The Forex market can be a great way for investors to trade profitably and millions of investors participate daily. However, before getting into the Forex markets, traders should familiarize themselves with how it works, the terminology used, and how they can participate. Here is a guide to get you started on your way to learning Forex trading.
Contents:
Interact with the underlined words and green dots to get additional details and explanations.
Additional context for the visuals.
Explanations and definitions of terms.
The Forex market is the largest market in the world and operates nearly every day of the working week around the clock with the exception of holidays. There are trillions of dollars at play at any given moment on the Forex markets.
Every nation or group of nations such as the European Union has their own currency, which is used domestically to purchase goods. However, to purchase foreign made goods, typically the currency needs to be exchanged for currency used in the country the goods were manufactured.
Since each country has its own monetary policy, many factors can affect the rate of exchange between the two countries’ currencies. Some of these factors include interest rates, political developments, and domestic economics.
With technological advancements in electronic trading, traders can execute transactions from virtually anywhere from their computers and phones. This has helped to expand the market. Obviously, Forex trading for beginners is gaining popularity from year to year. Since there is no singular regulatory agency worldwide, there are brokers everywhere that take deposits from investors wanting to participate in the Forex market.
This may seem a bit daunting to new traders with only limited capital. The market was originally used only by large banks, hedge funds, and other big financial institutions. However, it has evolved into a place for traders of all sizes and investment levels.
Getting into the Forex market can be done with as little as $10 USD.
Open Position
When a trader enters into a transaction and while it is still active.
Closed Position
When a trader sells his/her position and takes a profit or loss.
Leverage/Multiplier
Money lent by a broker to a trader based on the trader’s available account funds and the asset being leveraged. This is sometimes called a multiplier. It allows traders to make large transactions with less funds.
Currency Pair
Any two national currencies traded against each other on the Forex markets. The most popular pairs involve the U.S. dollar, the euro, and the Japanese yen, but markets are available for nearly every currency in the world paired with more common currencies.
Examples of currency pairs and their abbreviations:
Contract For Difference
CFDs are positions opened by speculators based on their belief that a specific asset will increase or decrease in value. If they open a position expecting an increase, they will profit from the difference in the opening price and the price at closing. The profitability of CFDs can vary depending on the broker, time frames for positions, leverage, and other factors.
Long Position
Opening a trade with the belief that the asset will rise in value over a period of time. It corresponds to a buy or an Up trade.
National Interest Rate
The interest rate for a national currency set by the nation’s central bank. This is the rate at which banks borrow money from each other, but is used when a broker “rolls over” an open position in the Forex markets from one day to the next.
Essentially, the Olymp Trade Forex markets are made up of traditional currency pairs using Olymp Trade’s multipliers to provide leverage for Contracts for Difference trades (CFD).
Here is where traders can participate in markets with many different currency pairs, commodities, metals, and others.
Multipliers provided by Olymp Trade allow investors to increase the value of their trades by up to 500 times the invested amount.
Olymp Trade multipliers allow smaller investors to profit on small movements in currency pairs.
Like any market, there are risks and rewards in trading Forex. In particular, Forex beginners should keep this in mind. Fortunately, the amount of either depends wholly on the investor, their experience, ability to analyze data, and independent decision-making.
One thing to keep in mind is that there is a winner in every trade made between two parties based on the time that the transaction takes place and assets behavior following the trade.
Traders should never risk more of their capital than they are willing to lose.
Fortunately, with diligent effort and taking advantage of the plethora of educational tools available, even Forex beginners can often come out far ahead of the curve in profit.
On the surface, the exchange rate of assets in the Forex market might seem to move very little. For instance, the changes between the exchange rate of the U.S. and Canadian Dollars (USD/CAD) only fluctuated a total of 25 cents (0.25 USD) between 2019 and 2022. However, looking at the market chart below, one can see that there were many increases and decreases over that time period. These movements provided opportunities for investors to profit from these changes.
At the beginning of 2020, USD/CAD was at the level of 1.45.
In the middle of 2021, USD/CAD was at the level of 1.20.
Because currency pairs are traded based on pips as units and because of the sheer size of the amounts traded, there is plenty of activity within the market for traders to capitalize on.
Proceed to Part 2Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
JPY
USD
EUR
AUD
NZD
GBP
Pip, or a Price Interest Point, usually equals to 0.0001 of the currency.