You’ve probably been hearing more and more about trading, especially forex, this year. Everything stopped, but the stock market is still changing, no matter what is happening with the economy. Many consider trading as a source of passive income. If you are willing to learn more and become a trader, read on!
There is no better way to prepare yourself for entering the world of trading than educating yourself and being ready to learn more every day. In the end, you will be dealing with your own money, so why take it for granted? Consider this as an investment that your future self will thank you for. This is a way to dive into the world of economy and events that happen every day and shape our world. There are many ways of trading, so you should first know the basics. Forex trading is the most popular nowadays, and there is a reason why.
What is Forex, Exactly?
Forex is short for “Foreign Exchange.” It means buying or selling one currency of your choice and exchanging it for another. It’s the same when you’re traveling and trying to transfer your country’s money for the currency of the country you’re in. You will come across different terms as pip (Point in Percentage), and so on. We will dive into it soon. What matters first is that you are aware that everyone can trade here: you, companies, and countries. To get in, you usually don’t have to invest a large amount of money, and that is why many people are doing forex trading.
The Main Principles of Forex Trading
Bear with us; a little math can bring you a successful profit! This is for you to be informed and to get a better grip on how everything works. We mentioned “pip” above. Okay, pip is the FOURTH number in the currency pair (another news: you trade currencies always in PAIR, for example, EUR/USD). Currency pairs usually move about 50 to 100 pips every day, depending on the market situation.
For example: if the price of the EUR/USD moves from 1.1300 to 1.1340, that’s a 40 pip move; if you bought the pair at 1.1300 and sold it at 1.1340, you’d make a 40-pip profit.
How do you decide the profit then?
The profit depends on how much of the currency you bought. If you bought 2,000 units in USD (a micro lot), each pip is worth $0.20 (pip value), so you would calculate your profit as $5 for a 50 pip. In case you bought a 20,000 unit (mini lot), then each pip is worth $2.
When we used the EUR/USD combination, USD was listed second, so that’s when we can calculate the value as we did. If the USD were listed first, the pip value would be different. You can practice calculating value by using an online forex calculator. This can be very useful for understanding the principles better and avoid mistakes in the future when you start trading.
When you start trading, you should also know that the first currency written in the pair is always the main currency on a forex chart. For example, if the price is moving up on EUR/USD, it means the euro is moving higher than dollar. If the value on the chart happens to fall, the euro is lower in value than the US dollar.
Make it Interesting
It is highly recommended to open a demo account first before you start trading using real money. You can experiment, watch how things change on the stock market and how it affects your income. You should practice and use every tool you can to practice and learn. When you see progress and feel comfortable enough, then you can start trading with real money.
Risks you can Avoid
- Don’t forget to check if the trading platform you want to register on is regulated! Many of them will offer you the chance to get rich quickly, so that is usually the first sign that that’s a scheme. Trading involves knowledge, learning by yourself, or/with your financial advisor and continuously keeping track of the stock market, automatically or by yourself.
- Don’t invest all your money at once! Start small and see how it goes. As you become more confident, you can slowly start increasing the amount of money you put in. Don’t forget to check for potential outcomes using some of the forex tools available online, like the forex profit calculator.
- Patience is essential when it comes to trading. Don’t get too excited, be informed, and listen to the advice of experts. Sometimes it is better to wait, even if the opportunity seems right. But that is up to you when you become more invested in the field.
Have fun learning! This is something you get to profit from, whether you decide to invest or not. You will gain more knowledge about the economy and the world itself. We hope you try it out and see for yourself! Good luck!