How to start trading in forex

It is likely that you have been made aware of our forex trading services and are interested in acquiring knowledge on the subject. In today's article, I will provide a straightforward introduction to forex trading. Forex, short for foreign exchange, refers to the act of exchanging one currency for another. When traveling to a foreign country, one typically seeks out an exchange booth to convert their currency into the local currency. For instance, during my recent trip to Bali, I exchanged 5 pounds for 100,000 Indonesian Rupiah.

Trading involves the exchange of one currency for another. This activity takes place in the foreign exchange market, also known as forex or FX, which is the largest financial market globally. In comparison, the New York Stock Exchange, the largest stock market in the world, has a trading volume of 2.4 billion, while the forex market has a daily trading volume of five trillion. It is evident that forex is the most extensive financial market globally. The question of what is traded in forex arises, and the answer is that only currencies are bought and sold in this market.

In essence, the act of buying and selling currencies is the primary focus of forex trading. However, it is imperative to note that in forex trading, one cannot simply purchase or sell a single currency. For instance, it is not possible to buy a pound sterling without trading it with another currency, such as the US dollar. This is referred to as a currency pair. It is essential to understand that in forex trading, one cannot merely sell or buy a single currency, such as the US dollar. Instead, it is necessary to pair it with another currency and trade using a currency pair. A currency pair is a quotation of two distinct currencies, with the value of one currency being quoted against the other. The first currency listed in a currency pair is known as the base currency, while the second currency is referred to as the quote currency. The base currency is the initial currency in any currency pair, and the currency quote indicates the value of the base currency concerning the second currency.

If the USD Swiss rate is equivalent to 1.6350, it follows that one USD holds a value of 1.63 Swiss francs. The term "quote currency" refers to the second currency in a currency pair. The initial currency in a currency pair is referred to as the base currency, while the second currency is known as the quote currency. For instance, in the USD/JPY currency pair, the base currency is USD, while the quote currency is JPY. Similarly, in the GBP/JPY currency pair, the base currency is GBP, while the quote currency is JPY. Unlike the New York Stock Exchange or the London Stock Exchange, the forex market lacks a physical location or central exchange. The forex market operates electronically within a network of banks, and trades can occur anywhere with an internet connection. The market is open 24 hours a day, five days a week, from Monday to Friday, and closed on Saturday and Sunday.

Let us now proceed to discuss the seven most actively traded currencies. Firstly, we have the US dollar (USD), followed by the euro, Japanese yen (JPY), pound sterling, Australian dollar (AUD), Canadian dollar (CAD), and Swiss franc (CHF). It is evident that the US dollar dominates the forex market, accounting for approximately 84.9% of all transactions. This is attributed to several factors, including the fact that the United States boasts the largest economy globally, the US dollar is the world's reserve currency, the country has the most extensive and liquid financial markets, and a stable political system.

Moving on, the question arises as to how one can generate profits through forex trading.

The primary aim of trading is to engage in the exchange of one currency for another with the expectation that the price will fluctuate. An exchange rate is essentially the ratio of one currency's value in relation to another currency. In order to comprehend Forex quotes, it is important to note that currencies are always quoted in pairs, such as the Pound Sterling and the US Dollar (GBP/USD) or the US Dollar and the Japanese Yen (USD/JPY). The reason for this is that in every foreign exchange transaction, one currency is bought while another is sold simultaneously. For instance, when purchasing, the exchange rate indicates the amount of the quote currency that must be paid in order to acquire one unit of the base currency. In the example, one would have to pay 1.51258 US dollars to purchase one British Pound. Conversely, when selling, the exchange rate indicates the number of units of the currency that will be received for selling one unit of the base currency. In the example provided, one would receive 1.51258 US dollars when selling one British Pound.

In the present context, the Euro-USD currency pair is being discussed. If one intends to take a buy position on this pair, it implies that they are purchasing the base currency while simultaneously selling the counter currency. In simpler terms, this means that one is buying Euros while selling US Dollars. The decision to buy or sell the pair is based on the belief that the base currency will either appreciate or depreciate relative to the counter currency. If one expects the Euro to strengthen and the Dollar to weaken, they will buy the pair. Conversely, if they anticipate the Euro to weaken and the Dollar to strengthen, they will sell the pair.

