Introduction to Forex Trading Tutorial South Africa
Forex, is simply foreign exchange, whether it’s FX or currency trading. It’s a huge global market where all the world’s currencies trade with each other. What’s fascinating about Forex is its liquidity and competitive pricing; as the spread is very small between the bid and ask prices.
Forex Trading is the largest liquid market in the world according to the daily turnover of more than five trillion US dollars a day. These stats verify that the turnover of Forex topped the combined turnover of the World’s stock and bond markets. It’s quite astonishing if you think about it.
The Reasons why people Choose Forex Trading
Now then, you’re probably wondering why a lot of people may use Forex Trading to the extent that the daily turnover is a massive number. Let’s be honest here, most people think about making money out of it, but there is more to it. This Forex Trading Tutorial will explain everything you need to know!
First of all, the Forex Market works 24 hours for 5 and a half days a week. Due to the great need by government corporations and private individuals of its services. In addition, Forex trading works both ways. It means that the trader can play the market and make profits despite the market’s circumstances. Whether going up or down, it’s irrelevant to Forex traders.
Another reason for choosing Forex Trading is that the transaction cost is low. Most of the Forex accounts trade with little or no commission and there is no exchange or data license fees. In general, the retail transaction fee is under 0.1%.
Also, leverage plays quite the role here. Leverage is a mechanism by which a trader can take position much larger than the initial investment. High leverage allows a trader with small investments to make higher volumes of currencies and make significant profits.
Due to Forex trading market’s high liquidity, people can trade with any type of currency and trading can be done as per convenience. And it won’t cost a ton of money to get started. You can open a trading account with minimum deposit balance of 25$, allowing average individuals to join the fascination of Forex market.
The Structural System and Currency Pair of Forex Trading Market
After knowing the reasons why people choose Forex Trading, you’ll have to know the people and organizations you’ll be dealing with in the market.
The members in the Forex Market are
- Central banks
- Major commercial banks
- Investment banks
- Corporations for international business transactions
- Hedge funds
- Pension and mutual funds
- Insurance companies
- Forex brokers
The major banks are the prominent players in the Forex Market, Followed by medium and smaller sized banks. The members of this market trade directly with each other or electronically through Electronic Broking Services (EBS) or Reuters. The competition between these two is like a football match for the world cup. Coming up next after these two companies, are the non-bank providers such as brokers, hedge funds, pension and mutual funds.
And of course you’re wondering, what are the best currencies to trade in Forex? Honestly there’s no constant answer here. It varies with each trader and each terminal window. In the Forex Market, trading occurs between two currencies. The first is being bought and the other is being sold at the same time.
The most popular, traded, dominant and strongest currency us the US dollar. That is of course due to the massive size of the US economy which is the largest in the world. Below the US dollar, there are few currencies with high liquidity as well like: the Euro, Britain Pound, Japanese Yen, Swiss Franc, Canadian and Australian dollars.
The EUR/USD currency pair is considered to be the most popular one and these are the two most traded currencies in the world. Almost ⅓ of the trading in the Forex Market is done in this currency pair.
You have to understand this; Forex Trading is done in pairs, as previously mentioned. One currency is weakening and the other is growing stronger
Rules to Follow in the Forex Market
For a newbie, it’s always better and safer to start slow and with less money. Don’t rush things up. It’s common that your first trade might not go as planned. You should also have an exit plan, even before entering a trade and have strict stop loss if the trade isn’t as profitable. Walking out of a losing trade is better than continuing in it and turning everything into a complete disaster.
There’s a saying that goes ‘cut your losses and hold onto your gains’. Some traders see that small profits can turn into something far greater in the future if they just hold on to it. And most importantly, one must have a good trading strategy alongside money management. Your trade risk shouldn’t exceed 2% of your account for each trade.
Reading Forex Trading Tutorials and guides such as this one can be very essential for beginners and even experienced Forex Traders.