Forex education is a must before risking any real money.
When people first hear about Forex trading, they often want to jump right in and want to start making money without having any Forex education.
Unfortunately, that can result in them losing much more money than they end up making.
For that reason, it is important to take the best Forex education before you start trading large amounts of money. Once you have the skills, you will be able to evaluate your risk versus your reward and make successful trades.
In this article, you will find a general overview of what Forex trading is and why it is so important to take the best Forex education course before you begin with real trading.
Why is Forex Education so Important?
Every Forex trade comes with a certain level of risk, sometimes a bigger risk can mean a bigger reward.
But if you do not know how to accurately assess what your risk is and what your potential reward is, you will most likely end up making a wrong decision and losing money more often than you make a good one.
Through Forex education, you will learn how to make accurate assessments without allowing your emotions to get involved.
At the start of your research, you will want to read articles on the subject. Below you will find a general overview of Forex trading, but you will want to research deeper into a few subtopics.
You will want to learn about active trading times, remaining objective, etc. Beyond reading articles, there are online Forex courses that you can take to learn the craft faster. This way you learn anytime you want to do it, and anywhere you are.
One of our students’ preferable courses is the Basic Forex Education course which will teach you all you need to know before start trading on the Forex market.
Learn the Currency
One of the most important things you can research is the types of currencies that you will want to or may want to trade.
Instead of just buying and selling what appears to move, which generally results in a loss of money, when you understand what currency you are trading, you will know what to buy, what to sell, and when.
When currency trading, you will be able to use leverage, which allows you to control currency that you do not actually have. We have already recorded a useful Forex education video about choosing the right currency pair to trade:
There are also lots of currency pairs that you can trade with, so many that you should not try to learn them all. Pick a handful of different currencies, and learn as much as you can about them.
It is a good idea to make sure that they are different types of currencies. Similar currencies will often have similar patterns, news, etc. so when you learn one, it will be easier to pick up on another similar currency type.
Furthermore, it is easier to keep up with economic news if you only have a few currencies to track.
But Doesn’t Practice Make Perfect?
Reading articles and doing research will give you knowledge on the subject, but it can be hard to really learn how to Forex trade without actually practicing.
Before you start trading large sums of currency, you should consider opening a demo account. This will help you learn how to use specific trading platforms. You should probably practice using Metatrader 4 or Metatrader 5 as they are the two most popular Forex trading platforms.
One of the benefits and downfalls of Forex trading with a demo account is that you do not experience what it is like to have your actual money at risk. This is good in the beginning as you learn how to trade, but real risk makes the experience much more realistic, even if the risk is relatively small.
You can accomplish this by opening what is known as a micro trading account, which allows you to only trade small amounts. If the service you want to use does not offer micro trading accounts, it may allow you to change the variable-trade-size so you can only make small trades.
You may feel tempted to use a regular account under the belief that you will not make a larger trade even if you have the option to, but until you learn how to manage risk and remain objective, your emotions may get involved resulting in you making a catastrophic error with your money.
Forex Market Defined
When talking about Forex education, it is best to start with the basics and have an understanding of what exactly the Forex market is.
Forex is a shortened form of foreign exchange and can also be written as FX trading and currency trading.
People exchange foreign currencies all the time when they make purchases from other countries; they just may not realize that it is happening unless they are actually traveling to the country to make the purchase.
The Forex market is the online network where all foreign exchange happens. Because it is a worldwide market, it is open for 24 hours a day because, as the trading day closes in one place, it opens in another.
People have been exchanging currency since the currency existed, but the modern Forex market is much more modern, only coming into existence after the Brenton Woods System was ended, and only after the internet where individuals really able to take part in it.
Through the internet, a market has emerged to aid individuals in trading through banks or brokers.
Types of Forex Markets
There are three types of Forex markets. The most popular market with individual traders is the spot market. The spot market is based on the real assets that the forwards and the futures markets are based on.
Before trading turned primarily electronic for individuals, the futures market was the most popular. It, along with the forwards market, remains popular with companies, but when you are talking about individual Forex trading, the Forex market usually means the spot Forex market.
So what exactly is the spot market?
It is the market where various currencies are traded based on their current price, which is determined by interest rates, economic performance, political situations, perception of future performances, etc. which all boils down to supply and demand.
A spot deal is a trade between two individuals (or occasionally groups/corporations) where they trade one type of currency for another at a previously agreed upon rate. This is much more direct than the forwards and futures markets that use contracts that represent future settlements.
