How Do I Trade Forex?

FxBrokerReviews.org – Forex is the exchange of currencies in the forex market. The process of buying and selling currencies is done for several reasons such as commerce, trading and tourism. Online forex trading is performed in two ways : via a broker and by forex CFDs.

Forex trading can be complex and involve various risks if you are unaware of what it is or have less experience. Therefore, it is better to trade forex after gaining experience and understanding all factors relating to it.

There is no specific approach in forex trading but investors can strategize and trade with their own planning and predictions. To understand the forex market, it is important to follow news reports, articles, latest trends, live charts and other market movements and performance.

Forex broker reviews offer the best reviews on forex brokers in the market that are suitable to your needs and requirements.

What is Forex CFD?

A forex CFD is an agreement or a contract that you agree to while trading foreign exchange. It is the difference in price of a forex currency from the time you open a position till you close it. For instance, if you open a long position and the position increases in value, then you make a profit.

Similarly, if the price in the position drops, you will face a loss. Therefore, it is wiser to open short positions to make profits frequently. You can trade the forex market using CFDs.

All CFDs are bought and sold using leverage where you open a large position by depositing a small margin. The total loss or profit is determined on the full size of your position and possibly surpasses your margin amount. While trading CFDs you should take appropriate risk management steps.

How to trade Forex?

Learn about Forex – Learning about forex is the foremost thing if you are a beginner. You must possess prior knowledge and understand how foreign exchange works. Here are few things to consider before trading forex:

Understand Forex– Before trading forex it is very important to understand how the market works and what is best for you. There are various online courses, webinars, videos and expert advice that can help you immensely when you are planning to start your journey with forex.

Without sufficient knowledge investors can face losses and end up losing their trading accounts. Hence, start with your research and practice trading with demo accounts on online trading platforms.

Open a Trading Account -When you are ready, you should open an account on an online trading platform with suitable facilities. If you are a beginner, go for a demo account with limited currency units to start with. Explore various online trading platforms and choose one with low charges and commissions.

Beginners should choose a micro forex trading account that requires low capital and has flexible limits and stops. They should research thoroughly and select the best online trading platform with a user-friendly and comfortable trading environment for both beginner and professional traders.

Fundamental Analysis – The fundamental analysis is conducted by experts to speculate various factors including, the economic strength of a country, socio-political factors, market sentiments. Fundamental analysis indicators are –

  1. Government Policies and the Central Bank – Central banks are responsible for controlling interest rates and monetary supply which impacts the supply of currencies in an economy. Also, government’s fiscal policies with taxes may affect exchange rates as well.
  2. Economic Data and News – Banks and investors prefer strong economies to place funds because of the demand in currency. News reports show economic conditions and demand to attract traders.

Technical Analysis – Technical Analysis is used to consider trends and price actions on charts to determine supply and demand demographically. The main aim to draw technical analysis is to interpret various patterns to help identify the right time to trade and to exit.

The Three Popular Trading Charts:

  1. Candlestick Chart: The candlestick chart shows opening and closing prices with vertical lines denoting high-to-low range. The “body” displays the prices and the candle “wick” shows high and low.

    If the candlestick is full then the currency pair has lowered and if the candlestick is empty then the closing price is higher than the opening price.
  1. Line Chart – The line chart is simple and used by beginners mostly because of its easy representation of expansion and contraction of prices. It shows a line drawn from one closing price to another.

    The line chart can help you identify a price movement and determine various currency patterns without any hassle.
  1. Bar Chart – The bar chart shows closing and opening prices which are high or low for that period. The top of the bar shows the highest price and the bottom shows the lowest price.

    The entire bar shows the currency pair’s complete trading range with the horizontal marks indicating closing and opening prices on the left and the right.

Take Expert Advice – Trading experts are all over the internet to offer advice for free or for negligible amounts. Trading professionals advise you and share their experiences to help you trade successfully and incur no losses. Experts also allow beginners to copy trades and receive personal assistance.

Copy Trading – Copy trading is the process of copying another trader’s position and strategy. Through this procedure you can set any amount you like and then directly copy real-time trades that a successful trader has executed.

Copy trading allows beginners traders to use another trader’s knowledge, expertise and have control over the trade outcome. You can open and close trades whenever you want and improve your trading skills using copy trading techniques.

What is the difference between Long and Short Positions?

A long position defines a bought currency with an expectation of its value to rise but when the sells the currency to the market for a higher price, the trade completes and the position closes. Traders hold on to a long position and wait for the price or value of the position to increase.

A short position is when the trader sells the currency with an expectation of its price to drop or fall and the position closes as soon as the trader buys the asset back for a lesser price compared to what it was sold at.

