What is Forex Trading? – Definition & Explanation

Forex learning made easy. With Forex.de you can easily enter the world of Forex trading. If you follow our simple steps to learn Forex, you will have a professional introduction to the world of Forex trading. Set yourself goals, test strategies in the demo account and document and analyze your forex trades so that you don’t miss any details of success! The most important thing is to stick to your own rules and hide feelings as best you can.

1. learn the Forex basics

Before you start Forex trading, you need to learn the basics of Forex. Or would you get into a car without knowing the traffic rules and just drive off? Nothing works without a certain basic knowledge and understanding.

In short, Forex is trading with foreign exchange or currencies. You bet on whether one currency rate will rise or fall against another. There are many factors that affect and influence the exchange rates.

In addition, we recommend that you familiarize yourself with the most important and common forex terms. You will learn what currency pairs, what a pip or a lot is and what makes a good broker. In any case, you still have to learn what a margin, leverage, stop loss and take profit are.

With this basic knowledge, entering the world of Forex will be easy. Learning Forex is not only fun, but also awakens your desire to trade.

2. find the right Forex broker

Choosing the right Forex broker is a crucial factor for trading success. You should not rush into this, because due to the multitude of providers, it is often very difficult to make a quick choice.

Decisive is

  • the trade offer,
  • the trading platform,
  • the amount of the fees,
  • the customer service

but above all the seriousness and security of the Forex broker.

3. open a Forex demo account

After you have learned the Forex basics and found your Forex broker, open a demo account. There you can not only familiarize yourself with forex brokers and programs, but also learn how to trade without risk. However, not every broker offers a free demo account. Forex.de explains to you how to find the right forex broker.

With a demo account you can refine your forex strategy, test different forex strategies and learn forex without risk. But a demo account is not only helpful for learning how to trade. Because even if you are already trading with real money, you can try out new strategies in the demo account and then apply them to the real account. This way you can constantly improve your Forex trading.

4. find your Forex Strategy

Every Forex trader must find the right Forex strategy for himself. Textbooks, brokers, programs and magazines can help in the search. But only you can find out for yourself which Forex strategy suits you and your style.

Once you have found your forex strategy, stay with it. Many traders get a bad gut feeling after the first losses. That’s why you change your strategies, intervene in ongoing trades and make rash actions. As hard as it may sound, but “feelings” are not a trading strategy and have no place in the world of Forex trading. After all, you have chosen your Forex trading strategy for evaluable and statistical reasons. Therefore, you should also trust in bad times.

As mentioned above, a demo account is very helpful for testing and refining your Forex strategy. After all, you should only trade with real money when you are sure that your Forex strategy is good. Because even in the world of Forex trading, “practice makes perfect”.

5. hands off exotics

Forex trading beginners should keep their hands off trades with exotic currency pairs at the beginning. Since the currency rates of the exotic currencies are often subject to large fluctuations and the spreads are usually very high, trades with exotic currencies are rather something for experienced Forex traders.

It is better to limit yourself to the main currency pairs – the majors. Trades with these currency pairs often have lower spreads and the prices are usually not as volatile as with the exotics. So you can say that trades with majors are the ideal start into the Forex trading world.

6. documentation and analysis

Two of the most important steps to trading successfully are the documentation and analysis of your trades. Every single trade must be documented and analyzed to find out why it was successful or why it was not. Ask yourself questions that you will answer for each completed Forex trade. These questions could be, for example:

  • Which Forex signals caused me to make the trade at that point in time?
  • Did I change my plan during the trade?
  • Why did I change my plan?
  • What will I do the same next time?
  • What do I do differently next time?
  • When could I have adjusted my Stop Loss or Take Profit?
  • How did news affect the currency rates and did I interpret them correctly?

Once you have found a documentation and analysis system for yourself, you should, or rather, you must apply this system to every Forex trade. It does not matter whether you have made a profit or a loss with the trade. Because as the saying goes: “You learn from your mistakes! And of course this also applies to learning Forex!

