How to Trade Forex?

The rising inflation coupled with the trend of luxuries turning into necessities has increased the demand of financial trading in the past few years. The fact that you have landed on our website and are scanning through this article is enough proof of your interest in trading foreign currency. Don’t worry if you are a newbie in this field, we will help you get started. This article will tell you the all basics and tricks of Forex trading.

What is Forex?

Referred in its full form as ‘Foreign Exchange’, Forex is a marketplace where currencies of different countries are exchanged and traded for a profit. If you are a beginner, then we would not recommend you to get into the complex mechanism of how currencies are valued and its correlation with economical factors. For now, you just need to know some important terminologies that are used very frequently in the trading of foreign notes.

Trading Terminologies

Cross rate: Value of a currency between two countries quoted in a third currency. For example, the value of Chinese Yuan in terms of British pound will be termed as cross rate, if it is stated in equivalent dollar amount in the New York Times. This is because neither Yuan nor Pound is the official currency of the USA.

Margin: This term is used to represent the minimum amount of deposit required to open any position in the market. For example if you have $100 balance and 1% margin, then you can open a buying or selling position worth up to $10,000.

Leverage: It refers to the ability of gearing your credit more than the total allowed margin. Let’s extend the previous example here. If you have a margin of $100 in your account and you open a position or place a bid for $10,000, it means you have leveraged your position by 100 times.

Long/Short: This is the most common word that you will come across in the financial trading industry. ‘Long’ means ‘to buy’ and ‘short’ means ‘to sell’. For example, you will be assuming a “long position” if you are buying a currency pair, similarly selling of a pair is known as “going short”.

Bid/Ask Spread: ‘Bid’ represents the selling price and ‘Ask’ refers to the amount at which it can be bought in the Market. Bid/Ask Spread that is the difference between the buying and selling amount, is the main source of income for Forex traders.

Pip: It is the measurement unit that represents the change in the value of two currencies. 1 pip is equal to a movement of 0.0001 in the per pair value. For example, if your investment in $/£ increases from 1.456 to 1.458, it means the value of this pair has increased by 2 Pips.

How to Trade Forex?

Here comes the most important part for you. How actually can you enter this market and earn profit out of it. There are several ways of trading foreign currency depending upon your risk and return preferences.

Now that you already know to read a Forex quote and calculate profits in terms of Pip, next step is to decide what currency you want to trade in. You will also have to hire the services of a brokerage house; however we would not recommend you to rely on them completely. These are professional Forex brokers who will get their fees even if you suffer from loss. Regardless of how expert they are, the agreement will state it clearly that you will trade at your own risk. They will not be responsible for any loss at any time. Analyze the market swings and trade on the basis of your own judgment. It is your hard earned money; you are the only one who will use it carefully.

Technical Charting

This is the most simple and easy way to analyze the market movements and invest accordingly. It involves observing past trends and graphs depicting the historical data. Observe the pattern of the graph and the factors affecting the movement. Brokerage houses have technical analysts who predict the future trend of the exchange rate on the basis of past movements. Ask your broker to share those graphs with you or you can also get them from the business section of newspapers.

Fundamental Analysis

Spare some time daily for business news as fundamental forecasting determines the future prices on the basis of economic indicators. Interest markup, foreign reserves, political environment are main factors considered by fundamental analysts. Brokerage houses publish these reviews on almost daily basis. Keep yourself updated with the business news, compare them with the broker’s reviews and make your own judgments.

Sentiments Based Investment

This is the least reliable way for forecasting future trends. Experienced traders invest heavily on the basis of their experience and ‘sixth sense’ as they call it, about the trading patterns. Also high net individuals like to trade this way. This is subjective and a highly risky way of investment.

You are all equipped to trade in the Forex market. Start off with low and safe bids. The only way to become a veteran of this field is to remain updated with all the business, foreign trade and economy news. Keep a close eye on market happenings, try to learn from the trading strategies of big players, and make your presence known in the industry before playing big. A good resource to start with is