Beginner's Guide: How to Trade Forex in 2021?

 Beginner's Guide: How to Trade Forex in 2021?

Beginner's Guide: How to Trade Forex in 2021?
?Can I teach myself how do you trade forex

  1. Introduction
  2. Forex Trading Steps
  3. What is Forex Trading? 
  4. How do Forex Markets Work?
  5. What Moves Currency Trading
  6. History of Forex
  7. Forex Trading Risks 


Forex trading attracts thousands of new traders daily, luring many of them with low capital requirements and profit potential. Besides the Fx market is the most popular market, it also remains the most underrated market.

There are tons of marketing campaigns, often sponsored by forex brokers and millions of affiliates, to convince novice and inexperienced.

Forex traders to rush into deposits under the guise of misleading promises of quick profits with a few clicks and without knowledge. 

Therefore, it loses between 70% and 85% of all retailers, who have profits that often remain minimal.

Learning to trade forex will separate those who succeed and grow their portfolios, supporting their lifestyle, from those who skip the educational section and are quick to place deals.

You can think of this as a dummy currency-trading introduction to how to trade forex. This will help you gain a basic understanding of what Forex trading is, how to deal with it, and how to take advantage of the most liquid financial markets in the world.

Forex Trading Steps

The steps for forex trading are simple on paper and follow the same pattern, as shown below. It may sound like an easy process, but it's far from it.

1. Choose a currency pair to trade - traders should choose a pair that fits their trading strategy.

2. Decide whether to buy or sell - the analysis should determine the direction of the trade.

3. Set stops and limits - technical levels and the risk/reward ratio can help with this.

4. Open your first trade - you must have a trading account for it.

5. Watch your position - the Forex market is dynamic, many events may alter your initial analysis.

6. Close your trade and take your profit or loss - you can either close it manually or allow your take profit and stop-loss orders to be processed.

Forex trading example

Here is an example of trading with the EUR / USD currency pair, the most traded and most liquid currency pair, which features the lowest spreads in every online Forex broker. 

Take the exchange rate of 1.2225, the buy (ask) price with 1.0 lots by volume and leverage of 1: 500, the take profit of 1.2300, and the stop loss of 1.2200.

• Buy 100,000 CUs (1.0 lots) at 1.2225 = $ 122,250

• Margin requirements are $ 122,250 / $ 500 (1: 500 leverage) = $ 244.50

Take profit at 1.2300 equals 75 pips (1.2300 - 1.2225) x 100000 (1.0 contracts) for a profit of $ 750

Stop loss at 1.2200 equals a move of 25 pips (1.2225 - 1.2200) x 100000 (1.0 contracts) for a loss of $ 250
The risk / reward ratio is 1: 3 ($ 750 / $ 250)

What is Forex Trading? 

Forex trading, also known as foreign exchange or foreign exchange, is known as buying and selling currencies against one another. There are over a hundred currency pairs, the most liquid of which is EUR / USD. 

Due to global trade and finance, the forex market, where currency pairs are traded, is the most liquid. Forex is traded 24/5 and has the lowest capital entry requirements, along with the highest leverage. 

It is also the best for automated trading solutions, and the choice of assets remains small compared to trading stocks. Most brokers offer between 50 and 75 currency pairs, and the correlation and liquidity allow forex traders to post focused trading strategies. 

Often speculators focus on a handful of currency pairs. Forex trading provides many opportunities and is available to all traders with few geographic restrictions. With high demand from new forex traders, it opens new trading possibilities for many. 

Just remember you must learn before you earn. Many new traders skip this part, and the result is always the same.

How do Forex Markets Work?

The forex market is fun, unlike the commodity stock market, the forex market is decentralized and traded 24/5. It consists of a global network of private equity and exchange-traded funds, as well as mutual funds, companies, individuals, banks, and hedge funds. 

Through online forex trading, all market participants continuously buy and sell currencies in the over-the-counter (OTC) market. It creates constant price volatility and trading opportunities. 

There are no central locations, but there are four primary global business centers. 

