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Forex trading may be the key to achieving your dreams and making you rich, but before you start, you need to learn Forex trading first.
Although it's somewhat straightforward when you understand it, Forex trading has many different details and aspects that you need to be familiar with to start making profits in this field.
These aspects include market timings, currency pairs, the platforms used, types of orders, and other details that are not necessarily complex but are numerous, requiring a lot of research to grasp.
In this article, we'll save you the trouble of that research and provide you with a comprehensive guide to learn Forex trading, covering all the basics you need to start trading and making profits.
What is Forex?
First, you need to know what Forex is. It's simply the exchange of one currency for another with the purpose of profiting from market movements and price changes between the two currencies during the exchange.
Anyone who changes one currency for another, even if it's done locally and on a small scale, is engaging in a form of Forex trading.
It's worth mentioning that the Forex market is decentralized, unlike many similar markets, meaning there is no specific geographic location where this type of trading occurs. Instead, it has multiple financial centers and brokers worldwide.
In most cases, Forex trading is done through an online broker, which is a company that allows traders to access currency prices, open and close trades, and perform various other trading functions.
So, are you more excited now and eager to learn Forex?
Advantages and Disadvantages of Forex Trading
In your journey to learn Forex trading, you should gain a clearer picture of the market. There are both positives and negatives you need to be aware of to understand exactly what you're getting into.
Advantages of Forex Trading:
Enormous and Liquid Market: The Forex market is undoubtedly the largest financial market globally, with daily liquidity exceeding six trillion dollars. While large institutions dominate most of this amount, achieving high profits using it is very possible.
Accessible to Anyone: Anyone with an internet connection can start trading Forex anytime they want. There are many trading platforms available that offer features like virtual accounts and real-time news, among others.
Flexible and Easy Trading: Forex is an over-the-counter market open 24 hours a day, five days a week. It has no restrictions on the trading amount, allowing you to trade the amount you want at any time.
Doesn't Require Large Capital: You might wonder how Forex doesn't require significant capital when it involves exchanging currencies. The answer lies in leverage, a feature that enables you to trade with multiples of what you possess. This allows you to generate substantial profits with a small initial investment. However, keep in mind that the risk of losing your entire investment is also high due to leverage.
Disadvantages of Forex Trading:
Highly Risky: Like any other form of trading or investment, Forex carries risks, both operational and self-imposed, such as using leverage. The more leverage you use, the higher the risk of losing your capital due to even minor price fluctuations.
High Volatility: Currencies are affected by various economic, political, and even natural factors, making them highly volatile. No matter what trading strategy you employ, it's vulnerable to failure due to uncontrollable variables.
Lack of Regulation: It's quite evident that the Forex market is less regulated than most other markets, with only a few local institutions overseeing it. This is easy to avoid by choosing a reputable broker to ensure the safety of your funds. We'll mention several of them in this article.
Important Terms to Help You Learn Forex Trading
Perhaps this is the most crucial part of this entire article because the terms mentioned below are essential in your journey to learn Forex trading and trading effectively with others.
1. Pip (Point in Percentage): It is the fourth decimal place in an exchange rate, representing the smallest price movement in the exchange rate. It is crucial for traders to calculate profits and losses after closing trades. For example, if the exchange rate moves from 1.5550 to 1.5553, it has increased by 3 pips.
2. Spread: This is the difference between the buying (bid) and selling (ask) prices of a currency pair. It's the profit margin that the trading broker or institution makes. It's an important criterion when choosing a good trading broker, as a higher spread increases your trading costs.
3. Lot: It's the unit used to measure the size of Forex trading positions and helps with risk management. A standard lot size is 100,000 units of the base currency, but smaller contract sizes like micro, mini, and nano lots are used based on profit objectives and deposit value.
4. Leverage: Leverage is the ratio provided by your trading broker that allows you to trade a larger position size than your initial deposit. For example, with 1:100 leverage, you can trade a position size equal to 100 times your initial deposit. Leverage amplifies both profits and losses during trading.
5. Margin: Margin is the amount of money required by the broker to enable you to trade with leverage and maintain it. If you're trading with 1:30 leverage and put up $1,000 as margin, you can trade with a position size of $30,000.
6. Margin Call: It's a warning issued by the broker when your margin is about to be exhausted. It prompts traders to either close their positions or deposit more money into their accounts to increase the margin.
