Forex Trading Definition For Beginners

The Forex Trading experts and team of professional investors at ForexSQ created this website to provide up-to-date information about the online foreign currency exchange ( FX trading ) and other financial investment markets. This site features informational articles that will be helpful in your quest to learn about and engage in the lucrative online trading of foreign currencies and other financial investment trading markets, including stocks, bonds, real estate, startups and more. In this article you will know what is Forex trading and how trading Forex currencies online to make profit. You will learn how foreign exchange currency and other financial investment markets operate and how you can get involved in online trading of currency and other commodities to make money. We can guide you through the process of selecting a broker and will point out important things for you to consider before choosing one. We will also help you find the best Forex brokers in the world to open a free demo account and practice foreign exchange trading.

What Is Forex Trading

Linguistically speaking, the word “Forex” is a blend word, the result of combining the two words “foreign” and “exchange.”

Forex is an investment opportunity whereby you can make money online by trading one or more foreign currencies for another at an agreed exchange price in the online over-the-counter (OTC) Forex trading market (Fx trading).

The Fx trading market is like any other market where goods are traded except that Fx involves only trading foreign currencies. Foreign currency exchange is the most traded market in the world even more than stock markets, The Forex market is turning over an average of $5.3 trillion each and every day.

The FX trading market involves free-floating currencies (or those not supported by any specific material like silver or gold), which are treated like goods in the Fx trading market. You can buy Euro dollars by paying Australian dollars or you can buy the Japanese Yen by paying U.S. dollars, etc.

Profits and losses in the online Forex market are based on fluctuations in the values of different currencies, with the two most widely traded currencies being the U.S. dollar and the Euro (kings of currencies). The Japanese Yen, Canadian Dollar, Australian Dollar and New Zealand Dollar are also popular for currency exchanges.

In Fx, traders use leveraging to profit from differences in exchange rates between two countries. Since Forex is a “leveraged” product, you are only required to make a deposit equal to a small percentage of the full value of the currency and the remainder is a “loan” (or leverage) provided to traders by the Fx broker who is handling their account(s). This translates to significantly higher profits (or losses) from initial capital spent than in traditional trading. The leverage that is attainable in the Fx market is one of the highest for investors.

In order to participate in the Fx market, a trader must first open a currency trading account with a broker. In order to trade $100,000 worth of currency with a margin of 1%, a trader only has to deposit $1,000 into his or her account. The amount of leverage provided is usually 1:50, 1:100 or 1:200 or more, depending on the broker and the amount the investor is trading.

You may think 100:1 leveraging seems extremely risky, but it’s significantly less considering that currency prices usually don’t change by more than 1% in daily trading. If currency values fluctuated as much as equities, brokers wouldn’t be able to provide as much leverage.

24 Hours

Forex trading is conducted 24 hours a day Monday through Friday, but  the best Fx players (like big banks and large international corporations) are online all the time for trading currencies, This is only one of advantages of currency trading.

Leverage

The trading of foreign currencies online is a leveraged product, which means that you are only required to deposit a small percentage of the full value of your account funds to place an Fx trade. This translates to the potential for profits or losses from an initial capital outlay being significantly higher than in traditional trading.

When an investor decides to invest in the Fx market, he or she must first open a currency trading account with a broker.  In Fx trading,  investors use leverage to profit from fluctuations in exchange rates between two different countries.  Leverage is basically a loan that is provided to a trader by the Fx broker who is handling an Fx account.  The leverage that is achievable in the Forex market is one of the highest obtainable by investors.

Usually, the amount of leverage provided is either 1:50, 1:100 or 1:200 or more, depending on the broker and the size of the position the investor is trading.  Standard trading is done on 100,000 units of currency, which is called “one lot.”  For a trade of this size, the leverage provided is usually 50:1 or 100:1.  Leveraging of 200:1 is usually used for positions of $50,000 or less. 

The leverage provided on a currency trade is 100:1.  In other words,  in order to trade $100,000 of currency with a 1% margin, a trader will only have to deposit $1000 into his or her margin account.  Leverage of this size is significantly larger than the 2:1 leverage commonly provided on equities and the 15:1 leverage provided by the futures market.

Although 100:1 leverage may seem extremely risky, the risk is significantly less when you consider that currency prices usually change by less than 1% during one day of trading. 

