If you are a newbie who is looking to learn and invest in forex, the article is a topic worth your attention and learning, accumulating the necessary knowledge to start a trading career.
The forex market is a vibrant financial market, with a total trading volume of more than $5 trillion per day. If you are looking to learn about forex investment channels, do not miss this article. Because CashBerry will guide you how to invest in forex for beginners in the simplest and easiest way.
Forex investing (also known as forex trading) is when you buy or sell currency pairs in the hope of making a profit. A forex ticker always consists of two currencies (Example: USD/JPY, EUR/AUD, …). In which, the first currency will be the base currency, the second currency will be the quote currency.
For example, the USD/JPY pair is currently trading at: 129.20, that is, 1 US dollar = 129.20 Japanese yen.
In the forex trading table, you will always see two parallel prices, the Bid price and the Ask price.
● Bid price is the price we sell that currency pair to the market, the Bid price is always lower than the Ask price.
● Conversely, the Ask price is the price we buy into that currency pair, the Ask price is always higher than the Bid price.
For example, the pair EUR/JPY = 129.180 / 129.200, so, the Bid price of EUR/JPY is 129,180, the Ask price is 129,200.
One of the biggest differences between forex and stock investing is market size. The forex market's trading volume is estimated to trade at over $5 trillion per day, with most trading concentrated in a few major currency pairs such as EURUSD, USDJPY, GBPUSD and AUDUSD.
Meanwhile, the trading volume of the entire stock market in the world combined is about 200 billion USD per day, equivalent to 1/25 times the forex market. Given the overwhelming size of the forex market compared to the stock market, the liquidity in the forex market is superior.
Forex investing is usually for short-term investors and speculators because of its high liquidity and constant fluctuations in the value of currency pairs. In contrast, stock investment is more suitable for long-term investors.
1. Learn the basics of forex investing
● Understand basic forex terminology.
● Read the basic forex trading guide.
● Decide what currency you want to buy and sell.
● Learn how to calculate profits.
2. Open an online forex investment account
● Research different brokers to choose the most suitable forex broker.
● Fill in your personal information according to the instructions to open an account.
● Upload account verification documents as required.
● Activate your account.
3. Start investing in forex
● Market analysis.
● Determine your margin ratio.
● Enter the order.
● Track profit or loss.
● End transaction.
Forex trading is not like most other financial markets, the OTC forex market. Forex trading has no location or exchange center, trading 24 hours a day through a global network of businesses, banks and individuals. This means that currency prices are constantly fluctuating in value against each other, providing a wide range of trading opportunities.
The simplest way to play forex is that you can speculate on the future direction of the currency, entering BUY or SELL orders depending on whether you think the currency value will increase or decrease.
Here are the basic instructions on forex, how to play specifically for those who are new to this market.
● Step 1. Choose a currency pair
After choosing a suitable broker and opening an account successfully. To officially start playing forex, you need to decide which currency pairs you want to trade in your forex trading.
Usually, a reputable exchange will offer about 60 currency pairs for you to choose from, choosing a currency pair that suits your trading style is very important.
You can use your broker's available technical and fundamental analysis tools that can help you spot currency trading opportunities that suit your forex playing style. Choosing a currency pair that you understand well will help manage your risk.
● Step 2. Decide BUY or SELL
After you have selected the currency pair you want to trade and found the right entry opportunity, you need to place an order in the trading platform. Forex pairs have two currencies, the first currency is the base currency, always with a unit of 1, and the second currency is the quote currency. Simply put, when you trade foreign currencies, you will:
BUY a currency pair if you believe the base currency (front) will appreciate against the quote currency, or the quote currency (behind) will weaken against the base currency.
- Your profit will increase with each price increase, you will have a sure profit when you close the order at a time when the price is higher than the entry level or increase the stop loss to higher than the entry price.
- If the price falls from your entry price, you will lose money until you close the order or wait for the price to rise again.
SELL a currency pair if you believe the base currency will weaken in value against the quote currency, or the quote currency will appreciate against the base currency.
- Your profit will increase every time the price falls below the entry level.
- Every increase in price above your opening level, will make you lose.
SPREAD: Each currency pair has two prices: The first price is the ask price (called the bid price) and the second price is the buy price (also known as the ask price). The difference between the bid and ask prices is called the spread, and is essentially the transaction cost.
● Step 3. Add automatic orders (take profit, stop loss)
An auto order is an instruction to automatically trade at a future time when the price reaches a specific level predefined by you. You can use stop-loss and take-profit orders to help ensure that you lock in an expected profit and minimize the risk of a trade going against your wishes.
Although not required, due to volatility in the forex market, it is essential to use and understand risk management tools such as stop-loss orders.
- A stop loss order is an instruction to close a trade at a price lower than the entry price, preset and used to help minimize losses.
- A take profit order is an instruction to close a trade at a price higher than the entry price, which is preset and used to close the order when the desired price targets have been reached.
● Step 4. Track and close your trade
After opening an order, your trade will profit or lose according to each move of the market price.
You can monitor market prices, view real-time unaccounted profit/loss updates (Equity), change take profit, stop loss orders and add new trades or close existing trades from your computer or your apps on smartphones and tablets.
● Step 5. Finish your transaction
If you don't want your trade to end up with automatic take profit, stop loss orders, you can close your trade immediately. After closing the trade, your profit and loss will be added to the cash balance in your account (Balance).
How to invest in forex effectively and profitably? Here are the experiences from successful forex investors, you can refer and apply.
- Don't hesitate
This is an important part of being a forex trader. You must seize every opportunity to achieve your trading goals. This is why you must develop the habit of avoiding procrastination.
- Let's practice
With a demo account, you can practice what you think. This is quite useful when you want to get a feel for the trading platform and get familiar with its features.
- Let find out
There are no shortcuts to learn how to play forex effectively. You need a lot of time, effort and passion. Therefore, keep learning and updating your knowledge regularly to be able to invest in forex seriously and effectively.
- Let's analyze
To earn maximum profits, you must acknowledge and be aware of the risks involved in forex trading. Ensure that any capital invested and risk exposure when trading forex is at an appropriate level. In short, you must be able to analyze your goals, and trade accordingly. This is the most important thing to keep in mind about learning how to play forex basics and also later.
- Invest what you are willing to lose
One of the best pieces of advice for any new trader is to start small and only grow your account volume with your profits – and not through subsequent deposits.
You don't have to invest a large amount of money to make a profit – you can maximize your investment. By starting small, you minimize the chance of big losses.
- Start with a single currency pair
The world of currency trading is complex due to the unpredictable nature of the markets. It is difficult to be a perfect trader in the financial world. Therefore, you should start by focusing on a single currency pair – preferably one that you are familiar with and can easily update yourself with.
- Control your emotions
If you find yourself worrying about the market and affecting your trading, don't follow your emotions. Feelings of panic, greed or excitement will lead you to make the wrong decisions, leading to losses. Instead, maintain a rational and realistic approach to your trading.
All traders should have a predefined trading strategy to follow, so make sure you stick to it. Don't suddenly change your mind midway through an emotional trade – you're more likely to make irresponsible decisions that could cost you dearly.
While this tip is not a direct answer to how to play forex effectively, it can certainly help you avoid costly mistakes.
- Record your transaction history
We learn from our mistakes and this can be profound in forex trading. Record all of your trading decision-making history, including any mistakes or correct decisions you made to achieve your desired profits. This is an important step in learning how to play forex effectively.
Above is some basic information about forex investment for beginners . The forex market can be highly profitable, but also carries many risks. Therefore, to make a profit from this market, investors need to accumulate experience, knowledge and skills as well as build a complete investment strategy.