Currency is the most popular asset for trading in the world. On any given day, more than $5 trillion in currency changes hands on the global foreign exchange (forex) markets, resulting in significant profits for traders globally.
This is why many people want to learn how to trade forex. However, forex trading for beginners is a learning curve, so you will need to take the time to learn the strategies and techniques carefully.
Here is an in-depth look at how and where to trade forex online.
This is why many people want to learn how to trade forex. However, forex trading for beginners is a learning curve, so you will need to take the time to learn the strategies and techniques carefully.
Here is an in-depth look at how and where to trade forex online.
How to trade currency: Understanding forex pairs
The first step in understanding how to trade forex is to learn how to read a forex pair, especially if you’re trading on forex spot or contract for difference (CFD) markets. Some of the most common pairs involve two major currencies. For example, EUR/USD contains the euro and US dollar, and AUD/USD includes the Australian and US dollars.
The first currency in the pair is the base currency and is the one you purchase in a forex transaction. The second abbreviation in the list is the quote currency, which you use to purchase the base currency.
The number that follows the pair is the price for one unit of the base currency in the quote currency. For example, AUD/USD 0.66 means you can purchase 1 unit of AUD with 0.66 USD.
The first currency in the pair is the base currency and is the one you purchase in a forex transaction. The second abbreviation in the list is the quote currency, which you use to purchase the base currency.
The number that follows the pair is the price for one unit of the base currency in the quote currency. For example, AUD/USD 0.66 means you can purchase 1 unit of AUD with 0.66 USD.
Classes of forex pairs
As you learn how to begin forex trading, you will find different classes of pairs — major, minor, and exotic. These are based on average trading volume.
Major pairs are usually the best option for most traders because they have a high volume. Major pairs are also tied to the US dollar. Minor pairs involve other major currencies besides the benchmark USD and are an excellent alternative to major pairs. Exotic pairs are less-traded currencies paired with the US dollar. These may lack volatility and unpredictability, which you may find with major pairs.
Major pairs are usually the best option for most traders because they have a high volume. Major pairs are also tied to the US dollar. Minor pairs involve other major currencies besides the benchmark USD and are an excellent alternative to major pairs. Exotic pairs are less-traded currencies paired with the US dollar. These may lack volatility and unpredictability, which you may find with major pairs.
| Major pairs | Minor pairs | Exotic pairs | ||
| EUR/USD | EUR/JPY | USD/TRY | ||
| GBP/USD | EUR/GBP | USD/ZAR | ||
| USD/JPY | AUD/NZD | USD/DKK | ||
| AUD/USD | GBP/AUD | USD/HKD | ||
| NZD/USD | AUD/SGD | |||
| USD/CHF | EUR/TRY | |||
| SGD/JPY |
Why currency prices change
Central banks can limit or increase the supply of currency. This affects supply and demand and can cause price fluctuations in forex markets.
Economic reports like jobless figures, GDP announcements, or trade treaties can affect a country’s economy and, in turn, increase or decrease the value of its currency.
World events like conflicts, agreements, political changes, elections, and natural disasters can also affect forex markets.
Overall market sentiment can also cause price spikes or drops. This could be based on the overall economic outlook or feelings about recent political or economic events.
How to analyse forex markets
Technical Analysis
This involves using charts, market indicators, and volume data to predict the price movements of forex pairs to offer insight into market sentiment. Any news events affecting the markets will create specific price patterns that allow technical analysts to choose entry and exit points for their trades.
Fundamental Analysis
This looks directly at the news, reports, and figures without the help of charts. Fundamental analysis can involve looking at economic information to predict economic events or announcements before they happen.
These trading analysis styles can be used interchangeably. For example, you can wait until a major economic report is released and then use charts and indicators to time their entry into the market. You can also use fundamental analysis to confirm signals from your charts.
How to place a forex trade
When someone asks, “how do you trade forex,” they usually refer to the method for placing a trade.
There are two ways to place a trade. You can use a market order or a limit order.
There are two ways to place a trade. You can use a market order or a limit order.
A market order executes immediately at the best available price. This option is best if you want to get into the market quickly.
A limit order allows you to select your price. However, the order will not get filled until the market reaches your chosen price. If you have a specific risk/reward ratio, or you need to confirm a market movement by requiring that it reach a certain price before you trade, a limit order is a better option.
Learn how to trade forex with TMGM
The final step in learning how to trade currency is to find the right broker. At TMGM, we offer the following:
- Transparent pricing.
- We offer access to state-of-the-art trading platforms, including IRESS and MetaTrader 4.
- We offer leverage, so you can access enough capital for your trading strategies, regardless of which FX pair you choose to buy.
Open an account and begin trading forex today, or contact us 24/7 with questions or concerns.
Frequently Asked Questions
Currency pairs consist of a base currency and a quote currency, represented by three-letter abbreviations. For example, in AUD/USD, the Australian dollar (AUD) is the base currency, and the US dollar (USD) is the quote currency.
The best currency pairs to trade for beginners include liquid pairs like EUR/USD, USD/JPY, and AUD/USD. These pairs have tight bid/ask spreads, which limit costs. Also, you can always find someone to take the other side of your trade, so you do not have to worry about being unable to trade your currency if the market falls.
At the same time, minor and exotic pairs may be less volatile and offer clearer price action indicators.
At the same time, minor and exotic pairs may be less volatile and offer clearer price action indicators.
At TMGM, you can trade forex and other CFDs with as little as $100, though $500 is the recommended amount for trading.
Every trader wants to learn how to make money with forex trading. However, successful trading takes patience, risk management, and well-tested strategies. You can use back-testing strategies to see if your strategies will be successful, then rely on risk management tools like stop-loss orders to limit setbacks and give yourself the best chance for making money with forex.