Forex, or foreign exchange, trading is the buying and selling of currencies globally. Currencies are always traded in pairs, such as US dollars and euros or pounds and yen. When you trade forex, you’re betting that the value of one currency will increase relative to another.
How Does Forex Trading Work?
The forex market is open 24 hours, five days a week. That means you can trade at any time of the day or night. However, just because the market is open doesn’t mean you can trade anytime you want. Most brokers have a set time to allow you to trade. The timeframes usually correspond with the times when the major markets are open: New York (8 am to 5 pm EST), London (3 am to 12 pm GMT) and Tokyo (7 pm to 4 am JST).
How to Trade Forex
Now that you know what forex trading is and how it works, so let’s walk through how to trade forex.
Step 1: Choose a currency pair
The first step is to choose a currency pair to trade. A currency pair is two currencies quoted against each other. For example, the euro versus the US dollar (EUR/USD) or the British pound versus the Japanese yen (GBP/JPY). When you trade a currency pair, you’re buying one currency and selling another.
Step 2: Determine your desired investment amount
Before starting trading, you need to determine how much money you want to risk on each trade. This will help you stay in control of your trading and minimise losses. Most forex brokers allow you to trade with a margin of 1:100, which means you can control $100 worth of currency with a deposit of $1. However, it would help if you never traded with money you can’t afford to lose.
Step 3: Choose a time frame
The time frame is the length of time you want to hold your position. The most common time frames are day trading (holding your position for one day), swing trading (holding your position for a few days) and position trading (holding your position for weeks or months).
Step 4: Decide on a direction
Next, you need to decide whether you think the currency pair’s price will go up or down. This is called taking a position. If you think the price will go up, you will buy the currency pair (also called going long). If you think the price will go down, you will sell the currency pair (also called going short).
Step 5: Place your trade
You can place your trade once you know how much money you’re willing to risk and which direction you think the market will move. Most brokers have an online platform that you can use to place trades. To buy a currency pair, you click on the buy button and enter your desired investment amount. To sell a currency pair, you click on the sell button and enter your desired investment amount.
Step 6: Monitor your trade
Once your trade is placed, you need to monitor it to ensure it’s going in the direction you expect. You can do this by checking the currency pair’s price on a chart. If the price is going up, you would want to buy more currency pairs; if the price is going down, you would want to sell.
Step 7: Close your trade
When you’re ready to exit your trade, you will close it by selling (if you went long) or buying (if you went short). Most brokers have a sell button and a buy button on their platform.
Finally
Now that you know and understand the basics of forex trading, it’s time to start practising. The best way to learn is to open a demo account with an experienced online broker from Saxo Bank and start trading. Demo accounts allow you to trade with virtual money to learn without risking any real money. Once you feel comfortable, you can start trading with real money; get more info here.