All About Forex Trading
It’s easy to feel intimidated when you first begin to learn Forex trading, but you aren’t alone. Hundreds of people around the world learn to trade for the first time every day. An easy mistake to make is assuming that you’ll strike it rich in the first few weeks you begin training. Unfortunately, boosting your funds isn’t quite that simple. As you start to learn Forex trading, you will quickly see that it takes a lot of time, patience, and strategy. Fortunately, companies like Guerrilla Trading are here to help make the process easier to understand.
- Expert Tip – In our experience, we’ve seen the most success among our students when they treat trading as a business rather than gambling.
Getting Started
The Forex Market
Trading on the foreign exchange market is immensely popular, and it’s accessible from your own home. The Forex market is open 24 hours a day five days a week, so placing your trade requests is easy and can allow you to make trades in a matter of minutes (or less).
Currency Pairs
In order to begin Forex trading, you need to understand currency pairs. Currencies always trade in pairs in the Forex market, which means that when you start trading, two currencies are always listed side by side. This is done to show the value of one in relation to the other. If you are new to Forex trading, you will likely start out by trading the EUR/USD currency pair: euros and U.S. dollars. Why? The EUR/USD currency pair tends to be very stable because these currencies are used by major nations, and so the chance that these currencies will extremely drop in value is very small. It is probable that you are familiar with these currencies and the economies they come from. There is less risk when you trade the EUR/USD currency pair than if you trade currencies you know little about.
Other popular currencies include:
- AUD – Australian dollar
- CAD – Canadian dollar
- CHF – Swiss Franc
- GBP – British pound
- JPY – Japanese yen
In the EUR/USD example, the euro and the U.S. dollar are being compared against each other. EUR is the base currency and USD is the quoted currency. This means that the daily price associated with this currency pair will tell you how many EUR are required to buy 1 USD.
- When buying a currency pair, you are buying the base currency while selling the quote currency. If you sell the currency pair, you are selling the base currency to receive the quote currency. Always trade carefully and be sure not to mix the two up, or you could end up buying high and selling low.
Forex trading is simple in concept: You watch the market for price fluctuations, and when one side of a currency pair drops in value, you buy that one in bulk and wait for its match to rise in value. When the market is right, you sell your currency to make a profit. It’s important to remember that Forex trading requires patience, as well as an appreciation for small changes in the market. It is extremely unlikely that you will wake up one day and discover that you can sell 1 EUR to receive 8 USD, for example.
- To see real results from your Forex trading, you will need to spend a notable amount of money in the hopes of turning a profit. Buying 1 EUR at 1.3422 and selling it for 1 USD at 1.324 isn’t going to get you anywhere fast, but buying 10,000 EUR at 1.3422 and selling them to receive 10,000 USD at 1.3470, then you are making a profit of about $50. Doing this regularly over time will steadily grow your Bank account, especially if you are careful not to invest all of that money into the wrong currency pairs.
If you are determined to learn Forex trading, you should be prepared to dedicate hours of time every week to stay updated on news trends and new trading strategies. Don’t be discouraged if you are still struggling to understand the market after weeks or even months of dedication. After all, in the foreign exchange business, you’re trying to keep up with news from all around the world. If you are looking for expert advice to help you along, then Guerrilla Trading has your back. Consider enrolling in a Forex trading course so you can start out confident in the Forex market.
How Much Can I Expect the Market to Change?
Currency pairs rise and fall in value every day. The changes they make are measured in pips, which stands for point in percentage. On average, you can expect currencies to fluctuate about 50 to 100 pips each day. If the price of the EUR/USD currency pair today is 1.3000 and the next day it changes to 1.3500, then the value of that currency pair has increased by 50 pips. This means that if you bought the EUR/USD currency pair on the first day and sold it on the second, you have made a 50-pip profit on your foreign currency exchange. Although this value may not seem like a lot in the eye of a beginner, every increase is a profit in some small way. It’s by keeping your eye out for small fluctuations like this and moving when the time is right that you will be able to profit in the Forex market.
- Currency units are bought in packages called “lots,” which are sized differently according to how many units you are purchasing (Micro lots, mini lots, and standard lots are examples of this). The larger your lot, the more pips that are in it, and the more each individual pip is worth.
- For example, if you were viewing the currency pair EUR/USD and choose to purchase 1,000 units, each pip will be worth $0.10 in USD, but if you purchase 100,000 units, each pip is worth $10. Thus, the market encourages you to buy large lots (which of course requires spending more money)
When trading currency in the Forex market, it is important to limit yourself and not take unnecessary risks, especially if you are still new to the market. We advise not putting more money into the Forex market in a single purchase than you are okay living without if you fail to make a profit.
