Forex Trading for Beginners
Modern technology has given rise to an abundance of remote earning methods. Aside from teleworking schemes, anyone can test their skills in the global financial markets. Even if stocks or currency trading sounds complex to you, making a profit through the exchange is now easier than ever.
It is estimated that over 15 million individuals contribute to the immense online trading volumes worldwide. Currencies, commodities, and shares bring sizable returns to those who speculate on their prices. Forex trading has only been expanding for the past decade. Today, it is increasingly popular in Nigeria and the whole South Africa region.
Exchanging Currencies for Profit
The notion of currency exchange is familiar to anyone. Tourists buy local money to pay for products and services during their trips. Payment for items bought from a foreign country is made in local currency. Overall, the exchange is an indispensable part of international business and travels.
The rates are constantly in flux, and this changeable nature accounts for the volatility observed on the market. This forms the basis of profit for any retail trader (i.e., an individual engaged in Forex trades). Through platforms like MetaTrader 4, they connect to the international marketplace where they sell or buy specific currencies, aiming to profit from the transactions.
The sheer volumes circulating on the global exchange are jaw-dropping. The daily turnover is estimated to exceed $5 trillion. The largest portion is bought and sold between institutional players. Until the 1990s, these were the only participants allowed to enter the market. Today, big banks, hedge funds, and other giants trade alongside individuals who access the exchange through software. Why not join their ranks?
Becoming a Retail Trader
Although FX logic is not rocket science, it does require certain competence. The first step in your journey is finding a credible broker. This company functions as an intermediary connecting you to the global markets and processing all of your transactions. Companies with a wealth of experience, such as ForexTime, make sure clients receive comprehensive guidance and assistance whenever necessary.
You will be accessing the exchange through a platform devised specially for digital trading. Some of these are more advanced and include other instruments, like CFDs on indices or metals. Currencies, however, is where most traders begin.
Take time to explore all platform features in a risk-free mode. Through a so-called demo account, you can unlock the software and test it out in a simulated environment. This will psyche you up for real trading while enhancing your skills and finance foresight.
Basic FX Concepts
Here are some of the most fundamental notions that form the core of currency trading. Every trader should be knowledgeable about these terms before risking their money.
1. Currency Pair
All accepted currencies (including the Nigerian Naira) may only be bought or sold in pairs. These combos follow the general formula: “base currency”/”counter currency” (or “quote currency”). For example, the price for the popular EUR/USD pairing shows how many US dollars one Euro is worth. Hence, if the value is 1.25, you need to spend 1 US dollar 25 cents to purchase (or sell) a single Euro.
Pairs used for trading are divided into three classes. These are “major”, “minor”, and “exotic”. While majors are the most conventional combinations (e.g., EUR/USD), exotics are seen most rarely. They include currencies like the Thai baht, which come from relatively weak or developing economies.
2. Meaning of Two Prices
The “Ask” price is valid for traders who wish to buy a certain currency, while the “Bid” value applies to sellers. The latter is always slightly higher than the latter, which is the general logic of any sale. The difference between the two values (Ask less Bid) is known as the “spread”. This defines profit for a trader, as well as their broker.
3. Benefits of Leverage
Leverage allows you to trade with much larger volumes than you could afford with your deposit. The broker provides a portion of their capital to maximize your trading lots, along with potential gains. For instance, a 1:100 ratio means you should deposit $1,000 (initial margin) in order to trade with $100,000.
Steve Edegbo is the team lead at Naijatechhub.com. Naijatechhub is a team of writers and researchers dedicated to providing the best up to date information on topics in Nigeria. If you need more information, kindly contact us.