Forex trading guide

If you have ever wanted to try trading Forex, along with learning the best Forex trading strategy, then this Forex guide is the perfect tool to help you get started. There are several steps involved in learning how to trade Forex. This FX Trading Guide will go over each of them in detail to teach you how to become a trader. You can become a successful FX trader by using good forex trading strategies.

 

How Can I Start Trading?

 

One of the first things that we’ll discuss in this free strategy guide to begin trading is to find a broker. A broker is simply a company that facilitates your trades. In other words, you’ll go through them if you want to make any trades. Opening an account with a broker is a simple affair. All you need to do is go to their website and fill out the information.

Forex trading platform

All Forex brokers have software that you can use to make trades. There are some well-known software suites (sometimes called a Forex trading platform) out there like MetaTrader. Which are used by some of the top Forex brokers in world, but there are also software packages that are specific to a particular broker. Even with the best Forex broker, you may have to download and install it, or you might be able to use a web browser interface.

In either case, once you have created an account, you need to deposit money to begin trading with. In many cases, you can opt to try out the platform with a demo account instead, which uses virtual money but is identical to the actual trading software in all other aspects.

 

Choosing the Right Forex Broker

 

There are certain things that you’ll need to keep in mind when you are choosing your first Forex broker. You are investing your money with this broker and as such, you need to ensure that they are trustworthy. There are a few ways to do this but the most effective one is to do your research completely and thoroughly on each and every broker that you are considering. You can feel pretty safe going with top rated Forex brokers, based upon popular opinion, or looking for a list of the top 10 Forex brokers, but keep in mind that they may not have all the features you want.
Brokers like etoro, iqoption, markets.com offers trading webinar, forex webinar and trading academy which can be a good start for you.
Review each broker to see which one that offers best features, special offer, forex webinar, trading academy, trading webinar etc.

Forex broker with good reputation

It is also important that you seek out brokers that have a good reputation and that are well recognized within the trading community. In addition, you want a broker to offer Forex on the go, via a mobile app, so that you can trade at any time. There are all kinds of factors that go into choosing a broker, such as the stability of their servers, the platform that they are using, the regulation that they’re under and more. This online trading guide will offer more suggestions on how to choose a broker later.

Money gurantee from FX brokers

A broker that is reputable will guarantee the safety of your money and is beholden to a specific jurisdiction if there is a problem. Also, make sure that you are considering the number of employees that a broker has for online Forex trading, because if they do not have sufficient numbers of employees to handle the number of traders you are probably going to want to look elsewhere. This is especially true when it comes to customer service.

After you become familiar with your online trading strategy, and Forex in general, you will start to recognize shady brokers that you won’t want to work with. You also will develop some favorite brokers to work with, particularly those that offer bonuses or perks that you enjoy or have the tools available to accommodate your stock trading strategies. Let’s take a look and some of the considerations you should bear in mind whenever you look at FX brokers.

Before you sign up with a FX broker
  • Is the broker regulated in at least one country (and preferably two)?
  • Does the broker offer various account types, including a demo account that you can use without making an initial deposit?
  • How many currency pairs does the broker offer? The more currency pairs that they have, in general, the better the broker?
  • How do you contact customer service and when are they available? What do other customers say about their service?
  • Do they have a platform of sufficient quality? Look for a platform that is either a trusted name among trading software already or one specific to that broker that you have used and enjoy using. If you are new, it is recommended that you stick to the top Forex platforms for now.

 

Trading Exchange Rates Online

 

Anyone just starting working with an online trading platform may want start off buying and selling Forex contracts to one their best strategy for Forex trading. There are dozens and dozens of currency pairs with their own exchange rates. Based upon how these exchange rates change, traders use a variety of tools at their disposal including technical analysis, to make money on these currency exchanges, in addition to their best trading strategies.

The great thing is, all you need is a computer or mobile device, along with a trading strategy. Even most of the smaller brokers now have mobile apps that you can use for online Forex trading. You can do this from home with your own internet connection or from a cafe if you prefer. You can either create an office for your trading at home, or you can trade on the go using your tablet, smartphone or other device.

 

How to Trade Forex through Online Platforms

 

There is a lot of information online about trading currencies with Forex. Many of them are a beginner trader guide which is created by the various brokers that are out there. Others focus on more technical analysis, or using the online trading platform. Often, beginners have a difficult time deciphering technical analysis and even sometimes have trouble with trading in general.

