You are about to discover Forex trading basics that make up a successful forex trader, instead of boring you with the bloated history of forex trading basics which offers nothing in terms of how to trade forex, I will skip that and make sure I hit the nail on the head.
Forex trading basics is more of an introduction to Forex trading. It is the basics of forex trading where you get acquainted with the Forex market and other Forex trading terminologies.
Before the late ’90s, and the origin of forex trading there was no retail trading.
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You needed several million in an account to trade in the Forex market, and even then – you will still be considered as a small trader in a big sea.
However, due to leverage and expansion of the Forex market it became readily available for anyone who his willing to trade via brokers who allowed retail participants like you to trade the market and make profit or loss.
So let dive into Forex trading basics proper.
What is Forex Trading?
The forex trading market allows you to buy and sells the currency of any country against another.
The most popular traded currencies in the forex market are:
- US Dollar (USD)
- Euro (EUR)
- The Great British Pound (GBP) and the
- Japanese Yen (JPY)
Well, the USD is the most traded currency, while the Euro is the second. Thus, the EUR/USD is the most traded pair on the planet.
Well, I had no idea what Forex trading is, until I began to study it part-time, as an entrepreneur I love to test a lot of different kinds of business, even if I had not planned to venture fully into it.
I just need the knowledge, and here is my prior knowledge about Forex trading.
If you think, the Euro is going to rise vs. The USD, then you would buy it vs. The USD. Think it’s going to fall in value – then you would sell it vs. The USD. This is the just the Forex trading basic mechanism of trading currencies.
Pros and cons of Forex trading.
Before I drive, you into Forex trading basics terms used in Forex trading and learning how to make a trade, let look at the advantages and disadvantages of Forex trading.
Do not get me wrong, Forex trading is the top-notch way of investing, but we will look at the downside and as well, the good side, to maintain balance.
Pros of Forex trading
- All trading is done online and that gives you the privilege to trade from anywhere, any place in the world.
- High liquidity i.e. an investor can buy and sell at virtually any point of time with lower trading costs than stocks.
- It easy to kick-start with a head start of $100
- Unlike stocks, which you generally have to buy, you can profit in rising or falling markets.
Cons of Forex trading.
- Lack of transparency and accountability of some brokers
- Complex price and fluctuating determination process
- There is a high risk factor involved in trading
- There are a lot of scammers in the form of brokers looting investors money
- The fear of losing all your stake is high in forex marketer
Forex Trading Basics Terms
There are similar terms used in Forex trading and you have to get along with these terms if you want to become a successful Forex trader.
In other words, It is important to understand the terms which are specific to the Forex market.
|Great Britain Pound||GBP|
|New Zealand Dollar||NZD|
Most traded currency
Forex Trading Hours
The forex trading market is open 24 hours from Monday to Friday every week. It is closed on Saturday and Sunday.
Because of this 24hour cycle, a trader can buy and sell currencies at any point of the time since minimally one market in the world is always open.
The Breakdown of the Forex trading hours above is
- New York and London: between 8:00 am – 12:00 noon EST (EDT)
- Sydney and Tokyo: between 7:00 pm – 2:00 am EST (EDT)
- London and Tokyo: between 3:00 am – 4:00 am EST (EDT)
How to choose a Forex Broker
You can’t trade in the forex market without a Brooker. A broker is a crucial link between the individual you the retail trader and the Forex market.
Individual investors cannot trade in Forex directly via the interbank market, so this is where the role of a broker comes in.
Some Facts of Forex Broker
- The brokers work to make profit for themselves by providing you the investor an opportunity to speculate in the volatile forex trading market.
- The primary strategy in which brokers make money of the market is by spread, which is the difference between the Bid and Ask Price for a currency pair.
- The secondary strategy a broker typically profits from forex is from charging commissions, but this is generally specific to the type of account, and many do not have them.
So seeing how important a forex broker is. You have to critically get a broker that has both good consistent spreads and quick execution during fast markets.
Factors to Understand when looking for Broker
- Capitalization level or overall size – a larger broker with higher capitalization has the ability to offer you better spreads and execution because they have better liquidity
- Registered in their host country – always choose a broker that is regulated to offer Forex trading in your country.
- Customer service – should be 24hours during while the market is open, such as phone, chat, and email support.
- The initial deposit requirement – This is highly important for new investors who wish to start with small capital.
- Choice – prefer brokers who have educational content regarding their platform in case you have technical question on how to use it.
Lets consider few of the best Forex trading Brokers in Nigeria,
Forex trading will continually garner impressive waves in Nigeria as more Nigerians have channeled a great deal of financial energy into it.
