What Is Forex Trading? The Basic Input You Must Know

10 May, 2021

You have heard about forex trading, but do you know what is forex trading? Trading, no matter how lucrative people tend to talk about it, Forex isn’t easy. Understanding the market takes time, discipline, and patience to hone your skill. Although it is easier to trade online through the internet, you can’t escape the process of learning the fundamentals, especially if you are a new trader.

Learning how to trade forex as a beginner is crucial since several factors can contribute to you losing your money. For instance, trading without a strategy, unfamiliarity with the market, poor risk money management technique can contribute to your failure in currency trading. However, once you can overcome these inhibitory factors, you are on your path of success in forex trading.

Takeaway

  • Find a reliable online forex broker
  • Register and fund your account
  • Build a trading strategy
  • Download the trading platform
  • Start trading

You might have heard about the success of many traders, which have contributed to you choosing this path. However, you are on the right path because, in this article, you will learn what is forex trading Additionally, you will understand the main features of the forex market, its advantages and disadvantages. Furthermore, you will gain insight into how best to approach the market if you are a new trader. We expect this article to help improve your knowledge of the forex market and set you on a course of progress.

The ins and outs of Forex trading

Today, you might have heard about different definition when you search online to find out what is forex trading. To understand it better, we will break these words separately and define them both.

  • Forex is a combination of two words; “for” means foreign whereas the “ex” means exchange. Forex means foreign exchange, which involves the exchange of currencies.
  • Trading is an activity that involves buying one product in exchange with another. In the context of forex, we can say that trading represents the exchange of financial instruments such as stocks, indices, cryptocurrencies, commodities, etc.

If you still have confusion about what is forex trading, here is a simple but reasonable answer to the question. Currency trading involves the selling and buying of currency pairs without physically owning the physical currency. You buy these currencies from the decline or increase of the currency pair.

Today, technology has made it easier to trade currency, which previously only a few people can do. The accessibility due to technological advancement has contributed to many traders getting involved in trading the market. The number of traders in the market is increasing geometrically since everyone has access through a broker.

Characteristics of the Forex Market

It is never enough knowing what is forex trading, understanding the feature of the market gives you an edge on how to approach forex trading. What makes the FOREX market undoubtedly the largest financial market in the world? Well, the key features that distinguish it from others include its strong market trend, superior liquidity, transparency, and lower trading costs.

  • Highly Transparent. In forex trading, transparency means access to information on the market. It involves a transparent process that provides full access to trading information and market data, which are essential to perform a successful transaction. Furthermore, it gives traders control over investment, and they can decide what to do with the information available online.
  • Low trading costs. Another interesting characteristic of the forex market is the lower trading costs it offers. With this, traders with smaller funds can have the possibility for potential decent returns on their investment if the market goes in their favour without additional costs. Unlike other investments, trading forex comes with no commission fees that seems to affect most people trading furthermore, the only costs you will face is spread and swaps. The spread is the difference between the bid and ask price.While the Swap fees is an interest fee, which is charged or paid, depending on position of trade, it is paid on long positions and charged on shorts.
  • Highly Liquid. The forex market is one that has a high deal of liquidity, which enable traders to buy or sell currencies of their choice easily. The liquidity of the currencies doesn’t affect the price of the currency pair you trade. The high level of liquidity in forex trading allows traders to potentially profit from each movement of the market they correctly predict.
  • Strong Trend. Traders make money trading by accurately analyzing and predicting correctly the next move of the market. To do that, traders depend on the trend of the market. Trend is the movement of the market from a high to a higher high. The trend in forex is stronger, which makes it easier for traders to analyze and identify potential trade set up.