Actively Trading
We have defined currency pairs, explained pips, and listed some abbreviations for currencies you should know. You’re ready to jump into Forex trading, right?
Find Reliable Sources of Information
It is easy to feel overwhelmed in the Forex market and it can be difficult to know where to start and what resources out there are considered helpful, relevant to your area, or beginner-friendly. Finding a Forex broker you trust will help you keep a leg up on the Forex market. We also recommend you check the news regularly and make your own observations (and notes) as you progress through the Forex trading world. No matter how much you read about learning to trade on the Forex market, the best way to learn and remember what you’ve learned is often by participating firsthand.
A Forex broker (sometimes called a service provider) is a financial service company that provides traders like you with a platform where you can begin buying and selling currency pairs. When choosing your Forex broker, we recommend you look for:
- A company’s license – If a service provider company does not have a license, this may indicate they do not measure up to standards set by their local government
- A company that others recommend – When comparing two companies, you would surely pick the one rated five stars over a company rated one star, wouldn’t you? If you have friends or extended family members who are familiar with Forex trading, ask them if they have recommendations about a Forex broker who is right for you
- Someone who provides a lot of information – You should seek a Forex broker who is very familiar with the Forex market and can provide a lot of information to prove it, including everything they know about past trends and which currency pairs have fallen out of favor in recent years
Read and research often. Be prepared to take your time learning the ins and outs of the Forex market. Rushing into it will leave you confused, overwhelmed, or worse: in a position where you’ve lost a lot of money.
Where Should I Get My News?
There is no “one size fits all” strategy for Forex trading, which is why it’s important for you to develop your own system and learn your preferences on how often you should check the market, how much you are comfortable putting into the market, and when you prefer to sell your currency pairs. The best way to learn Forex trading is through practice, but here are a few tips on how to choose accurate, up to date news that will get you started:
- Always check to ensure your news is recent. The market changes regularly. Currency pairs that were valuable in the past, or beginner strategies that may have worked for your friends who have been trading for some time now, might not hold up in the current Forex market.
- It can be difficult to know what will affect the Forex market. We recommend you keep an eye on at least the major political and economic news. For example, news of the COVID-19 pandemic is not directly related to finances, but a global pandemic certainly changes the way that people shop and travel, which in turn influences the economy and the value of currency.
- Follow trends and copy other Forex traders. Imagine that news of political unrest in another country is starting to spread. You either choose not to pay attention or you don’t believe this political unrest will affect your Forex trading experience. If you observe several experienced Forex traders selling currency pairs that are connected to that country (or even ones that aren’t), you would be wise to follow their lead. Forex trading is influenced by the world, and if you ignore the world, you won’t have a positive trading experience.
Practice First with a Demo account
There’s no reason to risk your real currency before you’re familiar with Forex trading and the Forex market. Consider practicing the market with a demo account. A demo account uses fake currency to give you a taste of what the market is like, which can help you test the waters to learn market trends and how to navigate the system. After all, you would hate to be in a position where you are ready to sell your currency pairs, but you are unsure how to contact your Forex broker to inform them you want to sell! Some demo accounts can even be upgraded to live accounts later, making the transition very easy.
Keep in mind, however, that when you use a demo account, you will never truly be exposed to the full Forex trading experience. A demo account offers you fake currency, and there is no real value in it. Knowing this, you are more likely to make high-risk trades or invest more currency than usual because you are aware there is no real loss, and you had no real attachment to that fake currency. You may convince yourself that Forex trading is easy and carries no real risk, which can get you into financial trouble if you become careless with your actual money. Additionally, you are much more likely to remember how NOT to play the Forex market if you learn your lessons “the hard way.”
Our suggestion is to try out a demo account to learn navigation and the basics of the Forex system, but once you learn to trade, switch to a live account and begin investing small amounts of real currency. Taking it slowly with actual currency is the best way to learn Forex trading without getting into financial trouble.
Be Prepared to Make Mistakes
Even those of us who have been trading in the Forex market for years can still make mistakes. Perhaps we jumped the gun and sold currency pairs for too low, bought when it was too high, or invested in a currency that we thought was rising in value but did not manage to hold its value for long. Sometimes, the Market is simply unpredictable. Making mistakes is all part of the learning process, and making them yourself will help you learn more than you will learn by reading about another person’s experiences with the market. Always trade on the Forex market with money that you can afford to lose if things go wrong.
Guerrilla Trading offers a variety of resources to help you get started in the forex market, including a profit calculator, a Forex trading course, and even a free ebook to trading success.
