The foreign exchange market, colloquially labelled ‘forex trading’, is the world’s biggest trading market – with a staggering $5 trillion worth of currency traded daily across the globe.
So, today, we’re bringing you all the basics you should know if you’re looking to learn to trade – providing all the important information you’ll need to save time slogging through forex books and guides, while helping you make an informed decision on whether this profitable yet volatile market is right for you.
So, where to start?
Put simply, forex trading involves the buying and selling of currencies based on the projected value of one against another. Because of the nature of the market, it’s open 24 hours a day, five days a week, to cater for all international time zones – making it a unique trading opportunity very different to the common stock market.
In further contrast, all currency trading is done in pairs, as opposed to the single stock trades found on Wall Street. These trades are bought and sold in ‘lots’, varying in size:
- Micro lots – 1,000 units of your base currency
- Mini lots – 10,000 units of your base currency
- Standard lots – 100,000 units of your base currency
Currencies are valued to the fourth decimal point, with a pip being the smallest value of a trade. A pip (percentage in point) is worth 1/100 of 1% – making it the ideal value for those hoping to learn to trade while essentially testing the waters, as it reduces the impact of any potential loss. Trades are influenced by the trader’s projection of how one currency will perform against another, with the trader buying shares in a base currency they believe will rise in value against the quote currency (selling for a profit, if correct).
Whether you’re a veteran trader or looking to learn to trade for the first time, it’s likely you’ll be dealing in the ‘majors’ – the eight most popular currencies, which comprise 85% of all total trading volumes.
- US dollar
- Canadian dollar
- Pound sterling
- Swiss franc
- Australian dollar
- New Zealand dollar
These majors make up various currency pairings, and commonly increase in value during their relative market hours. The pound sterling, for example, tends to increase in value during the GMT time window – as more people are investing in the currency during these times.
But what influences value fluctuation?
When you first learn to trade on any market, understanding what influences the values of the stock you’re trading is vitally important. In the simplest terms, the value of a currency is determined by the number of traders buying and selling that currency.
Exactly why people are buying or selling a currency is subject to a number of factors, though. The political climate and economic stability of a country, as well as world events, interest rates and geopolitical tensions, all play a part in influencing traders’ buying decisions – along with the fundamental concept of supply and demand. You can learn all about how to predict and analyse currency fluctuation at one of our free forex trading seminars.
Now you know the basics of forex, get in touch to find out more about the benefits of learning to trade and any other essential considerations for a first-time forex trader starting out in the market.