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What is Forex Trading? How to Trade Online

An uninitiated person, when he hears the phrase “financial market”, does not see much difference between the concepts of the stock market, exchange, Forex, stock markets, bonds, currencies, derivatives, etc. Therefore, it is necessary to clarify the situation.



What are financial markets — the stock exchange and Forex?

The financial market is an environment for the mobilization and concentration of capital, lending, currency exchange, and investment in the manufacturing sector. The balance of supply and demand for borrowed capital forms the global financial market. It can be divided according to the types of goods that are subject to bargaining.

There are the following types of financial markets:

  • Foreign exchange market (Forex) — the main commodity here are currencies, which are bought and sold by brokerage companies, banks, and investment funds.
  • Stock market — securities (stocks, bonds, bills, derivatives) are traded here.
  • A commodity market is a place for trading in raw materials: oil, metals, agricultural products, etc.
  • Precious metals market — often included in the commodity market category, but it should be distinguished as a separate segment due to the noticeable increase in trade turnover. Precious metals have traditionally served as a means of protecting financial reserves.

It is also worth considering the division of financial markets by the trading method:

  • Exchange platforms. Exchanges are separate trading platforms that trade standardized contracts. Each of the exchanges specializes in a specific market segment — metals, energy, agricultural products. Trading on exchanges takes place at a strictly defined time (trading sessions). To conclude any purchase or sale transaction, the presence of an official counterparty (representative) in the sales area is required.
  • OTC Markets. For instance, Forex is a market that does not have a specific trading location. Trading can be conducted over the internet or by telephone. Forex trading does not depend on the place where transactions are made but is influenced by trading sessions held in different parts of the world at different times — Asia-Pacific, European, and American. Thanks to this feature, trading is carried out almost around the clock — sessions move from one to another. These properties allow us to say that the Forex market is the most liquid and accessible to almost every trader.

All these can help you answer the question of what is Forex trading all about. Beginners should use educational materials that are presented in such blogs, as Forextime.

How to start trading Forex?

The basis of pricing in the Forex market is trading in an open market auction. Price arises from supply and demand at a particular point in time. In the foreign exchange market, hundreds of thousands of transactions are simultaneously made: up to 5 trillion dollars pass through the Forex market in one day. If at some point in time there are more sellers than buyers, then the price falls. If at some point there are more buyers than sellers, the price rises. All this leads to constant movement and price changes.

Choosing a broker

To start working in the Forex market, you need to decide on a broker who will provide you with access to the market. This is a crucial step and must be taken seriously. After all, in the end, the broker is your partner with whom you will do business.

Choosing a trading platform

After the future trader has chosen a broker, it is also necessary to decide on the trading platform on which he will trade in the future. A variety of trading terminals allows you to choose the most suitable option, considering your needs and preferences.

In Forex trading, your main working tool will be a trading terminal. It is through it that the trader maintains contact with his broker and gives him orders to buy and sell financial instruments. Besides, if a trader plans to trade not only from his desktop but also to use various mobile devices and gadgets, then it is necessary to study possible options, install and test the selected programs on your devices. This is necessary for the trader to have the opportunity to access the market at any time or place (whether you live in Nigeria or another region), and to be able to carry out the necessary transactions.

Demo account and first practice

After selecting a platform, you have to decide on the type of account. To begin with, it is better to choose to trade on a demo account, which will help you learn how to open and close positions, set Stop Loss and Take Profit levels, and use charts and indicators.

  • Stop Loss is a protective order placed by a trader to limit possible losses in the event of a negative development of a trading situation. 
  • Take Profit is an order that will automatically close a deal when the instrument quotes reach a certain price level. 

How to trade on a demo account for practicing?

Suppose that a trader has selected the MetaTrader 4 terminal as the most popular one, opened a demo account for 10,000 virtual USD, and decided to trade 1 lot deals on the EUR/USD currency pair. In this case, the trader opens transactions for virtual money, in case of loss of which he will not receive real financial losses. Each trader can open many demo accounts with a broker and spend any amount of virtual funds on trading.