How To Trade Forex

Before starting Forex trading, we should have basic knowledge of what is Forex trading? and how it works? We will have a general idea of Forex trading, flow of Forex trading and instructions about how to trade Forex.

What is Forex Trading?

To make is simple, Forex trading is same as currency exchange you use to do while traveling to another country. A trader buys one currency and sells another, and the exchange rate are never same, they change at every second based on supply and demand. If you have made your mind to trade in Forex and you feel it is an opportunity to make some extra money, you may wonder about the best way to get started.

It is very important to have an understanding of everything that you are going to do first time. Here in markets and methods for Forex trading you are investing your time and money. With better understanding, you can better manage your risk, make winning trades, and set yourself up for success in your new venture.

Three Markets to Trade Forex

For being a successful Forex trader always keep an eye on market, to get status of currency pairs that you have bout. Forex traders always busy current cy when they think it will increase in price relative to other currencies. Vice versa when they see that currency price is falling, they sale their currency.

There are three basically different ways to do Forex trading, these ways accommodate traders with every goal:

1.     Spot Market: It is said as a primary Forex market where currency pairs are swapped and exchange rates are calculated in real-time which truly base on supply and demand.

1.     Forward Market: In forward market, you do not trade at real time but you enter in biding with any other trader. If bid is successful you lock in an exchange rate for an agreed upon amount of currency on a future date.

1.     Futures Market: Here traders have an option for a standardized contract to buy or sell at a specific amount of a currency at a specific exchange rate at a date in the fut. This is done on an exchange rather than privately, like the forwards market.

If we see forward and futures markets, they are primarily used by Forex traders with aim to build their strategies according to future price change in currency pair. Here Spot markets directly affect the exchange rates of market, which is the largest and most used Forex markets by Forex traders.

Your First Forex Trade

Here in this section, we will go through some of the basic steps that you have to perform while doing your first Forex trade.

Select Trading Platform

The very first step to start Forex trading is to select a trading platform. Select a trading platform for your ease. There are trading platform available for MAC, IOS, Android and Windows. 

Open Account

You will need an account to start your trade because you will be involved in buying and selling. Select account type that suits you. If you are a beginner start with demo trading account.

Choose Currency Pair

After opening an account, you have to decide which currency pair you wish to trade. There are over 80 to choose from.

Currency Pair Categories

Three main categories of Forex currency pairs are given below:

  •      Majors are EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and USD/CAD and make  up 85% of the total trading volume.
  •    Minors (or major crosses) are combination of world’s biggest currencies, such as EUR/GBP and AUD/JPY.
  •   Exotics pairs include less traded currencies, such as the Turkish lira (TRY) or Mexican peso (MXN) 

Make Decision Of How You Want To Trade

There are two main ways to trade Forex: derivatives also known as Spread Betting and CFDs, or spot forex trading. These ways allow you to work in long- and short-time duration on currency pairs, but both of them are slightly different in working. Forex Do's and Not Do's

Spot Forex

Spot Forex is when you buy and sell currencies. Assume you have bought US dollars and Sold Euros. Here your opening trade depends upon how much base currency you want to buy or sell.

Forex Derivatives

In Forex derivatives you work on speculating on price movements of currency pairs without buying or selling it. Here you are trading the market that tracks flow of price of Forex currency pairs.

Buy or Sell Currency Pair

Till this section you know how to which currency pair you are trading. Now it is time to decide the either you have to trade long or short.

Forex trading is quoted as one currency pairs versus other. Each currency pair have base and quote currency. They are named as left and right currency of currency pair in general.

·         Make a BUY Trade if you believe that base currency will have strong position against quote currency in future. This is meant as long position because your profits will rise of the value of currency pair rise.

·         Make a SELL Trade if you believe that value of base currency will decrease against quote currency. This is short position as you will get profit if value of currency pair continues to fall.

Risk Management

Risk management is very important in terms of Forex trading. Key element of risk management is the use of orders. Tow main types of orders are as below.

  • Stop loss orders gives you instruction to close the position if the price of currency pair has dropped to a specific level defined by you.
  • Take profit orders gives you instructions to close the position at a price that is better than the current market level and is used to help lock in price targets.

Both of them provides instructions to automatically close a position in trade when currency pair price reaches at a specific level that was already determined by you.

Monitor And Close Your Trade

Once open, your loss and profit will surely depend upon the fluctuation of the market. You can use your smartphone of computer to open or close existing trade by tracking market prices, visualizing profit and loss in real time. When you are closing the trade, your will be doing opposite of opening, assume you have opened trade by buying three CFDs then you will close trade by selling three CFDs. After closing trade your net profit or loss will calculated at real time and will be reflected in you cash account balance immediately. Please note that City Index Spread Betting and CFD accounts are FIFO.





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