Trading 101: Everything You Need to Know About Forex
How to Trade Forex
Forex trading instruments are comprised of Trading Pairs. The most commonly traded Forex pair is the EUR/USD EUR is the Euro, & USD is the US Dollar). When trading Forex, you trade the change in value of one currency versus another.
In our example of the EUR/USD if the price is 1.30, that means that the value of €1 = $1.30 (this is also known as the exchange rate). If the rate rises to 1.3100, than the Euro has strengthened against the Dollar as €1 is now worth $1.31. Traders who bought the EURUSD when the price was 1.30 will have profited as the price rose to 1.31.
If a trader believes that the Dollar will strengthen against the Euro, than they believe that the EURUSD exchange rate will drop. Such a trader would sell the EURUSD and profit when the EURUSD drops to 1.29.
Prices of the exchange rate will rise and fall based on supply and demand for each currency. To measure supply and demand, Forex traders can use Fundamental and Technical analysis. Fundamental analysis includes economic reports like employment figures, central bank policies, and inflation data (more on Fundamental analysis). These news releases reveal the health of a country’s economy and can determine whether demand will rise for its currency. Technical analysis includes indicators and mathematical formulas that measure when a Forex pair is experiencing an increase of demand or supply (more on Technical analysis).
Basic Forex terms
Listed below are some of the key terms used in Forex and CFD/Share trading
A Pip is the “Percentage in Point” (PIP), sometimes also referred to as “Point”. It is equal to the minimum price increase of a Forex trading rate. The most common Pip is 0.0001.
The ask rate is the price you can buy a currency at. It is also the lowest price at which a seller agrees to sell a financial asset.
The bid price is the price you can sell a currency at. The market is willing to pay you this price for this particular currency.
Spread are the difference between bid price and ask price.
A currency rate against another currency rate.
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In order to help you learn Forex trading, we offer several education and training programs. Once you grasp the basics of currency trading online and have tried your hands on our demo account, you should be ready to go!
Common mistakes new Forex traders make
Once you make a trade motion, most market experts will tell you to let it take its course. New traders, however, are prone to make rash decisions if they think a trade will not work in their favor. They will then quickly close a position before it reaches its closing point in hopes of saving themselves from a losing deal. What they do not seem to realize is that an asset’s value will edge higher and lower during the timeframe they had chosen, so there is really no way to tell whether the position will go as planned or not right off the bat.
As a trader, you should do your best not to succumb to anxiety over any indication of a position going bad while trading forex online. No one’s trading career is smooth sailing from the start, so take a deep breath and let your trade do its thing.
So, you have watched a video tutorial or two, and now you might think that you know how to analyze the market? Some newbie forex traders definitely like to think so. In reality, knowing how to conduct proper fundamental or technical analysis takes practice and learning from actual market professionals. While it’s great to have such a sense of confidence as a forex trader, you should probably pace yourself.
Acting from that same place of pride we have mentioned above is never a good idea, as it could hinder you from learning how to do things properly. Instead, we advise you to take the time to learn from your analyst and conduct your own research at the same time. Go to reliable finance-oriented media sources online, and see how each one of them picks apart the event in question. You could always ask your account manager for clarification if you find any clashes in the reports.
Similar to letting your anxiety dominate your trading, setting trades on split-second decisions on a regular basis is not a great forex trading method either. Usually, this course of action leads to uneducated decision-making. This would often result in significant loss of funds from your balance, as you might feel the urge to put hundreds or thousands of dollars on a single trade.
A key part of your role as a trader is not only to make profits, but to protect your capital. Trading forex is an art and should be treated as such. While you may feel like you might miss an incredible, once in a blue moon opportunity, that is rarely the case. You are more likely to benefit from trading ahead than rushing over to the trading platform to catch a trade.
How You can trade like a Pro
The first thing you need to remember is that each trader is different and has individual wants and needs. If you come from an analytical background, you may not need to have private training sessions after you know how to open and close positions on the trading platform. If you are new to trading online, however, you may want to get as much information as possible from your personal analyst, as well as various guides.