If currencies fluctuated as much as equities, online brokers would not be able to provide as much leverage.

Foriegn Exchange Pricing

All Forex trading is quoted in terms of one currency versus another.  Each currency pair has a “base” currency and a “counter” currency. The base currency is the one appearing on the left of the currency pair and the counter currency appears on the right. For example, in “EUR/USD,” the EUR is the “base” currency and the USD is the “counter” currency.

Currency price fluctuations are triggered by currencies either appreciating in value (strengthening) or depreciating in value (weakening). For example, If the price of EUR/USD fell, this would indicate that the counter currency (US dollar) was appreciating, while the base currency (Euros) was depreciating. 

When trading in Fx, you would buy a currency pair if you think that it will strengthen against the counter currency. Alternatively,  you would sell a currency pair if you thought the base currency was weakening in value against the counter currency and make profit.

Pips

The word “pip” is an acronym for “price interest point” or “point in percentage.”  A pip measures the amount of fluctuation in the exchange rate for a currency pair.  For currency pairs displayed with four decimal places, one pip is equal to 0.0001.  

Most currency pairs are quoted to five decimal points, with the change from the 4th decimal in price commonly being referred to as a “pip.”   For example, if the price of the EUR/USD currency pair moved from 1.33800 to 1.33920, it is said to have climbed by 12 pips (92-80=12).

Simply stated, a pip is what we in the Fx market consider a “point” for calculating profits and losses.

Spreads

The difference between the bid and asking price of a currency is referred to as the “spread.”  For example, for EUR/USD dealing at 1.33800/1.33808, the spread is 0.8 pips or 0.00008.  The exceptions to this are the JPY pairs, which are quoted with just two decimal places.  For example, a USD/JPY price of 97.41/97.44 displays a 3 pip spreads.”

How To Trade Forex

In order to begin trading in the Fx market, you must download an online trading platform. To do that, you need to sign up with a broker to open a real account or a free demo account.  After setting up a real account, you can start trading currency online. You can fund your real trading account using a variety of methods that include credit cards, bank electronic fund transfers (EFTs), PayPal, Skrill and Bitcoin.

How To Open Forex Account

Before you can open an Fx trading account, you need to find a broker.  There are thousands of brokers all over the world and, for your assistance in choosing one, the ForexSQ team has compiled a list of the best brokers for opening an Fx trading account. After opening an account, you can begin trading online.

Best Forex Brokers In UK, South Africa, Europe, Asia

Fxpro

Fxpro Forex Broker Founded in 2006, London-based FXPro is an online broker offering Forex trading along with CFD’s. The MT4, MetaTrader5 and cTrader online trading platforms are available.

IG Group

IG Group is a UK-based company providing trading in financial derivatives such as contracts for difference and financial spread betting and, as of 2014, stockbroking to retail traders.

While the majority of the IG Group’s activities are based in the UK, the company has expanded internationally. IG Markets is the oldest broker in the top Forex trading brokers list.

Plus500

Plus500 was established in 2008 as an online international trading platform that is popularly used in Asia, Europe and Australia and elsewhere in the world.

CMC Markets

CMC Markets is licensed and regulated by the Financial Conduct Authority of the United Kingdom (FCA), one of the strictest regulatory agencies in the world.

eToro

eToro is a social trading and multi asset brokerage company that has registered offices in Cyprus, Israel and the United Kingdom.

HYCM

HYCM previously known as HY Markets broker is headquartered in London and is authorized and regulated by the Financial Conduct Authority of the United Kingdom.

City Index

City Index was founded in the UK in 1983 and now enjoys a global footprint that includes the US, Singapore, China, Poland and Australia.

Markets.com

Markets.com maintains its headquarters in Cyprus, UK and is an investment services firm that is operated by Safecap Investments Limited (Safecap), which was founded in 2006 and is a subsidiary of Playtec PLC.

AvaTrade

AvaTrade was founded in 2006 in Dublin, Ireland and is licensed and fully regulated in the EU and BVI, as well as Australia, Japan and South Africa.

ETX Capital

ETX Capital is a broker that was established in 2002 and is headquartered in London, England.

XM.com

The XM.com forex broker was established in 2009 in the Republic of Cyprus using the name Trading Point of Financial Instruments Ltd. The broker is regulated by CySEC as well as the UK’s Financial Services Authority (FCA).

