Have you ever traveled to another country and needed to change your money into the local currency? That’s similar to what happens in Forex trading!
I was just like you, who knew nothing and then 3 years in – I first hit overall profitability in my Forex Trading journey and now I’m funded over $100,000 in capital firm. I’m here to help you do that in months.
Let’s start with the basics into what Forex trading is and how it works in a way that’s easy to understand.
Forex trading, also known as foreign exchange trading, is the process of buying and selling currencies in the global market. It is the largest and most liquid financial market in the world, with a daily trading volume exceeding $6.6 trillion.
To put the size of the Forex market into context: the UK’s annual GDP is $2.827 trillion, Jeff Bezos is worth $188 billion, and the peak market capitalization of crypto is $835 billion. The daily trading volume of Forex exceeds $6 trillion, making it more than seven times larger than the UK’s GDP and significantly surpassing Bezos’ net worth and the entire crypto market cap.
Although much of foreign exchange is for practical reasons, most currency conversion is done by Forex traders aiming to make a profit. The high volume of daily currency trading can cause significant price swings, making some currencies very volatile. It’s important to be aware of this risk before you start Forex trading.
Now let’s get to the basics of how it works.
What really is Forex Trading in simple 10 year old words?
Forex trading is like exchanging one kind of money for another. For example, you might swap your US Dollars (USD) for Euros (EUR). People do this to make money because the value of currencies changes all the time. Imagine you have a dollar, and you trade it for a Euro. If the value of the Euro goes up, you can trade it back for more dollars than you started with!
In the Forex trading markets, these exchanges occur in currency pairs, such as EUR/USD (Euro/US Dollar) or GBP/JPY (British Pound/Japanese Yen). The Forex market is the place where all this money swapping happens. It’s open 24 hours a day, five days a week, and people from all over the world trade currencies here.
Who Trades in the Forex Market?
- Big Banks: These are the major players who trade lots of money.
- Companies: Businesses that sell products in other countries use Forex to make sure they get the right amount of money.
- Governments: They also trade money to help keep their economies stable.
- People Like You and Me: Regular folks can trade currencies too, usually through online platforms.
The basics of Forex Trading you need to know.
1. Currency Pairs
Currencies are traded in pairs, like USD/EUR (US Dollar and Euro). The value of one currency is shown in comparison to the other. If the USD/EUR rate is 1.20, it means 1 US Dollar can be exchanged for 1.20 Euros.
2. Leverage
Leverage lets traders control a big amount of money with just a small amount. It’s like a superpower that can make both your gains and losses bigger. For example, with leverage, $100 can act like $10,000, but be careful because it can be risky! If you’re confused, I get it but Don’t worry, you’ll get to know more later about it.
3. Trading Strategies
People use different methods to decide when to buy and sell currencies:
- Charts: Looking at graphs to predict what might happen next. Such as candles or line charts.
- News: Watching the current US/World news to see how events might change currency values.
- Market Mood: Guessing how other traders feel about the market. Yeah one’s pretty bad.
Risks and Rewards
1. Making Money
The goal is to buy a currency when it’s cheap and sell it when it’s worth more. You can make money even if the value goes down, by selling first and buying later!
2. Risks
Trading can be risky because prices can change quickly. It’s important to be careful and only trade what you can afford to lose. This is the tricky bit about trading, you really need to know what you’re doing and more importantly only trade when you have money that you can afford to lose. Don’t be one of those people who sell everything in life to trade.
So, How do you Start Trading?
There’s a lot to it that we’ll cover in more posts later but for the most basic version of it. What you need is just a good broker, a proper strategy (aka plan) and then it’s all experience and practice. It took me 3 years from starting to get into profitability, for some it doesn’t even take months. It’s just like anything else, talent and practice.
So this is how the basics work.
1. Choose a Good Broker
A broker is like a shop where you can trade currencies. Pick one that is trustworthy and has good reviews. A good broker matters a lot if you want to be a good trader, a bad broker can literally ruin your career. Try to stay away from all the big discount brokers, they are usually the ones who trick you in and later trap you.
2. Make a Plan
Find a great strategy, we’ll suggest you some in the upcoming posts. Find a proper risk management setup for you. Decide how much money you want to use and what your goals are. Stick to your plan to avoid making hasty decisions.
3. Practice
Before using real money, try trading with paper money or in other words, demo money. This helps you learn without losing anything.
Conclusion
Forex trading is like a big game of exchanging money from different countries. It can be exciting and a way to make money if you learn the rules and practice a lot. Remember, the key is to keep learning and be careful with your trades!
