The forex market is the largest in the world, offering many trading opportunities for experts and beginners. In order to boost your chances of making a profit you need to know how to trade forex before delving into the most liquid market in the world. The main principle to understand when you learn forex trading is the same as any investment; buy low, sell high. There is more to it than that though, as our guide to how forex works will explain.
Forex Trading Basics
The first thing to understand when learning the forex trading basics, is that currencies come in pairs. If a trader believes one currency will rise in value (strengthen or appreciate) they will buy that currency while selling the other at the same time.
Take the major EUR/USD pair for example. A trader thinking the USD will strengthen would buy this currency, while simultaneously selling their euros. The USD will then hopefully rise in value before the trader closes their position and sells the USD at a higher value than they first bought, making a decent profit. The trader will make a loss if the USD does not strengthen, though trading in pairs means they can profit no matter which way the exchange price moves if they back the right side.
Open a Trading Account
Now that you understand the forex trading basics, you can take the next steps to making trades. The first step is to open a trading account. This is a simple process which involves entering personal details and depositing funds into your account.
Most platforms will offer a demo account, which is a good idea to use and practise on before putting any of your own finances at risk. When choosing a trading account to open, consider the leverage, commissions and fees that are involved along with the currencies offered, to find the best option for your trading level and aims.
Ways to Trade FX
There are a few different ways to trade forex, yet for each one the main principles picked up when you learn forex trading should all be applied.
- Spot Market: Currencies are bought and sold at their current price.
- Spread Betting: Traders can speculate on currency markets and trade on the price movements whether they rise or fall.
- Contract for Difference: There is no expiry date on speculative positions with CFD trading on the forex market.
- MT4: A popular FX trading platform, MT4 offers flexible lot sizes.
If you feel comfortable in knowing how to trade forex, choose one of these methods and an appropriate platform to begin exchanging currencies for a profit here at Sharp Trader.