If you’ve been seeking answers to the question “what is Forex trading” then this is the right article for you.
Many are still finding and searching for financial freedom in Forex today.
In this guide, we discussed the requirements you need in Forex trading and how to become a professional Forex trader.
Table of Contents
What is Forex Trading?
Forex trading is a very common word today. However, very few people actually understand the true meaning of Forex.
FOREX is an abbreviation for “foreign exchange”: FOR means “foreign” and EX means “exchange“. It is also abbreviated as FX.
It’s a global market where buyers and sellers meet to trade, which implies buying and selling of Forex instruments.
These instruments range from currencies such as USD/JPY to commodities like gold, crude oil e.t.c
Trading FX is decentralized; currencies are bought and sold directly between two parties.
This is why we call it Over the Counter (OTC).
However, the fact that it is a decentralized market system doesn’t make it disorganized.
Its one of the most profitable online business to start today.
FOREX is the biggest, most liquid and traded market with about $5 trillion traded every day.
This is larger than the New York Stock Exchange (NYSC) daily trade volume of $10 billion. What a mighty difference!
Financial Instruments in Forex Trading:
- Commodities such as gold, silver, crude oil etc.
- Stocks such as Facebook, Zoom video, Tesla, Apple, Amazon, Microsoft e.t.c
- Currencies such as USD/JPY, EUR/USD e.t.c
- Indices such as S&P, NASDAQ, Dow Jones, DAX etc
- Crypto-currencies such as Bitcoin (BTC), Ethereum (ETH), etc
- Bonds e.g. EURO bund, U.S 2Y, UK gilt etc
- Funds e.g. fidelity contra fund, vanguard wellington admiral, etc.
- Futures e.g. US 30, US 500, DAX, S &P 500 VIX and so on.
FOREX Trading for Beginners:
The Forex market is now available for everyone to trade, oh yes it is.
All you need is a laptop or phone with active internet connection.
Next you pick a broker of your choice to get registered and start your Forex trading business.
We have discussed the factors to consider when choosing a broker and the best brokers in the next few paragraphs.
In Forex trading, brokers serve as links between traders and the Forex market.
This means if you want to buy or sell in Forex trading, it’s through a broker.
There are thousands of brokers out there for you to choose from depending on their trading conditions.
The ability to take good decisions when choosing a broker is one of the 20 hidden characteristics of an entrepreneur.
Therefore, I strongly advise you to choose the one that is best suitable for you.
14 Factors to consider when choosing a broker:
Choosing a suitable broker requires lots of professionalism, let’s check out these 14.
1. Check if they’re registered and regulated by financial institution:
You can’t afford to take the risk of using an unlicensed and unregistered broker.
This is one of the first criteria you must check out for when choosing a broker.
Never put your money in the hands of an unregistered broker, don’t take such risk.
2. Check if your country is allowed to trade with the broker:
Always check to confirm if your chosen broker operates within your country.
Some country’s government policies might restrict some brokers from operating within that country.
This is one reason you must check if a broker accepts members from your country.
There are some brokers that restrict Nigerians on their platform such as Oando.
Many other brokers restricts countries from Africa, please if you are an African reading this article, do this check.
3. Check their ratings and reviews by traders:
What are other traders talking about the broker you intend to start using? Check for recommendations from existing traders.
Online reviews are very important, although it might not be possible for everyone to give a 5 star rating.
However, if over 75% of traders are comfortable with a broker i think you should consider them to be favorable.
4. Check their initial deposit:
Initial deposit represents the money or startup capital required to start trading as a newbie.
Some brokers require a huge sum of money while others require a little amount of money to start up.
Hence, if you are running on a tight budget, you can decide on the best Forex trading broker to use.
5. Check the commission and swap fee they charge:
Swap is the amount of money paid or received to keep a trade overnight or during the weekend.
Every professional Forex trader don’t joke with commissions and swap fee.
This directly impacts on the profits you make and the amount of cash you keep to yourself as a trader.
6. Check their ease of deposit and withdrawal:
For some brokers, withdrawals might take days to process, while others withdraw your cash to you within a few hours.
If you’re not patient enough in waiting for things, you can go for brokers that pay out in hours.
However, if you’re never in a hurry, why not go for those that take time to withdraw.
Whatever broker you choose, just suit yourself and trade at ease.
7. Check their customer service:
This is very important as you can ask them any questions or make complains when necessary.
Customer’s service has a great impact on every business. Ensure never to use a broker with an epileptic customer service.
Here is an article revealing how to build a great customer’s service in 2 years for free.
8. Check the number of currency and trading options the broker offers:
Varieties have an advantage of allowing you trade at your own choice in Forex.
What are the number of currencies and trading options available at your chosen broker?
This factor is important to enable you trade continuously at ease using different currencies and trading options.
