Trade Forex Trading

Market Tutorial

For novice traders, the process of learning market trading will be considerably simplified if they commence with the fundamentals of Forex trading. This foundational knowledge equips them with the basic concepts and frameworks necessary to easily grasp the essence of trading and the execution of Forex transactions.

What is Forex?

The forex market is known as a very active and rapidly changing financial market. Until recently, the forex market was only for large financial firms, big businesses, hedge funds, and very wealthy people who could afford to trade in it.

Because of new technology and the growth of the internet, regular people can now easily trade forex because retail brokers have become more common, and anyone with a computer connected to the internet can start trading. The smallest amount of money needed to start trading is $100, which makes forex trading affordable for many ordinary traders and investors.

Regular investors can now use online currency markets through these brokers for regular people. A trader simply needs to create a trading account with a broker, and then they can trade with their broker from anywhere in the world.

Regular sellers also give traders the money needed to trade using borrowed funds. In the money market, currencies are traded in large amounts, and one large amount is 100,000 currency units. Because many traders cannot pay for this, sellers give money to the traders, who can then borrow it from the sellers and trade using "borrowed funds". For example, a seller might give 100:1 borrowed funds, meaning the trader can borrow up to 100 times the money they have. So, if a trader has $1,000 and uses 100:1 borrowed funds, they can borrow up to 100 times their money: this is $1,000 times 100, which equals $100,000 that the trader now controls and can trade with. This means a trader with only $1,000 can now trade one large amount in the money market after using 100:1 borrowed funds from their seller.

Leverage which means that a trader has access to borrowed capital and can trade with this borrowed capital provided by their forex broker is what makes Forex trading accessible to might retail traders. This leverage is what has contributed to the growth and popularity of forex trading. In forex 95% of all trading transactions is carried out by retail traders.

Currency Market Moves

In forex, the values of currencies are always changing, and traders aim to profit from these changes by trading. The usual change in currency value each day is very small: most currencies change by less than 1% in value, which is less than 1 cent daily. This is the reason trading platforms offer borrowed money and why most traders use it, so they can increase their profits from these market changes. It is also the reason currencies are traded in large amounts of 100,000 units of currency in order to increase profit from each trade.

For example if a trader has $1,000 dollars in their account and the trader is using 100:1 leverage, it means that this trader can use this leverage provided by their broker to open a standard lot of $100,000 units of currency. For one standard lot the profit per pip is $10 which means if the forex currency pair that a trader is moves 50 pips, then the profit a trader will make will be equal 50 pips multiplied by profit of $10 per pip when trading one standard lot, henceforth the total profit will be $500 dollars that a trader will make from this transaction and this profit will be added to their account balance and the trader will then have an account balance of $1,500 after making profit from this trade. Likewise, if the trade transaction moves against the trader by 50 pips the trader will then lose a total of $500 dollars which will be subtracted from their account balance and their balance after the trade will be $500 dollars.

The deep liquidity in the currency market means that traders can trade the market at any time as there are always other traders willing to carry out trading at any time of the day. This liquidity is available because there are very many traders in the market trading at any one given time. The forex market daily turnover is $7.2 trillion and this means that there is a lot of liquidity in the currency market at any one given moment. With the availability of this liquidity trades in the currency market can be opened and closed within seconds.

High liquidity opens doors for traders in currency markets.

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