The Basics of Forex Trading

 

The Foreign Exchange (Forex or FX) is the global marketplace where governments, banks, corporations, and traders exchange currencies.

 

What is the Foreign Exchange or Forex market?

 

The currency market is the world’s largest and most liquid financial market, with an average daily turnover exceeding 7 trillion US dollars.

 

These are some facts regarding the Forex Market:

• The Forex market operates 24 hours a day, five days a week.

• Major currency trading centers include London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, and Singapore.

• Currency trading is conducted via the ECN (Electronic Communication Network).

• The most traded currency is the US Dollar, and the most traded currency pair is EUR/USD.

 

 

Different Instruments for Trading Forex Currencies

 

There are over 100 currencies in circulation worldwide. However, the majority of transactions involve four major currencies: the US Dollar, the Euro, the Japanese Yen, and the British Pound Sterling. Other significant currencies include the Swiss Franc, the Australian Dollar, the Canadian Dollar, and the New Zealand Dollar.

Forex currencies can be traded using various financial instruments:

• Spot Transactions

• CFDs (Contracts for Difference)

• Futures Contracts

• Currency Forwards

• Currency Swaps

• Currency Options (including American, European, and Binary options)

Spot trading (1) and CFDs (2) are the most commonly used instruments among retail Forex traders. Access to currency derivatives (3, 4, 5, and 6) is generally limited to institutional traders.

 

 

 

Trading Styles

 

These are the primary styles of trading in the Forex market:

• Intraday Trading – Very difficult and highly risky.

• News Trading – Demanding, and requires access to cutting-edge technology.

• Swing Trading – An efficient approach for retail traders to engage with the market.

• Carry-trade – Can be highly profitable but requires precise timing.

• Position and Long-Term Trading – Requires a thorough understanding of the macroeconomic environment.

• Automated Trading – Highly demanding, involving the use of advanced technology.

 

 

Basic Forex Trading Terms

 

These are the fundamental terms you need to know when trading Forex:

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CURRENCY PAIR

A currency pair consists of two currencies and represents the value of one currency relative to the other.

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BASE CURRENCY

The base currency is the first currency listed in a currency pair. For example, in the EUR/USD pair, the Euro (EUR) is the base currency.

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QUOTE CURRENCY

The quote currency is the second currency listed in a currency pair. For example, in the EUR/USD pair, the US Dollar (USD) is the quote currency.

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ECN FOREX

ECN stands for Electronic Communication Network. It refers to a system that connects retail traders with liquidity providers via an ECN Forex broker.

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PIP

A pip is the smallest price movement in an exchange rate. Most Forex pairs are quoted to four decimal places (0.0000), making one pip equal to 0.0001. For pairs involving the Japanese Yen (JPY), the smallest price change is at the second decimal place (0.01).

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FOREX MAJORS

Forex majors are the most heavily traded currency pairs that include the US Dollar. Examples include EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD.

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CROSS-CURRENCY PAIRS

Cross-currency pairs, or Forex crosses, are currency pairs that do not include the US Dollar. Examples include EUR/GBP, EUR/JPY, GBP/JPY, and EUR/CHF.

 

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Key Forex Trading Recommendations

 

Forex trading is highly demanding and not suitable for everyone. Here are some essential recommendations:

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(1) Start with a Demo Account

If you're a beginner, start with a demo account and practice for at least 2–3 months to test your skills under various market conditions. Then, transition to a micro-lot or mini-lot account—avoid starting with a standard-lot account.

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(2) Trade in Small Sizes

Trading in small sizes is crucial, especially for less experienced traders. Smaller trades are easier to manage and allow you to let profits run without unnecessary stress. They also reduce overall portfolio risk and provide room to absorb losses.

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(3) Let Your Profits Run

Typically, 80% of annual profits come from just 20% of all trades. To achieve long-term profitability, let your winning positions grow. Consider using mental stops or trailing stops to lock in gains.

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(4) Be Cautious with Leverage

While trading leverage may seem appealing, it significantly increases both risk and cost. Leverage should be used only by experienced intraday traders who fully understand its implications.

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(5) Choose Your Forex Broker Carefully

Select a regulated ECN/STP broker based in a reputable jurisdiction. Focus on minimizing trading costs rather than chasing bonuses.

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Fx Currency Symbols

 

A currency symbol is a graphical representation of a specific form of money, typically unique to a particular country. Below is a list of the most popular Forex currencies and their corresponding symbols.

Table: Forex Currencies and their Symbols

FOREX CURRENCY	ISO	CURRENCY SYMBOL
Argentine Peso	ARS	$
Australian Dollar	AUD	$
Bahraini Dinar	BHD	n/a
Barbadian Dollar	BBD	$
Brazilian Real	BRL	R$
British Pound	GBP	£
Canadian Dollar	CAD	$
Central African CFA franc	XAF	n/a
Chilean Peso	CLP	$
Chinese Yuan	CNY	元
Czech Koruna	CZK	Kč
Danish Krone	DKK	kr
East Caribbean Dollar	XCD	$
Egyptian Pound	EGP	£
Estonian Kroon	EEK	kr
Euro	EUR	€
Hong Kong Dollar	HKD	元
Hungarian Forint	HUF	Ft
Icelandic Krona	ISK	kr
Indian Rupee	INR	₹
Indonesian Rupiah	IDR	Rp
Israeli Sheqel	ILS	₪
Jamaican Dollar	JMD	J$
Japanese Yen	JPY	¥
Jordanian Dinar	JOD	n/a
Kenyan Shilling	KES	n/a
Latvian Lats	LVL	Ls
Lebanese Pound	LBP	£
Lithuanian Litas	LTL	Lt
Malaysian Ringgit	MYR	RM
Mexican Peso	MXN	$
Moroccan Dirham	MAD	n/a
Namibian Dollar	NAD	$
Nepalese Rupee	NPR	₨
New Zealand Dollar	NZD	$
Norwegian Krone	NOK	kr
Omani Rial	OMR	﷼
Pakistani Rupee	PKR	₨
Panamanian Balboa	PAB	B/.
Philippine Peso	PHP	Ph
Polish Zloty	PLN	zł
Qatari Riyal	QAR	﷼
Romanian Leu	RON	le
Russian Rouble	RUB	ру,;
Saudi Riyal	SAR	﷼
Singapore Dollar	SGD	$
South African Rand	ZAR	R
South Korean Won	KRW	₩
Sri Lankan Rupee	LKR	₨
Swedish Krona	SEK	kr
Swiss Franc	CHF	CHF
Thai Baht	THB	฿
Turkish Lira	TRY	YTL
United Arab Emirates Dirham	AED	n/a
US Dollar	USD	$
Venezuelan bolivar	VEF	Bs
West African Franc	XOF	n/a

 

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