Essential Skills in Forex Trading

Forex trading is a skill that is acquired; it is not a game of chance but one that requires a lot of skill to perfect. There are important skills you need to trade forex; these include:

  • Confidence in your analysis and trading strategy
  • Patience to allow your trade to play out
  • Discipline to remain unemotional and calm when the market goes against you
  • Dedication to improve on yourself and strategy
  • Focusing on your trading plan
  • Self-control to avoid over-leveraging your account
  • The logic of the market in keeping an unbiased perspective
  • Flexibility in adapting to the changing market condition while sticking to your trading plan

Advantages of Forex Trading

There is a lot of reasons why many people prefer forex trading. The potentials in the market is one that even the most successful trader hasn’t gotten the best out of it. Forex trading comes with numerous advantages, but here are a few of them. Trading forex allows traders to trade anywhere at any given time. Unlike the stock market where you have an opening bell, you can enter and trade the market whenever it is open. With an internet connection and a laptop or phone, you can start trading. 

Ease to start trading with capital as little as 215 Euros depending on the broker you choose. Once you create your account, you can start trading right from the comfort of your home. 

High volatility allows you to try to take advantage of the market. Therefore, there is nothing like the bias of buyers of sellers. Each trader has an equal chance of making a profit or a loss in the market from price movement. Forex trading is commission free with low transaction cost. Most times, what traders pay for is spread and swap during trading.

Disadvantages of Trading

While it is enticing to start trading forex, it has its drawback as a financial market. The following are a few of the weaknesses of the forex market. High risk – There is the issue of losing your capital when trading forex. Furthermore, a high level of leverage comes with a serious impact on your capital. Although traders can take advantage of leverage, however, it also increases their potential losses.

High volatility is a double sword that can affect you negatively when the market goes in the opposite direction. It is hard to monitor volatility and price movement since the market is 24/7 a week.

Unregulated – Brokers dominate the market; at times, most of these brokers are not transparent in their dealings.

Why trade Forex with ROInvesting

To enter a room, you need the right key to do that. Trading platforms are the door to your trading; we offer a more reliable and transparent platform for our customers. Trading with us comes with different benefits. You are not sure why you should trade with ROinvesting? Here are a few reasons to do so:

  • We provide tutorials, e-books, articles, VODs, and unlimited online courses to keep you updated with the happening around in the market.
  • Access to multiple platforms to perform your trading activities. You can take advantage of our platforms in mobile and web version.
  • Excellent technical support system with online chat, email, and phone support system.
  • Access to different CFDs on assets, including CFDs on currency, commodities, stocks, shares, etc.

How to Trade Forex with ROInvesting

Now you understand the basic features of the forex; it is important to know how to trade forex. How can you take advantage of the changes in price movement of a currency price? To do that, you need to know how to trade forex, and here we will guide you on the simplest way to start your journey with us. Nevertheless, to start, here are few things to put into consideration.

To start CFDs on currency trading on the foreign exchange market, you need a trading account and a broker. Brokers are middlemen in the market. Therefore, choosing a reputable broker is essential to your trading. Once you have chosen the broker and the account type, you can fund your account and start trading.

You need a platform to start trading. For instance, we at ROInvesting offer our trader access to different trading platforms, including the popular MetaTrader. After getting the trading platform ready, you need to log into your trading account and choose currency pair you want to trade CFDs on. ROInvesting offers over 60 CFD currencies pairs to trade through. 

Determine what type of trader (intraday, swing or position) you are and get your trading strategy ready. Analyze the currency pair you want to trade and enter your trade. You can go short or long, depending on your analysis. You can set your stop loss to try to minimize your loss.

Frequently Asked Question

What is the daily trading estimate in the forex market?

According to Ebrokerhouse, approximately $5 trillion is traded in forex daily, with an average of $220 billion per hour. The forex market comprises of corporations, institutions, governments and speculators.

Who regulates the forex market?

Despite the daily trading volume that takes place, the forex industry has little regulation because there is no central body to regulate it. However, there are local bodies that supervise domestic forex trading, including the market.

Summary

If you want to start forex trading, then understanding what is forex trading, how the market works, and what impacts the market is a step in the right direction. Trading in FX market isn’t something you achieve a year, it takes years of practice, patience, and dedication to be a professional trading. 

Furthermore, getting starting is the right step; learning how to try to minimize your risk and never allowing your emotion to becloud your judgement is essential. If you are new to trading, don’t give up if you experience losses, rather hone your skill for better decisions ahead.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.

Source   Presented by ROinvestingForex News & Promotions
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