All you need to remember to get started is that in Forex Trading, money is earned by correctly predicting which way of exchange rate movement is going to go. All of the Forex strategies out there start with that one simple thing.

Euro and USD

 

Two of the most common currencies in the world are the Euro and the United States Dollar (EUR/USD). One of these is called the base currency while the other is called the quote currency. You are predicting that the base currency will either increase in value or decrease, in comparison with the quote currency, when you create FX trading strategies.

Just to use an arbitrary number as an exchange rate, imagine that the current exchange rate is $1.3114 USD to 1 EUR.

If your base currency is the Euro, and you expect it to appreciate in value, you will buy that currency. This is known as going long.

If you think that the currency will depreciate in value, then you want to sell it for another currency, in this case the US dollar. This is known as going short. All of your day trading strategies and in fact, all currency trading strategies, are based on this.

Global currency market

 

After you make the decision to buy or sell, the exchange rate will fluctuate based upon all of the many factors the influence the Global Currency Market. If you were to buy a hundred Euros, and they appreciated in value from what you originally purchased them at. Your best Forex strategy would be able to sell them at a higher exchange rate, which means that you would make money.

Of course you don’t have to sell them at that particular time. In fact, unless you think that the Euro was going to decrease in value soon, you probably shouldn’t. That is where understanding the market and economy comes in. your task is to learn how to predict whether a currency is going to appreciate or depreciate. This is also very similar in creating the best strategy for stock trading. Stocks trading strategies and currency exchange have a lot in common.

 

Forex Trading: Pips Explained

 

You may have heard the term ‘pips’ regarding Forex Trading. A pip is 1/10,000 (one ten-thousandth) of the exchange rate. So, if you were to make 0.0050 the 100 Euros that you bought and sold in the earlier example, you would have 50 Pips. This is the way Traders count the movement of currency.

It is also the way that online Forex trading brokers take their commission. Even the best brokerage firms still have to make money. Brokers will charge you pips per transaction for you to use their service. Check an FX broker review for a particular broker, and you can usually find out what they will charge.

 

How Leverage Works in Forex Trading

 

You may be wondering how traders make money when the movements on currency is so small. That’s where your Forex strategy differs from stock trading strategies. Many strategies for stocks trading do not use leverage, but it something that happens in currency exchange.

After all, you might be able to get similar earnings by depositing your money in the bank and accruing interest. However, most traders use something called leverage in order to make more money.

Using Levarage with both Forex and CFD 


On both Forex and CFDs, you can use leverage to make more money. Leverage is sort of a multiplier that allows you to buy more Euros than the actual money that you invest would allow. So, if the leverage on the transaction that you are considering is 1:10, you would be able to invest 1000 Euros with $100 instead of just a 100 Euros.

So, if we are going by the previous example where you were able to make $0.50 by selling your Euros for USD, you would have actually made $5, because you would have bought a thousand Euros instead of a hundred.

This works in either case, whether you are predicting the movement of the currency up or down. However, one thing that you want to keep in mind is that you can lose money that way as well. So if instead of making $0.50 on the Euros that you bought you would lose $0.50. Except since you were using leverage, you would actually end up losing 5 Euros.

Whether or not you can use this leverage depends on the broker that you’re going with and the balance in your account. If you have enough in your account to be able to cover the losses then the broker is going to give you the standard leverage. But if you do not have enough in your account to cover the losses, you may be required to make another deposit in order to make the trades that you are considering.

 

Forex Trading Spread Explained

 

One of the more confusing things about Forex Trading is that the price is not always the same for buy and sell orders. There are two different prices. One is called the asking price, and it is the highest price that a currency can be sold for.

The highest price that someone is willing to pay for the currency – or for the assets – is called the bid price. The bid is always lower than the ask price and the difference between these two is called the spread.

So, if we go back to our previous example where you are buying Euros for US dollars, you will notice that the asking price for example is 1.083 2. But the bid price Dash or the highest price that everyone anyone is willing to pay is 1.831. As mentioned, the bid is lower than the ask price, which means if you sold your currency instantly, you would lose money. In this instance, you would lose 4 Pips.

Wider spread

 

The fewer people that are buying and selling a particular currency the wider the spread is. But if not many people are transacting in that particular currency pair, then the spread would be very narrow.

That spread is what you are going to pay for the cost of the broker services that you’re using. This is the commission mentioned earlier.

The spread is a variable that is changing all the time. However, some brokers will offer fixed spreads which means that you will always be able to buy the currency for a stable cost.

