The following is a comprehensive guide to currency trading for dummies that you will find helpful.
Forex, foreign exchange, FX, or currency trading involves the trading of the world currencies. With an average daily trade of over $5 trillion, the Forex market is the largest in the world.
Although the Forex market involves the buying and selling of currency pairs, in reality, nothing is bought and sold in the market. Forex trading is only speculative where traders buy is the market goes up and sell if the market goes down.
The currency of two countries traded in the market forms a currency pair. The EUR/USD (euro and US dollar), one of the 4 major currency pair is the most widely traded one. The other 3 major pairs include USD/CHF (US dollar and franc), USD/JPY (US dollar and Japanese yen), and GBP/USD (British pound and US dollar).
Apart from currency pair, another lesson in currency trading for dummies is trading methods. Every trader follows a trading method depending on their preference:
Scalping involves making profits from a small price change in the market. A scalping trade usually lasts minutes or even seconds. Scalpers, traders who take part in scalping can place more than 10 trades per day.
Scalping, a rapid trading activity is done by traders that want to make money on the side.
- Day trading
Day trading involves the buying and selling of Forex within the same trading day. It is similar to scalping involving taking advantage of small price movements to gain small profits. However, day trading lasts longer than scalping and can even make more profit.
- Swing trading
Swing trading involved buying a Forex and then holding for several days or even weeks before selling. Swing traders have significant knowledge of the market and know exactly when to capitalize on it. They keep knowledge of the news and keep in check the economic and political development of a country that might influence the Forex market.
This trading method brings in the most profits of the 3 methods but also comes with equal risk. A market can go in the opposite direction overnight which can leave the trader in a huge loss.
- Price Action
Price action traders analyze the markets themselves and then make a decision based on the market trend and price movement rather than depending on technical indicators.
A technical indicator is a program that tells a buyer when to buy and when to sell. Buy many a time they are not 100% correct which leads to a trader losing money.
Things to keep in mind for currency trading for dummies:
Before trading in live market create a demo account and practice on it
Keep your emotions in check. If you have won two trades at once doesn’t mean you are going to win the next. Likewise, if you have lost 2 trades doesn’t mean you can succeed as a trader.
Watch the market thoroughly and analyze how it goes, what influences it, and what causes it to move in a certain direction.
Several e-books exist that can help you more in learning currency trading. E-books like forex for ambitious beginners a guide to successful currency trading pdf and others are some that you may find useful.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.