7. Spike: A spike refers to a sudden and sharp movement in price, either upward or downward, that occurs in a short period. Spikes can result in significant gains or losses for traders.
8. Support: A support level is a price point where the market is expected to stop falling and reverse its direction upwards. It serves as a signal to start buying.
9. Resistance: Resistance is the opposite of support. It is a price level where the market is expected to stop rising and reverse its direction downwards. Traders typically look to sell at resistance levels.
10. Bid/Ask Price: The bid price is the price a buyer is willing to pay for a currency pair, while the ask price is the price a seller is willing to accept. The difference between these two prices is the spread.
11. Exchange Rate: It's the rate at which one currency can be exchanged for another. Exchange rates are determined by supply and demand factors in the market.
12. Currency Pair: To start trading, you need a pair of currencies. The first currency in the pair is the base currency, and the second is the quote currency. We will delve into currency pairs in a separate section of our Forex learning guide.
13. Overnight Position: This trading style involves leaving positions open overnight to potentially profit from market movements during the night. However, it comes with risks as you may not be able to monitor the trade fully.
14. Technical Analysis: Technical analysis involves studying historical price movements and patterns to predict future market movements. Learning technical analysis is a crucial part of learning Forex trading.
15. Line Chart: This is one of the simplest chart types used in Forex trading. It represents price movement over time with a basic line, making it easy to grasp the general price direction.
16. Bar Chart: Bar charts are one of the most commonly used chart types in Forex. They display price movement during a specific time period using four variables: high, low, open, and close prices.
17. Japanese Candlestick Chart: Candlestick charts are highly popular in Forex trading. They also show the same variables as bar charts but present them differently, with candlesticks representing opening, closing, high, and low prices.
18. Risk Management: It's a set of strategies and tools used by traders to minimize potential losses as much as possible. One essential tool in risk management is the stop-loss order, which automatically closes a position when it reaches a pre-defined price level.
Understanding these Forex terms is crucial for effective communication in the Forex trading world and for making informed trading decisions.
Learning stages of Forex trading involves understanding important aspects of the market, and one of the crucial terms to grasp is "Forex market hours," which may seem unfamiliar at first.
The Forex market consists of four financial markets located around the world in Sydney, Tokyo, London, and New York. These markets' working hours overlap to keep the market operational 24 hours a day, five days a week.
Knowing the operating hours of each of these financial markets is essential for any trader because they determine the trading strategy and the duration for which your trades will remain open.
Moreover, the periods when these markets overlap are some of the busiest and most liquid trading times, especially the overlap between the American and European markets.
The trading sessions start with the Australian session, followed by the Asian session, then the European session, and finally, the American session. The working hours for each of these markets are as follows:
Australian (Sydney): It starts at 10:00 PM and ends at 7:00 AM GMT.
Asian (Tokyo): It starts at midnight and ends at 9:00 AM GMT.
European (London): It starts at 8:00 AM and ends at 5:00 PM GMT.
American (New York): It starts at 1:00 PM and ends at 10:00 PM GMT.
Each session overlaps with the previous one for a certain period, resulting in a total of three overlapping sessions:
Sydney and Tokyo: Overlaps from midnight to 7:00 AM GMT.
Tokyo and London: Overlaps from 8:00 AM to 9:00 AM GMT.
London and New York: Overlaps from 1:00 PM to 5:00 PM GMT.
In addition to these mentioned hours, there are other events that may impact the market, such as Christmas, New Year, and some local holidays in specific countries.
Currency Pairs
As previously mentioned, Forex trading involves two different currencies, known as a "currency pair." These pairs consist of a base currency and a quote currency and are fundamental to understanding Forex.
Not all currencies are equal in this market, and they fall under various categories based on factors like currency strength, stability, and liquidity volume. High liquidity in a currency indicates traders' interest and makes it less susceptible to price slippage, thus increasing stability.
There are three main categories of currency pairs in the Forex market:
Major Currency Pairs: These are the most dominant currency pairs in the Forex market, accounting for 75% of all trading. They feature high liquidity and relatively low price spreads, making them suitable for most traders. Major currency pairs include the US Dollar (USD) paired with one of the other seven major currencies: Euro (EUR), British Pound (GBP), Australian Dollar (AUD), Japanese Yen (JPY), Canadian Dollar (CAD), Swiss Franc (CHF), and New Zealand Dollar (NZD).
