New to the world of trading or Forex? Confused by different technical descriptions that seem to be used to describe the same things about financial markets? “Simplifying Forex trading” is our motto, so an effective path to starting a fast foundation in understanding how to trade Forex begins here. It is important to feel comfortable before you start trading with real money, as mistakes from misunderstanding basic execution concepts such as spread , leverage and position sizing can be very costly. This page will explain the key “hows” and “whys” such as the basic workings of the market, how to buy and sell Forex, and the meaning of leverage. Most crucially, after reading this page, you will understand what the different prices brokers will quote to you represent, as well as the distinct types of orders to enter and exit trades you can give to your Forex broker, such as stop, market, and limit orders. Finally, when you are comfortable and ready to get started, we explain the process of how to go about choosing a Forex broker which is well-regulated , unlikely to attempt to defraud you of your deposit, and able to offer a suitable choice of assets for trading with good execution.
What is Forex trading?
How does Forex trading work?
Forex trading is conducted in pairs. The trader always trades one currency against another. Some examples of the major pairs include the EUR/USD, USD/JPY, EUR/JPY, GBP/CHF, and CAD/USD among others. When you open a Forex trade, you go "long" on one currency and go "short" on the other. The Forex market does not have a centralized location and is therefore a very flexible trading option for people around the globe.
Read More: Long and Short Trades
Is Forex trading Risky?
In one word, yes. However, there are various tools and techniques one can use to reduce the risk. These include market analysis (technical or fundamental), trading systems, signal providers, and Forex robots. However, the best way to avoid high risks in Forex is to educate yourself about the Forex market before trading real money. Additionally, experts recommended you use a demo account for an extended period of time before risking money.
Read More: Forex Trading and its Business Risks
When is the Forex market open?
The Forex market has the most flexible hours with true 24 hour trading. The Forex day starts in Sydney and moves around the globe first to Tokyo, then London, then NY.
Read More: Trading Forex with the Asian Range
How does Forex trading compare to stocks or mutual funds?
Forex and stocks have a lot in common but generally speaking, Forex is shorter term trades than other markets. Most Forex traders do not leave positions open overnight, which involves a fee called a 'Rollover Fee'. In addition, the stock market is significantly smaller than the Forex market making it a more difficult trade to master.
Read More: Should You Trade Stocks or Forex?
How long are Forex positions maintained?
This very much depends on the preferences of the trader but statistics show that over 80% of Forex trades last for seven days or less and over 40% for two days or less. Generally speaking, Forex traders close their positions when they have achieved their profit goals for that trade, the Stop Loss is triggered as a result of reaching a maximum level of loss, or a new position has become available and the trader wants to reallocate the funds.
How often are Forex trades made?
Since most brokers do not charge commission on opening a new position and the Forex market is open almost around the clock, most trades open multiple positions throughout the day. According to recent studies, the average Forex trader opens approximately ten to twenty new positions every day.
What is Forex leverage?
Leverage in Forex is a loan that is provided by the Forex broker to an investor. When an investor decides to invest in the Forex market, he/she must first open up a margin account with a broker. The broker then allows the investor to trade over and beyond the actual amount of money he has on deposit. Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading. In Forex, investors use leverage to profit from the fluctuations in exchange rates between two different countries. The leverage that is achievable in the forex market is one of the highest that investors can obtain.
Read More: How Leverage Really Works Against You
What is a Forex Islamic account?
Islamic Accounts, also referred to as swap-free accounts, are Forex accounts whose owners exercise Islamic religion. According to the rules of Islam any business transactions which involve interest of any sort are prohibited. Islamic or swap-free accounts allow the position of a currency pair to be rolled over past midnight so that a trader does not earn interest.
Read More: Is Forex Trading Allowed in Islam?
Forex First Steps
What do I need in order to start trading Forex?
As opposed to other markets, you really do not need much to trade Forex. No license is required, and you can trade Forex with a very small initial capital. However, it is not recommended to jump into Forex trading without massive preparation before. This should include reading, studying, and familiarizing yourself with the ins and outs of the market as well as choosing a top reliable broker with whom you can trade.