 

Automation in Forex Trading

 

There’s another type of Forex Trading that we will discuss. It is called automated Forex Trading, and it allows you to trade currency pairs using software that analyzes a great deal of data and helps you to come up with buying and selling decisions.

This is available on many trading platforms, but you have to teach the platform the kind of trading that you want to do. You have to set parameters to allow the software to decide when to buy and when to sell, based on the technical analysis.

When the software is notified that it needs to buy or sell a particular currency or asset, it is called a signal. When signals are going the same way, you can teach your automated platform to buy or sell to either keep you from losing too much money or missing out on the opportunity to make money, just because you are not at the platform.

This is definitely an asset for those who just don’t have time to trade but still want to make some money off of the Forex Market. However you do have to keep in mind that the automation is not perfect and the risk is still there.

 

Forex Trading Demo Accounts

 

Let’s discuss Forex demo accounts for a moment. One of the things that you will find at legitimate brokers is a demo account that allows you to play the market and make trades using virtual currency.

This will allow you to determine whether or not you enjoy Forex Trading, and if you can make money with it.

You’ll also be able to try out different trading strategies and find out what you like and what makes the most money for you. Nearly all of the demo accounts provided by major platforms offer complete functionality and market prices in real time.

The benefit is, that you don’t have to make an initial deposit in most cases, and you are not spending real money to learn how to do Forex Trading.

 

Forex Transactions

 

As we have been discussing, Forex Trading is the buying and selling of currency pairs. You buy one currency with another, and then sell it when it makes you money.

However, one thing to understand is how the currency appreciates and depreciates. If you look at the example of the Euro versus the US dollar, you will be able to understand this better.

When you buy the currency pair of EUR/USD, you are buying Euros. However, at the same time you are selling US dollars. When you sell the currency pair, you are selling Euros and buying US Dollars.

This is how a currency increases in value. If there is a great deal of demand for buying the currency pair – buying Euros for US Dollars for example – then the euro would increase in value. However, if there was demand for selling the currency pair instead, then the dollar would grow and appreciate instead of the Euro. One currency has to get weaker for the other to get stronger.

 

Learning Names & Symbols for Currency

 

One of the things that you will have to learn if you are going to trade Forex is how the names and symbols for currencies work. For example, we have already discussed how EUR stands for the Euro while USD stands for the US dollar. There is also the AUD, or Australian dollar, and the CAD, which is the Canadian dollar.

The currencies that are the most traded in Forex are called the majors and the currency pairs that are most popular are called the major pairs. Any pair that includes the USD is a major pair. The first currency in the pair is called the base currency.

How Longs and Shorts Work in Forex Trading

 

Next we’ll discuss Longs and shorts. Longs and shorts are part of Forex Trading that you’ll need to know in order to get started. But they are rather simple to explain. If you make a trade because you expect that that price of your currency will rise, you’ve taken what is known as the long position.

If you are trading with the assumption that the price will drop, then you are trading on the short position.  Do keep in mind that the buy and sell is based upon the first currency in your pair. In the example of the euro versus u.s. dollar, the Euro would be what your long Position is based on. While the short while the US dollar is the short trading position.

 

Leverage Explained in More Detail

 

Earlier we discussed using Leverage in order to buy more currency and therefore, make more money. But let’s get into leverage a little more in detail.

What you are basically doing when you use the leverage that your broker allows you on a transaction, is borrowing the money. In the case of Forex, the capital used to buy the leveraged currency is borrowed from the broker.

Forex trading and leverage fit very well together and can be used to increase the amount of return on an investment. Leverage is often calculated based upon the margin. The transaction value is divided by the margin amount.

 

Forex Trading Interest Rates

 

In Forex Trading, there are also interest rates. Since you are borrowing the money for leveraging, it should come as no surprise that there is interest involved. But this interest is a little different. In Forex, the interest rates can have an effect on that currency pairs that are being treated. Because when the returns are bigger so is the interest.

What this means in simple terms is that what you should be doing with your Forex trading is selling currencies with a low interest rate. So that you can buy currencies with higher rates. This is called carry trading and is not without risk. The fluctuation of the currencies could wipe out any rewards from the interest. When this happens, it is because the currency that had the higher rate has suddenly fallen below the other.

 

What is Correlation?

 

One of the terms that you may have come across while checking out Forex trading is correlation. What correlation means in financial terms is a variable that indicates how two different securities are interacting.