Cross Currency Pairs: These pairs include major currencies but exclude the US Dollar (USD). While they have slightly lower liquidity than major pairs, they still attract many traders. Common cross currency pairs include Euro to British Pound (EUR/GBP), Euro to Swiss Franc (EUR/CHF), Euro to Japanese Yen (EUR/JPY), and British Pound to Japanese Yen (GBP/JPY).
Exotic Currency Pairs: These pairs consist of one major currency and one currency from an emerging economy. Exotic pairs have lower liquidity and are less frequently traded. Examples of exotic currency pairs include US Dollar to Hong Kong Dollar (USD/HKD), British Pound to Swedish Krona (GBP/SEK), and Euro to South African Rand (EUR/ZAR).
Types of Orders
Trading orders are a set of instructions given to your broker to automatically execute trades based on predefined conditions. Understanding these orders is crucial for successful Forex trading. Here are some of the most common types of orders you should be aware of during your Forex learning journey:
Market Orders: Market orders, also known as instant orders, are the simplest and most commonly used orders in Forex. They involve buying or selling a currency pair at the best available market price immediately. For example, if you place a market order to buy one lot of a specific currency, your broker will execute the trade at the current best available price in the market.
Pending Orders: Unlike market orders, pending orders are not executed immediately. They are triggered when certain predefined conditions are met. There are four types of pending orders:
a) Buy Stop Order: A buy stop order is placed above the current market price, anticipating that the price will continue to rise after reaching this level.
b) Sell Stop Order: A sell stop order is placed below the current market price, anticipating that the price will continue to fall after breaking this level.
c) Sell Limit Order: A sell limit order is placed above the current market price, expecting that the price will rise to this level before reversing.
d) Buy Limit Order: A buy limit order is placed below the current market price, expecting the price to fall to this level before rebounding.
Stop-Loss Orders: A stop-loss order is designed to limit potential losses by automatically closing a trade when it reaches a specified price level. It is a crucial risk management tool.
Take-Profit Orders: A take-profit order aims to secure profits by automatically closing a trade when it reaches a predetermined profit level. It helps lock in gains and prevent potential reversals.
Trailing Stop Orders: A trailing stop order is a flexible and efficient version of stop-loss and take-profit orders. It moves with the market price, allowing you to protect profits while giving the trade room to develop in your favor.
Understanding these concepts and mastering various order types will help you navigate the Forex market more effectively and execute trades in alignment with your trading strategy.
Fundamental Analysis
Fundamental analysis is a method for studying financial markets to predict price movements and the overall market direction. It is one of the aspects of learning Forex.
It involves analyzing various factors that affect the value of currencies, such as the state of the economy, interest rates, GDP (Gross Domestic Product), and other factors.
For Forex traders, understanding these details is not only about avoiding trading in currencies that may depreciate in the future but also gives you an edge over many traders in the markets you operate in. Therefore, it is highly important to become familiar with these aspects during your Forex learning journey.
You cannot rely on a single economic factor or indicator to assess a financial market. Instead, you need to look at the big picture to predict market movements correctly.
The key indicators you should regularly look into and monitor are:
1. Inflation: Inflation is an indicator that shows the rate at which prices of goods and services increase in a country. It means that the prices of goods rise without any corresponding increase in their intrinsic value.
Central banks raise interest rates to combat inflation and increase the value of their currency. Conversely, they lower interest rates during periods of contraction, where goods become cheaper and the value of money increases.
2. Interest Rates: Interest rates are one of the most influential factors affecting currency trends. They are simply the cost that lenders impose on borrowers in the borrowing process.
It can be considered a compensation for the risk lenders take in lending, and it is usually determined by the central bank based on economic conditions and its monetary policy.
As a result of predicting an interest rate hike and increased inflation, investors buy to benefit from the potential increase in the currency's value.
3. Gross Domestic Product (GDP): Gross Domestic Product is a measure of all goods and services produced during a specific period.
It is the best indicator that can reflect the state of the economy in any country. It measures the cost of manufacturing goods and services by a country.
Therefore, an increase reflects economic expansion, and a decline indicates a potential economic downturn, causing traders to withdraw from that currency.
4. Unemployment Rates: These three indicators mentioned earlier are the primary factors relied upon in fundamental analysis for Forex.
