This article is a rewritten and expanded version of the content originally presented in the YouTube video titled “Forex Trading for Beginners – Step by Step” by TradingLabs. All credit for the original material goes to the video creator. The information below is restructured and elaborated upon to assist readers in understanding the fundamentals of Forex trading in a written format.
FOREX TRADING FOR BEGINNERS – A COMPLETE STEP-BY-STEP GUIDE
Forex, or Foreign Exchange, refers to the global marketplace for buying and selling currencies. With a daily trading volume exceeding $6 trillion, it ranks as the largest and most liquid financial market in the world. Forex trading involves exchanging one currency for another with the goal of making a profit from changes in their relative values. This guide outlines the essential concepts, tools, and strategies needed to get started in Forex trading.
WHAT IS FOREX?
Forex stands for “foreign exchange” and operates as a decentralized global market where all the world’s currencies are traded. Unlike stock markets, Forex runs 24 hours a day, five days a week, due to its international scope and multiple time zones.
Key characteristics of the Forex market:
– Traded over-the-counter (OTC), meaning there is no centralized exchange
– Accessible to all types of traders, from large banks to individual investors
– High liquidity allows traders to open and close positions with ease
– Wide variety of currency pairs to trade
The primary function of Forex markets is to facilitate international trade and investment by enabling currency conversion. However, speculation also plays a large role, contributing significantly to the daily trading volume.
MAJOR CURRENCY PAIRS
Forex trading typically revolves around currency pairs. These indicate the value of one currency relative to another. The first currency is known as the “base currency,” and the second is the “quote currency.”
Examples of major currency pairs:
– EUR/USD: Euro vs. US Dollar
– GBP/USD: British Pound vs. US Dollar
– USD/JPY: US Dollar vs. Japanese Yen
– USD/CHF: US Dollar vs. Swiss Franc
– AUD/USD: Australian Dollar vs. US Dollar
– USD/CAD: US Dollar vs. Canadian Dollar
Major pairs account for the bulk of global trading volume, and they tend to have the lowest spreads due to their high liquidity.
CURRENCY PAIR STRUCTURE
When looking at a Forex pair like EUR/USD = 1.1000, it means that one euro is equal to 1.10 US dollars. If the price goes up to 1.1200, the euro has gained strength against the dollar. If it falls to 1.0800, the euro has weakened.
Understanding how Forex pairs are quoted:
– Base currency: the first currency in the pair
– Quote currency: the second currency
– Pip: the smallest price move in Forex, typically 0.0001 for most pairs (except for pairs like USD/JPY where it’s 0.01)
TRADING SESSIONS
The Forex market is open 24 hours daily during business days. It breaks down into four major global trading sessions:
– Sydney session: opens around 10 PM GMT
– Tokyo session: opens around 12 AM GMT
– London session: opens around 8 AM GMT
– New York session: opens around 1 PM GMT
The overlap between the London and New York sessions is considered the most liquid and volatile time to trade, offering the most trading opportunities.
HOW FOREX TRADING WORKS
To trade Forex, you need to buy one currency and simultaneously sell another. This is executed through trading platforms offered by Forex brokers.
Key steps in executing a trade:
– Choose a trading platform and register with a broker
– Deposit funds into your account
– Use technical or fundamental analysis to pick a currency pair
– Decide whether to go long (buy) or short (sell)
– Manage risk through stop-loss and take-profit orders
Leverage is a tool that
Read more on EUR/USD trading.