Year in year out, many Nigerians lose substantial sums of money to Forex trading. Nevertheless, it’s worthy of note that anyone with the appropriate trading strategies and principles can rake in a whole lot of money through Forex trading.
Notably, some of the factors that contribute to anybody’s success in Forex trading are the choice of Forex brokers and the trading principles/strategies adopted. To this effect, we have conducted research on the leading Forex brokers out there. While our research focused extensively on the features provided, the fees charged and the trading platforms offered by these Forex brokers, we hereby affirm that below are the top 10 Forex brokers in Nigeria:
Touted as the best Forex broker in Nigeria, Markets.com is a worldwide broker with one of the most effective trading platforms in its industry. Elevating Markets.com’s high-profile status is the fact that the platform provides traders with a diverse range of CFDs coupled with low spreads.
One of the strengths of HotForex has been described as the presence of high leverage –a leverage magnitude of 1:1000 that is deemed greater than what majority of HotForex’s competitors offer. In addition, HotForex has captured the attention of Nigerian traders through a number of exciting benefits including bonus offers and an option for them to select their preferred trading accounts.
With Nigeria being a country with a vast population of Muslims, it isn’t any surprising that an Islam-centric broker like OctaFX appeals to the taste of many Nigerians. Notably, OctaFX is a Forex broker whose offers (such as the availability of swap-free trading accounts) are in tandem with Islamic trading rules.
Plus500 happens to be the Forex broker with the leading cryptocurrency trading platform as well as the most excellent Forex demo account. Besides being named on London’s Stock Exchange, Plu500 maintains a great footing as a CFD broker running a self-developed Forex trading platform.
Pepperstone is a leading Forex broker under the regulation of Australia’s AISC and UK’s FCA. Besides being widely acclaimed for its excellent customer service, Pepperstone hosts the leading Forex trading platforms namely cTrader, MetaTrader 5 and MetaTrader 4.
ForexTime (FXTM) is generously cherished among Nigerian Forex traders for its offering of Naira-based funding, a feature barely offered by majority of the other Forex brokers. While FXTM’s other excellent offers include local seminars and social trading, it is highly notable that the Forex broker is best suited for Nigerian traders with little or no knowledge of CFDs.
This is an Australia-stationed Forex broker with a record of beneficial offers including absence of withdrawal/deposit fees, availability of low commissions for cTrader/MT5/MT4 traders and low spreads on certain pairings.
With the high level of volatility experienced in the Forex trading market, AvaTrade is seemingly a perfect fit for certain cautious traders. Likewise, AvaTrade will likely fit into the expectations of scalpers owing to the fact that the Forex broker deals with only fixed spreads.
Hugosway is an ECN broker which doesn’t constitute the Forex brokers regulated by any of the recognized regulatory bodies out there. Also, there is a report that only few people have given positive reviews about Hugosway, hence suggesting that trading with the broker might not augur well despite its being an ECN broker.
Unlike Hugosway which is not regulated by recognized agencies, OANDA is considered the Forex broker with the highest record of regulation. Quite impressively, the Forex broker is broadly regulated under six bodies including Canada’s IIROC, UK’s FCA, USA’ CFTD, Australia’s AISC, Singapore’s MAS and Japan’s IFFA.
Forex Analysis and Trading
Successful trading in forex requires that a trader carries makes their trading decisions based on some type of analysis.
The most preferred strategy for analyzing the forex market is via technical or fundamental analysis.
Well, both have their advantages, it is critical to become effective at one, and understand how that will affect your trading.
I will start by describing the two types of analysis.
Types of Forex Trading Analysis
- Fundamental analysis and
- Technical analysis
The general logic behind fundamental analysis is that the strength of a country’s economy at present and future has the potential to strengthen that country’s currency.
So, if the economy is strong, it is bound to attract foreign investment and encourage more and more businesses into the nation.
Some of the important economic events that have the potential of driving forex price movement are listed below.
- The Gross Domestic Product (GDP)
- Interest rates
- Consumer price index or CPI and Producer price index PPI figures
- Housing data
- Trade balance
- Durable goods orders data
This is the study of the price movement over time (also known as Click price action ). It can be done on any instrument, time frame, or environment.
The major benefits of technical analysis are that it helps the investors to predict future price movements based on past events.
Some facts to understand about technical analysis is listed below
- It involves identifying patterns that are repeated, and the movement of the price action is based upon order flow, which is the total buying and selling of traders in the world
- Through technical analysis, you can identify the support and resistance levels by studying charts, and then make your decision to trade or not trade.
- Technical analysis is done either on an intraday basis (short term), medium-term basis (Daily and 4hours charts), or long term position basis (weekly charts).
