Interested in forex trading? Here are five key tips for beginners

Highlights

• The forex market is a market for trading currencies

• The forex market involves the transfer of currency between two parties at an agreed price

• The foreign exchange market comprises the cash and derivatives sections

The foreign exchange market is a market for trading currencies. Participants, such as banks, funds, and individuals, buy and sell currencies on this platform, generally with the aim of hedging or speculation.

In other words, the forex market involves the transfer of currency between two parties at an agreed price. The market is sometimes seen to be volatile for traders on account of price movements of some currencies. So, there are always risks associated with trading currencies against each other in the form of exchange rate pairs.

The foreign exchange market comprises the cash and derivatives sections. The derivatives market includes forwards, futures, options, and currency swaps. At times, companies and traders engage in forex trading to hedge against the risks emanating on account of interest rates and changes in currency prices.

Things to consider while trading in forex

Currency pairs

First and foremost is that a trader should be fully aware of currency pairs. It is important to know that different currency pairs behave in different ways in diverse conditions. There are many factors which have a direct or indirect impact on a currency’s behaviour. Thus, traders should be aware of all the market forces working behind a currency.

Bid-ask spread

Traders are always advised to keep a tab on the bid-ask spread since a higher spread means lower volatility and vice versa.

Forex trading strategies

Trading strategies should always be picked up based on the movement of the market and individual goals. There are several forex trading strategies available, including trend trading, swing trading, scalping and day trading.

Leverage

Traders use leverage (or borrowed money) to execute large volume trades with relatively lower amounts of capital. But one should also be vigilant about leverage as it, being on the higher side, can also lead to losses. This can ultimately make it challenging to repay the borrowed capital.

Trading plan

Traders should always have a trading plan in order to reduce chances of uncertainties. Traders can easily trade 24 hours a day since there is no central location for forex trading.