Do you know you can trade any currency that exists in the world? This is a secret that many investors use for their benefit. Forex market is prominent due to the need of exchanging different currencies used around the world. The international market does not have a central marketplace to conduct trade forex. Let us look at how you can join the world of forex trading and start earning from it.
How can you trade forex?
All you need is sufficient capital to start trading through foreign exchange. The advantage of this form of trading is that anyone can be a forex trader without a lot of limitations. You will need to have an online forex broker for you to make use of the available trading platform. You should, however, be aware that forex trading sometimes has speculative risks.
The first step in forex trading is understanding the terms involved in it and how it works. Trading forex involves trading currencies in pairs. You have to place a bet as you predict the rise in the value of one currency against the drop in the other currency such that you can make profits.
As soon as you have found a forex broker, you need to deposit some cash into your trading account. This allows you to select two trading currencies worldwide. You can now pair currencies such as EUR/USD.
The Euro represents the base currency, and US dollar stands for quote currency. In forex trading, the base currency represents one unit while the quote currency symbolizes what a single base currency unit can purchase.
How much can you gain from pairing currencies?
Unlike in the past, forex trading allows you to select more than one currency pair. This increases your chances of earning a profit. As soon as you place a trade with your forex broker, you have the potential of making profit referred to as a gain. This is usually displayed against your currency pairings.
You can increase your chances of gains by opening more than one account with different forex brokers. This allows you to compare the different gains you can achieve from varying pairings for you to maximize your trading value.
Take advantage of trade promotions and bonuses that are offered by most forex brokers to get additional value. We mentioned that there is a risk in trading currencies. This risk may be about 1% or it may be smaller than this. You can manage such risks by making use of a stop-loss order.
A stop-loss order should be your exit plan when a trade seems to go against your expectations. It allows you to offset your order when the price hits a certain level. You can also use a stop-loss order if you are internet connection disconnects you from your forex broker.
You also need a trading strategy that should be based on its risk ratio and win–rate. The number of trades that you win is what is what is called win-rates. For instance, if you a 100 trades and win 55 out of them, your win rate becomes 55%. You should always ensure that your win-rate is always above 50%. High win-rate increases the flexibility of your reward.
What is the duration of trading forex?
The duration of trade is determined by the position you take. A long-term position on paired currencies allows you to make use of the available long-term trades that are featured in the trading platform of the forex broker.
There is also short-term Forex trades that are available as you predict the outcome of the trade. To know which one is better, do not trade on a live account without testing your chances on a demo account.
A demo account allows you to utilize the trading credits that are offered in the platform to test how short-term and long-term trades perform. It also gives you experience as you learn how to place trades using charts and make use of features that are used in a live account.
An example of how to make money while trading forex
Let’s look at a case where a currency quote for EUR/USD pair reads 1.13779. This means that 1 Euro can purchase 1.13779 dollars. You can make money from this pair when the quoted currency value appreciates, or the base currency value decreases.
The base currency is usually a short position since you sell it to buy the quoted currency. The quoted currency is the long position in the pair. As an investor in our example, you can purchase the euros by going short on USD before you go long on EUR. For you to gain from such an investment, you will need to sell back your euros as soon as the value appreciates against the USD.
With over 12 years of experience in the financial industry, Owain has strong finance professional skilled in Investment Properties, Insurance Risk Management , and Real Estate Transactions.
MBA, Columbia University.