It is pertinent to understand the meaning of certain terms such as long, short, bullish, and bearish in the context of trading. When a trader says they are going long or short, it means they are buying or selling a security, respectively. Long refers to buying, while short refers to selling. Bullish implies a belief that the currency pair will appreciate, while bearish suggests a belief that the currency pair will depreciate. In other words, bullish means up, while bearish means down.

now let's move on to the bid-ask and spread all Forex quotes are quoted with two prices the bid and ask in general the bid is lower than the ask price the bid is the price at which your broker is willing to buy the base currency in exchange for the currency this means the bid is the best available price which you the trader will sell to the market if you want to sell something the broker will buy from you at the bid price the ask is the price at which your broker will sell the base currency in exchange for the currency this means the ask price is the best available price at which you will buy from the market if you want to buy something the broker will sell or offer it to you at the ask price the difference between the bid and ask price is known as the spread on the euro/usd quote above the bid price is one point three four five six eight and the ask price is one point three four five eight eight if you want to sell euro you collect sell and you sell euros at one point three four five six eight if you want to buy euro you will click buy and you'll buy euros at one point three four five eight eight so as you can see the difference between the bed and the ask is only two pips because the bid is at one point three four five six eight and the ask is at one point three four five eight eight so 58 minus 56 is two pips so two pip spread that's how you calculate your spreads now how do you know when to buy or sell well there are two ways to analyze the charts technical analysis or fundamental analysis you can analyze the charts and determine when to buy or sell using technical analysis or fundamental analysis

Let us commence with the analysis of fundamental factors. Each currency is associated with a specific country or region, and therefore, Forex fundamental analysis concentrates on the overall state of the country's economy, including productivity, employment, manufacturing, international trade, and interest rates. For instance, in the case of EUR/USD, the euro serves as the base currency and forms the foundation for the buy or sell decision. If one believes that the US economy will continue to weaken, which is detrimental to the US dollar, they would execute a buy EUR/USD order. By doing so, they have purchased euros with the expectation that they will appreciate against the US dollar. Conversely, if one believes that the US economy is robust and the euro will weaken against the US dollar, they would execute a sell EUR/USD order. By doing so, they have sold euros with the expectation that they will depreciate against the US dollar.

In the case of GBP/USD, the pound serves as the base currency and forms the basis for the buy or sell decision. If one thinks that the British economy will continue to outperform the US economy in terms of economic growth, they would execute a buy GBP/USD order. By doing so, they have acquired more pounds with the expectation that they will appreciate against the US dollar. Conversely, if one believes that the British economy is slowing down while the American economy remains strong, they would execute a sell GBP/USD order. By doing so, they have sold pounds with the expectation that they will depreciate against the US dollar.

To simplify matters, whenever one takes a buy position, they are anticipating that the base currency, which in this example is the pound, will appreciate, and the quote currency will depreciate. If this were GBP/JPY, one would expect the pound to strengthen and the yen to weaken.

When purchasing in the foreign exchange market, it is desirable for the first currency on the left to strengthen and the second currency on the right to weaken. As forex traders, we rely on news sites to update and inform us of upcoming events, such as President Trump's speeches. Knowing the dates of key events can help avoid trading during volatile moments or keep one informed of what to expect. A highly useful site for this purpose is forex factory.com. This site provides notifications during key events, including the exact time and impact level of each event, as well as news articles. Events on forex factory.com are categorized according to their potential impact, with high impact events, such as President Trump's speeches or the non-farm payroll, being designated as red.

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The subsequent category of impact is medium, which is not as significant as high impact. Additionally, we have low impact events, which are expected to exhibit minimal volatility. However, it is imperative to remain vigilant as unforeseen events may transpire. Lastly, non-economic impacts are those that do not have a substantial effect on the market. These four potential impacts are listed on Forex Factory. Having acquainted ourselves with fundamental analysis, let us now delve into technical analysis. Technical analysis is the framework employed by Forex traders to study price movements. The theory posits that by examining historical price movements, one can determine the current trading conditions and potential price movements. The primary evidence for using technical analysis is that all current market information is theoretically reflected in price. Technical analysts search for similar patterns that have formed in the past and will form trade ideas, believing that price will behave in the same manner as it did previously. Charts are the preferred tool of technical analysts as they provide the easiest means of visualizing historical data. By scrutinizing past data, one can identify trends and patterns that could lead to lucrative trading opportunities. In essence, technical analysis involves using past data to predict future trends and patterns.