9. Check their programming speed, to avoid price slippage:
How fast is that broker to enable you speed up your trading business?
Nobody likes delays and slow stuffs, oh no, I don’t and I know you don’t.
Delays might cause price slippage which might ultimately affect your trades. Hence ensure this condition is good enough.
10. Check their trading platform simplicity:
Check if the brokers have a trading platform other than MT4 and MT5. How simple is the broker of your choice?
Trading simplicity is one important criterion Pro Forex traders look out for to maximize their Forex trading potentials.
11. Check their spread:
Whether it’s high or low (Spread is like the commission a broker for opening a trading position).
This means if you want more money then go for brokers that give good spreads and commissions to traders.
12. Check the leverage offered:
Have you ever asked to know what is forex trading leverage?, the answer is right here below.
Leverage is like a multiplier that enables you open a high trading position than your capital in your trading account.
For example, you want to open a trading position of $100,000 (1 standard lot or 1 lot size) trade volume.
However, you only have $1,000 in your trading account.
Using the power of leverage, this trade is possible (that will multiply your $1000 by 100 making $100,000).
Hence, you can now open that position as the broker will borrow you the remaining money to open the trade.
However, the money will be returned whether you make profit or not.
13. Check the number of technical indicators they have:
Technical indicators are signs that tell how a trade is going whether it is heading for profits or loss.
A good Forex trading broker must contain technical indicators to allow traders make reasonable trade decisions.
Using a good Forex trading app will go a long way to help you maximize your trades per time
This helps traders stop losses and increase profits on a long run.
14. Check if they post news in their platform so that you’ll be updated of the currency situation:
Updates on latest happenings concerning the Forex market are very important in Forex trading.
News on the fall and rise of currencies also influences the decisions of traders on a particular trading commodity.
The market is never stable because traders around the world influence the prices of commodities in the Forex market.
Therefore, knowing the factors to consider when choosing a good Forex trading broker, Lets list the best Forex trading brokers.
Also read this articles:
Best Forex Trading Brokers:
Here are lists of amazing and best brokers for your Forex trading business.
- Easy market
- Alpari (tested and trusted)
- Octa FX
- IQ options
- Plus 5500
- Hot forex (Tested and Trusted)
- Zulu trade
Therefore, make your choice of Brokers from the list of Forex trading brokers displayed above.
How to Start FOREX Trading:
After choosing a broker, register with them, submit the necessary documents required (such as proof of residence and Identity).
Immediately after registration, you’ll be given your trading password and login details.
Some brokers have their personal trading platform which you can use to trade comfortably.
Examples of such brokers includes Tradeo, Etoro, IQ options, Easy market, Olymp trade e.t.c
However, most brokers use Meta trader four (MT4) and Meta trader five (MT5).
You can download them on play store for traders who use mobile phones or directly installed on a PC.
Brokers offer opportunities to open demo (virtual) and live (real) Account.
Demo accounts allow beginners to train themselves on Forex trading to practice their trading strategies.
With a demo account, you’ll get virtual money to trade.
However, this money can’t be withdrawn since it’s just virtual money; it’s just given to help you understand trading.
A life or real account becomes active when you make a deposit to your live trading account.
Profits realized during trading with a life account are credited to you and can be conveniently withdrawn.
However, any loss incurred during trading activities in your life account will be subtracted from your trading account.
This is why brokers give you a demo account from where you can learn and master the act of trading.
Therefore, the question now is, how do we trade to make profits in Forex trading?
Relax; you will find out how to make profits in Forex trading in the next few paragraphs below.
We buy Forex instruments, for instance buying currencies at a lower price and selling at a higher price.
Next we watch out when the price of such currencies fall, we re-buy and sell again when price shoots up.
How to Make Profits in Forex Trading:
We make profit by taking advantage of currency fluctuation price.
Some website teaches how to trade FOREX and how to make money in Forex trading. E.g babypips.com
However, simply because Forex is about using your money to make more money, there are emotions in trading.
Emotions such as the fear of losing money and the greed of making more money per trade must be cautioned.
I highly recommend you get a professional Forex coach who has been making consistent profit to guide you in trading.
He/she will teach and mentor you on how to trade FOREX profitably.
You need to be aware there are many fraudsters who claim to be Forex experts but are losers themselves.
Therefore make necessary research before paying to anyone or starting as a student to any Forex trading coach.
A brief example showing how money is made in Forex trading:
For example, you got a scholarship to study abroad. School fees paid, accommodation paid, flight ticket paid.
All you take with you is 1 million naira; of course you know you can’t use naira abroad.
Let’s assume the location is USA, automatically you have to convert it to dollars.
Note: This is not the exact exchange rate of dollar to naira, it’s only an example in this guide.
For instance, let’s assume at the time of your trip, $1 is ₦360.
