EDUCATION: How to trade forex?
Trading foreign currency on the forex market, also known as foreign exchange trading, can be an exciting hobby and a lucrative source of income for many people. Currently, the stock market trades about $22.4 billion per day, while the forex market trades around $5 trillion per day. There are various ways you can engage in online forex trading.[/I]
1. Learn basic forex terms.
- The currency you are using, or selling, is the base currency. The currency that you are buying is called the quote currency. In forex trading, you will sell one currency to buy another.
- The exchange rate tells you how much you have to spend in the quote currency to buy one unit of the base currency.
- A long position means you want to buy the base currency and sell the quote currency. In our example above, you want to sell dollars to buy pounds.
- A short position means you want to buy the quote currency and sell the base currency. In other words, you sell British pounds and buy US dollars.
- The bid price is the price the broker is willing to buy the base currency for in exchange for the quote currency. The bid price is the best price at which you want to sell your quote currency in the market.
- The ask price, or ask price, is the price at which the broker sells the base currency in exchange for the quote currency. The asking price is the best you are willing to buy from the market.
Spread is the difference between the bid price and the ask price.
2. Specify the currency you want to buy and sell in.
- Forecasting the economy. For example, if you believe the US economy will continue to weaken, and this is not good for the US dollar, you may therefore want to sell dollars in exchange for currency from a country with a strong economy. .
- View a country's trading position. If a country has a lot of popular goods, it may export goods to make a profit. This trade advantage will boost economic development, thereby helping to boost the value of this country's currency.
- Political review. If a country is holding an election, its currency will appreciate if the winner of the election has a fiscally biased agenda. In addition, if a country's government loosens regulations on economic growth, this will push up the value of the currency.
- Read economic reports. A report on GDP, or on other economic factors such as employment and inflation, of a country will have an effect on the value of that country's currency.
3. Learn how to calculate profit.
- Use the unit "pip" to measure the change in value between two currencies. Usually, one pip equals 0.0001 change in value. For example, if the EUR/USD rate increased from 1.546 to 1.547, then the value of your currency has increased by 10 pips.
- Multiply the number of pips your account changes by the exchange rate to find out how much your account value has increased or decreased.
4. Market analysis. You can try several different methods such as:
- Technical Analysis: Technical analysis is looking at charts or previous data to predict the direction of currency movement based on past events. The broker will usually provide you with a chart, or else you can use a popular platform like Metatrader 4.
- Fundamental Analysis: This analysis involves looking at the economic background and character of the country and based on this information to make trading decisions.
- Psychoanalysis: This type of analysis is largely subjective. You're basically trying to analyze market sentiment to figure out if the market is trending "bearish" or "bullish." While market sentiment cannot always be certain, you can still make some guesses, and this will positively impact your trading.
5.Define margin trading. Depending on the broker's policies, you can invest little money and still make big trades.
- For example, if you want to trade 100,000 units with a margin of 1%, the broker will ask you to put $1,000 in cash in your account for safety.
- Both profit and loss will be added or deducted from the account. For this reason, the best general rule is to only invest 2% of your cash in a particular currency pair.
6. Advise.
- Try to use only about 2% of your total cash. For example, if you decide to invest $1,000, try using only $20 to invest in a currency pair. Prices in Forex are very volatile, and you have to make sure you have enough money to spend when the currency pair price drops.
- Try using a demo account to make forex trades before investing real capital. That way you can be sure of the process and definitely should you join forex trading. After you always make the right trading decisions with a demo account, you can start doing it with a real forex account.
- Limit losses. Let's say you have invested 20 USD in EUR/USD currency pair, and today you have lost 5 USD. But you haven't lost your money yet. It is important that you only use about 2% of your cash back per trade, plus a stop loss with that 2%. You still have enough capital to cover this period so you can keep the position from closing and make a profit.
- Remember a loss is not a loss unless your position is closed. If your position is still open, your loss will only be calculated if you choose to close the position and take the loss.
- If the currency pair moves against your will, and you do not have enough funds to cover it during this time, your order will be automatically cancelled. Therefore, you must make sure not to make this mistake.
7. Warning.
- More than 90% of day traders fail. If you want to learn the common pitfalls that cause you to make bad trading decisions, consult a trusted fund manager.
