Welcome to Forex Trading Tutorial For Beginners basics guide. If you are new to Forex trading and willing to start learning, you have landed at the right page.
This is a step by step Forex trading tutorial. This tutorial aims to provide all the necessary information to newcomers in one place.
This tutorial is created by a Forex trading expert; AKA Technician. Technician has been in the markets for over a decade . He is specialized in technical analysis and running for the Chartered Market Technician(level 2) certification. In addition to a Master’s degree in finance .
In this guide, we will explain the most basic definitions and concepts. The concepts you must know before you start learning how to analyze the markets, and make trades.
We will explain things like, what Forex trading is, and how trading works. Also, what is a Forex broker and how to choose one. How to read the prices and much more .
After completing this tutorial, you will be ready to start the intermediate level tutorial. The intermediate tutorial covers analysis and forecasting: Technical Analysis Basics Tutorial.
We ask you to be patient while reading, especially in the beginning. If you feel that a topic is not cleast keep going, it will be clearer by the end of the tutorial.
If you have any questions after completing, please drop it in the comments section. It is at the end of this page.
You can move between chapters through the drop down menu below.
- Large Commercial and Investment Banks
UBS,JP Morgan,Citi , Barclays are just a few names of large banks that exchange currencies in the forex market.
Their purpose of participating varies from speculation(investment banks), to making the market to others. They provide most of the liquidity in the Interbank market.
- Central Banks
A Central bank participates in the Forex market directly, by intervening to buy or sell their currency according to its price target.
The price target that maintains the country’s financial and economic stability. Central banks can intervene indirectly through monetary policy tools such as interest rates.
For example, if inflation is higher than the healthy levels, the central bank raises interest rates to shrink money supply in the economy and that would have a positive impact on their currency.
- Investment Funds
Such as hedge funds. They participate in the market for speculation and investment purposes.
- Large Corporations
Amazon like companies participate in the forex market for a few reasons.
A simple example is importing component for their new kindle tablet from china requires them to exchange U.S. Dollar for Chinese Yuan.
They can also participate for hedging purposes (hedging is buying or selling a currency at a certain price to protect the company from un-favorable change in the future).
For example, if Amazon is planning to start producing the new kindle one year from now. Production requires amazon to buy components from china worth 50 million yuans.
Let’s say every one U.S. dollar equals 7 Yuans at that date. So if the purchasing manager is to purchase right away, it will cost the company 7.14 million dollars.
What if Amazon decided to wait 12 month, and the exchange rate changed to 6 yuans for every dollar?
Amazon will have to pay 8.33 million dollars. That is an increase of around 16 percent in cost.
A good finance manager that expects the US dollar to fall against the Yuan, will advise to hedge this risk and purchase the components right away.
- Financial Forex Brokers and their retail clients (People like you and me).
Remember: Always keep an eye on announcements from central banks. As they create major fluctuations (up and down) in the underlying currency, for the first few minutes of announcement.