Forex Trading is fascinating, thanks in part to the often aggressive advertising campaigns by brokers. They sometimes present this activity as an opportunity to turn your life around. As long as the associated risks (which are many) are also communicated, it's all legitimate, to be clear.
However, this fascination is often accompanied by great uncertainty, arising from the limited knowledge of those approaching it for the first time.
This article aims to dispel the uncertainty of "absolute" beginners by providing answers to
the most basic questions, gathered in one place for the use of those who, as complete novices, would like to embark on a career in Forex Trading.
What is Forex Trading
Let's start with the basics. There's a lot of talk about Forex Trading, but rarely is a clear and concise definition provided. It's often taken for granted. We can define Forex Trading as a speculative investment activity in which the objects of exchange, i.e. sales and purchases, are currencies. In this case, currencies are considered like any other good. This is possible because each currency does not have an intrinsic value, but rather a value that depends on the things that can be purchased with it, including other currencies.
For this reason,
currencies are traded in pairs. If you buy EUR/USD, in trading jargon "going long" means you are buying euros in exchange for dollars.
What are the Forex Trading hours
Officially, Forex Trading is "open" twenty-four hours a day, five days a week. The market, therefore, only observes closure on weekends. The "real" truth, however, is another story. Sure, it's possible to trade any currency at all hours of the day and night,
but that doesn't mean it's always convenient to do so. In some time slots, in fact, the market is "almost" deserted and therefore the risks are higher. Moreover, there is no "single" time slot in which participation is low. It depends, in fact, on the currency you intend to trade.
In any case, the highest trading volumes occur in the early afternoon. The issue is quite complicated, so we recommend reading our article on Forex trading hours if you want to know more.
Can anyone do Forex Trading?
The answer is yes, but it's a "qualified" yes. In principle, anyone can develop the technical skills necessary for a good career. However, this does not mean that the path is straightforward. On the contrary, it is steep and full of risks. And the poorer the background, the more complicated the matter becomes. Therefore, the advice is to approach Forex Trading only after having acquired basic economic and financial knowledge.
Obviously, those who have already studied these subjects for one reason or another have an advantage.
Then, it's important to understand what "approaching Forex Trading" means: it doesn't mean starting to trade, but rather starting to
study in order to, one day, make your debut in the market.
How can I start Forex Trading
We have already partially answered this. To start trading, and specifically in Forex, you need to study a lot. To form a general foundation and then, very simply, to engage in trading that is at least potentially profitable.
From a purely technical point of view, however, it is very simple.
You need to contact a broker, open an account with them, deposit a sum - known as the initial deposit - and you can start trading. The account opening procedure can be more or less lengthy, especially in the identification phase (e.g. sending documents) but it's all very intuitive.
Also read:
- Free eBook: How to Start Forex Trading for Free
- Forex Trading for Beginners: Here's How to Start
- How to Start Forex Trading from Home
- Forex Trading: How Much Money Do You Need to Start?
How much does luck matter in Forex Trading?
This question has to do with the mythology surrounding the concept of trading, and especially Forex Trading. The media, even when simply providing entertainment, often propagate a figure of the trader that does not exist in nature, or that is always destined to fail.
That is, the creative trader, who achieves success - even and especially financial - by virtue of his intuition and courage. Indeed, his luck.
Well,
the concept of luck has no place in Forex Trading. It's about studying, analyzing the market, and finding the most suitable path to generate a profit. Luck has nothing to do with it, only technical skills, analysis, and hard work matter.
How do I predict the price?
Many ask this question, even among non-beginners. Unfortunately, it is a question destined to remain unanswered. In fact,
the price simply cannot be predicted, at least not exactly. However, it is possible to predict the direction, the period of permanence within a trend, etc.
Logically speaking, however, it's not about predicting. Rather, it's about deriving a future evidence from a present evidence, moreover at a level that is simply statistical. To do all this, you need to practice some disciplines, including technical analysis and fundamental analysis.
Also read:
- Introduction to Graphical Analysis in Forex Trading
- Discovering Fundamental Analysis in Forex Trading
- Discovering Technical Analysis in Forex Trading
- Technical Analysis vs Fundamental Analysis: The Differences
Can I trade even if I have little capital?
