Welcome to our introduction to forex trading course. The aim of this course is to give you a basic introduction to what forex trading is and how you can get started on the road to becoming a forex trader.
Before getting ensnared in financial jargon we want to introduce you to the actual mechanisms of the foreign exchange (FOREX) market. Explain why there even is the need for such a market and why it exists. This will prepare you nicely for understanding the market drivers and why price moves in a particular direction and start you on your journey of the endless possibilities of wealth creation. (forex trading)
By the end of this short introduction to forex trading you will likely have more questions than answers. This is great and what we love at makemesmart.com, feel free to browse our other courses which I’m sure will help you, or check out our trading partners who have tonnes of educational content to help you.
This course is for anyone who is interested in the foreign exchange (Forex) market and how to potentially start forex trading themselves.
Whatever your reason for completing this free course, we hope it piques your interest and curiosity.
Forex is short for Foreign Exchange market (FX). The FX market is a global decentralised market for trading currencies. The FX market is one of the most traded financial sectors in the world with over $6 trillion traded daily. This creates a lot of opportunities for retail traders like ourselves. You have almost certainly participated in the FX market without even knowing it.
First we must ask ourselves why this FX market exists and how it is used today?
Today more than ever we live in a globalised world where goods and services are bought and sold globally.
The value of one countries currency to another can differ from day to day. This changes the price of goods and services.
If you are a net exporter, meaning you export more goods and services than you import, then in theory, you would want a weaker currency compared to the countries you are selling too. As this makes your goods and services cheaper. Likewise if you were a net importer you would want a stronger currency, to make imports cheaper.
The whole Forex market is basically a means of transacting globally and creates a balancing act of supply and demand between all the countries in the world to maintain value for goods and services.
You live in the UK and you are buying a holiday home in France. The price of the home is 150,000 euro.
You need to use the FX market to change your Pounds to Euros because of course the lovely French couple you are buying the house off, wants to be paid in their currency, Euros.
The price on Monday is 1.14 Euro to GBP. Which means for every pound you get 1 euro and 14 cents. You decide to wait another month. This time the price is 1.40 Euro to GBP so for every pound you get 1 euro and 40 cents. This may not seem like much if you’re buying a pint of milk but if you were buying a house it would be significant. Lets do the maths;
150,000 divided by 1.14 = £131,578 (here we are converting the euros to pounds using the exchange rate 1.14)
After waiting a month the exchange rate has changed. You now get 1.4 Euro for every 1 Pound.
150,000 divided by 1.4 = £107,142
Wow that’s a difference of £24,435 for you. But the French couple you bought it off still receives 150,000 Euro. That is the Forex market and example of how price fluctuations can change the cost of goods and services for consumers.
As a forex trader you can just make the money from the price fluctuations without having to buy a house in France, but by simply deciding to buy or sell any particular currency on your broker platform, which we cover in the next section.
Luckily for us, trading forex has never been easier. With an internet connection, a laptop and of course some help from makemesmart.com 😉 you can be part of the muilti-trillion Dollar Foreign Exchange market.
Step One – Open an account with your chosen broker. Luckily for you we have already hand-picked in our opinion the best brokers in the market.
Step Two – Open the chart on the Currency you would like to trade. This could be anything from pound against dollar (GBPUSD) to more exotic currency pairs such as Aussie Dollar against Japanese Yen (AUDJPY).
Step Three – Choose your position sizing – How much you would like to trade.
Step Four – Place the order – Buy or ‘go long’ because you believe that price will move up. Sell or ‘go short’ because you believe price will move down.
Step Five – Set your Take Profit – The point where you feel you have made enough money or maybe that price might stop going in the direction you thought it would.
Step Six – Set your Stop-Loss – The point where the broker will automatically at a price you set. This is a great tool for protecting your account and minimising losses.
For more information on forex brokers and how they operate refer to our great short lesson – Forex Brokers explained. Here we breakdown how a forex broker works and some of the basic market mechanisms.
The final lesson in this course serves as a very brief introduction into different types of analysis and how this may drive price in a particular direction. Knowing this and understanding these factors can make you a more profitable forex trader as you will be able to enter and exit the markets at more opportune moments thus increasing your profit potential.
There are two key types of analysis;
In more recent times, forex trading encompasses mostly technical analysis, in most part because its easiest to digest and understand for beginners. However it is also very effective.
Technical analysis is based upon the understanding that if history tends to repeat itself. So for example if price has continued along a trend upwards for the last few weeks, it is likely that it will continue.
Equally there are key supply and demand levels more commonly known as resistance and support levels.
These are areas where price tends to stall or slow down. This could be somewhere you may set your Take profit to because you are aware that when price hits this point it tends to reject that area.
This analysis encompasses assessing market drivers and macroeconomic indicators. As it is these indicators that often indicate an economy’s relative strength or weakness.
To put it simply a good or strong economy tends to indicate a higher currency. A bad or weak economy tends to indicate a lower currency.
The main three indicators to consider are interest rates, inflation and GDP. There are others you may consider as well, such as, industrial production and consumer confidence.
Some forex traders just use technical analysis and others just fundamental. We recommend a bit of both to give you a clearer picture and build more confluence and thus confidence in your decision making.
This course was only a short introduction to forex trading.
Don’t worry if you now have more questions than answers – this is great!
At makemesmart.com our goal is to, you’ve guessed it, make you smarter.We have more free courses available to teach you more.
Our trading partners also have great education available when you sign up.