Understanding the forex market: A Quick Guide For Beginners
Do women make better traders?
As a woman who deals with forex trading, the one question I get frequently asked by other women is: “Why are you a forex trader?” And my response is always the same:
At the outset of my journey into trading, curiosity to learn about the ins and outs of how the financial markets work immediately grabbed my attention, giving me the motivation to learn more and more about them. Acquiring this knowledge about the financial markets has been the best long-term investment of my time and energy. This investment has been made all the more worthwhile due to the uncertain times that we are experiencing right now. The financial tools and concepts I have familiarized myself with are now acting as a protective financial net for me and my loved ones.
As a person who is experiencing the first-hand advantages of it, I believe every person could benefit from gaining insight into forex trading and how it works. If this pandemic has taught us anything, it is that no one is responsible for your finances other than yourself. People are learning the hard way that when it comes down to it, they cannot depend on anyone – including banks or the government – for support.
If there ever was a time to start learning about financial markets, investing, and forex trading, it is now. If you are looking to educate yourself about important financial matters, like forex trading, you are in the right place.
This guide will equip you with all the knowledge you need to start your forex trading journey.
Table of Contents
What is the Forex Market?
The forex market refers to the global financial marketplace used to trade international currencies and currency derivatives. Despite having no centralized physical location, forex is the largest market in the world by trading volume, worth trillions of dollars. All the trading on the forex market is done electronically via computer networks. This is known as OTC or over-the-counter market. The forex exchange markets comprise a combination of different markets. This is because the trade between different currencies constitutes different markets.
Is the Forex Market the same as the Stock Market?
The forex market and the stock market have some key differences.
The stock markets are operated at a stock exchange. This trading is done at a physical exchange such as the New York Stock Exchange. Conversely, forex trading is done electronically and over-the-counter.
Another big difference between the two is the form of financial instrument employed. With stocks, you buy shares when you anticipate the price of the stocks will rise. In the forex market, the financial instrument is currency pairs.
Why is There so much Interest in the Forex Market?
There are many reasons for widespread interest in the forex market. Everyone has different reasons as to why they are attracted to this form of trading. One common theme underlying everyone’s intention to start forex trading is to add an extra source of income. Forex trading provides the convenience of becoming a trader from the comfort of your home.
Some other reasons why people may find themselves interested in the forex market include:
- It is the most liquid market in the world.
- The forex market allows you to operate with enormous leverage.
- Depending on the broker, you can start trading in the market with a budget as low as $100.
- The market gives you more exposure, allowing you to trade in international markets worldwide.
- Forex trading is similar to cryptocurrency trading in that they both involve exchanging one currency for another currency.
- Forex trading will equip you for trading in cryptocurrency, as well as in the way currencies are traded. You can even trade in Bitcoin, Litecoin, and many others.
How Can You Start Forex Trading?
To start trading in forex, you should take the following steps:
- Find a regulated forex broker online.
- Open an account with said broker and deposit money in that account.
- Download a forex trading platform that suits your needs.
- Start trading on the platform.
Is Forex Trading Profitable?
Forex trading can prove to be extremely profitable if you have a detailed trading plan prepared. This, combined with a tried and tested trading strategy that gives you returns, is a successful combination for financial profits.
Even with a capital as small as $100, you can start trading and double your returns based on the simple fact that you can rely on the broker’s leverage. When you enter a trade with a broker’s leverage, you have more capital to trade with. This is because of the use of borrowed funds to increase one’s trading position beyond one’s cash capital. The profits you make as a result of this trade are going to be entirely yours, minus the broker’s commission.
An important thing to remember is that there are no shortcuts when it comes to forex trading. If you trade because you want to make money as quickly as possible instead of focusing on the learning process, you will be disappointed. Forex trading involves a learning curve and needs patience and time to generate substantial profits.
How Do I Gain Confidence While Forex Trading?
To be an effective trader, you need to trade with confidence. There are certain ways you can build and maintain your confidence while making trades. A few factors to keep in mind to gain trading confidence include:
- Knowing your trading style
- Choosing a trading time frame that suits you
- Focusing on limited currency pairs
- Always calculating your risk tolerance
- Focusing on the learning process instead of fearing the outcome
- Taking every loss as a lesson
- Avoiding overconfidence
Why Do Some People Lose Money in the Forex Market?
As with anything, people lose a lot of money in the forex market. The blame for this could be put on their approach to the trade. A combination of knowledge and experience, along with a good grasp of your emotions while making the trades, is key when it comes to successful trading.
As with all new skills, forex trading also takes time, practice, and losses to get the hang of it. Your motivation to learn the ropes of the market and sticking to it through the tough times is going to generate more profits for you than losses, in the long run.
Why Does the Forex Market Work 24 Hours a Day?
The beauty of the forex market is that it operates 24 hours a day. This is because it does not have a physical location that needs to close at the end of the day. Forex trading is conducted over computers in different international time zones, which allows the market to stay open all day.
The market opens on Monday morning in Sydney – which is Sunday night in Europe – and closes on Friday night. When the Asian session closes, the European session begins trading. Similarly, when the European session closes, the American trading session begins. As a result, the forex market is in constant motion. This provides women with busy professional and personal lives the flexibility to invest in the market from the comfort of their homes.
Things to Avoid in Forex Trading
While forex trading offers a lot of promises, it is certainly not risk-free. Here are a few steps you should take to avoid suffering huge losses:
Step 1: Use stop-loss orders
Stop-loss orders are designed to provide you with the safety that is necessary to keep you from enduring enormous losses. They minimize your risk exposure by getting you out of the trade early, saving you from losses that are too big to handle.
Step 2: Set a limit on daily losses
Once you suffer a loss, it can be tempting to want to double down on your investment in the hopes of getting your money back. However, this increases your exposure to greater risk. Before trading, you should set a daily limit on what you are willing to lose.
This is a great risk management strategy that will save your hard-earned money.
Step 3: Avoid multiple trades at once
Multiple trades increase your chances of profits by making you win from one trade even if you lose in another. However, when it comes to forex trading, multiple trades often increase your risk. Having a trading plan is important because it helps you organise your trades. Before making multiple trades, it is good to study your options carefully and then make a move.
Check out this article where I explain in detail how you can create your trading plan from scratch.
Step 4: Practice!
To avoid making beginner mistakes and losing money, start by signing up for a forex practice account. This will allow you to test forex trading strategies without risking your money. You will be more prepared for the challenges that can arise as a result of a trade. This option is great for risk management.
As a woman thinking of forex trading, you will need to recognize the different aspects of the forex market and how you can operate with them. You can do this comfortably and confidently by preparing yourself well.
This forex trading guide is the perfect stepping stone on which you can build your trading empire. This guide answers the most fundamental questions related to trading while providing you with a clear direction for you to move ahead.
If you enjoyed this article on Understanding the forex market: A Quick Guide For Beginners or have any questions for me, please feel free to leave them in the comment section below!
Recommended Resources: If you’re interested in learning more about online trading, check out my book “Trading for Success; 8 secrets why women are better forex traders” and take a deep dive into my blog.