PortalKota – What is Forex Trading (for Beginners). Welcome to the first episode in our complete course on how to trade Forex! Hello, I’m David Jones from capital.com and we thought it would be very useful for our clients and non clients (and viewers of our YouTube channel) to put together a complete course from start to finish on how to trade Forex.
So whether you’re a beginning trader or you’ve been trading for a few years, I’m hoping there’s gonna be something for everyone in this.
What is Forex Trading (for Beginners)
We’re assuming no knowledge whatsoever, even though the focus is on Forex, the foreign exchange markets, the principles we’ll be talking about, we can apply them broadly to all sorts of markets.
So even if your interest is in the oil price or the Dow Jones, I think there will be something for everybody in the contents of this course.
So we’re gonna start off first of all just defining exactly what do we mean by “trading”. You know people talk about trading a lot but let’s just define what we actually mean when we talk about trading financial markets. So let’s start right with the basics.
When we talk about trading what do we actually mean?
Well traders are typically looking to profit from price changes in a market, whatever that market is, over a short period of time and when we say a short period of time that can be anything from the next few seconds (maybe even shorter than that) up to a number of weeks.
So it’s a fairly broad time scale that we have there. But I think anything from, you know, the next couple of seconds up to maybe a couple of months we could classify as trading.
They may use a whole host of different methods. They might look at technical analysis – looking at charts.
They look at fundamentals, possibly the effect that breaking news has. Let’s say interest rates, company announcements, political news, all of this can have in a market and also, you know, broader market sentiment, to help them make their buy or sell decisions.
When it comes to trading, when it comes to financial markets, it probably does break down into two camps.
Trading and investing. So how is trading different to investing.
I think the main diffefence here is the timeframe. Investors are usually looking at holding their positions. Let’s say it’s a share for months, at the very sort of shortest time frame, but often many years.
Whereas, whereas traders are not taking a multi-year view on a market. They’re being much more short-term, whether there is the next few seconds, the next few days, the next few weeks.
I think the time frame is really the big obvious difference here and also the way that these different camps interact with markets is going to be different.
The sort of products that they use. If you’re an investor and you think the share price of Apple is going to rise over the next five years, you’re probably just going to buy Apple shares.
But many traders will use leverage to make their trading funds go further to magnify how much of a certain market they can buy.
So leverage or margin trading magnifies the potential profit that can be made.
But of course with that hand in hand goes the risk of making greater losses. Popular leveraged ways of trading include contracts for difference – CFDs, futures and also spread betting.
So you can see if we split people broadly into investing and trading, time frame is really the big difference here.
But now let’s take a look at the sort of markets that people find suitable for trading, that lend themselves well to looking at them from a short-term perspective. So when it comes to trading what are the sort of markets that traders like to trade.
It’s quite a broad brush here but let’s start off first of all: foreign exchange – incredibly popular market.
So the various currency markets. For example the pound against the dollar, the euro against the dollar, the dollar against the Japanese yen.
All these different combinations. So foreign exchange markets, very popular because they normally can be fairly volatile.
Understandably traders want a market that actually moves around.
And to try and profit. And because the foreign exchange market sees such massive volumes during the day, the cost of doing business, the cost of getting in and out, is relatively low compared to other markets.
Stock market, indices are always popular, not surprisingly because again like foreign exchange stock market, indices such as that the US Dow Jones, the German DAX, the UK’s FTSE 100, these can be volatile.
They can move around and plenty of traders, perhaps come from an investing background, so they’re familiar with individual shares.
I think that’s another reason that stock market indices tend to be quite popular traded markets. Then we have commodities markets. So the two main ones I’ve picked up on here – the price of gold and oil.
Oil again in recent years has been an incredibly volatile market. We’ve seen really big swings either day to da,y week to week ,month to month over all sorts of time frames.
So commodities, when they start moving, you know, we can see some big market swings. So this is another reason that these sort of markets are popular with individual traders.
Perhaps not as popular but still worthy of mention – large company shares for example in the U.S., the tech stock Apple, here in the UK BP shares for example.
You know which will move as the oil price is moving around, so again some traders will focus on just trading individual shares. They’ll have their expertise in that particular market and that’s a market they’ll stick to, perhaps.
Rather than trading these other different asset classes. And finally, not as popular at the time of recording as it was in the the end of 2017/the beginning of 2018 but crypto currencies.
We had that massive run up in the likes of Bitcoin, ripple, ethereum in 2017.
And then that bubble bursting in 2018. So there was plenty of volatility back then. Attracted lots of traders but with the volatility dropping off in, sort of, recent months, I think traders are focusing on other markets.
At the beginning of the video we split people into two camps: investors and traders but we can sub-divide traders. We can.
There are different categories of traders, so let’s go through that and maybe you’ll see an approach that you think fits in with your own particular style.
So let’s have a look at the different categories of traders out there. So we’ve already split people up to being investors and/or traders but we can also split traders down again, we can categorize them a bit further.
So let’s just take a look: so day trading.
Day trading is typically in and out during the trading day and not holding any overnight position. So the true day trader starts with effectively a clean sheet every day.
So our day trader, he or she, is trying to capitalise on market movements throughout the trading day. But end the day what’s known as “flat”.
With no open positions and start again the next day. So this is.. we know it’s the most short term form of trading that most of us will be familiar with.
The next timeframe up is swing trading where somebody holds a trade for probably a few days to catch the next swing in the trend.
So again they are fairly short-term focused, not as short-term as the day trader but they’re seeing a market that’s maybe gone up for a couple of weeks has sold off for three days it starts going up again and they’re looking to catch that next swing in the marke.
Position trading is probably where we start to overlap with the idea of investing, you know.
A short term investor might look at a two or three month position in the market.
A position trader is looking to hold a position for weeks and maybe months. So they’re looking for a more substantial move than a swing trader.
So that’s the end of our first episode, really. Just setting the scene when we’re talking about trading next time around we’re going to delve deeper into the world of foreign exchange and look at exactly how currency trading works later in the series we’ll be looking at different technical analysis techniques, trading the news, looking at fundamentals and managing risk all of this sort of thing.
So to never miss out just make sure you’re subscribed to the channel by clicking the subscribe button down there. If you click the alarm bell notification you get a push message every time we upload the next section of the course.
Of course to have access to our trading platform and track these markets in real time, to try out trading using a demo account or with real money – if you download our app for Android or iPhone from wherever you get your apps and go to our website capital.com.
You can find out more about the company and access our desktop trading platform.
But until next time around we’ll wrap things up there if you have any questions or comments please leave them in the messages down below I do read them all and I’ll try and answer any questions down there. But from me David Jones and capital.com – good luck with your trading!.