They are Sydney, Tokyo, London, and New York. The opening and closing of the London and New York trading sessions, as well as the overlap of the London / New York session, represent five of the most important and liquid trading times, and also when most retail traders are unable to trade due to their work elsewhere. 

Forex trading is a demanding profession, and unless traders treat it this way, losses across portfolios are all guaranteed. Other notable malls include Zurich, Hong Kong, Singapore, Frankfurt, and Paris, with many business centers emerging in the BRICS and ASEAN countries. 

Traders can buy and sell, also known as buy and sell, respectively, and profit either way. 

Currency markets are fast moving, so automated trading solutions provide a competitive advantage and account for more than two-thirds of the trading volume outside Japan.. 

As London remains the most liquid global financial center, many beginners' foreign exchange trading operations in the UK underline the unique infrastructure for forex trading.

What Moves Currency Trading

If you want to be a successful forex trader, you need to understand what moves the currency markets. Remember, currency pairs are always made of two currencies. 

Therefore, traders should consider developments in both, as either could drive price action. The three main drivers of the currency trading market are economic data, central bank policy, and geopolitics. 

Forex traders often provide the fastest reaction to any event. Since economic reports follow a set schedule, in-depth calendars give forex traders ample visibility. Some traders are trying to take advantage of the often-volatile period before and after the release, known as news trading. 

Central bank meetings are equally transparent from a scheduling perspective and can offer long-term changes in trend or the strength of a breakout and breakdown. 

Geopolitical events will surprise the forex markets because they are 100% random events. Adds excitement and trading opportunities. Traders who leave their portfolios unprotected and fail to deploy risk management, this is due to uncertainty and losses. 

Most beginner forex courses fail to adequately cover risk management as part of a successful trading strategy.

Beginner's Guide: How to Trade Forex in 2021? 1
Is forex trading good for beginners?

History of Forex

Imagine that since countries began minting currencies, foreign exchange trading has existed, but today's Forex markets are still relatively new. 

Some stock markets have existed since ancient times, but the forex markets were not operational until the Bretton Woods Agreement in 1971. 

After that, the major currencies became freely floated, driven by supply and demand, economic factors, and central bank measures. The need for the Forex markets has emerged, as operators have paired currencies against each other. 

Over hundreds of years, more Forex pairs are becoming available for trading. Demand continues to rise, and trade-related services are expanding to satisfy him. Thousands of brokers, asset management firms, analysts, signal providers, risk managers, and attorneys serve forex traders. 

It also provides a major boost to the mega economies. With automated trading strategies representing the fastest growing sector of finance, the Forex market has become one of the first companies to embrace and support this trend. 

It wasn't until the release of the MT4 trading platform by the Cypriot MetaQuotes in 2005 that online forex trading added hundreds of millions of retail traders. 

MT4 was the first full-feature release, and MetaQuotes' vision allowed it to take on a dominant position, which it still enjoys today.

Forex for Hedging 

Global companies use the forex market to hedge their currency exposure, and even to secure future exchange rates to clarify operating expenses. One example of this is a manufacturer that produces goods in the United States and sells them in Japan. 

Cost of production and selling price remains constant in US dollars and Japanese yen respectively. Due to the volatility of the USD / JPY currency pair, the profitability of the product will vary according to the exchange rate, excluding inflation. 

The manufacturer is able to lock in a specific exchange rate in the futures or swap markets. It provides a hedge against currency moves and provides additional stability and visibility on expenses. 

It also reduces profit potential if the exchange rate moves in the direction in favor of the manufacturer. Airlines are another prime example, hedge against price movements affecting jet fuel, which like most commodities remain in US dollars. 

The company maintains short-term price control over operating expenses, by ensuring a fixed exchange rate. 

Commodity companies and companies with dominant exposure to the sector, some companies employ a skilled trading desk and use foreign currency hedges to add to operating profits. 

Stock traders also use forex for hedging, as currency pairs offer a low-cost, high-liquidity tool for hedging trading portfolios.

Forex scalping

One of the main reasons many traders flock to the forex market is speculation and learning how to trade forex. Since currency pairs are constantly in motion 24/5, influenced by many factors during each trading session, traders have many trading opportunities. 

