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ConfirmWhat is Forex? FOREX 101
Forex (foreign exchange) is the largest financial market in the world, where currencies are bought and sold in pairs (e.g. EUR/USD). It operates 24 hours a day, 5 days a week, and is known for its high liquidity.
How Does the Forex Market Work?
- Currency Pairs: The first is the base currency, the second is the quote currency.
- Bid/Ask Price: The difference is called the spread.
- Leverage: Allows you to control larger positions with smaller capital—while increasing risk.
- Platforms: MetaTrader or web platforms. Execution speed and low spreads are crucial.
| Concept | Description |
|---|---|
| Lot | Contract size. A standard lot = 100,000 units of the base currency. |
| Pip | The smallest price change for most pairs (0.0001). |
| Pending Order | A buy/sell order triggered when price reaches a set level. |
Main Trading Costs
1) Spread
The difference between the buy and sell price. The lower the spread, the better for day traders.
2) Swap (Overnight Fees)
Fee/interest charged on positions held overnight. Depends on pair and trade direction.
3) Leverage
A powerful tool that magnifies both profit and risk. Start small (e.g. 1:10) until you master risk management.
Risk Management & Trading Plan
- Risk only 1–2% of your account per trade.
- Always use Stop Loss and Take Profit orders.
- Keep a trading journal to analyze your performance.
- Stick to your plan—discipline is more important than the strategy itself.
Popular Beginner Strategies
- Breakout: Enter after price breaks a clear range with volume.
- Moving Averages: Crossovers of short vs. long averages confirm trend direction.
- Price & Volume: Look for strong candles at support/resistance with volume spikes.
Common Mistakes to Avoid
- Overusing leverage or trading too large.
- Moving your stop loss hoping for a reversal.
- Trading during news without a clear plan.
- Not reviewing your trades and journal regularly.
FAQ
Can a beginner profit from Forex?
Yes, but only with structured learning, demo practice, and proper risk management.
What’s the best time to trade?
During session overlaps (e.g. London/New York) when liquidity is highest.
Which is more important: technical or fundamental analysis?
Both are complementary: technical helps with timing, fundamentals explain the “why”.