What is a forex trader?

A forex (foreign exchange) trader buys and sells currency pairs in an attempt to profit from changes in their prices. They do this by speculating on their movements and opening positions in currency pairs in the forex market. Forex traders can trade as individual investors, on behalf of clients, or for financial institutions.

In this article, you’ll learn about forex trading, the different types of markets, and how to start forex.

What are foreign exchange markets?

The forex (or FX) market is the world’s largest financial market, operating as a decentralised global market for currency trading. It is open 24 hours a day, five days a week and is a highly liquid global market. It includes participants in every time zone, such as banks, commercial companies, hedge funds, and individual investors.

While there is no central exchange, financial centres like New York and Hong Kong act as hubs for forex trading. Markets without centralised exchanges are referred to as over-the-counter (OTC) marketplaces.

The foreign exchange market facilitates international trade through the exchange of currencies. Multinational corporations use the forex market to hedge against future exchange rate fluctuations, helping them avoid unexpected changes in business costs. In an effort to capitalise on opportunities and improve their financial position, individual investors also participate by speculating on currency pairs.

For beginners, the forex market may seem complicated. With approximately $7.5 trillion traded daily, the forex market has a lot of potential, but there are risks as well. Most new traders start by pairing their home currency with major foreign currencies.

As they gain experience and develop strategies, they often expand to include additional currency pairs and different time frames.

Each currency is identified by a three-letter code set by the International Organisation for Standardisation (ISO). This standardised system makes the process of evaluating an individual currency to reviewing a foreign currency exchange rate simpler.

What is forex trading?

Buying and selling currencies on the global market is known as forex trading. Similar to stock trading which involves trading shares of companies, forex trading focuses on the exchange of one currency for another.

This is done through currency pairs, such as EUR/USD, where euros are traded against US dollars. The value of these currencies fluctuates based on factors like interest rates, economic indicators, and geopolitical events.

Important information about forex trading

Decentralised

Forex trading takes place over-the-counter (OTC) as there’s no central exchange.

Market hours

The forex market is open around-the-clock, beginning with the Asian markets on Monday and closing after the New York session on Friday.

Trading volume

It’s the largest financial market globally, with a daily trading volume of over $7 trillion, and it is known for its high liquidity and quick transactions.

Common currencies

Major currency pairs like USD, EUR, JPY, and GBP are among the most traded currencies.

Types of forex markets

Spot market

This the most popular type of forex trading, and it’s also the best market for beginners. In the spot market, traders can buy and sell currencies for instant delivery based on the current market price. Transactions are quick as they are usually settled within two business days. The spot market is a favourite for forex traders who prefer instant results.

Forward market

In the forward market, traders can buy or sell currencies at a future date for a price agreed on the current price. The forward market is normally used for hedging against future price fluctuations.

Futures market

The futures market is like the forward market but has standardised contracts that are traded on regulated exchanges. These contracts lock in the price of a currency at a set date in the future, and provide a more structured environment compared to the forward market.

Options market

The options market allows traders the right to buy or sell currencies at a specific price before a certain date. This market is flexible for traders and is often used by more experienced traders to manage potential risks while they keep their options open.

How to trade forex as a beginner

Starting your journey as a forex trader can feel scary at first, but breaking it down into simpler steps can make it easier to get started.

Choose a reliable forex broker

The first step is to select a broker with a strong reputation. It’s important to choose one that is regulated by reputable financial authorities, offers a user-friendly platform, and offers educational resources to traders. Also, it’s crucial to review the broker’s fees, spreads and the range of currency pairs they offer.

Open a trading account

Once you’ve selected a broker, you must open a trading account. Most brokers offer different account types that are suited to different experience levels. For beginners, it is advised to begin with a demo account since this allows them to practise trading without having to risk their own funds.

Learn forex basics

Before you start trading, it is essential to understand the fundamentals of forex.  Understanding how the market works, key forex terms, as well as the factors influencing currency prices is important. Concepts like pips, spreads, leverage, and margins will help you better understand the market.

Develop a trading plan

Success in forex trading requires a well-structured trading plan which outlines financial goals, risk tolerance, and preferred trading strategies. Even when your emotions are running high, stick to your plan and decide how much capital you are willing to risk on each trade,

Select currency pairs

For beginners, a good starting point is to focus on major currency pairs like EUR/USD or GBP/USD. These currency pairs typically have lower spreads and are easier to buy and sell quickly due to their high liquidity. Start by concentrating on a few pairs to avoid feeling overwhelmed.

Perform market analysis

Performing market analysis involves both 技術分析 和 基本面分析. Technical analysis uses both charts and indicators to predict price movements, while fundamental analysis looks at economic factors and news events that could influence currency values. By combining both analysis types, you can gain a better understanding of the market.

Execute trades

When you’re ready, start placing trades using your trading plan and analysis. Depending on how you expect the price to move, decide whether to buy (go long) or sell (go short) a currency pair. To manage risk and secure profits, use limit orders, stop-loss orders, and take-profit orders.

Monitor trades

It’s important to keep a close eye on your trades once they are live. Markets are volatile, so be ready to adapt when conditions change. Stay updated on the latest market news and modify your plan when market conditions change.

Learn from your trades

Once you close a trade, take some time to review the outcome. Have a look at what worked and where you could improve. Keeping a trading journal is an effective way of monitoring your progress, improving your strategies, and growing as a beginner.

How much do you need to start trading?

For beginners, the amount needed to begin forex trading varies depending on their goals, risk tolerance, and broker of choice. The minimum deposit required by many brokers usually ranges from $50 to several hundred dollars. Beginners should start with a smaller amount until they have gained some experience.

Another factor to think about is leverage, which allows traders to control larger positions with less capital. But it’s important to note that leverage also increases risk, so it would be better for beginners to avoid it.

Conclusion

Forex trading can be an exciting opportunity, especially with all the possibilities it offers. Beginners should learn the basics, including the different markets, the most traded pairs, and some of the simpler trading strategies.

It’s best to start small or with a demo account so you don’t risk real money. Once you have gained experience and feel more confident, you can decide on your long-term goals. No matter where you are in your trading journey, continuous learning and patience and discipline are important to long-term success as a forex trader.

Disclaimer: This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.