It increases the profit potential, which increases the attractiveness of forex trading. There are many ways to speculate on how one currency pair will move against another. 

Some traders prefer to do this on fundamental developments such as economic data and central bank announcements. Others take their trading guides from technical analysis, using past indicators and price action to predict future currency fluctuations. 

Both sides have supporters and opponents, which often causes widespread disagreements over which approach to give traders an advantage. Profitable traders understand the importance of both, which allows them to speculate on price action in the forex market with more precision. 

Traders should understand which market events lead to short-term fluctuations within a specific trend and which have the potential to alter current trends. 

Forex speculative can bring remarkable profits, especially in terms of leverage and risk management, but it takes years to master it. 

Traders use speculation to speculate on very short term forex moves, which are generally based on 1-minute (M1), 2-minute (M2), and five-minute (M5) charts, with technical indicators as the basis for entry and exit positions. 

Automated trading plays a specific role for traders speculating in the market. Forex makes a living or makes a large portion of their income from it.

Currency as an asset

Currencies offer investors two attractive routes of income, along with hedging and speculation, making them an asset worth accumulating in long-term portfolios. 

Given the liquidity of the forex market, portfolio managers remain resilient. If conditions change, they can easily turn out of position. Exchange rate fluctuations are the most obvious way to profit from currencies. 

One of the most commonly used trading strategies is to identify fundamental long-term trends and use technical entry opportunity analysis. They are focusing on multi-month scenarios backed by slow-moving technical indicators, and ignore short-term economic reports. 

Interest rate spreads are another way to make money from a currency pair as an asset class. Before global central banks destroyed the financial system by lowering it to zero and in some cases below zero, carry trade was one of the most widespread strategies. 

Carry trade refers to selling a currency pair at low-interest rates and buying one at high-interest rates. 

The Japanese Yen has been the main target for short selling, as the British pound is the highest long, making the GBP / JPY a frequently traded currency pair. 

Since the global financial crisis of 2008, carry trades have become riskier as all major currencies have low-interest rates, while high-risk emerging markets maintain higher interest rates.

Forex Trading Risks 

Forex trading offers many opportunities, but it contains significant risks. During weekends the retail market is almost completely closed. 

The interbank market, in which banks trade with each other and set exchange rates, faces different regulatory oversight, depending on their location. 

Banks have to accept many risks, including sovereign, credit, and counterparty risks. Each bank deploys a risk management department to protect itself as closely as possible. 

Forex products are not standardized, and different regulators handle Forex trading with varying degrees of rules, while few do not regulate them at all. 

Therefore, with the European Union being the least competitive, trading from a competitive jurisdiction can provide traders an advantage. 

Supply and demand determine the prices of currency pairs, but the retailers of the market-making brokers may face requotes, looking for a stop loss, exposing them to the risks posed by unreliable brokers.

Managing the risks of Forex trading

Managing foreign exchange risk will determine the outcome of any trading strategy. Forex trading for beginners often covers other aspects, the reason retail traders lose money is misleading leverage. 

Lack of risk management leads to losses, and most traders apply a fixed number to stop-loss orders in a dynamic market. While it provides protection and ensures that trading losses do not exceed a specified amount, it is a far cry from an in-depth and effective risk management strategy. 

All traders should learn how to manage risk before considering trading strategies and placing orders.

Two types of orders to help manage the risk of forex trading:

1- Stop Loss Order - A stop-loss order does not guarantee the price. He closes a position at a specified level. Execution depends on market conditions and brokers' liquidity, but most of them will start at or near the specified level. 

Some brokers offer a guaranteed stop-loss order for a fee. Ensures that the entered price is respected. The trailing stop loss will be adjusted with the price action. Professional traders and profitable retailers use a stop-loss order to close trades at a profit.

2- Limit Order - executes an order at a future price or higher level. It provides traders with more control over placing orders; the buy limit order and sell limit order will only be triggered at the specified price or lower and higher, respectively. 

While the price is guaranteed, filling in the order is not, and again it depends on market conditions and the broker's liquidity. 

Limit orders along with stop-loss orders can protect downside to portfolios, but traders may also miss opportunities to trade in fast-moving markets.