Beginners usually look to forex trading tutorials because the idea of trading in the forex market can be daunting. This is especially true if you have no background in finance, accounting, or economics. However, you don’t need to go back to college to be fully equipped to tackle forex trading.
Learn how to talk the talk
Here are the basic terms that you need to be familiar with:
Exchange Rate or Quote
The quote records the value of one currency in terms of another. It is composed of two parts: the pairs and the rate. The base currency (on the left) and the counter currency (on the right) comprises a pair. The exchange rate determines how many units of the counter currency are needed to purchase one unit of the base currency.
For instance, the quote is EUR/USD = 1.2316. This means that you need 1.2316 USD to buy 1 Euro.
The percentage in point (Pip) represents the basic unit of profit. It is the smallest change in a given exchange rate as it is usually the change in the last decimal point of currencies. Most currencies are written with up to four decimal points except the JPY.
If the exchange rate is 1.2316 (EUR/USD) and it changes to 1.2320, the price ratio increased by 4 pips.
The spread is the amount of pips between the asking price and the bidding price. If the bid/buy price for EUR/USD pair is 1.2316 and the ask/sell price is 1.2319, the spread is 3 pips.
Brokers use the spread to earn on every trade. Say a trader is paying 1.230 for buying and selling, he may sell the currency for 1.231 or buy it for 1.229. Either way, the trader will make a profit from the trade.
Walk before you run
Many reputable forex brokers will offer a practice or demo account where you can invest your “money” in the market so you get a feel of what trading is like. You can open different accounts and try different trading schemes. This way, you’ll know which strategy would work for you when you are ready to trade for real.
Start running (slowly)
In forex trading, and indeed in other forms of trading, it’s always better to start with money you can afford to live without. If you lost that amount, it won’t be such a difficult pill to swallow.
Use a strategy you are most familiar and successful with and start trading.
Keep learning even when you’re already trading. Be on the lookout for opportunities to gain understanding of the changing trends and trading strategies. Ask other traders for advice and do your own research.
Above all, trade with a clear and level head. Heightened emotions and greed can drive you to make costly mistakes that are difficult to recover from.
These are the steps to help you get started on forex trading. If you know someone who has experience in the trading business, don’t hesitate to ask them for help. After all, you’ll need more than just a forex trading tutorial to be ready for the real thing.