Top 4 Basic Concepts You Should Know About Forex Trading

You have been considering getting into forex trading, to be a successful trader, you must understand the basic concepts of Forex.

You might’ve researched forex trading before. But, most information available doesn’t explain concepts in understandable snippets.

That’s why we’re going to discuss the top 3 forex trading basics so you can become a successful trader in no time. Read on to learn more about your next gig!

Forex Trading Basic Concepts: Where to Start

To become a successful forex trader, you must understand forex trading basics. Forex isn’t the same as other investments. Even if you’ve experience trading equity or other investments, you can’t apply those concepts to Forex.

Here are the top 3 currency trading basics you must know to become a great forex trader:

1. Forex Market Concept

When you trade stocks, you invest in a company. There are thousands of companies listed on the stock exchanges. Investors have many options when they invest in equity.

Forex works differently. The forex market consists of the 8 major economies. Remember that in Forex, you trade currencies.

The forex market is divided into the United States, Canada, Japan, United Kingdom, Switzerland, Australia, New Zealand, and Eurozone. These economies provide traders with the most liquid and creditworthy investments available. When you trade these currency pairs, you earn interest income on solid instruments.

2. Forex Brokers

During its beginnings, the forex market was only available to large financial institutions. The internet and computers brought digitalization to forex trading. Many companies began to develop forex trading platforms.

Forex brokers are the companies that will provide online trading platforms for currency trading. These platforms allow you to buy and sell currencies from any place at any time as long as you’ve internet access.

3. Yield in the Forex Market

When you trade currency, you buy and sell a currency pair. An example is when you trade Euros for US dollars. Your currency pair is EUR/USD.

If the pair quote is 1.2200, it means that you’ll need 1.22 dollars to buy 1 euro. In a forex trade, you buy and sell a currency at the same time. You buy the currency using what you earn from the sale of the other.

During the transaction, you’ve to pay the interest on the currency you sell. But, you’ll earn the interest rate on the one you buy.

This interest is set by the country’s central bank. The difference between the currency pair interests will be your net interest. The net interest you earn on a trade will be your yield.

4. Forex Signals

Forex Signals are a service provided by professional traders who issue so called forex tips on when to buy & sell specific currencies. These type of signal services are great for traders who haven’t had any luck trading on their own.

Forex Signals are accompanied with their own risks & rewards and can be either a free or premium service, we’ve written up a pretty in-depth guide to Forex signals which you can read here.

Wrapping It Up

Learning the basic concepts about the forex market is a must to become a successful forex trader. Understanding and applying forex basics is the best way to grow your account.

You should learn as much as you can about the market before trading live. Also, it’s recommended you use a demo account and practice a lot. Forex trading can be very profitable but, it’s tricky.

So it’s important that you understand everything about it from the basics to market trends. Want to learn more about forex trading? Check out our blog post about finding the right forex trading courses.

This article was written by our in-house forex traders with a combined 20+ years of experience in trading the financial markets.