Forex Trading Tips For Beginner
Even investors usually only know foreign exchange trading from vacation trips. The foreign exchange market is many times larger than the stock market. When trading forex, investors rely on changes in exchange rates. In this article you will learn how Forex trading works and how you can become a Forex trader. We have also listed the best forex broker offers for you. Right at the beginning there are the best recommendations and tips.
FOREX TRADING – RECOMMENDATIONS & TIPS
To trade forex you need a forex broker. When choosing, pay attention to a low margin – this way you never tie up more capital than necessary.
Our recommendation: At Plus5005 you can open an account in 15 minutes. There are no account or custody account fees.
eToro6 allows investors to participate in various currencies, such as the euro and the US dollar.
Tip: If you are a newbie, start trading forex with caution. Gain initial experience with small positions.
FOREX TRADING – THE ESSENTIALS IN BRIEF
- The foreign exchange market is the largest market in the world. Globally, four trillion US dollars change hands every day.
- In forex trading, high profits can be achieved with the smallest investment – thanks to leverage.
- Always calculate the risk you want to take as much as possible – we explain how to successfully apply leverage in forex trading.
- In order to get involved in forex trading, you should know the most important technical terms such as lot and pip – here we explain both terms in an understandable way
FOREX BROKER OFFERS
Account opening in 15 minutes. Deposits can be made by credit card or PayPal5.
77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Easily follow successful traders6.
66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Cryptocurrencies can be traded around the clock (24/7)11.
68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Product recommendation: At Plus5005 you can easily make deposits via Paypal and credit card, you open an account in 15 minutes. Markets.com11 offers over 2,200 tradable markets and thousands of free real-time quotes. With eToro6 you can easily network with other traders and share your knowledge. Here you can follow real traders. You can find out what else distinguishes the individual brokers in our forex broker comparison. In the following we will tell you what makes the foreign exchange market so exciting and how forex trading works.
FOREX TRADING – HOW TO TAKE ADVANTAGE OF THE FOREX MARKET
You probably know from vacation trips the counters where you can exchange money for another currency. If you go to the USA, you will exchange euros for dollars. When flying to Japan, Japanese yen is the currency of choice. But as an investor, you can also trade forex from the comfort of your own home. Thanks to the leverage effect, large profits can be achieved with even the smallest bet. But how do you use the foreign exchange market – also Foreign Exchange Market, short Forex or “FX”? What should be considered when trading forex and what advantages does the FX market offer real currency traders?
1. THE TRADING HOURS IN FOREX TRADING
There is no rest in the foreign exchange market. Have you ever waited expectantly for the opening price of a share? Real Forex traders do not know waiting times. With a few exceptions, foreign exchange trading takes place around the clock. And you too can participate in forex trading through your forex broker at virtually any time.
2. THE LIQUIDITY IN FOREIGN EXCHANGE
There are also other conveniences: you don’t have to wait long for your order to be executed. Because: The foreign exchange market is by far the largest financial market in the world and offers quasi-abundance of liquidity; currencies with a volume of around four trillion (4,000 billion!) US dollars change hands every day – a multiple of the turnover on the stock markets.
And if you are now asking yourself where the heart of foreign exchange trading is, where the transactions are brought together, the answer is sobering: foreign exchange trading spans the entire globe. Foreign exchange transactions usually take place in over-the-counter interbank trading via electronic systems. Therefore, unlike the stock markets, there is not “the” forex exchange.
FOREX TRADING VIA LEVERAGE CERTIFICATE
Incidentally, you do not need to open a special forex account to make leveraged profits on the foreign exchange market. Knock-out certificates also offer you the prospect of extraordinarily high profits with a high, individually adjustable risk.
EXAMPLE: EURO/US DOLLAR CURRENCY CERTIFICATE
An example of a knock-out certificate on the euro-dollar currency pair illustrates the explosive earnings profile of a currency certificate. Let’s assume that the euro is currently worth 1.1400 US dollars and based on only moderate economic data in the USA you expect US interest rates to fall soon. Especially since you know that falling interest rates weaken the attractiveness of a currency and therefore tend to cause the price to fall.
The most important parameter you use to research a suitable leverage certificate is the loss threshold and – in the case of certificates with a limited term – of course the remaining term. The closer the loss threshold (knock-out) is to the current rate, the greater the opportunity and risk – and with them the leverage of the currency certificate.
You choose a certificate whose knock-out is 1.08 US dollars and therefore around five percent below the current price (safety margin). And since you basically only pay for the safety margin, so in this example you only use a fifth of the capital, but still fully participate in the movement, you get a powerful leverage of 20 (100 divided by 5).
If you want it to be less risky, you can also choose a safety margin of ten percent. Then your leverage is around 10 (100 divided by 10). If the euro-dollar moves in the right direction, your knockout will make you a 10% or 20% profit on just a 1% move.
Our tip: Since the leverage works in both directions, as with direct forex trading, you should initially keep it low and thus generously measure the safety margin: the top priority must be preserving your capital. It is therefore important to avoid the knock-out event in any case.
If necessary, sell the position before the currency certificate is stopped out and thus immediately and irretrievably expires worthless. By the way: With the right depot provider, you can trade knock-outs particularly cheaply.
FOREX PROFITS WITHOUT WITHHOLDING TAX?
Contrary to some rumours, profits from foreign exchange transactions are not tax-free. In most cases, the withholding tax introduced in 2009 is 25 percent plus a 5.5 percent solidarity surcharge on the amount of the withholding tax and, if applicable, church tax. That’s 26.375 percent (0.25 x 5.5)% + 25% = 26.375%). If your personal income tax rate is lower, you can get part of the tax paid back from the tax office as part of your annual tax return.
By the way: Losses from forward transactions are taken into account for tax purposes in the general loss offset pot; You can offset them against all other types of capital gains for tax purposes.
But there are also special situations: If your broker grants you a right to extradition of foreign currency – at least on paper – your personal income tax rate will be applied instead of the withholding tax.
Tip: It is best to consult a tax advisor for tax questions relating to forex trading. Your bank advisor may be able to give you some advice.
LEVERAGE REGULATION IN FOREX TRADING
On August 1, 2018, the European Securities and Markets Authority (ESMA) introduced stricter regulation of foreign exchange and CFD trading. These changes have a significant impact on your trading in foreign exchange, because since the ESMA decision, only a maximum leverage of 1:30 is permitted for forex and CFD trading. According to ESMA, the level of leverage for the various currency pairs depends on volatility. This is how high the maximum allowable leverage for currency pairs is now:
MAXIMUM LEVERAGE IN FOREX TRADING
- 1:30 for major forex pairs
- 1:20 for other currency pairs
FOREXTRADING – WHAT YOU SHOULD DO
- Familiarize yourself with the most important terms of forex trading and choose the right currency pairs for your investment strategy.
- As a Forex beginner, start with small positions. It is important to gain experience! Before each trade, calculate the risk you are willing to take.
- Find an online broker to start your Forex trading with