Forex Trading

This article introduces the basic concepts of forex trading, how it works and how you can start trading. This brief guide is aimed towards people who are new to forex and wishing to enter into forex trading, and will provide a basic foundation to the underlying principles. 

If you want to enter the exciting world of forex trading, always remember:

  • Only trade within your budget
  • The forex market offers potentially profitable trading opportunities 24 hours per day
  • Learn more about the different currency pairs before starting to trade
  • Make sure to partner with a reputable and reliable broker
  • Take the time to practice your trading strategies on a demo trading account

With a clear picture of how forex trading works you will be ready to start trading now. 

Introduction to Forex Trading

The most simplistic description of the foreign exchange market is where one currency is traded for another. Currencies are of major importance to people all over the world since money from different countries has to be exchanged for purposes of international trade and business. For example, a person living in the US who wants to buy cheese from France will have to find a way to pay the seller of the cheese in euros (EUR). What this means is that the importer of cheese from France to the US will have to exchange their US dollars into the equivalent of euros. 

The same principle applies to travel as well. An English tourist visiting Kenya cannot pay in Pounds Sterling to go on safari because the GBP is not a locally accepted currency. The tourist would therefore have to exchange the GBP for the Kenyan Shilling at the prevailing exchange rate.  Since the currencies don’t stay constant, a forex trader can make a profit by buying and selling currencies when they take advantage of these currency fluctuations.

Define your Forex Trading Goals and Style

When venturing into the world of forex trading, it is essential to know what it is that you would like to achieve. After this, align your goals and trading method to ensure you are able achieve the goals you have set. Every style of trading forex requires a different approach and comes with a different level of risk. For example, if you are nervous about going to sleep while you have an open position, you may be better suited to day trading. However, if you feel you would benefit from a currency appreciating over a longer period, you may consider becoming a long term or period trader.

Choose a Broker and Platform That Suits Your Style

It is vital for a trader to select a forex broker who provides a trading platform which will allow them to perform the kind of forex analysis they require. It is of paramount importance for the forex trader to choose a reputable broker, which means that they must take time to research the differences between the available brokers. The trader must know the policies adopted by each broker and how they go about making their market. For example, a broker who offers exchange-driven market prices is different from one involved in the spot market or over-the-counter trading. Reading each broker’s documentation will offer an insight into their trading policies.

Getting Started Trading

To successfully trade forex, similarly to any other financial investment, it is important for the trader to avoid being either greedy or overly cautious, but instead take calculated risks. Whenever the market does not move as the trader expects, he/she should be ready to wait it out. However, when a potentially profitable trade presents itself, decisive action should be taken. By following these steps and through continuous practice, the trader will become more refined and confident in their decisions.

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