Forex is shorthand for foreign exchange. When trading in Forex, you are speculating on the value of one nation’s currency against the value of another, with the aim of making a profit as they fluctuate. If the US Dollar is expected to becoming stronger against the Euro, you could buy Dollars at the current lower price, and make a profit by selling once it gains against the price of the Euro. The changing exchange rate between two currencies is what allows you to make a profit.
How to Trade Forex?
Before you can trade forex you need to get access to the international currency markets. This is done by way of a broker who is able to take the orders you place with them, and transact them on the market.
When you make an order with your broker, you are requesting them to either buy or sell a certain currency in exchange for another one. Forex trading is always done in pairs. Some of the most common pairs of currency to trade are the US Dollar (USD) vs Canadian Dollar (CAD), USD vs Euro (EUR), EUR vs Great British Pound (GBP), USD vs GBP, and EUR vs Japanese Yen (JPY). However, you can pair many other combinations, all of which will be available via your online broker.
How can I improve my trading skills?
Choose a broker who has training material available. Often it is available, through videos, FAQs, demo accounts, live support, and online tutorials. Below are our selection of articles that will help you get started.
Research in Forex Trading
Forex trading does take time, both in the time you need to put into trading the markets as well as the research that is required to limit the risk you are exposed to in your trades. Research can be split up into two different areas; fundamental analysis and technical analysis, and used together they can make you a better trader.
Fundamental analysis is where traders monitor the news media and make an analysis of what the effects of this news will have on the currency markets. A good example of fundamental analysis could perhaps be the effect of a major country using military force against another country – this would impact a number of currencies and we could trade this volatility.
Techincal analysis is where traders monitor the charts of the currency pairs and speculate about the potential market movements that will follow.
Most reputable brokers have practice accounts called demo accounts, so you can learn the ropes without any risk at all, and may also allow traders to open accounts with very little money. This allows beginners with low funds to begin trading and learn through constant practice.
This is an advisable route for all beginners; become familiar with the trading platform and the technical aspects of trading before you start making trades with real money.
What will also help you tremendously is to learn commonly used terms as quickly as possible – PIPs, Base Currency, Quote Currency and Currency Pairs are all terms that your broker should have laid out in an easy-to-learn fashion.
Some trading platforms can appear intimidating, with plenty of charts, numbers, and graphs that may look too complicated at first glance. Don’t let this scare you; the best platforms and brokers will have good training videos, tutorials and online support to help you understand what everything means. The learning curve only looks steep, but you will become comfortable with the layouts quicker than you think.
What is leverage?
The liquidity of the Forex market means that brokers can offer a large amount of leverage. This means that individuals can enter the market and control large positions with relatively little money. This ease of entry is what makes currency trading so attractive to people who may not have the funds required for productive stock trading; you can enter the market with as little as US$50.
However, traders should still understand how leverage works and be cautious with it; mistakes mean large losses so becoming familiar with the risks and benefits is crucial. Make sure to use your chosen online broker’s training videos and support systems so that you understand the process and risks. Read more about leverage in forex trading here.
How can I make trades?
You can trade from your mobile phone or a laptop, wherever you have access to the internet as long as you have software and a forex broker to access the markets – popular software is MetaTrader4 (free) and JForex. Online forex brokers also have mobile apps to get pricing quotes, making quick trades possible from any location at any time.