Forex trading responds among the best out of any market to technical analysis. Between this fact, and due to the lower volatility compared to the likes of crypto or stocks, forex is often recommended for beginners looking to try out trading for the first time.
For those looking to get their feet wet with markets or dive into the waters head first, we’ve got an in-depth guide for you. The below forex trading guide for beginners will provide all the knowledge necessary to get started on your way to trading successfully in no time at all.
What Is Forex Trading And Why Does It Matter?
To start, what is forex trading exactly and what does it mean? Forex stands for foreign exchange and is a market focused on the currencies of the world and their exchange rates. Traders seek to profit from whatever difference in spread between the two exchange rates by buying or selling currencies in lots or other amounts. Traders can also trade forex derivatives such as CFDs which allow for leverage to be added to positions.
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The forex market has more trading volume and liquidity out of any other financial market by a large margin, simply due to its sheer size. Foreign currencies represent entire nations and regions, even large portions of entire contents. While stocks represent a share of a company and even major indices are simply an aggregate of such companies.
There is simply no comparison to currencies as a whole, which include the United States dollar (USD), the euro (EUR), the Japanese yen (JPY), British pound sterling (GBP), and the Swiss franc (CHF). These currencies make up the major forex currency trading pairs. The Aussie and Canadian dollars (AUD and CAD) are also considered in the upper echelon of currencies.
What Factors Influence Forex Currency Exchange Rates?
Each currency represents an economic superpower and one of the largest economies in the world. It is the weight that these currencies bear and their overall significance that causes market prices to fluctuate, trends to change, and exchange rates to vary.
Political factors such as elections, civil or social unrest, or a war can also have a dramatic impact on exchange rates as these situations are usually centered on one or two countries at a time.
Other external factors such as environmental or like we’ve seen with the pandemic can also be enormously disruptive to exchange rates of top currencies. That is why in addition to the technical analysis we’ll introduce shortly, paying close attention to the news cycle is crucial to success in forex markets.
How To Trade Forex? Technicals, Tools, And Signals Explained
As we mentioned early on, the forex market has the most substantial trading volume and liquidity out of any other market, which helps it to respond especially well to technical analysis signals and chart patterns. Other markets can behave erratically due to less liquidity, while forex is often what you see is what you get.
Due to this, forex is often recommended for beginners. There is less volatility to trade with, and markets move within a less than 1% range most days. A 1% price movement in the forex market is a large one, which is why it is often seen as unattractive or less thrilling than something like crypto which provides 1,000% moves. The positive thing here, is that unlike crypto, there’s never any worry about losing all your money in a shocking 80% crash.
There is also a solution to the low volatility and smaller price movements, and the answer is leverage. Leverage lets traders borrow money against their capital to take much larger positions than what their capital would otherwise allow for. Leverage is like a multiplier added to price movements that can produce significant results. When a leveraged trade is in the correct position, profits are much larger. However, risk is also increased in the opposite direction, so only traders with an understanding of risk management should consider this strategy.
Leverage in forex reaches as much as 1000x on some brokers, so be sure to check with your broker to see what is provided. Leverage is also available in other markets, but is less common than within forex currencies.
Very basic setups technically include looking for overbought or oversold conditions on the RSI before going long or short, or going long or short with a bearish or bullish crossover on the MACD. Simply shorting resistance and longing support can also work until more advanced trading strategies can be layered in.
There are dozens of technical analysis indicators available at PrimeXBT as part of a set of built-in charting tools from TradingView. These tools can be used to draw chart patterns, find support, and resistance, and build a plan to trade forex.
Summary: Why Trade Forex CFDs With PrimeXBT
PrimeXBT also has the largest list of forex CFDs around, with more than 50 total instruments ranging across forex, crypto, commodities, stock indices, metals, and more. The forex list includes all major currency pairs, a respectable list of minors, and a fair share of exotic pairs.
Beyond forex, there’s also Bitcoin, Ethereum, and other altcoins, the S&P 500, FTSE, silver, gold, oil, and natural gas. And that is just barely scratching the surface of what’s offered by the platform.
In addition to forex trading and technical tools, there is also a copy trading community called Covesting that lets newcomers learn the ropes while getting exposure to markets through a strategy manager who proves themselves successful with transparent metrics. Followers can copy the trades of these strategy managers who are ranked by total profits in a global leaderboard system, making money when they do.
With total profits reaching 20,000% as of recently, there is plenty of incentive to consider copy trading as an alternative to forex trading. However, with the tools provided within the guide here, you now are armed with everything you need to give forex trading a try. Which broker you ultimately choose and which currencies you trade is your decision, so continue to do more research from here.
