How to trade Forex?

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Forex is currently the trading method that attracts the largest number of traders. How come ? Is it because it would be easy to understand or to undertake? If you are also one of those people who are struggling to understand what it means to “take a stand on currency pairs” then this article should help you.

What is Forex trading?

Foreign Exchange (FX) is a practice known as speculating on changing the prices of currencies in order to generate profits. This activity is that of the Trader who, taking into account a certain number of variables (sometimes political, economic and social events) will position himself on the rise or fall of one currency with respect to the other. This is what is called “taking a stand” or “issuing an order”.

To explain it in a slightly simpler way, we will take a concrete example. Suppose a political event is about to trigger a crisis in a country like the United States. A trader looking for good information, which you can get on, should anticipate this crisis and proceed with the purchase of the EUR-USD pair.

So when the crisis is at its peak, it can resell the same couple. The trick is then to sell the currency pair that was bought, at the highest possible price. In our example, while the value of the Dollar will fall, that of the Euro will increase. And it is on this speculation that the trader will be able to record gains.

However, it is important to know that this is a risky operation. You will lose as much money as you will win if you are a good trader. That is, beginners are advised to create a demo trading account in order to practice properly. Likewise, training is also not to be taken lightly.

Few terms to understand

Some terminologies that are part of trading must be understood before defining yourself as a Trader.

PIP : is the fourth decimal in the change in the price of a currency pair. This is 1 pip when the EUR / USD moves from 1.1000 to 1.1001.

Lot : is the measure of the size of a transaction. 1 lot equals 100,000 units of the base currency.

Base currency : is the currency that is written first in the pair.

Counter-currency : is the second written currency in the pair.

Lever : it is a mechanism that allows the Trader to increase their investment capabilities. This is equivalent to investing a large sum while having a small margin. If in this case the gain can increase significantly, the loss will also increase.

Margin : is the amount needed to open a transaction.

Difference : expressed in pips, it indicates the difference between the purchase price (ask price) and the selling price (bid price) of a currency pair.

Understanding currency pairs

It won’t be possible for you to trade properly if you don’t master currency pairs. There are three categories.

The major couples : they are the pairs that generate the lowest spreads, but they are the most traded. The US dollar is still part of it.

  • EUR / USD: Euro – US Dollar
  • USD / JPY: US dollar – Japanese yen
  • GBP / USD: British Pound – US Dollar
  • USD / CHF: US dollar – Swiss franc
  • AUD / USD: Australian dollar – US dollar
  • NZD / USD: US dollar – New Zealand dollar
  • USD / CAD: US dollar – Canadian dollar

Cross courses or pairs do not include the dollar. There are other major currencies on the other hand.

  • EUR / GBP: Euro – British Pound
  • GBP / JPY: British Pound – Japanese Yen
  • AUD / CAD: Australian dollar – Canadian dollar
  • EUR / CAD: Euro – Canadian dollar …

Finally, there are the exotic pairs made up of a major and a minor currency.

  • USD / HUF: US dollar – Hungarian forint
  • USD / RUB: US dollar – Russian ruble
  • GBP / PLN: British Pound – Polish Zloty
  • EUR / CZK: Euro – Czech koruna …

How trading works

The first thing to do in trading is to find a broker, also known as a broker. This is a trading platform that can provide you with all the tools you need. But keep in mind that not all brokers offer the same tools.

It is important to understand that buying a currency pair is like buying one currency and then selling the other. To put it another way, suppose you are buying the EUR / USD pair.

This means that you have forecast a rise in the price of the Euro (base currency) against the Dollar. So you buy the euro while it is still at its lowest price. But at the same time, you are selling the dollar (quote currency). It is a technique whose complete mastery is acquired only with experience, therefore with time.

Posted 07/24/20 10:05

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