**Forex Trading Explained: The Complete Beginner’s Guide**
*Based on content from The Trading Channel by Steven Hart*
*Original author: Steven Hart*
*Source: https://www.youtube.com/watch?v=hIQzOIkde0o*
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Foreign exchange, commonly known as Forex or FX, represents the world’s largest financial market. As with any financial market, understanding its core principles is vitally important before speculation or trading is undertaken. This comprehensive beginner’s guide, deriving its insights from Steven Hart of The Trading Channel, breaks down the essentials of Forex trading, its mechanics, operational guidelines, and strategies for starting out.
## What is Forex?
Forex is the global market where participants buy, sell, exchange, and speculate on the value of global currencies. It operates virtually 24 hours a day, five days a week, offering exceptional liquidity and volume compared to other financial markets.
### Key Attributes of the Forex Market:
– **Decentralized Market:** There is no central exchange governing all trade.
– **Global Participation:** Includes banks, governments, corporations, hedge funds, and individual retail traders.
– **Currency Pairs:** Traders always deal in pairs, speculating on the change in value between two currencies.
## Major Currency Pairs
In Forex trading, currencies are quoted in pairs. The most commonly traded pairs are called “major pairs,” composed of the world’s most powerful and stable currencies.
### Examples of Major Pairs:
– EUR/USD (Euro/US Dollar)
– USD/JPY (US Dollar/Japanese Yen)
– GBP/USD (British Pound/US Dollar)
– USD/CHF (US Dollar/Swiss Franc)
– AUD/USD (Australian Dollar/US Dollar)
– USD/CAD (US Dollar/Canadian Dollar)
– NZD/USD (New Zealand Dollar/US Dollar)
Each pairing shows which currency is being bought and sold. The first currency in the pair is the base; the second is the quote.
## How Forex Trading Works
Trading on the Forex market is a simple process in theory:
1. **Predict Direction:** Decide if the base currency will rise (appreciate) or fall (depreciate) in value relative to the quote currency.
2. **Buy or Sell:** Buy if you anticipate appreciation, and sell if you expect depreciation.
3. **Profit or Loss:** Your profit or loss is determined by the difference in exchange rate from when you entered and exited the trade.
### Example Trade:
– You forecast EUR/USD will rise.
– You “buy” EUR/USD at 1.2000.
– Later, EUR/USD is at 1.2050.
– You close your trade: profit of 50 pips.
## Understanding Pips and Lot Sizes
– **Pip:** Stands for “percentage in point.” It is the smallest price movement in a currency pair, usually 0.0001 for most pairs.
– **Lot Size:** The volume you trade. Standard lot = 100,000 units, mini lot = 10,000 units, micro lot = 1,000 units.
### Why These Matter
– Pips determine how much a currency has moved in value.
– Lot size determines your exposure and risk.
## Leverage and Margin
Forex is often traded with leverage, allowing a trader to control a larger position with less capital.
– **Leverage:** Expressed as a ratio, such as 100:1. With 100:1 leverage, you can control $100,000 using $1,000 margin.
– **Margin:** The amount of money required to open a position.
**Caution:** High leverage increases profit potential but also heightens risk and the possibility of losing more than your initial investment.
## How to Read Forex Quotes
A typical quote might be:
“`
EUR/USD: 1.2000 / 1.2002
“`
– **First number (1.2000):** Bid price (price
Read more on GBP/USD trading.