Trading in foreign currency is very easy and convenient in today’s time. Its popularity can be seen from the fact that forex trading has become a source of regular income for many people. However, forex trading for beginners can be tricky as they do not have sufficient experience of how does forex trading work. To assist the beginners, this article will highlight the basics of the forex trading, forex trading strategies, forex trading tips and much more.
Firstly, let us understand the meaning of forex.
Meaning of Forex
Forex, also termed as foreign exchange is a market place where currencies of various countries are traded. Currency trading takes place in pairs and the currency pair movement determines the value of one currency against another. For example, INR/USD currency pair measures the value of the Indian Rupee against the US Dollar. The first currency of the currency pair is termed as the “base currency” and the second currency is termed as the “quote currency”.
After understanding the meaning of Forex, let us now learn about how does forex trading work.
How Does Forex Trading Work
When you start trading in foreign currency, you will notice that “Bid” and “Ask” prices are quoted. The price at which you can buy the currency is called the bid price and the price at which you can sell it is called the ask price. In foreign currency trading, you can take two types of trade; long trade and short trade.
• Long Trade
When you purchase currency in the trade, you expect the currency pair to increase in its value so that you can make the profit by selling it at a higher price. This is known as a long trade.
• Short Trade
When you sell currency in the trade, you expect the currency pair to decline in its value so that you can make the profit by selling it at a lower price. This is known as a short trade.
Let us now understand how to start forex trading.
How to Start Forex Trading
To start forex trading, you must open an account with a registered broker like IndiaNivesh Ltd. Only with the help of a trading account, you can take the long and short trades. In order to open a trading account, you will need basic documents like account opening form, address proof, identity proof, income proof, passport size photograph, cancelled cheque or bank statement, PAN card, etc.
Since you now know about how to start trading in forex, it is important that you know about the right strategies also. Let us learn about forex trading strategies.
Forex Trading Strategies
Forex trading for beginners can be fruitful if they follow certain trading strategies. The trading strategies can help the beginner to make good returns. Some of the trading strategies are as follows:
• Day Trading Strategy
As the name suggests, the day trading strategy is meant for the same day trading. In this strategy, you will have to exit the trade before the end of the day (trading session). The main advantage of this trading strategy is that you are protected against adverse events that may happen overnight when the forex market is closed.
• Swing Trading
Swing trading involves making short term profits on the trade by holding the position for a few days. Monitoring the price movement on the bars after every half an hour or hour is helpful in this strategy.
Scalping is a trading strategy that uses tick charts. This trading strategy involves quick trades that last for just a few minutes. One can make profits in this strategy by playing for a few points by quickly beating the bid/offer spread.
• Positional Trading
Positional trading strategy involves maximising profits from a major shift in the price. This trading strategy requires a good amount of patience, discipline and knowledge about the market fundamentals.
After learning about forex trading strategies, let us learn some quick tips that can prove to be very helpful in forex trading for beginners.
Forex Trading Tips
• Before taking a trade, always understand the trend of the market.
• Avoid taking a trade against the market trend.
• Preserving capital is most important in forex trading. So stay focused and trade only when the opportunity for you arises in the market.
• Try to avoid trading in a foreign currency using borrowed money.
• Do not take a trade without putting a stop loss in place.
• Emotions have no place in forex trading.
• Always choose a methodology while trading and stay consistent with that.
• Always know your entry and exit points when you go long or short.
• Avoid being greedy in forex trading. Timely booking profits will help your capital to grow at a rapid pace.
The above mentioned forex trading tips shall help the beginners to become successful in the market. To encourage forex trading for beginners, we list down certain advantages of forex trading.
Advantages of Forex Trading
• It is a highly liquid market.
• It allows a wide range of currency pairs to be traded.
• Forex is a good hedging tool.
• Large profits can be made from the volatility in the forex market.
• It provides easy to enter and exit positions.
If you are a beginner in the forex market, IndiaNivesh Ltd. holds the expertise to guide you on the various topics regarding forex trading for beginners. You may get in touch with us to know how to start forex trading and much more.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.