Here’s the truth:
You and I know that Forex trading is not something that is easy for beginners.
But what if you can read just a guide…
… and understand all the basic stuffs that will fast track your learning process?
I bet you will grab it.
That is what you have in this post:
We will start from the basics of FX, what moves the pairs, how currency moves, the direction, what is trading hours and what leverage is and why it is important.
So join me as I explain these concepts in an easy to understand way.
The Basics of Forex Trading
This is simple:
Do you know that the Forex market is the biggest market in the world?
Yes, it is.
On this market, trillions of dollars are traded day in day out.
That does not mean people trading small sizes aren’t accepted in the market. Everyone is part of the market. The cost of doing this business is low compared to other related markets.
Forex trading is a currency market and in it…
… no currency moves in isolation.
What does that mean?
Forex uses currency pairs – one currency against another. To better understand that, take a look at the picture below. There are 100s of permutations you can get using these currencies. Picture 1 is a list of some of the available currencies.
One of the basic tip on Forex trading for beginners is to stick to the major currencies.
When just starting out trade the major currency pairs like Euro-US Dollar EUR/USD, US Dollar-Japanese Yen USD/JPY, British Pound-US Dollar GBP/USD, US Dollar-Swiss Franc USD/CHF.
How Does Currency Move in Forex Trading?
When you see currency and their pairs, it is all about relative value.
You want to be able to tell if one currency is stronger or weaker against the other currency.
You can know that by seeing what the currency pair looks like in the past – using the chart.
The currency chart shows the relative value of one currency against the other.
In the picture below:
GBP/USD, the British Pound against the US Dollar…
… at the start of January 2017, you will get 1 dollar and 22 cents for a British pound.
At the beginning of September that same year, the pound has risen in value that you can buy 1 dollar and 32 cents with a pound.
I think that is beautiful. That is the basic idea of Forex trading.
If you understand that little explanation:
You can go anywhere in Forex.
So when you look at Foreign Exchange trading you are simply looking at one currency’s value against another currency.
Now that you know how the currency pairs move, it very important that you know the things that actually initiate these movements.
Let’s go there…
What Are the Things That Move Forex Pairs?
The real answer is this:
Many things can have impact on the currency movement.
Interest rate: if the interest rate in a country is high than the other country, it can affect the pair in many ways. You can’t always say that the economy that has high interest rate will always appreciate against the other economy. It can go the other way, maybe the interest in that economy means the economy is weak at that time and the money can flow the other way.
The rate of unemployment has effect too in an economy and can influence the movement of the pair.
Political events too, take for example:
In June 2016, there was a referendum vote in Britain which made the British pound very volatile.
These are some of the things that affects the Forex market and as a beginner you’ve got to be aware of them.
The next thing you have to learn now is how to know the direction you are trading in when you trade.