Fx Trading Basics All Newbie Should Know
FX trading basics you should know…being the first article of my educational series on how to trade the currency market, I’ll show you the basic facts and terminology that some traders are likely to know.
Don’t be surprised when I said might likely to know. Because my so-called traders don’t even know all these simple facts about forex trading.
However, I promise to present these facts in the correct way. And I don’t presume you know it … especially if you’re a beginner who’s just getting into forex trading.
In the article, we’ll go through all the basic facts about Forex trading. These are things you’re expected to know if you must become a profitable and successful forex trader.
With that been said, let’s go through the…
20 fx trading basics you should know
1) Forex means FOReign EXchange and means trading with foreign currencies. It is the largest and most liquid financial market in the world. Daily turnover is currently over $5.6 trillion.
2) Forex is an over-the-counter market that is not localized – Forex is a location for connected phone and other electronic systems.
The site is based on supply and demand, and negotiations are carried out. The system connects banks, brokers, insurance companies, investment funds, corporations, and investors (if we are talking about a true interbank market).
However, if we are talking about the 98% trading conditions of all regular retail traders – then their trading accounts are linked only to a single market maker.
The market maker is a broker of a trader, or they are owned or connected by a contract to an ECN / STP broker. One way or another, there is a conflict of interest between the dealer and his broker.
3) Participants in the financial market – Market participants in the financial market must understand the structure of the financial market and make use of them to make a profit based on changes in the markets or to insure their business risks (or hedge).
Special categories are governments and central banks, which use financial markets to intervene and define monetary policy.
4) Speculative traders use various trading systems – algorithmic and high-frequency trading systems; intraday trading strategies (same-day trading), swing trading, or long-term trading.
Long-term trading strategies are usually based on fundamentalist analysis.
Normally, we can divide the approaches of retail traders into manual and automated trading strategies (all trades are executed by a computer, and a trader only inserts codes that are an algorithm based on their strategy).
5) You can trade Forex 24 hours a day, 5 days a week – Forex is considered one of the fairest types of investments in the world because the market is not influenced by quarterly statements of classic stock companies. You can make money if the markets go up or down.
6) Some traders mention that Forex trading is a zero-sum game. This is correct – because every buyer needs a salesperson to execute their orders.
However, if all customer orders are sent by your broker in the real interbank market without any conflicts of interest – you can then make a profit from trading in the financial markets.
The main problem is not a principle of the financial markets – that they are considered a zero-sum game. The most important problem is a conflict of interest between small retail traders and their brokers.
7) On the basis of financial market statistics, only 15% of businesses are executed by companies, governments, and central banks.
The remainder, up to 85% of all transactions and financial market instruments, is executed to generate profit based on a move in the markets.
The main financial centers are London, New York, Tokyo, and Sydney – each center has its own hours of operation. Up to 40% of all currency transactions are performed in London.
8) In the image below you can see a true hierarchy of the Forex market from a view of the typical retailer trader.
If you must make good money in the financial markets, it is extremely important for a trader to choose a broker who does not run all his trades on just one market maker (as most ECN / STP brokers do).
9) The more long trades and short trades are performed, the more you will compete with the latest high-frequency trading systems that are able to work at extremely short intervals, and you need to continue with these technologies.
These traders usually have to use some sort of automated trading. Intraday, swing, or long-term trades are suitable for manual orders.
10) A large volume bank and institutional orders are often executed at price levels of psychological numbers (100, 150, 1.0000, 1.1000, etc. – rounded numbers).
In addition, high volume orders are often executed at the price levels of important or maximum maxima in a market – there are often losses of accumulated trader stocks.
11) Please avoid all specialized commercial advisors (automated systems), paid trading systems, indicators or services, and pseudo professionals who tell you that they will make you cool-cash of hundreds or even thousands%.
This is an absolute waste of your finances. At the same time, these services are totally against the principle of logic.
If any of these vendors really had a lucrative system, they’ll never sell it to you. That I guarantee you.
12) If you are looking for paid help in Forex, only the following services make sense. Automated systems/indicators/scripts and coding based on your needs.-
In this case, if you are trading through MetaTrader 4, you can take advantage of low prices for freelancers directly at mql5.com.
At the same time, you will find several indicators, automated systems, and scripts for free on mql5.com.
Coding services based on your needs can also be provided by your broker if they are interested in getting good results for their clients.
13) In all publications, you will probably read that the most important factors for business success are psychology, money management, and trading systems.
These factors are very important, but the most important has to do with the kind of broker you trade with.
If you choose the wrong broker… then, you’re sure of losing your money. On the other hand, if you use the right broker; you’re guaranteed to make more money from your trades.
14) Trading is a zero-sum game – every buyer must have a seller, but that’s not the main reason traders lose in the financial market.
Financial market players lose because of conflicts of interest with market makers or ECN / STP brokers who only have a liquidity provider (market maker) and directly participate in the profits/losses of their clients.
The main issue is not the principle of how the financial market works; the main problem for 98% of all traders is how the brokerage business works for small traders.
15) A fixed spread in the interbank market does not exist. In the interbank market, the spread is always variable. If you are trading at a fixed spread, you are not trading in the real market.
16) High leverage and deposit bonuses are the most common marketing distractions for beginning traders who will quickly eliminate their first trading accounts.
17) Brokerage recommendations and investment recommendations are other common forms of quick disaster for many novice traders.
18) Derogations – inaccuracies in the conduct of negotiations should be positive and negative. The vast majority of brokers around the world run their clients’ businesses with only negative slips.
19) You will discover the quality of a broker only after testing on actual accounts. I have done extensive and detailed testing of numerous brokers around the world on real trading accounts. In these tests, I have spent a lot of money trading live with these brokers.
However, empty words and theories are what motivated me into this part, especially since I can now also show retailers unbiased information about the huge differences that really exist between brokers.
20) The same trading strategy will always achieve different business results in real accounts.
There you have all the 20 Fx trading basics all forex traders should know… whether you’re a newbie, struggling trader, and professional trader. Whichever you are, the same principles apply.
I’ll also be coming up with reviews on different brokers, and perhaps the forex trading system you can use to become a profitable trader. Some of the systems are free… while some are paid.
Are you a newbie who wants to get into trading forex? Having gone through this 20 Fx trading basics article. You might be wondering if it’s possible for one to be successful as a trader. Right? Yes, you can.
here’s a trading course I recommend for newbies… it’s Chris forex candlestick made easy. It’s great for beginners.
Do you know anyone this article will greatly benefit? Please, kindly share it with them.