Forex Market & Trading Concepts for Beginners

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Basic Forex Market Concepts

The foreign exchange market is a decentralized market for currency trading. It decides the foreign exchange rate of each currency. Buying, selling, and exchanging currencies at existing or fixed rates are a part of the forex market. 

Forex trade is how one currency converts into another. The disparity in currencies globally has substantially bestowed this market, which acts as a trading platform for currencies. 

Forex Trading is a method of purchasing and selling currency pairs to make money from variations in foreign currency exchange values due to different economic and political issues such as the revision of interest rates, publication of financial statements, bond yields in a region, etc.

With such a dynamic scope, you may encounter individual dealers as well as big businesses working under this market. Do you also want to make a career in this profession? Here are some basic concepts on the foreign exchange market for you!

How Does Forex Trading Work?

Organizational forex dealing occurs exclusively between the two entities on the over-the-counter (OTC) market. In other words, there are no centralized markets (like the financial markets) and the institutional forex market is run instead of an international network of banks and other organizations.

Forex trading helps to bet on the price fluctuations of a commodity without taking control of that commodity.  The degree to which your estimate is accurate will decide your benefit or loss.

In Forex Trading, currency values are expressed in pairs, also known as currency pairs, which display the value of the currency against the value of another currency. Among the most commonly traded currency pairs are:

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

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Terminologies Used in Forex Market

If you are a beginner in the world of foreign exchange market then you need to know the following terminologies:

Bid Price in Forex Trading

The bid price is what the dealer is willing to pay for his currency. It is the price at which a forex broker is able (or ‘bidding’) to purchase Euros. So if you’re going to sell Euros, you’d be able to do it for USD 1,1532 per Euro.

Ask Price in Forex Trading

It is the price at which a trader buys a currency pair. These two prices are shown in real-time and updated continuously.

Bid-Ask Spread in Forex Trading

The spread of the bid-ask (or the spread of the buy-sale) is the difference between the price a dealer is willing to sell the currency for and how much they will buy it for.

Bid-Ask Spread = Ask Price – Bid Price

Pip in Forex Trading

The pip calculates the amount of change in the currency pair exchange rate and is measured using the last decimal point. As most of the larger currency pairs are valued at 4 decimal points, the least change is for 1/100 of 1 percent or 1 base point of a final decimal point.

Leverage in Forex Trading

Leverage is the use of lent capital to raise one’s trading position beyond what is available on their cash balance. Forex traders also use leverage to benefit from relatively minor price shifts in currency pairs. Leverage, however, will intensify both gains and losses.

Lot in Forex Trading

Currencies are exchanged in lots – lots of currency used to standardize forex transactions. Forex trading is a regular lot of 100,000 currency units. Conversely, you can exchange mini lots and micro-lots worth 10,000 and 1000 units, accordingly.

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Things To Remember While Trading In the Forex Market

The most valuable thing that you can invest in as a forex trader is your time! Every specific trading day is a learning opportunity, and if you stop learning, you can never be a truly good investor. Things to remember while trading in the forex market:

  • Define the goals and the trading style
  • The Network of Brokers and Traders
  • It’s a consistent approach
  • Set Entry and Exit Points
  • Calculate your goals
  • Emphasis and Minor Loss
  • Positive reinforcement loops 
  • Conduct Weekend Research

The Risks Involved In the Forex Market

As an investment product, there are a lot of risks affiliated with forex trading that can lead to significant liabilities. The risks involved in the forex market are:

  • Currency exchange risk
  • Chance of interest rate
  • Risk of credit
  • Nation Danger
  • Chance of instability
  • Marginal or Average Risk
  • Transactional threats
  • Chance of disaster

Must Read: How to Become a Risk Manager?

Forex Trading is carried out on a large scale around the world due to its advantages, which include 24X7 open market, flexibility and the ability to leverage when trading to exchange greater proportions with a lower money. But these benefits come with a higher risk which is why risk management is essential to be a successful trader.

This was all about the forex market and trading. Want to make a career in this field? Reach out to Leverage Edu experts and find the right program and university for yourself! Book a FREE counselling session today!

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