What is the difference between a Pip and a Spread?

The difference between the bid and the ask price is known as Spread which is the cost of trading. The spread has to be narrower to cost cheaper and for it to be expensive it has to be wider.

Pip stands for “Percentage in Point” which is the smallest price movement in an exchange rate in the forex market. Most currency pairs have a pip value of 4th decimal place while being quoted to 5 decimal places.

A pip is equivalent to 0.0001. However, a Japanese Yen looks different with one pip value of 0.01. The value of a pip depends on the trade size and the 2nd currency traded. Few examples of pips are –

Example:

USD/JPY exchange rate

109.339(buy or ask price)

109.315(sell or bid price)

On the other hand, a spread is the price which is the decided price of a trader to sell or buy the underlying asset. The spread is represented in pips and all financial markets have spreads. There are a few factors that impact the spread such as – Volatility, Liquidity, Market unpredictability and time of the day.

Also, other factors that can affect spreads are financial events, bank policy meetings and economic data releases. In a volatile market, spreads are wider in comparison to a quitter market.

Example:

EUR/USD exchange rate

1.17181 (buy or ask price)

-1.17166 (sell or bid price)

How can Beginners Trade Forex?

If you are a beginner planning to start your forex trading journey, here are a few things to follow.

  • Don’t be Afraid to Make Mistakes – As a beginner it is common to make mistakes as you will find other newcomers doing the same. However, that does mean you give up and stop your trading journey because there’s always room for improvement.

    Sometimes even the experienced people make mistakes too. Beginners make mistakes like, taking trade decisions too soon, no prior research, not following trends, trading unknown currencies and not understanding leverage.
  • Learn MT4 and MT5– The MT4 and MT5 trading software are ideal for beginners to start without any hassle. They offer highly intuitive designs and easy navigations and a wide range of tools, resources & guides.

    Both the online trading platforms are available on mobile, desktop and web and have in-built features like – Expert Advisors (EA), Scripts, Custom Indicators, Library, New order types, Economic Calendar, Widgets, Timeframes, fund transfer, market depth, Netting, Email System, tradable assets and educational materials
  • Practice Reading and Analyzing – Most beginners tend to read and research less which puts them through failures. Hence it is highly recommended to practice reading daily updates and staying up-to-date with the constantly shifting market movements.

    Beginners should follow market changes by reading financial newspapers columns, follow social media trends for current trends.
  • Track Progress Weekly – Alongside staying up-to-date, it is suggested to keep a track of your progress weekly. This will help you determine your current position and effectively plan your upcoming trades and moves.

    Tracking your progress weekly is perfect to stay on the current planning and you are not too far from strategizing your next moves. The financial market updates every week and you can plan perfectly for the next week.
  • Choose a Beginner’s Trading Platform – There are many online trading platforms and first-timers can get confused. Therefore, it is best to choose a platform preferred by beginners. Forex broker reviews can suggest the best forex trading platform for beginners.

    Forex trading platforms for beginners are easy to navigate and easy to understand. Also, financial and trade specific education are readily available to read from. Plus, beginners can access tutorials, webinars and e-books on online forex brokerages and trading platforms.
  • Try Online Trade Support – Online service providers provide online and offline support to beginners and professional traders. If you feel you are lost or having a difficult time with something specific on the platform, you can choose to drop a mail, call or video chat with the support team of the online trading platform.

    You can find expert assistance from the service provider or online trading platform 24/5 and continue trading successfully without any confusion or misunderstandings.
  • Start Placing Real Trades – After practicing awhile and finding yourself ready, you should dive into real trading and start placing real-time trades. Beginners can use a Demo account to place trades and practice trading in a real environment.

    Real trading can teach beginners step-by-step to imbibe the trading experience and handle failures as a part of learning. Real trades can help develop practical ideology and expertise on online trading.
  • Use Mobile Trading Apps – Mobile trading is the most convenient way of trading with a long list of options available with only a few clicks. Mobile trading apps such as MT4 and MT5 are available on iOS and Android and can be used on iPhone, Android devices and tablets.

    There is great ease of use and these apps help traders keep an eye on live charts, the current market and fulfill all trading requirements in no time at all. Mobile apps are flexible in terms of performing trades from anywhere and anytime.

Bottom Line

Trading forex is easier in the current times due to technological advances and ease of use through beginner-friendly online trading platforms and user-friendly software. Forex trading is hassle-free and requires only the minimum experience to execute trades successfully.

If you are looking forward to executing real-time trades as a beginner, forex broker reviews have the best suggestions for you to pick up trading expertise in very less time. 

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