Forex trading has become an easy task even for the novice who has no clue about what forex is. This is after the introduction of three account types that include standard lot, micro lots and mini lots. As a beginner, you can start with a micro account that will only cost you $50. Although all this sounds exciting, you need to learn some basics of forex trading for beginners before going in full throttle. There is a lot you need to know about the market and all the terms used during trading. In case you have always wanted to trade online, this forex trading guide will help you. These are some of the terms you should know before making this investment plan.
PIP: this means the tiniest price change that any exchange rate can fetch. Most of the major currency duos get priced exactly to 4 decimal places; what is considered the tiniest change is the last decimal. However, the Japanese yen is exempted as it is usually quoted to the second decimal point.
Base Currency: this is usually the initial money that is quoted in a currency duo. You might also find other sites referring to it as the accounting or domestic currency.
Cross Currency Pair: these are two currencies that are transacted in forex, excluding the US dollar. In this process, a foreign currency gets traded for another without necessarily exchanging the two currencies into US dollars.
Currency Pair: this is the structure of pricing and quotation of money traded in the foreign exchange market. Normally, to get the value of a currency, you have to compare it with another one. The initial currency of the pair is referred to as base currency while the other one becomes the quote currency. The currency pair demonstrates the amount of quote currency required to buy a unit of a base currency.
Quote Currency: as mentioned above, this is the second currency in a currency pair while trading. The quote currency is considered the foreign one in a direct quote. However, if the quote is indirect, it is considered the domestic currency.
Now that you have the basic terminologies, here are the forex trading basics you need to know and decide on before you start trading.
Short-Term or Long-Term
As you learn forex trading during your initial days, consider safeguarding your capital instead of growing it since the goal should be to reduce risks. For you to achieve this, consider going into long-term trading. What you might fail to understand is that forex trade veterans strive to get a return on their investment by following the long-term route. They are willing to keep holding their orders even for years. This is because, to them, forex is an investment and not a gambling game. To go for a long-term trade, you will require a lot of patience and enough trading volume.
The good thing about this option is that you don’t spend too much time staring at the screen, which translates to reduced stress levels. You will also need some arithmetic knowhow for you to succeed in forex trading. Find some easy ways of calculating your balance, available leverage and the volume you require for every instrument in order to minimize risks.
Don’t Make Things Complicated
One way to keep things complicated is by flooding your charts with indicators and the strategy with lots of switches and handles. Filling your strategy with complications will only make it hard for you to keep up with the market trends and therefore, it will not be effective.
To determine how a strategy does averagely in various markets, back testing and a lot of research should be carried out. It might seem hard to keep your strategy, especially with the many tools that you can add to your charts. However, the number of tools doesn’t matter. What matters is how well you can make use of just a few of them in order to gain forex trading experience.
Rethink Buying Software
Whether you are a newbie or a veteran, for smart forex trading, you will need software. Due to the high competition between brokers, you are bound to find most of these forex trading software programs free of charge. You might find yourself fighting with the temptation to buy FX robots, which are the expert advisors (EAs). Although these EAs can be of big help to any trader, you might not see their profitability when the market becomes volatile. However, serious forex traders opt for VPS hosting solutions.
As a beginner, there are numerous things you should know about forex trading and you should consider taking forex trading lessons or looking for a forex trading tutorial where you can learn all about the trade. The internet is one of the best places when looking for where to learn forex trading.
Caroline is a writer with years of experience in business administration. She enjoys meeting new people and reading more books to get inspired for her own book. Her twitter, @BCarolinebird12.