Currency trading can be an excellent way to invest and speculate. However, to be successful at it, you must set financial goals and understand any associated risks. Check out the Best info about forex robot.
Currencies are traded in pairs, known as instruments. Common combinations include USD/GBP and EUR/USD.
Table of Contents
Choosing a broker
Selecting the ideal broker when trading forex can be one of the most essential decisions you’ll ever make. Your money and trade execution are in their hands, making finding an honest broker an absolute necessity. A dependable one will offer a safe trading environment, and support should anything go amiss.
Traders should look for brokers that offer multiple deposit and withdrawal methods, including debit/credit cards, e-wallets, and wire transfers. In addition, multiple account currencies to accommodate clients from various countries and low latency / favorable commission rates should help traders choose an ideal broker!
Spreads and commissions are integral components of trading costs. Some brokers charge fees per trade, while others make money through spreads (the difference between bid and ask prices of currency pairs). Traders must understand how their broker earns its revenue before making an informed decision about who to partner with.
Traders must also ensure their deposits are only made with brokers regulated by an established financial authority in order to get their funds back if their broker fails to operate as advertised or they file for bankruptcy. It would also be wise for traders to select brokers offering deposit protection in case their chosen broker goes bankrupt.
Choosing a currency pair
Finding a currency pair that complements your trading style and strategy is of utmost importance, much like selecting the perfect car: safe, comfortable, and suitable to your temper/schedule/routine. Furthermore, becoming familiar with each pair’s dynamics on price charts as well as influences that impact it (news stories/macroeconomic statistics, etc.) is helpful in selecting one suitable to you.
Before selecting a currency pair, traders should assess their risk tolerance. Traders with lower risk tolerance typically opt for pairs with lower volatility and high liquidity levels, while those with a greater appetite might choose more volatile exotic pairs.
When selecting a pair, a trader’s timeframe, and market type should also be considered. For example, day traders should look for highly liquid pairs with tight spreads—usually major currencies—while swing traders should focus on pairs affected by macroeconomic factors and trends, like commodity currencies like AUD/USD and NZD/USD.
Typically speaking, pairs with USD as one side are considered “major” ones and offer the highest liquidity. There are, however, numerous pairs other than these three major ones known as cross-currency pairs that don’t involve USD; such examples would include EUR/JPY, EUR/GBP, GBP/AUD, and CAD/AUD pairs, to name but a few.
Taking a position
Trading currency pairs allows traders to take an aggressive position by either buying or selling an exact amount of one currency against another on the foreign exchange market, an over-the-counter system. The market works based on the idea that different economies possess unique strengths and weaknesses, which are reflected in their respective currencies; for instance, someone betting that the euro will decline against the US Dollar will purchase this pair and hope for its fall as they place their bet—and ultimately make money should their prediction come true!
Position trading strategies tend to favor long-term investments. Position traders take an optimistic stance regarding the direction of currency pairs and are willing to wait several weeks or months before realizing any profits; such positions often provide wide profit margins that can prove very profitable.
To open a position, you must first choose which currency pair you intend to buy or sell and also how many units (or lots) of that base currency to trade, known as your lot size. A lot equals 10,000 units of that base currency—each pip is worth one penny on its quote currency, meaning you earn or lose $1 for every movement within one pip movement in any pair. It takes ten lots traded with that base currency traded as lot size!
Taking a profit
Making a profit in currency trading is essential, and one effective way of doing it is by developing a trading strategy and employing risk management tools such as stopping losses. By following such practices, you’ll reduce costly mistakes like unnecessarily chasing profits; many beginner traders make this mistake because they do not understand basic concepts like position sizing and leverage.
Currency pairs differ from stocks in that each reflects the relationship between one currency and another, with one being known as the base currency and one as its counterpart or counter currency. When trading these currency pairs, traders bet on which will rise or fall against each other: buying means going long while selling means going short.
Before entering the market, it is wise to test out a demo account first. This will help you understand the market and formulate an effective trading strategy. Once you feel comfortable trading on a demo, eToro provides many live accounts with up to 1:1000 leverage, negative balance protection, and excellent support services for real trading accounts.