The answer is yes. After all, the real change in recent years has been the opening up to non-professionals, to common investors who often do not start with significant capital. This change was inspired by a strategic choice of so-called retail brokers (i.e. those who cater to ordinary investors): namely, lowering the entry level. Which, very simply, means lowering
the initial minimum deposit.
Most traders require an initial minimum deposit of a few hundred euros, some require an even lower one.
What is the best platform for Forex Trading?
The discussion here is complex, as there is no single answer that is valid for everyone. It depends on your technical background and your trading style. To get started, however, it's useful to refer to the classic platforms, that is, the most used ones. If for no other reason than that many of the tutorials are organized around them. These platforms all refer to the MetaTrader class. The most used platform is still MetaTrader 4 or MetaTrader 4.
Which is the best broker for Forex Trading?
Here too, just like for platforms, the discussion is truly complex. Especially because the offer is truly vast. However, one piece of advice is valid: even if in some cases they may seem uneconomical,
choose only certified and authorized brokers by regulatory bodies such as Cysec, FCA, FSA, etc. You can find the license at the bottom of the official websites.
If you are looking for a good broker, however, take a look at this list.
What is the best pair to earn money?
We have arrived at the technical questions, which unfortunately do not have a single answer valid for all situations. Again, it depends on your trading style. That is, your tendency to prefer volatile pairs rather than pairs with less liquidity. If you are part of the majority, that is, you are looking for pairs belonging to the second category, all pairs that have at least one major in them are fine: euro, dollar, pound and Swiss franc.
The advice, however, is
not to go from pole to pole, but to choose a pair and specialize in it.
What is technical analysis?
Technical analysis is a practice that allows you to derive evidence about the near or less near future of an asset, in this case a currency pair. It's as close as you can get to a "crystal ball" although, as we said earlier, the concept of "forecasting" is quite out of place in trading.
Technical analysis is very complicated. To begin with, it is sufficient to know its basic mechanism: the market tends to repeat itself, so its movements are susceptible to modeling. By following these models, starting from a present evidence it is possible to understand how the price will behave in the future. To learn more, we recommend reading
this guide to technical analysis.
What is fundamental analysis?
Fundamental analysis is complementary to technical analysis. The underlying mechanism is the same. However, instead of being based on market evidence, i.e. price movements, it is based on "extra-market" evidence, i.e. everything that happens in the economy, politics, etc. and that can in some way influence the market. To do fundamental analysis, you need to study some events, especially those that repeat cyclically (e.g., the publication of macro-economic data). These are called "market movers".
Technical analysis, even if it involves less intense work on numbers, is more difficult than technical analysis because it requires considerable interpretative skills.
What is Money Management?
Money Management is a practice whose purpose is to limit capital losses in a scientific manner. In a scientific manner means using some tools that allow you to roughly predict, with a certain margin of error, what risks the trader is exposed to by opening this or that position.
Money Management is a fundamental practice. All traders should make daily use of it. Those who don't are destined to lose or, at least, to live the trading activity badly. Those who do Money Management, in fact, in addition to enjoying solid protection, trade in a more relaxed way and are subject to a lower dose of stress.
Also read:
- Money Management: 4 Parameters to Analyze
- Money Management: Risk Control to Increase Profits
- Money Management Strategies for Serious Traders
- 10 Tips for Good Money Management in Forex Trading
What is a stop loss?
With this question, we really get into the technical aspects. The stop loss is the price level at which the order closes automatically and exit from the market is executed. It's a sort of automatic closing level. It is one of the most effective tools of money and risk management, i.e. practices that allow you to control or monitor both risk and capital loss.
The Stop Loss works because it forces the exit when, technically and almost scientifically, a losing position can no longer be recovered. It is therefore a resource to limit losses. We have discussed it in depth in this article.
What is financial leverage?
Financial leverage is a tool that is both winning and dangerous. In some cases, it is very dangerous. In essence,
it allows you to open positions much larger than your current capital allows. If, for example, you use a 1:10 leverage, by committing 100 euros you will be trading as if you were committing 1000 euros. Absolute gains increase. Unfortunately, so do losses. For this reason, many brokers have "safety systems" that are activated when the margin trader (this is the official name) risks sending the account into the red.
In any case, the ideal leverage goes from 1:10 to 1:50. In any case, European authorities have limited its use with some very recent regulations.
