Knowledge

Forex is where many beginners take their first steps in trading. This is because Forex is perhaps the most approachable of the world's financial markets, as it has fewer and lower barriers to entry than many of its peers. For example you can fund a live trading account at Blackwell Global with as little as 500 US dollars. What's more if you are completely new to trading you can open a demo account. That allows you to trade in a highly realistic simulation of the live market. But without risking any real cash. This means that beginners can study how the market behaves, how their account operates and become familiar with placing orders, various order types and the instruments they can trade, all without risk. If you are interested in Forex Trading for Beginners then do two things : Read this article and open a demo trading account. After All there's no cost and no commitment on your part. Just the opportunity to learn new things and develop skills in Forex Trading.

The basics are straightforward

Financial markets can seem confusing to beginners because of all the technical terms and jargon used when people talk about them. Whilst it would be wrong to suggest that there aren’t complicated concepts within the markets, the basic principles of Forex Trading for beginners are quite easy to understand. As you will see as we explore some of these in the paragraphs below.

What is Forex

Forex or Foreign Exchange is the process through which one currency is exchanged in favour of another. The Forex market was originally developed to facilitate international trade  and finance. But it has grown substantially to be considered by many as an asset class of its own, alongside stocks and shares,bonds, commodities etc. In fact the Forex market is the largest of all financial markets with a daily turnover reaching many trillions of dollars. The majority of this turnover is generated as result of trading activity - thats investment and speculation - rather than commerce.

Who are the Forex market participants ?

The Forex market is a decentralised, global electronic marketplace that is made up of  hundreds of thousands of participants. These range from the world's largest commercial and investment banks, hedge funds and other institutional investors. Alongside professional traders and retail clients like yourself. The growth of the internet and access to high speed broadband has removed many of the barriers to Forex Trading for beginners. Whilst high quality trading software and brokerage services provided by Blackwell Global and its peers have leveled the playing field further.

Why do people trade Forex ?

People are drawn to Forex trading because of its unrivalled liquidity and its 24 hour a day five days a week market structure. When this is combined with flexible and competitives trading conditions alongside state of the art trading technology, that works across desktop and mobile devices. It makes a compelling case. In today's modern globalised market place information and news flows freely and this means that there is almost always something going on in the Forex market. Forex markets often react to economic data releases which are a daily occurrence and their are specialist tools to help both the beginner and the more experienced trader keep track of these.

Market Forces (supply and demand)

Prices in the Forex market respond to many internal and external influences and changes in investor sentiment, towards one currency or another. Some of these drivers and their root causes can be extremely complicated to understand and some may not even be fully defined. However they can all be distilled down to just two intrinsic forces, which most of us will be familiar with. Namely “supply and demand”. When the supply of a currency oustrips demand then its value will fall, until such point as buyers re appear to support the price. Conversely if the demand for a currency is greater than the supply then the price will rise until such time as sellers are tempted into the market and satisfy that demand.

Central Banks and Interest Rates

One of the biggest drivers of the Forex markets / Forex Trading (and certainly the most talked about), are the actions of the world's central banks and their interest rate policies. Central Banks are the banks that manage the monetary affairs of nations and regions.They may also have a role in the regulation and operation of their local banking and financial markets. Many central banks are independent of their national governments, but operate in conjunction with them in trying to reach their economic goals. One way in which central banks try to achieve this is through the setting of interest rates. An Interest rate can be thought of as the cost of money. That is the rate you have to pay to borrow or use that money. Or the rate that you expect to receive for lending or making money available. Central banks try and influence the levels of demand in an economy via interest rates. Such that if demand for goods and services in the economy is running ahead of their supply. Then the bank will likely raise rates to make money more expensive and cool demand. Whilst if demand within the economy is weak, then the bank will cut interest rates making money cheaper. Hopefully tempting companies and individuals to spend more and stimulate demand. Investment tends to flow towards those areas and regions that offer a higher return. Therefore if the interest rate in one country, A, are markedly higher than that in another country, B. Then money might well flow into country A, driving the value of currency A up, when compared to that of currency B.

Data releases

Forex markets also respond to macroeconomic data releases. These are top down high level data points, regularly released by both developed and developing economies. The data is often compiled by the nation's central bank, specific government departments or an office of national statistics. Although there are also an increasing number of data items that are compiled and released by independent third party providers. There can be many dozens of macroeconomic releases each week and it's important for both beginners and more experienced traders to be able to keep track of these releases and to identify those items that will have the most market impact. Blackwell Global provides its customers with access to an interactive economic calendar, that can be filtered by both currency and the expected market impact of an event. The Forex calendar can be accessed here. The image below shows our calendar configured to show only high impact items across all currencies.

Forex Quotes

Forex Quotes are by their very nature made up of two elements, which are of course the two currencies whose conversion, one into the other, the Forex quote represents. The two currencies are known as the base currency, this the first named currency in a quotation. For example the Euro is the base currency in the quote of Euro US dollar (or EUR USD). The second currency, is known as the quote currency. This is the currency in which the Forex rate is quoted. So that in our EUR USD example, the value of the Euro (the base currency) is quoted in US dollars (the quote currency). A Forex quote is also made up of two prices - the Bid and the ASK (or offer) the difference between these two prices is known as the Spread.

An example

In the example Forex quote below the BID price is the price at which you can sell the base currency (in this instance the Euro) and buy the quote currency (in this case the US Dollar). The ASK price is the rate at which you can Buy the base currency (Euros in our example) and sell the quote currency (US Dollars in our example).

Forex Brokers

Forex Trading for Beginners has been made possible by the emergence over the last decade of dedicated Forex brokers. Who sprung up to specifically to cater for the needs of retail clients. Forex brokers provide a range of services to their customers that allow them to access the markets and compete on a more even keel, with larger participants, than would otherwise be possible.They provide connectivity to the Forex markets,online trading software alongside back office and statementing tools. Forex Trading Beginners or those looking to improve their trading skills can utilise a demo trading account that simulates real market trading conditions in a risk free environment. Beginners can familiarise themselves with the functionality our MT4 trading platforms and the operation of the market. Without risking any of their hard won capital and when they feel confident in their abilities they can move to a live trading  account .

Leverage

One of the most important services that a Forex broker offers to its clients is the provision of leverage. In effect the Broker magnifies their clients deposit to allow them to control a much larger position in the Forex market, than they could otherwise afford. The standard trade or lot size,in Forex Trading is a 100,000 units of  given currency. Most retail clients do not have $100,000,Euros or other currency to invest into an individual trade. But if their initial deposit is leveraged 400 times by their broker, then they can trade that amount with a much smaller  deposit for example $250.00. By providing leverage the broker is effectively lending its clients money and it charges them a rate of interest for doing so. This is known as a financing charge or rollover swap rate. Leverage can magnify trading gains, but it can just as easily magnify trading losses. An understanding of the risks involved in use of leverage and in trading geared products, is essential for Forex Trading beginners. Once again you can get familiar with these without risking real money by opening a demo trading account. Full details about leverage levels and rollover swaps can be found here on our account overview  and products  pages.