**Mastering the Fundamentals of Forex Trading: A Comprehensive Beginner’s Guide**
*Based on content by Sasha Evdakov – Tradersfly*
Forex trading, also known as foreign exchange or FX trading, is one of the most dynamic and liquid financial markets in the world. Every day, trillions of dollars are exchanged by individual investors, institutions, banks, and governments. While Forex trading can be profitable, it also comes with high risk, requiring in-depth understanding, careful strategy, and consistent discipline.
This comprehensive guide, based on Sasha Evdakov’s YouTube educational video and supplemented with insights from credible financial educational sources such as Investopedia, BabyPips, and DailyFX, aims to walk beginners through the key concepts, tools, and techniques essential for a strong foundation in Forex trading.
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## What is Forex Trading?
Forex trading refers to the exchange of one currency for another in the global marketplace. The goal is to profit from the fluctuations in the currency exchange rate. For example, if you anticipate that the euro will strengthen against the US dollar, you might buy EUR/USD, and then sell it later at a higher price.
### Key Features of the Forex Market:
– **Largest financial market globally**
With over $7.5 trillion traded daily (as of 2023, according to the Bank for International Settlements).
– **High liquidity**
Due to the volume of participants, trades are executed instantly most of the time.
– **Open 24 hours, 5 days a week**
The Forex market operates continuously from Sunday evening to Friday evening.
– **Currency pairs are categorized**
– Major pairs (e.g. EUR/USD, GBP/USD, USD/JPY)
– Minor pairs (e.g. EUR/GBP, AUD/JPY)
– Exotic pairs (e.g. USD/TRY, USD/SGD)
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## Understanding Currency Pairs
In Forex, currencies are always traded in pairs. When you are trading a currency pair like EUR/USD:
– The first currency (EUR) is the **base currency**
– The second currency (USD) is the **quote currency**
If EUR/USD is quoted at 1.1000, it means 1 euro can be exchanged for 1.1000 US dollars.
### Types of Currency Pairs:
– **Major Pairs**
The most traded pairs, always include the USD on one side. Examples:
– EUR/USD
– USD/JPY
– GBP/USD
– **Minor Pairs**
Pairs that do not include USD but have high liquidity:
– EUR/GBP
– AUD/CAD
– **Exotic Pairs**
Comprise a major currency and the currency of a developing or emerging market:
– USD/TRY (US dollar/Turkish Lira)
– EUR/THB (Euro/Thai Baht)
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## Market Participants in Forex
Understanding who moves the Forex market provides insight into big-time trends and volume surges.
– **Commercial banks**
Account for the majority of Forex market transactions.
– **Central banks**
Impact currency prices through interest rate changes and direct market interventions.
– **Institutional investors**
Hedge funds, investment companies, and asset managers.
– **Corporations**
Engage in Forex to hedge against currency risk on international deals.
– **Retail traders**
Individual investors accessing the market through platforms like MetaTrader or cTrader.
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## How Forex Trading Works
Forex trading involves speculating on price movements by going either long (buying) or short (selling).
### Key Concepts to Understand:
– **Bid vs Ask Price**
– Bid: Price at which you sell
– Ask: Price at which you buy
– **Spread**
– Difference between the bid and ask price; often a broker’s profit.
– **Pip (Percentage in Point)**
– Small
Read more on USD/CAD trading.