Forex trading is an extremely popular way of making money online, but it’s not easy to get involved as a beginner. There are a lot of terms to get your head around, but I’ll try and break them down into easy-to-understand chunks.
The Forex market is the most traded financial market in the world with a daily turnover of more than 6 trillion dollars. The forex market is a financial market where a trader can buy or sell currencies.
Now see the big picture, there are over 195 countries in the world and every country has its own, different currency.
So, there is a requirement for currency exchange, whether it is foreign trade, tourism, or anything that requires an exchange of currency. That is why the currency market is the biggest market in the world.
That’s not all! Read this Forex Trading Guide to understand this world’s largest financial market.
What Is Forex Trading?
Foreign Exchange or Forex trading can be defined as a network of buyers and sellers who exchange foreign currency at a pre-determined price.
It is the process by which people, businesses, and central banks change one currency into another. While some foreign exchange is done for practical reasons, the great majority of currency conversions are done in order to make a profit.
Because of the large volume of foreign currencies that are exchanged every day, their price changes can be quite erratic.
This volatility is what makes currency trading so appealing to traders: it increases the possibility of large earnings while simultaneously raising the risks.
This works similarly to other markets: if you believe the value of a currency will increase, you buy it (Going long).
On the other hand, if you believe the value of a currency will decrease (depreciate), you sell it (Going short).
Forex Trading in India: An Overview
The very first question every Indian trader asks is – Is Forex Trading Legal in India? If you’re also unsure about it, this forex guide has the answer to all your questions.
Currency trading is legal in India, as it is in many other nations throughout the world, but is subject to specific restrictions and standards.
In India, it is only authorized and deemed legal when done through specific Forex brokers using the Indian rupee as the base currency.
On the other hand, Currency futures can be traded in India on renowned exchanges such as the National Stock Exchange (NSE), BSE, and MCX. To start online forex trading in India, the trader must first create an account with the broker.
Must-Know Terms of Forex:
The world of forex is full of surprises for newcomers, but it can soon turn into bad surprises when they are not aware of the terminologies of forex trading.
Here are some common and must-to-know terms of forex that beginner traders should know:
Currency Pairs:
Currency pairs are the most important part of the forex market. A pair consists of two currencies.
The first currency in a currency pair is known as the base currency, and the second one is the quote currency.
Ask and Bid Price
When you explore a forex trading platform, the second thing you will encounter after a currency pair is the Ask and Bid price.
The bid price is the price at which a buyer is likely to buy a currency. And an Ask price is a price on which a seller is eventual to sell.
Pips:
A pip is a ubiquitous term in the forex world, that indicates the change in the value of two currencies.
For example, a currency pair EUR/GBP is priced at 1.2164, and then it moves to 1.2165. So, the difference between these two prices, which is .0001 is denoted by one pip.
Spread:
A spread is a difference between the buying and selling prices of currencies. For instance, if the bid price of USD/EUR is 1.15462, and the Ask price is 1.15463, then, in this case, the spread would be 0.0001 or one pip.
Margin:
Margin is referred to as the number of funds in a trading account which allows a trader to open trades of a particular given size.
In other words, the margin is a genuine deposit in a trading account that works as collateral for trading.
Leverage:
Leverage is an amount that is provided by the broker to support a trader’s trading volume. For instance, a 1:100 leverage means that if a trader starts initially with $50 then with 1:100 leverage, the trader can trade worth $5,000.
How to Start Forex Trading in India?
Currency trading has emerged as a great source of making money. Every year, thousands of new forex traders enter this financial market.
Most don’t understand the market’s complexities and exit after losing, while others take risks in hope of making something big.
But without proper knowledge and understanding, no one can survive in the Forex market. So, here’s a complete guide on how you can start your journey in Forex trading in India:
Learn about the Forex Market:
Forex trading can be so challenging if you don’t understand the basics of the market. Before getting started, learn about the forex market and the risks associated with it.
In addition, understand all the terms, basics, strategies, and probabilities as they all can increase your success chances.
You can also take the help of all the video tutorials, articles, and webinars available on the internet. It can help you in making good trading strategies.
Understand Your Trading Style:
To become a successful currency trader, it is important to understand what sort of trader you’re and your trading style.
There are different types of traders in the Foreign exchange market: some focus on small profits, while other aims for huge gains.
For instance, a day trader holds a position for a few hours, while a position trader holds positions for several weeks, months, or even years.
