Forex Trading For Beginners - Currency and Tools You Must Know

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Trading in currencies is gaining popularity and growing at an astounding rate.

Apart from normal stock trading and crypto trading, Forex trading is also being explored as a favorable avenue for profits.

As you explore these uncharted waters, let this guide serve you through your journey of Forex trading for beginners.

Let us look at the common terminology before beginning forex news trading for beginners.


Forex: Forex stands for foreign exchange, where the transaction is based on exchanging one currency for another. Its applications are numerous, ranging from commercial, tourism, and even international trade.

Foreign Exchange or FX market is where banks, institutions, and investors trade while speculating on national currencies globally.



Forex Market: It is open 24 hours and restricted to 5 days a week. Banks, investment firms, businesses, retail, and hedge funds traders trade in this market.

All trades are made electronically through computer networks as there is no central marketplace or exchange in a central location. These electronic trades are called over-the-counter or OTC markets.



Forex Trading: The price of a particular currency is speculated to make a profit. Currencies are always paired up, exchanging one for another. Thus profit is made by selling one currency into another market.

The currency pair prices depend upon trade flow, economics, geopolitical and political events, creating volatility in the market due to demand-supply.

you should be aware of the latest global news on television and other social media platforms If you're new to forex trading.

Currency Pair: Buying and selling the two currencies works simultaneously in the forex market.

A "base" currency and a "quote" currency make up each pair.

Thus one currency is brought, and simultaneously the other currency is sold. The amount of the quote currency required to buy one unit of the base currency determines the price.

Base currency: Base currency is always quoted on the left or the first currency to appear in a pair.

Base currency is always worth 1 for the quote currency during the transaction in the exchange.

Forex Trader: The person who buys or sells/ trades in currencies is known as a forex trader.

Long Position and Short Position: It is called a long position when forex traders buy a currency pair.
They may go for short positions or sales depending on the market clues. Traders always hold a long position when they feel the currency's price is going to appreciate or surge.

Major Currency Pair: These currency pairs are thought to be a major driving force in the forex market.This is because They form a bulk of the volume, roughly 80% of the daily volume of forex trade.



There are four major traditional pairs-
EUR/USD (Euro and US Dollar) GBP/USD (UK Pound and US Dollar) USD/JPY (US Dollar and Japanese Yen) USD/CHF (US Dollar and Swiss Franc)
And there are three commodity pairs-

1.AUD/USD (Austrasllian Dollar and US Dollar)

2.

USD/CAD (US Dollar and Canadian Dollar)

3. NZD/USD (New Zealand Dollar and US Dollar)

These currency pairs have a lower spread as they are highly liquid. Thus, they are linked with countries with well-managed economies, so the market is not highly volatile.



Cross Currency Pair: Currencies are paired with each other while the dollar is excluded. In recent years these pairs have been directly converted into the desired currency. A few years back, the pairs were first converted into USD and then converted into selected currency.



Now that you are well versed with the terminologies, let us understand what tools a forex trader uses.

There are two types of tools, fundamental analysis and technical analysis that traders use to predict the price movement of the forex market.

A forex trader will use one or a combination of both tools as per their personality that dictates their trading styles.



1. Fundamental Analysis: Fundamental analysis questions the factors affecting the price change in the forex market. Factors like the strength of the country's economy, social and political factors and market sentiments affect the forex market.
Thus it lays a basic understanding of the currency's strength and the country; based on this information, the forex traders make most of it.

2. Technical Analysis: Forex traders use charts to determine the price movement. It is quite useful from forex traders' perspective as it gives an idea of the demand and supply of the currency.

Thus by taking market clues, the forex trader may enter and exit.

There are three types of charts that are popular with forex traders.

1. Candlestick Chart: It's the most popular chart amongst forex traders. Complete information like volume and the high-and-low price indicators are represented in summary.

The volume is represented in the "body" of the candlestick, while the highs and lows are represented by the "wick" of the candlestick.

The candle's body is filled when the currency pair's closing price is lower than its opening price. However, if the body is hollow, the closing price is higher than the opening price.


2. Bar Chart: This chart shows the opening and closing prices and the highs and lows for a given period. The top bar represents the highest trade price, and the lower bar indicates the lowest trade price.

The entire trading price of the currency pair is represented by the whole bar, while the opening price on the left and the closing price on the right is represented by the horizontal marks.



A bar chart helps identify the contraction and the expansion of the price ranges.


3. Line Chart: A line chart is easy to understand as the line represents the currency pair's price movement. These lines are represented on a graph showing the opening price and the closing price of the currency pair.

Analyzing these charts and customizing your trading accordingly can turn forex trading for beginners into a lucrative venture.


I'm Louis Martin, I am sharing an article on Forex Trading for Beginners - Currency and tools you must know.

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