There has been an increasing trend in the people about forex training. Today in this article we will provide you the beginners guide to Forex Trading. Forex is short form for Foreign Exchange or Currency. In this market we purchase and sell foreign currencies in order to earn profit. While most of the population is engaged in the traditional Equity market, Forex trading is an emerging and steadily becoming popular Market. Today in this article we’ll discuss all the aspects of Forex Trading that you’ll need to know in order to start trading.
What is Forex Trading, and How does it work?
First of all, it is important to understand what the Forex market is. Foreign exchange or the foreign exchange market is where one currency is traded for another. It is one of the most actively traded financial markets in the world. The volumes are so huge that they exceed all the combined transactions in stock markets around the world. The Forex market has a global reach where buyers and sellers from all over the world come together to trade. These traders exchange money between each other at an agreed price. Through this process individuals, corporates and central banks of countries exchange one currency for another. When we travel abroad, we all buy some currency of the foreign currency. This is essentially a foreign exchange transaction.
Similarly, companies need to purchase goods and services in other countries and will need foreign currency for this. Assume that a company in India is purchasing products from the United States. The Indian company has to pay the supplier of the products in US dollars. This means that the company needs to exchange the rupee equivalent for the dollars it needs to make the purchase. How does forex trading work?
Significance of Forex Trading
Forex trading is done to make profits from changes in the value of a currency. Currency values change due to various economic and political factors, including balance of payments, inflation, and interest rate changes. These price changes make them attractive to traders who hope to profit from getting their hunches right. However, with greater profit potential, comes higher risk. Like stocks, there is no central market for forex trading. Transactions take place between traders around the world using computer networks. Currencies are traded in major financial centers like New York, Tokyo, London, Hong Kong, Singapore, Paris, etc. So when one market closes, another opens. This is why the Forex markets are active almost at any time of the day or night.
How does Currency Trading take place?
One of the basic aspects of currency trading is that it happens in pairs – the price of one currency is compared with that of another. The first that appears in the price quote is known as the base currency, and the second is called the quote currency. For example, the US Dollar/ Indian Rupee pair gives the trader information about how many Indian Rupees are needed to buy one US Dollar (the base currency). For example, on a specific date the pair US Dollar 1/Indian Rupee may be at Rs 67.5. The base currency is always expressed as a unit. In forex trading any currency can be the base currency.
How to trade forex?
In order to trade forex you’ll need to understand and know the markets where you can trade it. There are essentially three forex markets where you can trade that are Spot, Forward and futures market. Below we have discussed all three in depth.
Spot Market:
It refers to the physical exchange of a currency pair. A spot transaction takes place at a single point – the trade is settled on the ‘spot’. Trading occurs during a brief period. In the current market, currencies are bought and sold at the current price. Like any other commodity, the price of a currency is based on supply and demand. Currency rates are also influenced by other factors such as interest rates, state of the economy, political situation, among others. In a spot deal, one party offers a fixed amount of a particular currency to another party. In return, it receives an agreed amount of another currency from the other party at an agreed currency exchange rate.
Forwards Market:
In the forward forex market, two parties enter into a contract to buy or sell a certain amount of a currency at a certain price on a certain date.
Futures Market:
Currency futures are contracts to buy or sell a particular currency at a fixed price at a future date. Such contracts have a standard size and maturity period and are traded on public exchanges. Forex trading in India is regulated by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). Withdrawals and settlements are taken care of by the exchanges.
How to do forex trading in India ?
Now that we have seen the basics of currency trading, we will talk more about how to do currency trading in India. In India, BSE and NSE offer trading in currency futures and options. US Dollar/Indian Rupee is the most traded currency pair. However, other contracts are also becoming popular when it comes to currency trading. If you are a trader who wants to take a position on currency changes, you can trade currency futures. Suppose you expect the US dollar to appreciate against the Indian rupee soon. You can buy USD/Indian Rupee futures. On the other hand, if you expect the INR to strengthen against the US Dollar, you can sell US Dollar/Indian Rupee futures. However, it needs to be understood that Forex trading is not for everyone. It comes with a high level of risk. Before trading in Forex, it is essential to know your risk appetite and also have the required level of knowledge and experience. When trading Forex, you should know that there is always a good fear of losing money, at least in the beginning.
How to Start Trading Forex:-
Trading in forex is not that hard, it is very similar to regular equity trading. Below we have given some starter steps that you can follow to begin trading in forex. Remember these are not financial advice but sometimes that will help you in starting your forex trading journey.
Step 1: While it is not complicated, forex trading is a trade that requires specialised knowledge and a commitment to learning. So learn from articles , books and YouTube videos.
Step 2: You will need a forex trading account at a brokerage to get started with forex trading. A trading account can be opened with the help of various trading platforms and brokerage houses. Make sure to have all the necessary documents.
Step3: While it is not always possible to predict and time market movement, having a trading strategy will help you set broad guidelines and a road map for trading. Training strategy will allow you to navigate in these Harsh markets and minimise your losses by setting up boundaries.
Step 4: Once you begin trading, check your positions at the end of the day. Most trading software already provides a daily accounting of trades. Make sure that you do not have any pending positions to be filled and that you have sufficient cash in your account to make future trades.
Step 5: Beginner forex trading on an emotional roller coaster and fight with lots of unanswered questions. Discipline yourself to close out your positions when necessary. Always think with numbers not emotions.
So this was your beginners guide on Forex Guide. If you understand the fundamentals, forex trading is not that hard thing. So you must start with a small amount build your basics and when you feel confident that you should completely go for it
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