When it comes to Forex, correlation is used to help calculate the correlation coefficient. Which can be anything from -1 to + 1. It is almost unheard of to have a +1. Because what that means is one currency pair has continued to rise and the other has continued to fall for a very long time. You also never see negative ones for exactly the opposite reason.

If you have a correlation coefficient of 0 it means that the movements of the two are random and do not correlate with each other at all. Correlations are just one type of buy and sell signal, but you should not rely on them exclusively. You should also look at other market factors.

 

What is a Trend?

 

Another term that we will define is the trend. A trend is the general direction in which a particular asset or market is going. Trends can be for any period of time, therefore traders will look for short-term or long-term trends. Thereafter they try to predict how the market is going to behave.

If you can learn how to identify trends, you can potentially make a lot of money. Because you will know when to buy and sell.

This is generally how trading is done on the Forex market. It is also the most profitable. Most of the time, if you see a market or asset that is going up, then you do not want to invest in the trend reversing. However, you can invest on the trend continuing. This is a good strategy for new Traders without much experience.

 

An Explanation of Support and Resistance

 

Another definition related to the Forex Market is that of support and resistance. When a stock or currency continually refuses to rise above a certain amount it is called a level of resistance or the ceiling.

If a price does not fall below a certain amount, that point is called a support. Or in some cases the ‘floor’.

Both of these more important to Forex Trading. Because they are indicators as to what an asset or currency is going to be doing.

For example, if you were to buy an asset that was near the support line, there’s a good chance that you will make money. Because the trend is always been for it to stay above and continue to rise.

The opposite is true if an asset is nearing the point where it will hit the ceiling. Because you can predict that it will go down after that.

 

Moving Averages

 

Another indicator that you can use is the moving average. This bit of technical analysis allows you to basically get rid of the white noise on an asset. You will see what the average price movements have been like instead of factoring in those that are typical.

There are two moving averages that are used in Forex trading. One is the simple moving average, which gives you your average over a specified period of time. While the second is the exponential moving average which does the same thing as a simple moving average. But it takes into more recent price movements into consideration.

Moving averages are often used to identify trends with a certain asset. They can be used to determine the level of resistance or support that an asset has.

 

The Relative Strength Index (RSI)

 

Next up is the relative strength index, which is commonly abbreviated RSI. This is another form of technical analysis which compares gains that have been made recently into losses. That have been made recently to understand whether an asset is being bought more often than it is being sold.  Particularly if the asset is being overbought or oversold.

While this is a great tool, new traders that use it can sometimes get into trouble. Because the large price increases and decreases for an asset can cause signals to be generated that are false. However, it is a good tool to keep with the others in your arsenal. As you gain more experience, you will find the relative strength index extremely useful in your trading.

 

The Simplest Trading Strategy

 

One of the simplest but most effective strategies when it comes to Forex trading is to increase your returns. You can do this by analyzing the direction of an asset using momentum.

 

In order to trade on the trend, you want to get in on the long position when the prices are going up.

Get on the short position when the price is going down.

This trend method can work over a long period of time or it can be very short term. It is up to the individual trader what period of time they will evaluate in order to identify a trend.

Once a trader has entered on either the long or the short position, they want to retain keep that position until the trend starts reversing. When the trends start to reverse, it may be time to get out, depending on what your initial position was.

 

Advice on Carry Trading

 

We mentioned carry trading a little earlier. Carry trading is when you sell currencies with low interest rates and buy currencies with high interest rates. The trader makes money with the difference between these two rates, and it can be quite a bit of money. This is especially true if you are using leverage.

However carry trading is not without risk. Since you don’t always know what the exchange rates are going to do – and sometimes they do surprise you – you assume the risk that comes with that reward.

You may lose your investment if one of the currency pairs falls below the value of the other. If you are using quite a lot of leverage this can be scary. However, you can hedge a position in the event that this happens.

 

How to Manage Your Risk with Forex

 

Finally, we will discuss some of the ways in which you can minimize your risk with Forex. Managing risk can be complex for the beginning trader. It involves identifying risks and then taking steps to mitigate them.

Risk management is one of the most important things that you can do as a trader. Because you have the potential to lose a great deal of money if you do not. Think about the 2008 recession. The banks and lenders failed to recognize the risk of giving credit to home buyers who were not qualified. This resulted in a huge event in the financial world that affected everyone. Your risk only affects you and your investment, but it still needs to be managed.