Forex is a currency exchange in which brokers and traders take part. The market carries out currency
exchange, the main purpose of which is to earn on the difference in rates. Profits are obtained as a result of
the appreciation or depreciation of national currencies. Trading is carried out according to particular laws
and rules, which are followed by all market participants. The currency market has very high liquidity. It
allowed earning whole fortunes. One example of a billionaire George Soros, who made millions on the change in
the rate of the English pound against the German mark, attracts people who want to get rich in currency
trading. George Soros is an exceptional example. However, any person, even with a small amount of money, can
buy and sell large amounts of currency and make a profit.
How does currency trading works
The Forex market trades currency pairs, not a single currency. For example, you may see currency pairs such as EUR/USD or GBP/USD, which means that the euro or pound is exchanged for the dollar.
Now you may think about how you can trade and make money if the exchange rates do not fluctuate so much?
In forex trading, fluctuations are measured in pips. Exchange rates are displayed with four decimal places, so, you can see values like "EUR/USD 1.1802", for example. If, on the other hand, the price subsequently changes to "EUR/USD 1.1806", the difference will be four pips. Such tiny fluctuations are perfectly normal; this is the main mechanism of the currency market.
For example, you decided to open a trade on AUD/CHF. To open a 0.15 lot at a quote of 0.6673, and with the leverage of 1:200, you will need $50. Normally, during the day, this currency pair passes 30-80 points. In this case, each point will cost $2.54. If you trade 25 pips a day, you will earn $63.5.
How to trade currencies on forex
In order to take up forex currency trading, a number of steps should be taken:
- Do some homework
There is no way to start trading without learning currency trading basics. It can be done online on your own or with the help of a broker.
- Choice of a broker
The broker is an intermediary between the seller and the buyer. The task of a trader is to choose a forex broker correctly. This can be done by four criteria:
Quality and work experience - see how long has the forex trading company been in business - the longer, the better.
Minimum deposit - each brokerage company may have its own minimum trading account size, which may be a few cents or several thousand dollars.
Forex trading spreads - the lower it is, the better.
Service - it is better to communicate with its staff first and consider all ways to withdraw profits.
- Choose a trading platform
Each broker has its own features and interface. Install, view, analyze, and try all possible actions.
- Open a demo account
Make sure to open it. And open it with the same amount you are going to start with. In essence, a demo account is necessary for training to understand the technical features and see how the terminal works.
- Develop a trading strategy
It needs to be done on the demo account and only then implemented on the real account once it is working properly.
Which currency is best for forex trading
There are several most common and popular currency pairs - those that are the easiest to trade with. These are the pairs, which involve the currencies of the most economically developed countries in the world: JPY, GBP, EUR, CHF, AAUD, and CAD, and of course, the main world currency - the USD. These currencies have the largest number of macroeconomic news releases, so their behavior will be easier to predict. Also, if you are a beginner, you will probably use ready-made analytics, and reviews are most often written on such pairs as GBP/USD, EUR/USD, and USD/JPY.
The most popular currency pair among traders is EUR/USD. It is believed that this trading instrument is quite convenient even for a beginner trader, as it reacts well to the news and is also easy for technical analysis. If you want to trade this particular pair, you need to pay special attention to the economic indicators from Europe, as well as data from the United States.
The choice of a currency pair depends largely on what time you usually trade. Some pairs, such as AUD or JPY, are highly volatile in the early morning, during Pacific and Asian trading sessions. All European currencies activate in the late morning, peak at noon, and then begin to decline, and in the afternoon and evening is the time of currencies such as the USD and CAD.
Whatever pairs you trade, choose a broker with precise currency quotes.
Currently, a lot of strategies have been developed that can be used to successfully trade on the foreign exchange market.
Forex trading strategies are subdivided into:
Short-term. When using short-term trading strategies, trading positions remain open for a short time and close during the trading day. Often, the duration of a trade does not exceed a few minutes, and profit is generated when the exchange rate fluctuates slightly. In this case, a trader is considered to use a type of short-term strategy - scalping. The advantage of this type of trading strategy is its increased profitability. But short-term trading is considered riskier and takes a long time.
Medium-term. In strategies of this type, trades remain open for several days. Sometimes the duration of trade is extended by several weeks. In the case of a medium-term trading strategy, it will require the trader to be able to make a correct forecast of future price movements. The very method of such trading does not require the constant presence of the trader near the terminal but requires serious professional training.
Long-term. In long-term strategy trading, positions can remain open for quite a long time. These can be weeks, if not months. Long-term trading is considered to be the safest. It is usually used by large market players and traders who own and manage capital.
The choice of the strategy depends on a wide range of aspects, starting with the size of trading capital and finishing with the trader`s personality. As practice shows, the best technique is the one suiting all your needs and preferences, so then it is recommended to try some strategies to find out which of them is meeting all your requirements.