Learning how to trade forex may indeed sound like a chore instead of an exciting after-work hobby that can help you generate additional income in your free time However, if you think that forex trading is only for mathematical geniuses or savants, you are completely mistaken because it’s actually a lot more accessible than you would think
What is forex Forex, aptly named, is the exchange of foreign currencies or foreign exchange.
As you may already know, forex may be used during trips to foreign countries to convert your money to the currency used by the locals or when companies buy goods from foreign exporters and they need to pay them in their own currency To help put things in perspective, imagine comparing a powerful country’s currency like the US dollar with the Vietnamese Dong It’s common sense that the USD is much more valuable, and an exchange rate is set between the two currencies accordingly For example, let’s say that the current exchange rate between the to is 1 USD = 23,200 VDN So, by having just 1 US dollar, you could exchange it or sell it to buy 23,200 Vietnamese Dong After making the exchange, however, a trade war between the USA and another country causes a devaluation of the US currency to the point where you now need 2 USD to buy the 23,200 Vietnamese Dong Since you already have this amount of Vietnamese Dong, you can exchange it back and get 2 USD essentially doubling your initial investment of 1 USD Likewise, trading forex involves trying to predict an event or a pattern that will cause the appreciation or devaluation of a currency against another — in order to buy or sell and pocket the difference The key though is that forex is a speculative instrument and you don’t actually buy or exchange any currencies — you are just speculating on the exchange rate differentials and make a profit if your estimates are correct Learning how to trade forex might be easier than you think but most traders would argue that achieving consistency in trading is a lifelong process CM Trading Why trade forex? Why people invest in forex is glaringly obvious Being the most liquid financial market, the opportunities for profit are countless and due to the fact that it operates around the clock, 24/5, you don’t have to change your lifestyle or work schedule to be able to trade Both in the short and long-term, forex trading offers the highest profit potential than any other market due to the inherent volatility of world currencies It’s also true that forex is a leveraged asset which allows for traders to buy contracts of 100000 units of currencies with a deposit as low as $100 Doing so, however, will expose traders to additional risk and therefore leverage should be exercised with extreme caution and only after taking the necessary precautions towards risk management Aside from the potential to make a handsome return on your investment, trading forex offers a number of favorable benefits: · Exposure to a diverse range of tradeable asset classes (through spot forex you can trade commodities like oil and coffee, precious metals like gold and silver, cryptocurrencies like bitcoin and ether or even stocks and indices like Amazon and NASDAQ) · Competitive pricing (the high daily trading volume and the massive number of participators in the market translate into cheaper and faster trade execution) · Automated trading tools and software (the trading platform provides the tools to translate your trading strategy into an automated program that identifies opportunities and trades on your behalf completely automatically) · Copy trading (through forex signals and managed accounts, you can either copy the trades of more experienced traders and mirror their profit or have a professional trader manage your account directly) How to trade forex using the trading platform There are multiple trading apps that help you access the market with the exchange rates between all the different currencies and while it’s preferred to have a desktop PC to trade, there are multiple traders who use the mobile phones or tablets to make their analysis and execute all their trading activities In order to learn how to trade forex, however, you can take advantage of your broker’s demo account which simulates real market conditions and allows you to trade with virtual money in order to acquaint yourself with the different features of the platform When you launch your trading platform, you will first notice the price charts of the most popular currency pairs which will likely include the EUR/USD, GBP/USD and USD/JPY The chart is just a representation of the price movements and can be adjusted to different timeframes as well You will also notice that each pair is quoted with two different prices This is the Bid and the Ask price For example, if you see EUR/USD = 11231 / 11235 — this means that the Ask price or the one on the right is the price you will be buying the pair if you believe the base (Euro) currency will go up Instead, if you thought the Euro would go down, you can go short or sell it at the Bid price which is the price that buyers in the market are looking for As you can see there is a small difference between the two prices and specifically a 4 point differential 1231–1235 = 4 and this is called the spread The spread is the fee your broker charges for executing a trade on your behalf and is the main cost of trading forex Going back to our example, if you bought the EUR/USD at 1
1235 and the price went up to 1.
1250, you would have made 15 points of profit.
In forex these points are called pips (percentage in point) and they are the smallest amount of movement a currency can make It’s important to note that each pip can be assigned a dollar value which depends on the asset you are trading and your broker’s specifications So, we made 15 pips of profit and we closed the trade Now, we need to deduct the spread or the fee in order to see our total Since the spread for this asset was 4 then 15–4 = 11 pips Each pip for EUR/USD is equal to $10 and therefore 11 pips x $1 = $110 Forex Trading Making predictions Currencies move due to several economic factors including economic growth, supply and demand, market sentiment, uncertainty during trade wars and political turmoil, economic announcements and releases All this information can be used to help you make accurate predictions on future market direction However, the platform also provides you with the technical indicators that can automatically identify patterns on the chart and provide information regarding the next possible move or entry opportunity As long as you follow the historical performance of the market there is always a pattern that can help you find out where the price is going next
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