In this article we are going to cover how to trade Forex.
Trading Forex is speculating on the exchange rate between currencies.
You are betting that one currency will rise/fall relative to another.
Currency markets are always in a pair.
The exception is baskets of currencies versus another for example the ‘DXY’ the US dollar paired against a basket of six other currencies.
Euro (EUR), 57.6% weight
Japanese yen (JPY) 13.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight
Swiss franc (CHF) 3.6% weight
When you speculate on the Forex market you can bet Long (you think the price is going up) or Short (you think the price is going down)
When you trade on a currency pair, they look like this on a quote screen which you will find on a broker’s platform or on any financial news site that covers currencies.
USD/JPY 109.836
That means for $1 you will receive ¥109.836
The first named currency in this example pair is the USD which is the base currency.
The base currency USD (as it is first) is denominated always as 1 unit of currency which in this case is $1 you would then receive ¥109.836 for your $1
The price movements in a currency market are known as ‘pips’ and they are the smallest price increment of 1/100 of a percent. Pip is an acronym ‘Percentage in Point’
The pip value is highlighted in red on the above example.
If you were to buy this currency pair and go ‘Long’ you would be buying the Dollar and selling Yen.
This would mean you think the USD would increase in price against the Yen and therefore by default you would think the Yen is to weaken. You would receive more Yen to your $1 as the yen weakened against the USD in the exchange rate.
We want to give you some points to bear in mind on how to trade Forex.
Adjust your mindset and expectations to be realistic. We have seen it is not too difficult to get swept away with the slick marketing telling you how easy it is to make money in FX while they sit in a rented Lamborghini.
Remember if it sounds too good to be true it almost always is!
Of course, you understand that you will not make quick and easy money despite what may be advertised. However, you absolutely can make a steady income once you have obtained the skill of trading Forex.
There are lots of valuable free articles available so you are absolutely sure you know what’s involved and you know you want to trade Forex.
After all, if you want to learn to trade Forex it is a skill that can bring you second income. You can learn more on how to trade on forex from an fp markets broker here.
When many new comers to the financial markets type into the search engine how to trade Forex the word strategy is used
The Forex Trading strategy is the plan, the frame work and methodical approach that you will use to get in and out of the market.
This will be a set of rules and/or conditions that are observed that are required to be met so that you can get in and out of the market objectively and methodically without or with as little discretion and emotion as possible.
More importantly the trading strategy will have risk management rules. This is the most important part of trading. If you do not manage your risk you will not have any money to trade with! Capital preservation is the key to surviving. The discipline required to manage the risk is a whole other element that one must conquer.
The mindset and psychology of trading is a common reason many will fail. The reason is as humans we find it difficult to follow rules and not be impulsive or emotive, especially when money is involved.
That is why a solid plan must be firmly and correctly in place to keep you on the right path.
Once you have obtained the education and you have a solid strategy you will look to deploy your capital.
Next you will need a broker.
There are many available but the ones with the stellar reputations should be your first choice.
Long established and having FCA registration (U.K.) and client funds held in a separate account with protection should be a minimum.
Other financial bodies will be applicable in other countries such as the United States has:
U.S. Securities and Exchange Commission (SEC)
Financial Industry Regulatory Authority (FINRA)
Commodity Futures Trading Commission (CFTC)
The instruments or trading vehicles on offer to retail traders vary.
(‘Retail traders’ are classed as nonprofessionals.)
CFD – Contracts for Difference
Spot Forex – ‘Lots’ (contracts of an amount of currency)
Spread betting – Betting a stake per pip (has advantages of being tax free if it is not your only source of income as it falls under gambling in U.K. law)
Before you go jetting off to open an account you should read the below first!
How to Trade Forex – You should acquire some quality education
This should be approached with some due diligence.
The questions and caution that should be asked of the supplier of the education is some proof that what they are selling offers value.
Have they proved that their strategy works?
Screen shots and other influencers on social media do not count as proof. A video of a live account being logged into or verification from an accountant is valuable. Do not trust anyone who offers meta trader as proof as that can be rigged as proven in videos online.
Their screens look similar to this:
There are also plenty of services that offer value and deliver distraction. However, they emphasize on your motivation and goal orientation as opposed to concise trading plans and education. This delays your progress as there is no clear strategy to keep you paying for curiosity.
Conclusion
The allure of quick riches should be ignored at all costs.
What shouldn’t be ignored is the fact you can make a second income.
You should avoid the marketers with no evidence of value in their service and seek out quality education.
A self-starter mentality is required along with focus and motivation.
It can be very rewarding financially and for your lifestyle if you approach it correctly however it is also risky if you do not follow the advice of someone who knows what they are doing.
If you would like to know more, you could visit www.able-trading.com where you can read more valuable education with transparency on proven results.