7. be constantly up to date

The Forex trading world is very fast moving. Many different influences control and change the exchange rates. Political news, for example, has an influence on the exchange rates of their countries. Every statement or action of a president is put on the scales and causes fluctuations in the currency rates.

Therefore, it is very important for Forex traders to be up to date. Many forex brokers provide you with relevant information that serves as a forex signal. But as long as you keep a constant eye on the news world and your trades, you can quickly respond to expected and unexpected news and make changes to your trades.

8. plan your day and set goals

Even in Forex trading, nothing works without a well thought-out plan. The more structured you work, the higher your chances of success in Forex trading will be. It is very important to strictly adhere to the plan. After all, what good is a good plan if you do not apply it?

Breaks should not be missing in your daily planning! Get away from your computer and cook yourself something delicious, or go out into the fresh air. If you are in the nerve-racking world of Forex trading for too long, you need to be able to switch off. Detach your thoughts from the Forex trading world and recharge your batteries. Set limits on how many hours a day you trade. The absolute upper limit should be 9 hours a day.

Also take breaks after each trade to get back down again. Every successful and negative trade triggers emotions in you. This means that if you make the next trade immediately after a Forex trade, you will be influenced by your emotions. This creates the danger of overtrading and big losses.

Therefore it is also useful to set daily and weekly targets for Forex trading. Align your plan accordingly and keep your own rules. For example, a daily goal could be to end the trading day after 3 successful / 2 negative trades. Weekly targets, on the other hand, could be to set a loss and profit limit.

How does FX trading work?

Most Forex brokers also offer a comprehensive training section. Here you will receive helpful information about the most important basics and can take a direct look at the trading platform.

Forex Trading: the most important Forex terms

When dealing with Forex trading, you often come across technical terms that are not understandable without further definition. For this case we have created a guide for you, which deals with the most important terms around the topic of Forex trading. If a term is not familiar to you, you can simply look it up here and have everything at a glance.

Forex trading – example:

Each of you already knows Foreign Exchange or foreign exchange trading. If you’ve ever gone on holiday where you couldn’t pay in euros, you’ve had to change the euro into the local currency. For our example, let us simply assume that you traveled to the USA and needed US dollars. Then you went to the next bank before you started your trip and changed 1000 Euro into Dollar. Since the exchange rate at that time was EUR/USD 1.25, you got 1250 dollars for your 1000 euros.

Afterwards you flew to New York City for two wonderful weeks. But when you came back home, you still had exactly 125 dollars in your wallet. Now one could assume that when you go to the bank, you should get exactly 100 Euro again. But as the dollar has risen against the euro during this time, the EUR/USD ratio has also changed. This now stands at EUR/USD 1.11. This means that for one Euro you no longer get 1.25 dollars as in the beginning, but only 1.11.

However, this exchange rate development is an advantage for you, as you get more Euros for one US dollar. At the beginning you would have got 0.8 Euro for one Dollar. This can be easily calculated by dividing one Euro by the EUR/USD 1.25 exchange rate at that time.

In our case 1/1.25 = 0.8. This means that at the original exchange rate you would have received 0.80 Euro for one US dollar. However, if we calculate with the current exchange rate, you get exactly 0.90 Euro for one dollar (1/1.11 = 0.90). If you add this to the 100 dollars you still have in your wallet, the bank will give you 90 euros. In the end, this means that you have made a plus of 10 Euros due to the exchange rate changes of the currencies.

Finally ready to trade?

If you have been attentive, you should now be familiar with the most important terms from Forex trading. These are – in addition to a basic understanding of currencies and price movements – the basis for being able to operate sustainably in the Forex market.

If you have gotten this far, we recommend that you take a look at our guides, which provide you with further important information on forex trading. Select a suitable forex broker and open a demo account. We now wish you success in the Forex market!


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