currency with a major currency, this pair is called an “exotic pair”. These pairs are much less popular than other pairs, and their low liquidity usually makes their spread larger than others. These concepts are the first things on Forex Trading for beginners to learn.
Spread in Forex Trading
In the forex trading market, the difference between the “bid” price at which you can sell the base currency and the “ask” price that you can buy it is called “spread”. This spread is smaller where the currency gets traded more. And, if a pair is rarer than others you would see that its spread is larger. It is important to follow the spread of the pairs you interested as you invest in forex.
If you are buying a pair, the spread is what you need to consider as the first currency’s value against the second currency. Let’s say the bid price of EURUSD is 1.5000. In this case, you can buy $1.5 with €1 and you should only buy EURUSD pair if you believe that the value of the euro will increase or the value of the dollar will decrease.
And if you are selling a pair, with the same example of EURUSD being 1.5000, you can sell your €1 for $1.5. Of course, again, you should only sell your EURUSD pair if you believe that the value of the euro will decrease or the value of the dollar will increase.
Maybe you should read this article a few times. Because knowing the meaning of these concepts is absolutely necessary for those who are new to forex. Check out our other “Forex Trading for Beginners” articles and learn how to make your profit with Forex trading.
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