Currently, there exist three distinct types of Forex charts, namely the line chart, bar chart, and candlestick chart. To begin with, a line chart is a simple representation of the price movement of a currency pair over a period of time. It draws a line from one closing price to the next, thereby providing a general overview of the trend. On the other hand, a bar chart is a more complex representation that displays the opening and closing prices, as well as the highs and lows. The vertical bar indicates the trading range of the currency pair, with the bottom representing the lowest traded price and the top indicating the highest price paid. The horizontal hash on the left side of the bar represents the opening price, while the one on the right side represents the closing price. Bar charts are also referred to as OHLC charts, as they indicate the open, high, low, and close for a particular currency. Finally, a candlestick chart is a more visually appealing representation of the same price information as a bar chart. It also indicates the high to low range with a vertical line. Personally, I prefer to use candlestick charts over bar and line charts.

In candlestick charting, the larger block or body in the middle indicates the range between the opening and closing prices. A candlestick is comprised of two components: the body and the wick. The body represents the opening and closing prices, while the wicks indicate the high and low. Candlesticks are easily interpretable and serve as an ideal starting point for beginners in chart analysis. Presented below is an example of a candlestick, which can be classified into two types: bullish and bearish.

The bullish candlestick differs from the bearish candlestick in that the open is located at the bottom of the body, while the close is situated at the top. The body is the central block, while the wicks are the lines at the top and bottom. Regardless of whether it is a bullish or bearish candlestick, the low and high remain the same. Specifically, the low for the bullish candlestick is always at the bottom, while the high is at the top of the wick. Similarly, the low for the bearish candlestick is always at the bottom, while the high is at the top of the wick. The key difference between the bullish and bearish candlesticks is that the bearish candlestick has an open at the top and a close at the bottom. In contrast, the bullish candlestick opens from the bottom and closes at the top, as it represents an upward trend.

However, in the case of a bearish candlestick, as it indicates a downward trend, the candlestick opens at the top and closes at the bottom. Now, let us discuss the concept of a pip. A pip is the unit of measurement used to express the change in value between two currencies. For instance, if the EUR/USD pair moves from 1.1050 to 1.1051, the rise in value of 0.0001 USD is equivalent to one pip. Typically, a pip is the last decimal place of a price quote, with most pairs going out to four decimal places. However, there are exceptions, such as the Japanese yen pairs, which go out to two decimal places. In addition, some forex brokers quote currency pairs beyond the standard four and two decimal places, such as two, five, and three decimal places, which are referred to as fractional pips or pipettes. For example, if the GBP/USD pair moves from 1.30540 to 1.30543, the rise in value of 0.00001 USD is equivalent to one pipette. To identify a pip or pipette, the fourth digit after the decimal point represents a pip for non-yen pairs, while the second digit after the decimal point represents a pip for yen pairs. The value of a pip is determined by the lot size used. For instance, if a profit of 10 pips is made using a lot size of 1.00, the trade yields a profit of $100.

However, if an individual were to achieve the same number of pips as myself, namely 10 pips, their profit could vary depending on the lot size they utilized. A lot size refers to the number of currency units purchased or sold in a trade. There are various types of lot sizes, including standard lots, mini lots, micro lots, and nano lots. When considering units, it is akin to the number of shares one is purchasing, similar to buying 100 shares of Facebook stock.

For instance, a standard lot comprises 100,000 units, with a volume of 1.00 and a value of $10 per pip. Therefore, for each pip earned with a standard lot, one would make $10. If an individual were to make 10 pips with a standard lot, their profit would amount to $100. However, the volume can be increased to 20.00 or even 100.00, depending on the capital available, resulting in profits of $200 or $1,000 per pip, respectively.

In addition to standard lots, there are mini lots, which consist of 10,000 units, with a volume of 0.10 and a value of $1 per pip. Similarly, micro lots comprise 1,000 units, with a volume of 0.01 and a value of $0.10 per pip. Finally, nano lots consist of 100 units, with a volume of 0.001 and a value of $0.01 per pip.

It is important to note that the value of a pip is always calculated in dollars, regardless of the account currency with one's broker.

Moving forward, leverage refers to the ratio of the capital utilized in a transaction to the required security deposit margin. It enables an individual to control large amounts of a security with a relatively small amount of capital. The degree of leveraging varies significantly among different brokers, ranging from one to one to five hundred to one. For instance, if an individual uses a leverage of one to three hundred and has a capital of one dollar, they can take a trade worth three hundred dollars. However, it is essential to note that leverage is a double-edged sword that allows one to invest more than what they have in their account. It is advisable to use a maximum leverage of 1 to 300 for major and minor currencies. The eight most frequently traded currencies, namely USD, Euro, Yen, Pound, Swiss Franc, Canadian Dollar, New Zealand Dollar, and Australian Dollar, are referred to as major currencies. All other currencies are classified as minor currencies.

