Trader Insights

What Is Forex Trading & How Does It Work? (Beginners Guide)

, by

The process of changing one currency into another is known as foreign exchange, and it typically occurs for business, trade, or travel. 

The daily trading volume for forex hit $6.6 trillion in 2019, according to a 2019 triennial report from the Bank for International Settlements (a global bank for national central banks).

Trading forex can be challenging and risky. Rogue dealers find it challenging to affect the value of a currency because of the system’s massive trade flows. Investors who have access to interbank dealing can benefit from this system’s contribution to market openness.In this guide we’ll explain forex trading for beginners and the best ways to start trading on the foreign exchange market.

What is the forex market?

Currency trading takes place on the foreign exchange market. Because they enable us to buy products and services both locally and internationally, currencies are crucial. To perform international trade and business, foreign currencies must be exchanged.

The absence of a central exchange market is one distinctive feature of this global market. 

Instead of taking place on a single centralised exchange, currency trading is instead carried out online over the counter (OTC), which means that all transactions take place via computer networks among traders around the world. 

In almost every time zone, currencies are traded in the main financial centres of Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich. The market is open twenty-four hours a day, five and a half days a week.

How does forex trading work?

Trading forex involves making speculations about foreign exchange rates in the hopes of making a profit. 

Since currencies are traded in currency pairs, a trader who exchanges one currency for another is making a prediction about whether the worth of the exchanged currencies will increase or decrease.

Trade flows, economic, political, and geopolitical events that affect the supply and demand of forex have an impact on the value of a currency pair. Due to the daily volatility this causes, a forex trader may have access to new chances.

Understanding currency pairs

A basic currency and a quote currency make up this “currency pair,” which allows you to exchange one for the other by selling one. A pair’s price is the amount of the quotation currency required to purchase one unit of the base currency. By accurately predicting the price movement of a currency pair, you can make money.

The base currency, which always appears first in a forex pair and is mentioned on the left, is the unit of exchange. This currency, which is always worth one, can be purchased or sold in return for the quoted currency. When trading foreign exchange, you continuously purchase one currency and sell another at the same time.

The forex market is usually believed to be driven by major currency pairs. They make up more than 80% of everyday forex trade volume and are the most widely traded.

There are three commodity pairs (AUDUSD, USDCAD, and NZDUSD) and four conventional majors (EUR USD, GBPUSD, USDJPY, and USDCHF).

Since these currency pairs frequently have high liquidity, their spreads are usually lower. They are more likely to experience slippage—a situation in which the anticipated price of a trade varies from the price the trade was completed at—because they are linked to stable, well-managed economies.

Exotic currency pairs are those that are paired with a major currency and come from developing or emerging countries.

Exotics are typically risky to trade because they are more volatile and less liquid than crosses and majors. This is because the budgets of these nations may be more vulnerable to interference and unforeseen changes in the world’s politics and economy.

Trading forex for beginners

Beginners should take the time to educate themselves on the forex market and trading strategies before deciding which forex broker to work with. 

They should also determine whether the broker is controlled in the United States or the United Kingdom (where dealers are subject to stricter regulations), or in a nation with less stringent regulations. Finding out what kind of account protections are offered in the event of a market catastrophe or the insolvency of a dealer is also a good idea.

Always go with a licensed, regulated broker who has a minimum of five years of demonstrable expertise. These brokers will give you peace of mind because they always put your money’s security first.

You can begin trading forex once you’ve opened an active trading account, but you’ll need to make a deposit to cover the expenses of your trades. A margin account is what is used in this situation to purchase and sell currencies using financial derivatives like CFDs.

It’s crucial to keep in mind that learning to trade forex takes time for beginners. The markets require time to understand, and there is a whole new vocabulary and trading strategies to pick up.

Looking for a trading platform and reputable forex trading account?

We are specialists in everything Forex at Alphachain Traders.

The goal of our expert Funded Forex Trader Programme is to provide you with the support and guidance you need to trade effectively and profitably. 

As part of this program, we also provide a customised mentorship that provides you with a $10K funded account, one-on-one access to professional forex traders who can offer direction and advice on current financial markets, and a trading psychologist.

Apply now or contact us today to start forex trading!

How forex trading works for beginners FAQs

How do I become a forex trader?

To start trading foreign currency, you don’t need any formal training. However, in order to maximise your profits, you must completely comprehend how the forex markets operate as well as how to use cutting-edge technology, Forex trading platforms, and jargon.

Is forex an easy way to make money?

With an estimated $2 quadrillion in net worth, the forex market is thriving. It is also a very liquid market, but to succeed in it, you’ll need to know the correct tactics and strategies as well as using a reputable forex broker.

Can forex become a full time job?

Many people aspire to live the life of a day dealer instead of a full-time employee. But for the vast bulk of traders, it’s all about balancing trading with their day jobs. If done well, this could prove to be a very profitable endeavour.

Previous ArticleNext Article