How to Trade Forex
More than 5 trillion dollars are traded on the foreign exchange market every day! This makes foreign exchange trading, also known as Forex trading, one of the best places to invest and a great place to make money. Large initial investments are not always necessary in order to succeed in Forex trading and nothing compares to the excitement of making a right call and earning a bulk of money on the market. This article will discuss how to trade Forex online.
There are three main components that you must go over in order to learn how to trade Forex:
1. Learn the Basics of Forex Trading
The basis of Forex online trading is selling one type of currency in exchange for another currency. The currency that you are selling is called the ‘Base Currency’ and the currency you are buying is called the ‘Quote Currency’. The amount of quote currency that you will get for the sell depends on the constantly changing exchange rate, and learning to understand the movement of this exchange rate is the key to learning how to trade Forex. Another important term is a ‘Long Position’. A ‘Long Position’ simply means that you are buying the base currency and selling the quote currency. On the contrary, a ‘Short Position’ means that you are selling the base currency and buying the quote currency.
So how do we decide which currency pair to trade?
An endless amount of factors influence the movement of the price of every currency pair. In order to learn how to trade Forex we must understand a least a few of these factors and how they might affect the price.
One of these factors is the state of the country’s economy. When an economy weakens, the value of its currency also weakens in respect to other currencies on the market. Political events may also influence the price change. An upcoming election may increase or decrease the faith of people in the economic future of a certain country therefore influencing the strength of that currency. Follow recent economic reports to get a glimpse into a certain currency pair and make a smart decision based on facts.
*** Note that the total traded is 200%, due to the fact that in the FX market, you trade currency pairs
The final part of the basics is learning how to calculate our earnings and losses. Changes in price are measures using pips. One pip is one ten-thousands of a unit. For example, if the original price was 5.6930 and the price dropped by 10 pips then the new price will be 5.6920. In order to convert the pip change to an actual profit or loss, multiply the pip change by the current exchange rate and you get the increase or decrease in your account’s value. Read more about Forex trading basics
2. Open an Online Account
To trade Forex online you must have an active online account. Many brokerages offer online accounts and joining the right one is very important. Look into several alternatives before making a decision while taking into consideration these key factors:
- Experience – In trading Forex online, experience is very important and choosing a company without the proper experience is a big risk. Consider companies with an operating experience of 5 years or more to be safe.
- Regulation – Most countries provide government supervision and the best brokerages abide to this supervision willingly. Check who oversees the company’s work and make sure that it is an honest and serious body. Some well known supervision bodies are: