Forex Learning: Ultimate Guide
Forex learning is the most important thing before getting on the market. In this article, we will cover everything you need to know about forex learning.
In short, Forex or FX stands for Foreign Exchange; where instead of you, trading stocks, bonds, or indices – you trade actual currencies like the US dollar (USD), the British pound (GBP) over the Euro (EUR) or Japanese Yen (JPY).
And your profit is on the differences in value between the two currencies you have chosen, as represented in the Percentage In Points (PIP).
Don’t worry if this Forex seems complex and confusing; this is the whole purpose of this forex learning guide – to help you understand all of these terminologies, what are the best strategies, key takeaways and how to proceed forward.
Important Facts:
- The FX global market is bigger than any major stock exchange in the world. And Forex learning is a must in such a huge market.
- The most popular pair of currencies to be traded in the FX global market is the EUR/USD.
- The FX market has different niches or sub-markets an FX trader can go into such as the forwards market, the futures, and the spot market.
- The majority of Foreign Exchange traders base their trades on fundamental principles i.e. geopolitical events to determine the value of each FX pair.
What is FX (Foreign Exchange)
To keep it simple, the Foreign Exchange global market is where you bet on a currency against another currency. Massive amounts of foreign currencies are being traded in as little as 10 minutes, these could be a few dollars, to hundreds if not millions of dollars.
The way you participate is through a broker who grants you access to the global FX market. You will then take a trade or bet on currency pair, believing that one currency will fall and the other currency will rise (or vice versa) in value (represented in PIPs).
Forex learning, couldn’t be more simple than that; sign up with a reputable FX broker, deposit your money, set your leverage rate, and start trading currencies.
Simple Example of FX Trade:
- You decide to go with a pair of EUR/USD, and you decide to go short.
- The current value (bid price) of EUR/USD is: 1.4000
- By the time you close your bid, the value is now: 1.3999
- You have just profited 0.0001 or 1 PIP.
When you go to a bank, and withdraw money or exchange a foreign currency; you will often see a panel with a bunch of currencies and a whole lot of numbers stating 1 GBP is equal to 2 USD.
And as one bank employee told me, “those are the numbers at the close of the market.” Of course, those numbers aren’t accurate but it gives you (the public) some sense of how strong a currency is.
Foreign Exchange Trading Terminologies Made Easy & Simple For Beginners:
Forex learning about PIP / Percentage In Points
A pip is essentially the base unit of the price of a currency pair. You can think of it as more simply as the difference in value or points – and those points are either how much you have won or how much you have lost.
Learn how to calculate the Pip when trading cryptos:
Going or Buying Long
Simply means that you believe that a currency pair is increasing e.g. EUR/USD – EUR is going up and the USD is going down.
Going or Buying Short
When you go short, you believe that the value of a currency pair is decreasing e.g. EUR/USD is going down meaning the EUR is going down and the USD is going up.
Note: To help you better understand short vs long trades, always think of the first currency e.g. EUR – as the base, ready to be traded long (going up) or short (going down) against the other currency e.g. USD.
Spread
A spread is basically the commission your FX broker gets. When you start a trade, you are a loss. This is normal, don’t worry. Here is an example of when you first start a trade:
- Buying Price is 106.92
- Selling Price is 106.90
… do you see the difference? The two points are essentially your broker’s markup or commission. If you sell a used car, to a used car dealer, they buy it from you, they mark up the price then they then sell it to someone else. The markup is their profit.
This is the spread, you must always pay the spread, that’s the cost of doing business in foreign currency trading. Now as your bid starts to climb, you hope to surpass 106.90 which basically means any points over 106.90 will be your profit.
Spot Forex Learning the essentials
Spot trades are the simplest and most common transaction in the FX market. Whether someone talks about foreign exchange trading, chances are what they mean is spot trading. Spot trading is the immediate exchange of one currency for another. delivered T+2 (meaning 2 days after the trade date).
The currency that’s actually being exchanged is a currency deposit in a bank account and, not to complicate this, banks are often the ones who use spot trading because banks do not like to speculate (unlike traders), they would rather satisfy the demands of their clients and profit on their fee.
Correction
Usually when a trader or news reporter says that a “market correction” has happened – this often means that the upward trend of a currency pair or stock has now reversed. A market correction could last anywhere from 3 to 6 months. Often, swing or day traders use this to their advantage.
Margin
A margin is essentially your account’s balance meaning if you deposited $500.00 USD, that is what will appear in your account. But since most traders don’t have a lot of money and the lack of Forex learning, or they lack the funds needed for their desired trade, most FX brokers will offer you access to leverage.
Leverage
To keep it simple, leverage is essentially a virtual multiplier of your account’s balance; granting you a larger volume or puffed up position size. For example:
- Your account has a balance of $1,000 US.
- Your account’s leverage rate is set to 1:10
- This means your account has been multiplied by 10 – making your base $1,000 account’s capacity to now $10,000
Please note in your Forex learning notes that this can be very dangerous if not handled well. This can either lead you to win a fortune or suffer massive losses. If you lose, you may owe your broker more than $9,000.
Forex Majors
Forex majors are the most popular and traded currency pairs:
- EUR/USD
- GBP/USD
- AUD/USD
- NZD/USD
- USD/JPY
- USD/CAD
- USD/CHF
Forex Crosses
Forex crosses are currency pairs that do not involve the USD:
- AUD/CAD
- AUD/JPY
- AUD/CHF
- GBP/CAD
- GBP/JPY
- GBP/CHF
- EUR/CAD
- EUR/JPY
- EUR/CHF
- EUR/AUD
Chart Types & Strategies For Beginner FX Traders:
When you open up your trading platform or software, you will see a whole bunch of windows with currency pairs. Each window’s chart type and even background colors can be changed (most trading platforms offer this).