- Check to make sure that the brokerage firm has a specific address. If the broker does not provide an address then you better find someone else to avoid being scammed.
1. Learn basic forex terms.
- The currency you are using, or selling, is the base currency. The currency that you are buying is called the quote currency. In forex trading, you will sell one currency to buy another.
- The exchange rate tells you how much you have to spend in the quote currency to buy one unit of the base currency.
- A long position means you want to buy the base currency and sell the quote currency. In our example above, you want to sell dollars to buy pounds.
- A short position means you want to buy the quote currency and sell the base currency. In other words, you sell British pounds and buy US dollars.
- The bid price is the price the broker is willing to buy the base currency for in exchange for the quote currency. The bid price is the best price at which you want to sell your quote currency in the market.
- The ask price, or ask price, is the price at which the broker sells the base currency in exchange for the quote currency. The asking price is the best you are willing to buy from the market.
Spread is the difference between the bid price and the ask price.
2. Specify the currency you want to buy and sell in.
- Forecasting the economy. For example, if you believe the US economy will continue to weaken, and this is not good for the US dollar, you may therefore want to sell dollars in exchange for currency from a country with a strong economy. .
- View a country's trading position. If a country has a lot of popular goods, it may export goods to make a profit. This trade advantage will boost economic development, thereby helping to boost the value of this country's currency.
- Political review. If a country is holding an election, its currency will appreciate if the winner of the election has a fiscally biased agenda. In addition, if a country's government loosens regulations on economic growth, this will push up the value of the currency.
- Read economic reports. A report on GDP, or on other economic factors such as employment and inflation, of a country will have an effect on the value of that country's currency.
3. Learn how to calculate profit.
- Use the unit "pip" to measure the change in value between two currencies. Usually, one pip equals 0.0001 change in value. For example, if the EUR/USD rate increased from 1.546 to 1.547, then the value of your currency has increased by 10 pips.
- Multiply the number of pips your account changes by the exchange rate to find out how much your account value has increased or decreased.
4. Market analysis. You can try several different methods such as:
- Technical Analysis: Technical analysis is looking at charts or previous data to predict the direction of currency movement based on past events. The broker will usually provide you with a chart, or else you can use a popular platform like Metatrader 4.
- Fundamental Analysis: This analysis involves looking at the economic background and character of the country and based on this information to make trading decisions.
- Psychoanalysis: This type of analysis is largely subjective. You're basically trying to analyze market sentiment to figure out if the market is trending "bearish" or "bullish." While market sentiment cannot always be certain, you can still make some guesses, and this will positively impact your trading.
5.Define margin trading. Depending on the broker's policies, you can invest little money and still make big trades.
- For example, if you want to trade 100,000 units with a margin of 1%, the broker will ask you to put $1,000 in cash in your account for safety.
- Both profit and loss will be added or deducted from the account. For this reason, the best general rule is to only invest 2% of your cash in a particular currency pair.
6. Advise.
- Try to use only about 2% of your total cash. For example, if you decide to invest $1,000, try using only $20 to invest in a currency pair. Prices in Forex are very volatile, and you have to make sure you have enough money to spend when the currency pair price drops.
- Try using a demo account to make forex trades before investing real capital. That way you can be sure of the process and definitely should you join forex trading. After you always make the right trading decisions with a demo account, you can start doing it with a real forex account.
- Limit losses. Let's say you have invested 20 USD in EUR/USD currency pair, and today you have lost 5 USD. But you haven't lost your money yet. It is important that you only use about 2% of your cash back per trade, plus a stop loss with that 2%. You still have enough capital to cover this period so you can keep the position from closing and make a profit.
- Remember a loss is not a loss unless your position is closed. If your position is still open, your loss will only be calculated if you choose to close the position and take the loss.
- If the currency pair moves against your will, and you do not have enough funds to cover it during this time, your order will be automatically cancelled. Therefore, you must make sure not to make this mistake.
7. Warning.
- More than 90% of day traders fail. If you want to learn the common pitfalls that cause you to make bad trading decisions, consult a trusted fund manager.
- Check to make sure that the brokerage firm has a specific address. If the broker does not provide an address then you better find someone else to avoid being scammed.
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