This means you’ll convert your 1 million naira to dollars, having approximately $2,778 ($1,/N360).
Now you’re already in USA, 4 days later your parents called you to get back to Nigeria.
As you got over the counter to exchange dollars back to naira, you realized that $1 is now N400.
Hence, converting it will give you 2,778×400 = approximately 1.1 million naira.
Wow, ₦100,000 extra just because of a little fluctuation in currency. Oh yes, that’s how to make profits in Forex.
That’s how we make profit. Taking advantage of price fluctuations to make profit.
Am sure you will agree that forex trading is one of the most profitable online business to start today.
As simple as this concept seems, it’s very technical and strategic.
Therefore, it requires intense training on how to trade applying the different strategies used in Forex.
FOREX Trading Strategies:
There are many strategies used in FOREX trading today.
These strategies are classified into Fundamental Analysis (FA) and Technical Analysis (TA).
Fundamental Analysis is the analysis of social, economic and political factors that affect currency supply and demand.
This analysis is based on information, news and events which affects currency price movements.
It helps in forecasting future prices of various foreign exchanges.
Forecasting of prices is based on a number of key economy factors and indicators.
This includes Gross Domestic product (GDP), currency interest rate, and other factors that determine the strength of a country’s economy.
The principle behind this analysis is that a country’s currency is a reflection of its economy.
Hence, a country with good economy will have high currency value and vise versa.
If the Fundamental Analysis portrays a positive outlook for a particular currency pair, it indicates price will go up soon.
The negative outlook indicates a declining price movement of currency pair in coming future.
Factors that influence Fundamental Analysis include:
- Central Banks monetary and fiscal policies.
- National Economy.
- Natural Disasters.
Technical Analysis is the study of price and volume movement over time, you can also call it the price action.
It’s done on any instrument, time frame or any trading environment.
It is done either on short term, medium term or long term position basis.
The major benefit of Technical Analysis is that it helps investors predict future movement based on past events.
There are unimaginable number of traders in the Forex market continuously buying and selling commodities per time.
Hence, movement of price is based on order flow, which implies the total buying and selling of world traders.
Through Technical Analysis, we can also identify the support (buying zone) and resistance (selling zone) area.
The study of these charts will help you make good decisions to trade or not.
Tools used in Technical Analysis are:
- Chart patterns such as wedge, double top, and so on.
- Technical Indicators such as stochastic, Relative strength index (RSI) e.t.c
- Technical theories such as Elliott wave, Dow’s theory and many more.
All these methods can be learned, mastered and used for trading FOREX.
The strategies mentioned above are highly profitable, however intense practices are required to gain mastery.
Consistent profit is made only when mastery has been achieved and that’s why I’ll recommend practicing with a Demo account.
You can practice for a minimum period of 3 months before starting a live trading account.
Benefits of Trading Forex:
There are numerous advantages of trading FOREX. However, I’ll mention few important ones in this article.
- Ease of trading: it’s completely online; hence you only need your laptop or phone and good internet connection to trade.
- You can trade from anywhere. Hence, you don’t need to go to any bank or over the counter.
- Price and value are universal and as such there’s nothing like price manipulation.
- Trading takes place anytime and any day (except Saturday and Sunday) in the world.
- Synthetic indices such as volatility index 75 market are open every day including Saturday and Sunday.
- It requires little capital to begin. You can start live trading with $10, some broker’s even offer free trading bonus.
- Big profit with minimal loss (if you know what you are doing).
- The market is very liquid (many participants) and always competitive.
- Low or no transaction cost or commission.
- Variety of leverage to choose from, allowing you to open large volume of trading position with little Capital or deposit.
- Large volume in in FOREX means that a large number of lot sizes are sold and or bought for a particular Currency pair.
- Unlimited trading options (from currency pairs to synthetic indices)
- Higher volatility in FOREX means that price moves at a great speed, and that’s the fuel behind profit in FOREX.
- Traders love FOREX instruments with high volatility.
- Copy trading is available for those without the knowledge to Invest in professional trading, thereby making profit in the process.
- Opportunity to practice with demo or virtual account for newbie’s.
You should also checkout these out:
Now you know what is Forex trading? And financial instruments used in trading Forex, you can now make better decision.
Knowing the factors to consider when choosing a broker and best Forex trading brokers, quickly take advantage of it.
Utilize the Forex trading strategies and the benefits of Forex trading discussed here to make the most of it.
Therefore, implement them following the guidelines in this article to maximize the results of your Forex trading business.
Guest writing by Babashola Joshua, CEO of Forex Concept Academy, FCTA. FX professional trader, consultant and teacher worldwide.
He is also an indicator strategy consultant. FX content writer. email: email@example.com, Facebook: babasholaj.
It’s now over to you; the ball is now completely in your court.
Kindly share this article and drop a comment for me if you got value from this post, thanks.