What Is Forex? A Tutorial for Novice Traders.
Forex may seem complicated upon the first look, however, learning the important principles of it doesn’t take a lot of time. It is a big topic, but knowing just the main concepts may allow a trader to grasp the basics of Forex trading.
In this article, we will learn what Forex means, how to understand the Forex chart and what analysis tools IQOption offers right in the traderoom for the trader’s convenience.
What is Forex?
Before going into it, it is important to understand (at least in general terms) what Forex is, why it exists and why it is necessary.
The term “Forex” is short for foreign exchange and it is often referred to as simply FX. The foreign exchange market is the largest and most liquid market in the world. It is decentralized: it is not just one place, but rather a system of stable economic and organizational relations between banks, brokers and individual traders with the goal of speculation on foreign currency (buying, selling, exchanging etc.) . The reason for forming one global currency market is the developing national currency markets and their interaction.
The foreign exchange market does not set an absolute value for a currency, but rather determines its relative value against another currency, this is why in Forex you will always see a pair like EUR/USD, AUD/JPY and so on.
Understanding the chart.
To understand the Forex chart, there are several main points to learn.
Base and quote currency. The exchange rate always shows two currencies. In the pair, the first currency is called base and the second one is the quote currency. The price of the base currency is always calculated in units of the quote currency. For instance, if the exchange rate for GBP/USD is 1.29, it means that one pound sterling costs 1.29 US dollars. Based on that, a trader can better understand how the chart is formed. If the chart on GBP/USD, for example, is going up, it means that the price of USD depreciated against GBP. And the other way around, if the rate is going down, it means that the price of USD grows against GBP. Major and exotic currency pairs. All currency pairs can be divided into major and exotic ones. Major pairs involve the major world currencies, like EUR, USD, GBP, JPY, AUD, CHF and CAD. Exotic currency pairs are those that include currencies of developing or small countries (TRY, BRL, ZAR etc.) CFD . On IQ Option, Forex is traded as CFD (Contract For Difference). When a trader opens CFD, they do not own it, however, they trade on the difference between the current value and the value of the asset at the end of the contract (when the deal is closed). This allows a trader to receive his/her outcome in accordance with the difference between the entry price and the exit price. Multiplier. By using a multiplier, the trader gets the ability to manage a position that is greater than the amount of funds at their disposal. However, a higher multiplier also increases the risks involved.
Analysis tools for Forex.
When a trader opens a deal on Forex on the IQOption platform, they make a prediction regarding the price development and they can benefit in case of a correct prediction. That is why a trader has to learn how to analyze the chart in an effective way.
On the IQOption platform, every trader can find a lot of information regarding any asset, to do that, one just needs to click on the “Info” button under the name of the asset.
The “Info” button under GBP/USD.
The button opens an entire section with plenty of information and analysis for the asset. It is possible to find general information about the currency pair there, as well as the trading conditions, important news that may affect the price, technical analysis and economic events.
Technical analysis tab with a summary of the indicators’ signals.
Of course, this analysis should not replace a trader’s own analysis, however, it can sometimes be useful in order to make a well-informed decision. Besides the analysis offered in the “Info” tab, traders may also use the indicators and graphical tools in the traderoom.
As Forex is a complex tool, a trader may use the Practice balance in order to learn and improve their approach. Novice traders may want to implement a strong risk management technique, as well, especially at the very beginning.
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future. In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.
GENERAL RISK WARNING.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.