Alpari

Alpari Ltd was created in Russia in 1998 but moved its headquarters to the UK, Alpari UK has merged with Alpari Global and is regulated by FCA in United Kingdom.

FXTM

FXTM is an acronym for ForexTime.com, which is a new platform to the world of forex investing, The FXTM forex broker is owned and operated by its holding company FT Global Services Ltd and is based in Cyprus, Belize and Europe’s trading capital of London, UK.  

EasyMarkets

The easyMarkets broker is the result of the re-branding of “easy forex“, the name under which this broker was established in 2003. The easyMarkets firm is headquartered in Limassol Cyprus and maintains satellite offices in London UK, Sydney Australia and Warsaw Poland.

London Capital Group

London Capital Group Ltd or LCG was founded in 1996 in the United Kingdom and regulated by the Financial Conduct Authority (FCA) of the UK.

FxStay

FxStay is operated by professional money managers team, Their team of international hedge fund managers and traders have been trading in the online foreign exchange (fx) market since 2008. Their team are available to help you learn fx trading on your own or rely on the assistance of experienced investors with a VIP managed Forex account for use in Fx market, stocks, bonds, oil, metals, CFDs, real estate, binary options and startup investments.

Best Forex Broker In Australia

Pepperstone broker is founded in Australia, Melbourne and has offices in USA, Dallas and China, Shanghai. Pepperstone is one of top Australian online retail foreign exchange broker specializing in FX trading.

Top Forex Bank In Denmark

Saxo Bank is a Danish investment bank. It was founded as a brokerage firm in 1992. Saxo bank offers trading through its online platform SaxoTrader in Forex, stocks, CFDs, futures, funds, bonds and futures spreads. Private wealth management services are also offered.

Best Forex Banks in Swiss

Dukascopy Bank

Dukascopy Bank SA is known for its transparency in its Swiss SWFX market place. In June 2011, the product is officially referenced on Dukascopy Bank‘s official web site.

Swissquote Bank

Swissquote Group Holding SA is a Swiss banking group specializing in the provision of online financial and trading services.

U.S. Top Forex Brokers

Forex.com

The Forex.com broker Owned by parent company GAIN Capital . Operating since 1999, FOREX.com was a first mover in bringing currency markets to the retail trader. The company provides market access and trade execution services in foreign exchange, contracts for differences and exchange-based products to retail investors.

FXCM

Forex Capital Markets, better known as FXCM, is an online Foreign exchange market broker based in the United States.

Oanda

Oanda broker is a Canadian-based Forex company providing currency conversion, online retail foreign exchange trading (fx), online foreign currency transfers, and Forex information.

Make Money Even You Don’t Know Trading Foreign Exchange Currencies

Many investors prefer to do their own trading online, but many also prefer to open managed accounts.  With a managed account, professional and experienced hedge fund managers will do the trading for you and split the profits at the end of each month or at the end of the financial year.  You don’t have to know anything about Fx with a managed account run by trading experts.

Other Fx Brokers

The brokers list below is without Any Rating and its just for your information to know more about other brokers, If you want to open demo or live online trading account then use brokers at top of this page, this list will update.

24option HotForexInstaForexGCI TradingFxopenTrade360Interactive BrokersTradeoIQ optionZ.comTradeKingOptionsHouseCapital One InvestingTD AmeritradeeTrade Charles SchwabFidelity – Merrill EdgeExness

What Is Currency Trading Definition By ForexSQ Infographic Team

The professional traders at ForexSQ have created amazing Foreign Exchange Infographic for beginners don’t know what is currency trading and learn better the Fx Trading definition, I hope you like it and share it with your peers.

Referral

The ForexSQ team has also compiled articles about how to make money online by CFD trading Binary options trading, Commodities trading, Indices trading, Equity trading and Stock trading. As explain above you can make money online even if you dont want to trade yourself using a managed account, Hedge fund manger service or a pamm account.

Now that you are fully informed about Forex trading, please feel free to direct your family, friends and peers to www.ForexSQ.com for up-to-date information about Forex trading and also share this information on social media and blogging websites as like as the team on www.Forextrading.biz website did. Visit www.ForexSQ.com for daily online trading Forex news please.

In this article


Join the Conversation