There are plenty of opportunities available to you as a budding forex trader, but if you want to know how to trade forex successfully as someone who's new to the market, we can help you to identify where to begin.
To find out more about how to trade forex, read our guide for beginners. This takes you through how to get started and key things of which to be aware of in the early days as a forex trader.
Forex is trading on the foreign exchange market. Of all the markets, this is the most dynamic and valuable one. It moves quickly and its global nature makes it accessible and diverse, presenting beginners like you with plenty of opportunities. It is one of the many markets that you can trade with Tradu.
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In forex trading, currencies are traded against each other as exchange rate pairs. These are referred to as currency pairs and typically fall into three main categories:
Major – Hundreds of pairs are available, but there are some popular combinations to which traders return most frequently. These are referred to in forex as major pairs. They always involve the US dollar and offer relatively low volatility compared to other combinations.
Minor – These are cross-currency pairs that don't include the US dollar but do include one of the other three major currencies: the Euro, the British pound and the Japanese yen.
Exotic – Less common than either of the above, exotic pairs most often combine major or significant currencies with those from emerging markets. They typically involve the widest spreads and highest price volatility.
To find out more about currency pairs, take a look at our detailed currency pairs guide. Whatever currency pairs you choose, we'll help you to reach your potential when you trade forex with us.
To begin forex trading, start by looking at the different ways to approach this market. These different approaches are known as instruments.
How easy it is for you to trade forex in the early days while you are learning how the market works will depend on the instruments that work for you. You might try all three of these instruments to see which is the best trading method for you or may decide to stick with the first one that you try.
Here is an overview of the different forex instruments. Please note you cannot trade futures or options with Tradu; their inclusion here is for informational purposes only.
A spot trade, or spot transaction, in forex is where a foreign currency is bought or sold at the current market rate - known as the spot price - for immediate delivery on a set date. This usually happens within two days and many traders choose this because it usually costs less to open a position. This cheaper price is because the spreads aren't as broad, so placing short-term positions on the underlying market here is a more cost-effective move.
Options give traders the right to buy and sell a currency pair on the forex market - at a particular rate, within a particular timeframe - without an obligation to do so.
There are two types of options of which to be aware: calls and puts. A call option gives the holder the right to buy a currency pair and a put option gives the holder the right to sell a pair.
Options are appealing to some traders because the lack of obligation to buy carries lesser risk in that sense. However, you do remain vulnerable to market volatility and you do lose the premium that you spend to obtain the option whether or not you complete the deal, so some planning is still required.
Futures give forex traders the opportunity to buy or sell currency pairs at a set price on a set date in the future, or within a date range. Unlike currency options, though, traders are obliged to execute a trade, meaning that you are committed to the sale or purchase.
While the option to trade is removed, futures are attractive to traders because it gives them the chance to take long-term positions while avoiding having to plan for payment of overnight funding costs.
When it comes to how to learn forex trading as a beginner, it is important that you get to grips with the language that's used and the definitions of certain terms. This helps to make distinctions between different trading methods.
One crucial one is the difference between the future and forward market. We have already looked at how currency futures are a useful trading instrument in forex - but they bear similarities with forward contracts.
Forwards and futures are both derivatives where two participants agree to buy or sell a currency pair at a set price by a date in the future. However, futures have standard terms and are traded on an exchange - in this case, the foreign exchange - where prices are settled on a daily basis until the agreed future date is reached.
A forward contract, on the other hand, is settled once at the end of a contract. A forward contract is traded as an over-the-counter (OTC) process, via a broker-dealer network. This means that it is privately negotiated, making it a riskier type of trading method.
When you choose Tradu, you can trade these instruments through forex CFDs.
Forex contracts for difference (CFDs) are used to trade currency pairs via leverage. This is appealing to traders because it allows them to speculate on rising and falling prices.
When trading with a CFD, traders don't own the currencies. Instead, CFDs are the derivative used to speculate on the way in which the prices move. As CFDs use leverage, it's important that you know the risks involved with leveraged trading before you begin.
Trading forex is easy when you choose Tradu:
Now you know how to trade forex as a beginner, read our other guides.
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