Read More: First 5 Steps
What is the best way to learn Forex?
The Web is overflowing with trading webinars and articles about Forex, but we have worked long and hard to be the most informative source of Forex information for the beginner trader. You can read our best Forex articles or see a complete list of our Forex articles.
Read More: FX Academy Changes the Way Traders Learn
How are the prices of the currencies determined?
The Forex market is among the most volatile markets on the globe and with its 24 hour schedule, the market never rests. The prices are based on a wide spectrum of factors both economic and political. Anything can affect the movement of the Forex market, but the main factors that drive the currencies are interest rates, inflation, and political stability. Governments often jump into the Forex trading arena in order to affect the prices of currencies. They do this by flooding the market with their currency in order to lower its price or buy out large sums of their currency in order to raise its value. However, as a result of the Forex market's size, there is no one entity that can truly affect the market is a serious manner.
What do terms like Bid, Spread, Rollover and others mean?
There are many terms you must understand before your trade Forex. To become aquanited with the basic lingo, see our complete Forex glossary.
How can I manage my risks in the most efficient way?
There are many ways to avoid high Forex risks, but the primary tools used by most traders are stop losses, take profits, and limit orders. Using these tools, you can minimize your risks while maximizing your potential for profits.
Read More: Risk Management Techniques
Is Forex trading lucrative?
The possible rewards of Forex trading are pretty much endless. Most Forex brokers offer high leverage offering the ability to trade tens and hundreds of thousands of Dollars with as little as a few hundred Dollars of equity. Some brokers offer a leverage as high as 500:1. Obviously, the higher the leverage, the larger the potential for profit, but with that potential comes a higher level of risk as well.
Is Forex an expensive habit?
Well, that very much depends how you trade. However, unlike many other markets, Forex trading can be a very inexpensive habit. With most brokers offering at least a 100:1 leverage, traders can trade tens of thousands of Dollars with as little $500.
What is the best Forex strategy to use?
This is a question that occupies the minds of the world's most well known Forex experts. There is no one right answer to this, but there is one basic principle when it comes to a Forex trading strategy. The important thing is that a trader has some sort of strategy. This is what differentiates Forex trading from gambling. You can use one of hundreds of available Forex trading strategies to maximize the potential of the Forex market. Many traders find it challenging to stick to their strategies when it dictates to pull out of a trade even when it is a winning trade. The important thing is that traders use strategies and stick to them.
Read More: Forex Trading Strategies
Forex Trading Brokers
How to choose A Forex broker?
Choosing an online Forex broker might be the most important decision a trader makes. It is therefore very important to make an educated decision. The Web is overflowing with reviews of Forex brokers. It is crucial that traders read them before choosing a broker. DailyForex has put together a comprehensive list of Forex broker reviews for your Forex research.
Read More: Choosing an Online Forex Broker
What features should I look for in a Forex broker?
There are a lot of characteristics a trader should look for in an online Forex broker. This can be anything from the website, to their customer support, their trading platform, their platform's features, and their Forex trading spreads. It is important to read in depth reviews before selecting your broker, and a good start is reading DailyForex's thorough Forex broker reviews.
Read More: Choosing a Forex Broker
Why should a Forex broker be regulated?
Proper financial regulation provides traders with a certain level of basic protection. For instance, traders depositing with brokerages regulated in the European Union will feel safe in the knowledge that some of their funds are insured through an authorized regulartory organization. Should the brokerage suddenly collapse or the broker abscond with the funds, a large percentage of the monies may be refunded to the broker’s clients. Among the most accepted Forex regulators are NFA, CySec for Cyprus, ASIC for Australia, FSA for the UK, MiFid for the European Union.
How do I know if a Forex broker is a scam?
Forex scams are very common, and it is the trader's responsibility to do the necessary research before selecting a Forex broker. Reading online Forex reviews is the first step, but then a trader should also read forums and experiences from other traders who used the specific broker.
Read More: Forex Scams