Online currency trading, also known as forex trading, is the most heavily traded investment industry in the world while the foreign exchange market is the world’s largest financial market.
For most individuals, the idea of being able to ditch the old 9-to-5 job in exchange for working in your pajamas from the comforts of your home while being your own boss possesses a considerable pull at the psyche of nearly everyone.
Not only is this a natural phenomenon but sometimes it touches people so deep within their soul that they become relentlessly persistent towards making this extraordinary difficult career choice a reality.
While we love to see driven traders who make it a personal challenge of obliterating all the goals that they have set forth in front of them there are times that you must be realistic, such as with the risks involved and how to set rational goals that serve as critical building blocks to bring your dream into fruition.
Therefore, we’ve taken the time to compose a brief yet concise what-you-need-to-know about online currency trading guide geared for beginners where we discuss some of the core elements that you should become more aware of before you consider carving out your own path of success and leaving a trail of glory in the wake of your forex feats.
So with that being said, let’s commence!
First and foremost, the foreign exchange market is a decentralized exchange which means that there is no central authority overseeing the forex markets.
While this truth may cause some heads to turn, a decentralized market such as forex is actually an advantage for most traders because it not only increases competition but generally results in lower trading fees making forex trading more affordable to traders despite their pre-existing income level.
When you invest in currency trading, you are able to invest in one of three lots.
A micro-lot is composed of 1,000 units of currency.
Mini lots are defined as 10,000 units of your base currency.
A standard lot, as you probably guessed by now, is composed of 100,000 units.
Should you invest $1,000 into a forex trading account, a micro lot is presented as $1,000 of your base currency.
When investing currency pairs you are investing a price quote of one currency versus a second currency.
The first currency listed is known as the base currency whereas the second currency is denoted as the quote currency.
An example of a currency pair is EUR/USD.
Should the EUR/USD reflect a value of 0.65 then it indicates to traders that 1 euro is equivalent to the value of $0.65 U.S. dollars.
You can acquire a deeper understanding of forex trading fundamentals in our extensive Forex Trading Guide for Beginners but for now, let’s move forward.
Now one of the reasons why the foreign exchange market is the largest financial market in the world would be due to its continuous trading.
You see, unlike the stock market, the foreign exchange market is open 24-hours-a-day, 7 days a week (although for individual ‘retail’ forex traders the forex markets are 24/5).
This results in a far greater sum of market participants and in turn market volume.
Now all online currency trading is conducted in pairs, known as currency pairs.
Compared to the stock market where you can select to buy or sell an individual stock, with forex trading you are buying one currency and selling the other or alternatively you are selling one currency and buying the other.
Essentially all currencies are expressed out to a fourth decimal point while a pip is defined as the smallest increment of trade.
Generally, one pip is equivalent to 1/100 or 1%.
Novice retail traders tend to invest with micro lots where one pip is equal to a $0.10 move in price where trading losses are more effectively managed and mitigated.
For a mini lot, one pip is equal to $1 while that same pip in a standard lot has the equivalence of $10.
The foreign exchange industry pales in comparison to the scope of investable assets to that of the stock market.
While the stock market supports over a few thousand assets, the foreign exchange industry is composed of only 28 currency pairs where 7 currency pairs compose nearly 80% of total forex trading volume.
These currency pairs would be the EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, and NZD/USD.
While this refined selection of assets may come across as a disadvantage it actually serves as an advantage because while it diversifies your investment portfolio it also enables you to better focus on a handful of assets opposed to a dozen or more which can make it more difficult to stay current or ahead-of-the-curve with.
Supply and demand have one of the biggest influences over currency pairs.
Other determinants such as GDP, interest rates differentials, unemployment rates, natural disasters, geopolitical developments, and trade deficits also have considerable sway over currency pairs.
Like any other industry in existence, there are scams that plague and nest their way deep within the confines of the foreign exchange industry.
The best way to avoid online currency trading scams would be by avoiding offers that fail to disclose a verifiable corporate entity, reflect zero or bad trading reviews online, or by employing the old adage of if it sounds too good to be true then it probably is.
To acquit yourself with more indicators to look out for you may find interest in our 7 Tips to Avoid Forex Trading Scams in 2020 Publication.
If you are becoming more involved with online currency trading it is imperative that you only invest with forex brokers that are regulated where you reside.
Failure to do so may result in a breach of governing law where you reside while you wouldn’t be doing yourself any favors since unregulated brokerages aren’t enforced to operate within strict trading mandates set forth by governing or regulatory bodies.
Constructing a viable and concrete trading plan is of utmost importance.
Failure to do so will likely result in considerable financial losses on your end.
This involves understanding the risks, using a proper money management strategy, having a firm grasp on forex trading fundamentals along with consistent trading strategies, software or copy trading service providers to ensure you aren’t investing totally blind and based upon peer speculation – because you WILL lose your money if that is the case.
Now obviously there are several more facets that we could dive into regarding aspects you should familiarize yourself with for forex trading but for beginners entering the online currency trading arena, these are the cream of the crop.
Developing an empowering game plan, trading with only regulated brokerages, and leveraging the vast array of forex trading resources and tools such as trade copiers, trading software, and technically-sound trading strategies is the best way to venture into the foreign exchange industry without putting yourself in a position of increased risk.
Should you have any questions on where to get started with online currency trading please don’t hesitate to reach out to the owner and operator of this site, Vladimir Ribakov, who is an International Certified Financial Technician and a professional FX trader with over 14+ years of experience!
You may connect with Vladimir here or alternatively you can send an email to support@vladimirribakov.com.
Tim Lanoue
Guest Author
Resources:
https://www.thebalance.com/what-is-a-currency-trader-1344938
https://www.investopedia.com/articles/forex/11/why-trade-forex.asp
https://www.investopedia.com/financial-edge/0412/the-basics-of-currency-trading.aspx
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