Foreign exchange (forex) is arguably the most liquid market in the world with a daily turnover of $5 trillion. All the transactions take place in a marketplace where traders exchange and speculate on currencies. Here is a quick guide on how to start forex trading business for beginners.
- Educate yourself
There’s a wealth of information out there for those who want to venture in forex trading. You should understand everything about the financial market – there’s no free lunch. Take time to learn how forex works, active trading times, risk management, and more. Perhaps, you should start with the main concepts like pips, base currencies, and cross currencies. Another area you should pay close attention to is fundamental and technical analysis. Fundamental analysis involves analyzing high-impact news like ECB, FOMC, interest rates, among others. On the other hand, technical analysis is about predicting the market trend and learning how to use the indicators. If you understand the previous market patterns, you can predict future price trajectories.
- Choosing the best forex broker
Since there’s no central market place in forex trading, traders should select a forex broker to help them execute the trades. Unfortunately, sifting through the major brokers can be an overwhelming task. Here are five considerations when choosing the best forex brokers for beginners.
- Regulatory compliance
Since there’s no centralized body that regulates the forex market, a broker should be tightly regulated. This ensures he acts in the best interest and adheres to the standard business norms. If you’re a novice trader, you should check whether the broker has conformed to all the regulatory requirements. In the US, the major regulatory bodies include SEC, NFA, and CFTC. Depending on the region, you’ll find other regulatory bodies like FCA, CySec, FMA, FSA, among others. A reputable broker should list the name of the regulator somewhere on the website. Keep in mind that brokers must keep clients’ funds in separate accounts. You don’t want to hand over your money to someone who’s not legit.
- Account details
The broker should provide different types of accounts to suit your needs. Most of them offer micro-account, mini, and standard accounts which come with a varying initial investment. Some accept as little as $50. Generally, brokers charge a small fee (spread) which is the difference between the bid and ask price. Avoid brokers who claim that they don’t charge commissions because they tend to widen their spreads during high impact news. Another area you should look at is the ease of deposits and withdrawals. Many accept different payment systems like credit cards, Skrill, Neteller, bank wire, etc. A small fee may be charged during deposits and withdrawals.
Finally, you should look at leverage and margin. High leverage allows a trader to open large positions on borrowed funds. And depending on your account size, you can choose a leverage of 50:1, 200:1, or 400:1. Some brokers offer unlimited leverage to lure traders to open large positions. Use leverage with caution as it can work for or against you.
- Currency pairs offered
Currencies are divided into majors and cross currencies. The majors include EUR/USD, GBP/USD, USD/CHF, AUD/CAD, NZD/USD, USD/CAD, and USD/JPY. These currency pairs have low spreads and are more volatile. The cross currencies include EUR/GBP, EUR/CHF, GBP/NZD, AUD/GBP, among others. When choosing the best broker, you should look at the wide selection of pairs offered.http://www.meta4forexbroker.com/what-is-forex-trading-7.html
- Customer service
A forex broker should offer customer service 24/5 or 24/7. There are many ways of getting in touch with the customer service desk. The broker should provide different channels of communication like emails, live chat, or phone number. Start by making a simple call to evaluate how long they take to respond. More specifically, pay attention to how the representatives answer questions regarding the trading accounts, spreads, leverage, and general company information.
- Understanding forex trading sessions
Now that you’re a bit close to starting your trading career, you should know the best time to trade. While the market is open 24 hours a day, investors can trade during the day or at night. The forex market has three main trading sessions, so you can choose the one that suits you best. Let’s jump right in!
- Asian Session
Once the trading opens on Sunday, the Asian market is the first to observe the action. It runs from 23:00 to 8:00 GMT and affects countries like Japan, Singapore, Sydney, and Hong Kong. During this period, about 20% of all forex transactions are carried out. Liquidity is thin if there was a huge move in the NY session. Note: the economic news from Japan, Australia, and New Zealand can affect pairs with AUD, JPY, and NZD.
- London session
It’s considered the capital of forex and runs from 8:00 to 16:00 GMT. During this period, more than 30% of all forex transactions are carried out. When you trade the London session, you can take advantage of low spreads and high liquidity. Towards the end of the session, the market tends to reverse as traders take their profits.
- New York session
After the London session traders come from lunch, the NY session starts (13:00 to 21:00 GMT). It’s estimated that 20% of all forex transactions take place during this period. There’s high liquidity on all currency pairs with US dollar. It’s worth mentioning that this session overlaps with the London session.
So, which is the best time to trade?
The beauty of forex is that you can trade according to your knowledge, personality, and risk tolerance. If you want to get the most out of the market, you should trade when one session overlaps the other. But if you have a low-risk appetite, you should trade during the Asian session. Remember, the right time doesn’t mean that you’ll be profitable. First, you must be in the right frame of mind. If you get emotional, you can easily blow your hard-earned money on a single trade. Secondly, make sure the time you choose aligns with your trading strategy.
- Opening a trading account
Before you open a trading account, be sure to evaluate your level of experience. As a beginner, you should harness your skills without risking real funds. Most forex brokers provide a demo account where you can practice with virtual money. And once you’re ready to start, visit the broker’s website and evaluate the types of accounts available. Follow the instructions and submit the documents as per the regulatory requirements. When the account is ready, you can fund it with real money. https://fxdailyreport.com/best-forex-brokers-offer-demo-account/
Forex trading is not a get rich scheme. If you’re a novice trader, you should practice good risk management to increase your odds of success. Also, stick to your trading strategy and choose your broker wisely. Be sure to follow the above guide before you venture into the trading business.