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. 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 difference 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!

5 thoughts on “What is Forex Trading (for Beginners)”

  1. Thank you. I have wrestled with and continue to do so with what exactly suits me and where I will end up as I believe it is important to be comfortable with your approach otherwise you could easily end up making a total mess and just gambling your way through

  2. Create a trading account with zero comissions, no transaction fees and the tightest spreads -> https://capitalcom.onelink.me/700515151/youtube

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