You most likely do not need to worry about understanding hedging, but it is a common term used in the industry, so it is worth knowing what it means.
Companies use hedging when they are trading goods and services, not straight currency.
When a company does this, they may hedge the exchange rate in their contract to ensure that a sudden shift in rate does not result in them losing money on a product that they have already manufactured.
Hedging is typically only done on the forwards market or the futures market.
In Forex trading, when we do hading, we usually open a buy and a sell position at the same time. This is often when we use different strategies. And in the US it is not allow to do Hadging for one and the same currency pair and the same time frame. This is the FIFO Rule.
Forex trading is based upon a lot of speculation. The value of certain currencies is based on many different factors, including but not limited to trade flows, geopolitical risk, and interest rates.
The shift in value is where the opportunity for profit (and loss) is. Because currency is traded in pairs, as one type becomes more valuable, the other becomes less.
If you are correct about your speculation, you will most likely make money, but if you are wrong, you could lose your money instead.
What Makes You Money
There are two main reasons that you make money with Forex trading.
The first way is when the interest rate changes, and you earn (or lose) the difference between the two currencies. The goal is to buy at a high-interest rate and then short it with currency at a lower rate.
The other way that you can make money is by selling when the exchange rate shifts in your favor.
While there can be great rewards in Forex trading, it can also be very risky. Not only could you make a bad trade, but some brokers are not safe.
Because it is an international market, there are many types of regulation. In some areas, the brokers really adhere to standard business norms, and traders are completely safe. In other areas of the world, brokers are essentially unregulated and can get away with things that may be considered criminal by traders, such as not giving people their cash payout.
When you are looking into brokers, you should look into who they are regulated by. There are three tiers of Forex regulation.
Tier-1 is considered the best and has the most rules to protect all parties involved.
If a broker is regulated by one of these groups, you can generally trust them and feel safe that they will cheat you.
On the other hand, if a broker is only regulated by a tier-3 jurisdiction, you should know that there are not that many rules that they are required to abide by. Some people will still trade with these brokers if they have a good reputation, but it is up to you to decide whether or not you trust reputation alone.
Doesn’t This Take a lot of Time?
One thing that turns many people away from Forex trading is the number of hours it takes to do it. Traders will find themselves sitting in front of their computers instead of spending time with family, friends, or doing other hobbies.
The good news is, this does not have to be the case. Once you have the best Forex education and learn the basics of Forex trading, you can learn about how you can use Forex robots (also known as Expert Advisors or EAs) to do the trading for you.
There are companies and software that will help you design these robots, even if you do not know how to write the code by yourself. This means that you will be able to take part in Forex trading without the same level of time commitment.
We have a free course about creating a Robot without any experience:
Is It Worth it to take Forex Education course?
With all the warnings about risk, you may be wondering if forex trading is really worth your time. That is only a decision you can make, but below is a more concise pro versus con list to help you make that decision.
- Forex markets have a large daily trading volume. That means at almost any point you will be able to make a trade with whatever currency you are interested in if you have the funds or leverage to do so.
- The market is open five and a half days a week, for the entire twenty-four hours. The first day starts with Australia, and the last day ends with New York with major centers in Sydney, Singapore, Frankfurt, Hong Kong, Tokyo, London, Paris, and New York.
- Leverage. Leverage can be both a pro and a con. It is what allows a trader to control a large amount of money with very little of their own. This can allow them to make more money than they ever could with their own money, but if they make trades that do not end up being lucrative, they could end up in debt. Sometimes, debt so high that the trader is unable to pay it off.
- You will have to spend lots of time researching. You need to understand the basics of the economy and know how to recognize indicators in how interest and exchange rates are going to shift. If you do not already have that knowledge, prepare to spend a lot of time to get the best Forex education before you even start trading your money.
Forex trading is a rather large industry that most people can do if they have the time to educate themselves on the topic. If you already have a background in economics, you could even consider moving quickly along to demo or micro trading.
While there is a potential risk to lose, Forex trading does not have to be stressful or hard; you simply need the best Forex education. If you still feel overwhelmed, break it down into parts.
Start with the basics. If there is anything, you do not understand and it is previously mentioned in this article, start by looking into that topic. You could also start by signing up for a Forex education course online if doing your own research seems too daunting.
Good luck in trading! And if you have questions, write in our Trading Forum.
What is Forex trading?
Forex trading is the process of selling one currency in order to buy another. The currencies are traded against each other as exchange rate pairs. The price of a Forex pair is how much one unit of the base currency is worth in the quote currency.