Forex Trading platforms and Charting
The forex market is flooded with a variety of currency trading platforms, but several factors need to be put into consideration before choosing any one of them.
These include the following:
- Fee structure
- Product quality
- Types of services provided.
Trading platforms are basically softwares (like ) that help you to trade the market directly and do charting analysis in real time.
Most brokers offer them free and they have various advantages.
Some of the platforms do have a demo account before ever trading live, which is great for you to explore and start practicing to get friendly with how forex trading works before eventually going live.
The best way to choose a good trading platform is to try out the software during the trial period to make sure you are comfortable with it and it is user friendly.
Key features when choosing a trading platform
- Uptime – the efficiency of the forex trading platform can also be judged by its uptime record. A system that fails often will result in you losing good investment opportunities. So you want to opt for a trading platform that has a high uptime during trading hours.
- Good Charts – it preferable you use a trading platform with good charts so that it will help you in identifying trading opportunities and placing quick orders (technical analysis).
How to trade Forex successfully
Successful trading is a result of your strategy, discipline, and the ability to manage risk.
Forex traders venturing into the market without any type of strategic planning often find it difficult to profit or maintain any consistency.
Not to bit off more than you can chew, ensure you balance these three most important things regarding trading, they are:
- Learn a strategy with an Edge
- Employ proper risk management
- Build a successful training mindset
If you as a trader can balance these three listed above, then most likely they will lead to more consistent trading and profits.
But let’s talk about some tips to help you become a successful forex trader.
5 tips to successful Forex trading
- Be Strategic – Have a strategy in other words a plan, that the most important, because if you don’t come up with an effective strategy, you surely gonna blow up your forex trading account.
- Be Psychological – Have a higher level of thinking, and think very fast. You can have a successful trading system that makes money, but if you do not have the discipline to follow it, then you will lose your money.
- Be Mathematical – You will definitely need a great knowledge of mathematics. The most important mathematical rule for trading forex is the risk of ruin, which looks at risk three-dimensionally. The measures of risk accuracy, equity risked, and overall payoff ratio.
- Be smart – this requires patience, discipline, and total focus. Luckily, these qualities can be built up over time as the mind has neuroplasticity to it.
- Don’t just quit your full time or part-time job.
Forex Trading Basics: Building a Trading plan
Since the key feature of becoming a successful forex trader is developing an effective forex trading plan and using it on a daily basis.
You must remember that a trading strategy that might be working well for me might not do the same for you.
This is so because everybody has a different style of thinking, risk tolerance levels, and market experience.
At first, it is always better to develop one’s own personalized trading plan and nevertheless keeping an eye and learning from top traders is also an effective way to come up with a good forex strategy.
The key features of a sound Forex Trading Plan
A sound forex trading plan should be able to answer these three questions below
- What trading strategies you are using
- What pairs of instruments you are trading and
- What are your risk tolerance levels
Tips for Successful Forex Trading
Having a definite trading plan –a definite trading plan, which you can always work with, constitutes the ingredients of successful trading. For such a plan to yield success, it must incorporate your standards for evaluating currencies, your trading method, your level of risk tolerance and your expected trading profits. Nonetheless, you should always note that one important thing is having a definite plan while another is sticking to the plan all through.
Identifying trading opportunities –opportunities tend to find their way into trading situations and it behoves you to utilize appropriate tools in identifying these opportunities. Basically, you’ll want to use varying tools depending on whether you’re a fundamental or technical trader.
Technical traders utilize special analytical tools while fundamental traders zero in attention on financial and political news in deciding when to trade. By leveraging on the tools or informative data best suited for your kind of trader, you’re likely to identify trading opportunities and cash in on them in the long run.
Trading within Your Limits –in the real sense, what this means is avoiding costly risks; these are probably risks so great that they’ll cause you to lose more than you can afford. Trading within your limits implies that you align your leverage ratio with needs on the one hand and always ascertain what you’re ready to risk on the other hand.
As regards trading within your limits, making up your mind that you’ll do so is never enough. In reality, you have to imbibe the right trading habits.
Avoiding “revenge” trading –“revenge” trading is what occurs when you feel you should trade outside the purview of your trading plan. Perhaps, you’re doing this in hopes of making profits that will make up for a previous unfavourable trade.
By “revenge” trading, you’re allowing emotions to play into your trade and this clearly belies the principle of moderate trading. You can be keen to recover the loss encountered in a previous unfavourable trade but you should do this little by little while still sticking to your usual trading plan that works great.
In conclusion, what I have provided here supersedes Forex trading basics, I went a bit into advanced Forex trading.
However, if they are anything you don’t understand or you want to ask, use the comment section below.
I will ensure I provide a tangible reply.
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