The Complete Guide to FOREX Trading

General Introduction: What Is FOREX? What Is FOREX Trading?

The FOREX market is the marketplace in which participants can buy, sell, exchange and speculate on currencies, with the aim of earning a profit. The currency market – which comprises banks, commercial companies, central banks, investment management firms, and hedge funds in addition to retail FOREX brokers and investors – is considered to be the largest financial market with over $6 trillion in daily transactions. 

When it comes to FOREX trading, there are several questions any ambitious person wanting to enter the market for the first time needs answered. As such, this article is mostly a guide for traders at the beginning of their journey. It aims to provide answers in a simple and clear way, helping paint a complete picture of what FOREX trading is and how to master it.

1. What Does the Term FOREX Stand for?

2. An Introduction to the FOREX Market

• Central Banks.
• Commercial Banks.
• Financial Institutions.
• Governments.
• Individual Investors and/or Currency Speculators.

3. How Does Currency Trading Take Place?

• EUR/USD
• USD/JPY
• GBP/USD
• EUR/JPY
• AUD/USD
• NZD/USD
• CAD/USD

4. How To Read A Currency Pair On The Trading Platform?

5. What Drives Movements in the FOREX Market?

Like most financial markets, the FOREX market is primarily driven by the forces of supply and demand, as well as by other factors, as will be discussed in brief below. 

As for supply factors, key players are the central banks of respective countries and the monetary policy measures they take. For example, if America’s Federal Reserve announces quantitative easing, defined as the act of injecting more dollars into an economy, then the USD’s price will, in all likelihood, drop. 

Other factors with the potential of affecting the price of a currency include news reports, with positive news about a certain country carrying the potential of increasing demand for that country’s currency, thus causing it to appreciate. By the same token, a piece of negative news can cause investment in, and demand for, a certain currency to decrease and, therefore, lower its price. 

Market sentiment is another driver of currency prices. For example, if traders have reason to believe that a currency is headed downward, then they will trade accordingly and may convince others to follow suit, thus decreasing demand for it and subsequently its price. Equally important is economic data, which is a proxy for the health of an economy. By extension, this could provide insight into what that country’s central bank might do next, with obvious ramifications on the exchange rate. Finally, a country’s credit rating, often looked at as an independent assessment of a country’s likelihood of repaying its debts, is also imperative. A country with an upgraded credit rating can see its currency increase in price, while one dealing with a credit rating downgrade might experience a decrease in the price of its currency.

6. How to Make FOREX Trading Profitable? And Is the Market Actually Profitable?

• When you buy a currency and it rises in value, then you will have made a profit. By contrast, if the currency value drops, then you lose money. 
• When you sell a certain amount of EUR/USD and the price then drops, then you will have made a profit. By contrast, if the price has risen, then you will have lost money.

7. Currency as an Asset Class

• Traders can earn the interest rate differential between two currencies; and
• They can profit from changes in the exchange rate.

8. Trading Tools for Beginners

9. What Are Online FOREX Trading Companies?

• To open a FOREX account.
• To buy and sell through this account.
• It provides you with a trading platform, linking your PC or smartphone with the market in real-time.
• Some companies allow you to trade currencies through Islamic accounts that comply with Shariah. 

10. What Are Islamic FOREX Accounts?

These are accounts that allow users to trade currencies through Islamic accounts that comply with Shariah and are free of any ribs-based benefits.

11. How Do You Gain Experience in FOREX Trading Quickly?

• Trial and Error.
• Accumulating knowledge and self-educating yourself about FOREX.
• Seeking the advice of trading experts.

12. Additional Information that Would Help You in FOREX Trading

What is Leverage?

Leverage is a credit facility provided by FOREX brokers to traders, enabling them to borrow a certain amount of the money needed to invest in a currency trade. This, in turn, increases the purchasing power of the trader, but also the risks.

Brokerage firms typically offer a maximum leverage ratio of 1:100, which effectively means that if you have $1,000 in the account, you would be able to make transactions for purchase/sale of foreign currency or other financial instruments worth 100 times more than your own funds, that is, $100,000.

What Is a Lot in FOREX?

FOREX currencies are commonly traded in specific amounts called “lots,” or basically the number of currency units you will buy or sell.

While the standard size for a lot is 100,000 units of currency, with time, brokerage firms have also introduced mini, micro and nano lot sizes that are 10,000, 1,000, and 100 units, respectively.

What Is a Pip In FOREX?

Pip, short for “percentage in point” or “price interest point,” represents a tiny measure of the change in a currency pair in the FOREX market. It can be measured in terms of the quote or in terms of the underlying currency and so enables traders and brokerage firms to measure profits and losses.

What Is a Spread Or a Spread Differential?

In FOREX trading, the spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. Looked at differently, it is from where brokers make their money. 

Having better understood how the market operates, as well as established what FOREX is, traders ought to look for a real partner to accompany them in their FOREX trading journey.

13. Why Is It Advisable To Trade FOREX With Arincen?

Conclusion