However, high unemployment rates also have a significant negative impact on the economy. As the population of non-working people increases, consumption increases significantly, and more people rely on government assistance. Conversely, a decrease in unemployment rates reflects increased trade in goods and currencies of that country and a significant improvement in its economy.
Technical Analysis
Technical analysis is a system for predicting future price trends by studying historical market data and observing price movements in various timeframes. It is one of the simplest and most effective methods of market analysis, making it very useful in learning Forex.
Unlike fundamental analysis, which involves using a lot of data related to Forex news and economic factors, technical analysis only requires a few numbers on the chart to make the right decision.
Technical analysts rely on three basic principles when analyzing market data:
1. Price Contains Everything: This principle means that any factor affecting the market, whether political or economic, ultimately reflects on the price. Therefore, monitoring the price alone is sufficient, and other variables that do not necessarily have a fundamental impact can be disregarded.
2. Prices Move in Trends: This principle is based on the idea that market conditions tend to persist in a particular direction for an extended period. In most cases, economic cycles last for a long time before any possible reversal occurs.
3. History Tends to Repeat Itself: This principle describes the behavior of investors fundamentally. Regardless of the date, they continue to repeat the same actions and mistakes. Therefore, studying the historical trend of the market gives a strong impression of what will happen in the future.
Technical indicators
Technical indicators are miniature charts based on mathematical equations that help the trader perform technical analysis by analyzing price movement data and predicting future market direction, and they are part of learning Forex.
There are a very large number of technical indicators whose goals vary and the data they analyze varies, and as a trader you will have to use several indicators in order to get the best possible result from them.
The most prominent types of these indicators are:
1. Trend indicators
Indicators are used to determine the current market trend, so that you can know its ideal entry and exit points. Each indicator differs from the other in the information it provides and the way it displays it on the chart, the most important of which are:
Moving Average.
Average trend ADX.
Ichimoku.
Parabolic Sar.
2. Momentum Indicators
Momentum indicators or oscillators are indicators that measure the strength of a price movement and compare it to previous times to correctly identify reversal points.
Through it, you will be able to know whether the trend in which you will trade is rising or falling, and whether it is overbought or oversold. The most important indicators for determining momentum are:
Relative Strength Index (RSI).
Stochastic indicator.
MACD indicator.
3. Volatility Indicators
Liquidity or volume indicators are used to determine the degree of price activity at the current time, and can be used as a warning bell for an upcoming price reversal.
Its most important indicators are:
Total trading volume (OBV) indicator.
Rate of Change.
Money Flow Index.
4. Indicators measuring volatility
The purpose of this type of indicators is clearly evident from its name, as it specializes in measuring the size of the rises and falls of a specific financial market, and is often relied upon to determine the appropriate stop-loss and take-profit levels.
and the most important:
Bollinger Bands Indicator.
Standard Deviation indicator.
Average True Range ATR indicator.
5. Support and resistance indicators
Support and resistance points are pivotal points in the trading process, as they are the points where the price stops completing its path and begins to reverse in the opposite direction.
There are some indicators that help you identify them, such as:
Fibonacci levels.
Pivot Points.
Trendlines and Channels.
Forex Trading Methods (The Heart of Forex Learning)
Traders have different data in trading, whether it is the time of trading, the amount, or even the goals desired for that process.
Therefore, there is no single method that all traders use to achieve profits, but rather there are several methods and trading strategies that you, as a trader, can use based on your current position and the goal you want to reach.
The importance of these trading methods is not limited to setting specific rules to follow, but they also help you avoid making emotional decisions that cause a lot of unnecessary losses.
There is no perfect trading method or strategy that guarantees you that you will not lose at all, but rather it only gives you the best possible return that you can get from every trade.
The most prominent methods used are:
1. Scalping Trading
Scalping or scalping trading is the fastest trading method, and relies mainly on opening and closing deals within a few seconds or minutes at most.
The amount of profit from each trade is very small and usually does not exceed ten points, but in this way traders can achieve large profits by making many trades and using large financial leverages.
Scalping requires special types of brokers. Given the small profits and large number of transactions, the price differences and the cost of each transaction must be low, so technical analysis tools must be available that monitor the least changes in the market.
2. Day Trading
A type of short-term trading, but not as fast as the previous type, as daily trading may last for several hours and its duration is never longer than one day.
In this method, the trader often opens more than one deal at the same time and benefits from the returns of each of them. Traders profit from this method from 20 to 100 points on average for each deal.
