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6 Easy Lessons to Learn in Forex when Trading as a Beginner

 The forex market is easily the most popular financial market for modern traders, thanks to its availability and potential for growth. 

Lessons to Learn in Forex when Trading

If you are a beginner forex trader, there's a chance that you are trading via your broker on the MetaTrader platform. Learning to use the platform is one of many basic lessons you need to know. It would help if you did not skip basic lessons in forex, as having the proper foundation will help you become a consistently profitable trader and achieve your trading goals. In this article, you'll explore six of these easy lessons in forex trading.

The Basics of Currency Pairs

Currencies are the major instruments or assets traded in the forex market. As a beginner, you must first understand the fundamentals of currency pairs and how they are traded. Currencies are listed in quoted pairs, with the first and second called the base and the quote currencies, respectively. All forex pairs are classified either as major or minor pairs. There's also another class called the exotics. The major pairs consist of the USD and currencies such as CAD, GBP, EUR, and AUD. Forex currencies are listed in pairs to buy and sell different currencies simultaneously. The difference in the price of each currency in a forex pair translates into profits in trading. Since other factors impact the prices of currencies, traders usually follow global economic and political events that affect the exchange rates and the demand and supply of a currency.

Forex Trading Sessions

The forex market is regulated in every country to provide a global framework for controlling volatility and protecting consumers. Forex trading sessions refer to a window of the trading period based loosely on four major regional sessions; Tokyo, New York, Sydney, and London. Each session opens and closes within a day but overlaps with another due to time differences. These overlaps ensure that the forex market is open 24 hours daily for five working days a week. Why is this important? Although the market is always available during the week, traders do not have to enter trades anytime. It is best to choose a trading session that offers the best trading conditions and potential returns for different currencies. For example, the trading volume of the EUR/USD pair will increase when the New York and London sessions are opened, while the AUD/JPY trading volume will increase when Tokyo and Sydney's traders are in session.

Trading Terminology

Forex trading has terminologies similar to other financial markets but unique in various ways. There are dozens of terminologies to learn in forex trading, but you don't have to learn it all as a beginner. Some basic terminologies include pip, spread, margin, leverage, lot, bear, bull, broker, bid-ask, exchange rates, and technical and fundamental analysis. Others include support and resistance, trend lines, technical indicators, going long or short, and market orders. You'll have to learn most terminologies through studies, but some will come to you naturally as you practice. You must know these forex terms and how they are used; that knowledge is key to certain trading decisions. For example, you may go long or short, depending on the outcome of your analysis.

Entering and Exiting Trades and Calculating Profits

As a trader, all your activities are geared towards entering and exiting trades at the right time. Through your analysis, you'll choose the entry price to open your trade and choose a price to exit. There are two ways to enter trades, manually or through an order. Manually entering or exiting a trade means that you buy or sell at a price and actively enter and close the trade. You can also choose to take profit and stop loss, features which close your trades at a specific price. All beginner traders must learn how to open and close trades and calculate their profits per trade. The two essential parameters for calculating profits are the lot size and pips. The lot size is the amount of money used to enter a position, while the pip is the smallest change in the value of the two currencies in a pair.

Research and Analysis

Forex trading is hinged on predicting the price of currencies by analyzing currencies and the factors impacting their prices. That is why research and analysis are essential in this finance trading. You will likely choose between fundamental and technical analysis or combine both as a beginner trader. Forex analysis involves charts and technical tools to analyze price history to draw data that informs future decisions. Research and analysis are not limited to beginner traders; all successful traders never stop studying the market or researching the impact of global economic and political events. You must learn these as a beginner to get the proper background in FX.

Types of Forex Traders

There are different forex traders, day and swing traders, and scalpers. Day traders do all their trading within 24 hours, while swing traders hold trades for more than a day. Scalpers are traders that take small, consistent profits by opening and closing trades within a short time. As a beginner, you must decide what type of trader you prefer. Certain factors, such as your trading capital and availability, will determine the kind of trader you become.

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