Understand All Risks Involved:
There are several risks associated with currency trading, which makes it one of the most volatile financial markets.
The biggest risk associated with the forex market is an unfavorable change in the currency rate. If not chosen and watched quickly and consistently, this might result in large losses for speculators.
On the other hand, credit risk exists in the event that an outstanding currency position is not paid.
Find a Reliable Broker:
Choosing a good forex broker plays a crucial role in your success. Take your time and research for the best forex broker and never settle for one that offers you guaranteed profits.
When choosing a broker, always consider these few factors: Regulatory compliance, Lower transaction cost, withdrawal process, and customer service.
In case you’re searching for one of the best forex brokers in India, InvestBy can be a great place to start. The features and best-in-class services of this broker have put it on our top recommendation list.
Research Currency Pairs:
It’s critical to understand the different currency pairs before you begin trading. Understanding which pair offers the highest ROI and which ones to avoid is crucial to your success.
For example, the EUR/USD pair is one of the most stable, and it’s great to start with. As you gain experience with other currency pairs, you may move on to more volatile pairs.
It’s always a good idea to have an economic calendar in handy, so you can remain on top of the newest news and announcements, and price fluctuations.
Start with Demo Account:
Many online forex brokers allow you to practice with a demo account. It eliminates the risks while providing you with real market conditions and help you in understanding the platform.
To prevent losing too much money, you must first practice discipline, and it’s easy to become overconfident if things appear to be going well. You will learn how to use risk management as a result of this experience.
Don’t rush to a live account after a few successful trades. Instead, utilize the opportunity to learn new strategies and experiment with other strategies.
You may also get to understand multiple currency pairs to get comfortable with different tools and trade types.
Pros and Cons:
Pros:
- Unlike other financial markets, forex markets remain open at all hours on all business days without any restrictions. So when a trading day closes in New York, then a new trading day starts in Tokyo.
- Currency trading offers high levels of liquidity as compared to other assets. And it makes it easier to enter or exit the market.
- Unlike the share market, there is no need to go through an intermediary.
- There are no clearing fees, government fees, exchange fees, or commissions in forex trading. That is why it is considered a low-cost market that allows people to earn good profits.
- Forex brokers offer a good leverage ratio to the traders in most the cases. So, with a capital of $50 and an average leverage ratio of 1:10, a forex trader can open a position of around $500.
Cons:
- Like other markets, currency markets also involve risk, and a high level of leverage can add an extra burden to that.
- The price movement is a bit difficult to speculate for beginners. Also, there is a critical need for technical indicators knowledge for price determination.
- In the forex market, high levels of volatility work as a forerunner for the disaster it will lead to uncontrolled price fluctuations.
How to Trade Forex with a Brokerage Platform? A Step-by-Step Guide
The process of trading forex is quite easy and straightforward. You can start trading forex in simple five steps.
Open a Forex Trading Account:
The first requirement of forex trading is a trading account. Most of the brokers offer a free demo account with virtual money, some offer a good library of educational material, and some offer an impressive leverage ratio. So, it is up to you which broker you choose according to your requirements.
But we will advise you to choose a reliable and regulated broker only. And one such good broker on our recommendation list is InvestBy. The broker is emerging as one of the most popular and trusted forex brokers in India.
Fund your Account:
Now, that you have opened the account; the next step is to fund your account. If you are just starting as a beginner, we advise you to fund your account according to your risk-taking capability.
So that in case if you lose, then you can handle the loss otherwise it will be a blunder.
Choose a Currency Pair:
You can choose a currency pair according to the funds in your account. Most forex traders start to trade with common currency pairs, but you can trade with any pair you like.
Analyse the Market:
Analysis and research are the foundation of every type of trading. Without any analysis and research, you will trade according to your emotions, and that will not end up well.
So, keep control over your emotions and do firm research before the start of trading.
Pick your Position:
Now choose a position for your trades. You can choose between buying and selling, or you can choose between long and short positions.
It totally depends on how you speculate. Unlike stocks and other assets, in forex, you can contemplate and trade on both UP and DOWN.
The Bottom Line:
When done in the right way, foreign exchange trading gives significant and promising returns. But do not forget that it is a double-edged sword. So, one can lose a tremendous amount of money in case of a single small mistake.
And one can make a massive profit by taking the right step at the right time. Before starting forex trading, one must be technically smart, mentally strong, and must have a hawk’s eye for understanding the possible price fluctuations.
That’s it! hope this Forex guide helps you in your forex trading journey.
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