Margin, on the other hand, refers to the minimum amount that an individual must deposit with a Forex broker when opening a margin account. The minimum and maximum margin requirements vary from broker to broker and can range from as low as $100 to as high as $100,000 and more. Each time an individual executes a new trade, a certain percentage of the account balance in the margin account is set aside as the initial margin requirement for the new trade. The amount is based on the underlying currency pair, its current price, and the number of units or lots traded. Margin is, therefore, the amount of money that a trader needs to put forward to open a trade. When trading Forex on margin, an individual only needs to pay a percentage of the full value of the position to open a trade.

Regarding the types of orders, when an individual wishes to place a trade, whether it is a buy or sell, they have the option of three different types of orders. The first is a market order, which is an order to buy or sell at the best available price.

Currently, the bid price for EUR/USD stands at 1.2140, while the ask price is at 1.2142. Should one wish to purchase EUR/USD at market, it would be sold at the price of 1.2142. By clicking the "buy" button, the trading platform would promptly execute a buy order at the exact price. This process is akin to the one-click ordering system utilized by Amazon.com. It is important to note that market conditions may cause a discrepancy between the selected price and the final executed price on the trading platform.

In summary, a market order is executed instantly, occurring immediately upon clicking the "buy" or "sell" button. Conversely, a limit order is placed to either buy below the market or sell above the market at a specified price. For instance, if EUR/USD is currently trading at 1.2050 and one wishes to sell at 1.2070, a sell limit order can be set at 1.2070. This type of entry order is utilized when one believes that the price will reverse upon hitting the specified price. A limit order to buy at a price below the current market price will be executed at a price equal to or less than the specified price, while a limit order to sell at a price above the current market price will be executed at a price equal to or more than the specified price. In summary, a buy limit order is placed below the current price, and the price then rises.

Let us assume that the current price is situated at this blue circle. In such a scenario, if you intend to purchase when the price decreases, you may set an order below the market price. This order will enable you to buy the asset even when you are not present at your computer. You may specify the price at which you wish to sell by placing a sell limit order above the market price. In case the price decreases, you may set a stop order to buy above the market or sell below the market at a certain price.

The forex market is open 24 hours a day and five days a week. However, it is not always active, and there are certain times when the market is slow. It is essential to learn when to avoid such times to trade when there is good volatility. There are four major trading sessions each day, namely the Sydney session, London session, New York session, and Tokyo session. The London session is the most volatile trading session, and the middle of the week typically shows the most movement.

The best time to trade forex is during the London-New York overlap, as traders from the two largest financial centers trade during this period. This period is characterized by significant moves, especially when news reports from the US and Canada are released. On the other hand, the worst time to trade forex is on Sundays when most people are sleeping or enjoying the weekend.

Cease trading at the opening of the market on Sunday evenings. Additionally, it is advisable to avoid trading on Fridays after 3:00 p.m. GMT, as liquidity tends to decrease during the latter part of the U.S. session. It is important to note that what cannot be accomplished in four days cannot be achieved in one day. During holidays, it is recommended to refrain from trading, as market activity slows down due to the majority of traders taking a break. Furthermore, it is strongly advised to avoid trading during major news events, as the market can become volatile and unpredictable. Instead, it is recommended to wait for the news to pass before resuming trading.

To gain more knowledge and experience, it is recommended to set up a demo account with a reputable Forex broker. Forex brokers are firms that provide traders with access to a platform to buy or sell currencies. There are numerous Forex brokers available, and it is important to find one that suits individual needs. Personally, I use I see markets, which offers an Islamic account and has proven to be a reliable broker.

In addition, we have partnered with BD Swiss to offer a three-day online Forex webinar, which I will be hosting. This webinar will provide comprehensive instruction on how to progress from a beginner stage to analyzing and breaking down charts, and ultimately taking trades independently. This is a no-nonsense webinar, as I have observed many webinars that lack practical information. Follow the details in the description below to secure your position for the upcoming webinar.

In conclusion, this video provides valuable information on trading, how to trade, and how to get started.