It depends mainly on fundamental analysis and expected economic changes for a currency during the day, and of course requires you to make many quick decisions to benefit from market fluctuations.
3. Swing Trading
A medium-term trading strategy that lasts for several days or even weeks, and its purpose, as its name suggests, is to benefit from the volatility or fluctuation that occurs in the price during that period.
Traders of this type face greater risks than the previous two types, but on the other hand, they reap greater gains in the event of profit, which often range between 100 - 300 points.
It is also suitable for those who are not fully dedicated to trading, as it does not require a lot of time to follow.
4. Position trading
It is a long-term trading style that may last for weeks, months, and even years for some traders.
Although it lasts for a long time and requires a lot of patience, it does not put a lot of pressure on you and follow up like other methods that last for short periods do.
You will only care about the bigger picture of market movement, regardless of the small fluctuations that occur continuously.
The return from this method is greater than all other methods, and you cannot use only one type of analysis in this type, but rather you need both technical and fundamental analysis tools alike.
Risk Management
Reducing the amount of potential risk is something that all traders want, as no currency pair or trading strategy is completely risk-free, but it varies from one to another.
Doing so is not impossible, as there are some ways and methods that you can follow to get the greatest possible benefit from each deal and avoid loss as much as possible.
The most commonly used methods are:
1. Use stop-loss orders: We talked before about stop-loss orders, and they are definitely the first thing you should use to avoid any loss or unexpected event during the trading deal, but make sure to set them correctly so that they do not adversely affect your profits.
2. Do not start with large amounts: This is largely intuitive advice, but it is still worth mentioning. The Forex market is not completely safe, and of course you do not want to lose all your savings, especially if you are a beginner or will rely on Forex trading as a primary source of income.
3. Don't put all your money in one pair: In continuation of the previous point; In addition to not using large amounts, you must also diversify your trades and buy several pairs with different degrees of profit and risk in order to get the best return from each of them, and to ensure that you do not lose suddenly as well.
4. Risk what you can afford to lose: In addition to trading fixed pairs with low risk, you will also have to trade high-risk pairs with higher profit rates.
But of course, you will not pump the same money into both types, so do not put amounts into high-risk pairs that you will not be able to recover from some of your losses, and make your basic trades the ones that are guaranteed.
5. Use leverage with caution: Leverage will allow you to trade with ridiculous amounts, but on the other hand, it will double your losses and make losing your margin very easy, so use it with caution, and as we mentioned in the first point, use stop-loss orders.
6. Learn more: There is no better trading method than knowing how the market works and following everything new that occurs in it, so that you have an advantage over other traders; Be aware of all possible updates that could potentially benefit you or even news that could affect a market in one way or another, in short, learn Forex.
7. Have a plan before starting: Many losses in the trading process occur due to emotional decisions that are taken randomly and without any plan to govern them. In order to avoid this, before starting any deal, you must have a vision of its various events and how to deal with them in a precise manner.
Forex learning resources
There are many sources that can help you learn Forex, such as books, courses, training courses, and even YouTube channels, but the best of these sources are undoubtedly Forex education sites.
This is for several reasons, the most prominent of which is that most of them are completely free and available to all people, in addition to the fact that these sites contain an amount of information that is incomparable to any other source and are updated periodically to keep pace with the development of this field.
Among the hundreds and even thousands of Arab and foreign websites, there are some prominent sites that provide correct, reliable, and enjoyable content to read. The most prominent of these sites are:
1. Investopedia: There is no question related to Forex that will come to your mind that you will not find the answer on this site, as it is one of the largest and most active sites in this field.
2. BabyPips website: It is one of the most prominent trading websites. It is not limited to publishing educational content only, but also has a forum to discuss any topic related to trading in addition to many other features.
3. Forex Factory website: A website specialized in publishing the latest news and updates related to the Forex market. If you want to be up to date with new news, this is the right website for you.
4. Admiral Markets website: A comprehensive trading platform that contains very rich educational content in addition to many modern trading tools. It also allows its users to communicate with each other and share ideas and is available in Arabic.
Of course, if you want to learn through YouTube, just go to YouTube and search for the word “Learn Forex” and you will find many wonderful channels.
If you like learning through courses, you can go to the Coursera platform or the Udemy platform and search for the word “Forex” and you will find dozens of excellent courses there.
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