How To Trade Forex
International financial markets are covered by the media every single day. Rises and falls in stock prices of currency values have the power to affect even the biggest global economies. But did you know that any individual may now benefit from Internet-assisted trading? A thoughtful Forex strategy can help you reap sizable returns.
The task of trading currencies may sound complex, but in reality, it is feasible for many. Retail traders connect to the market through brokers. With companies like ForexTime, the financial tool is now accessible to people in Nigeria and the subregion of South Africa.
ABC of Trading
So, how can you make currency rates work to your advantage? World currencies may lose or gain value depending on a host of factors. From microeconomic initiatives to geopolitical conflicts and trade wars, the sheer number of possible factors is vast. However, if Forex trading was rocket science, it could not have gained millions of followers across the world.
It is estimated that the number of online traders surpassed the 15-million mark in 2019. These people trade stocks, commodities, and indices without even leaving their homes. Currencies are probably the easiest to master, which is why they are the starting point for many retail traders.
In terms of overall volume, the international currency exchange is estimated to have a daily turnover of over $6 trillion. This is incomparably larger than the equity marketplace. Hence, opportunities are broad.
Fundamentals of Profit
As exchange rates are always in flux, you may benefit from buying or selling at the right time. All currencies are traded in pairs according to the formula “base currency”/”counter currency” (also known as “quote currency”). Consequently, the currency is always valued against its quote currency. The price for the EUR/USD pair, for instance, shows how many US dollars one Euro is worth.
At any given time, the platform displays two current prices for the same combination. These are Ask and Bid values. The former is valid for traders wishing to buy, while the other one applies to sell. As it is always the case in sales, currency costs slightly more for the buyer than for the seller. The difference between the two values constitutes the spread.
The spread, as well as any price changes, are measured in special fx units known as pips. In all cases except with the Japanese yen, this is equal to 0.0001. Hence, the spread of 0.0004 is referred to as a four-pip spread (e.g., Ask EUR/USD 1.2806 vs. Bid 1.2802).
The Strategy of a Trader
The exact course of action is determined by each trader individually. The patient ones prefer to zoom in on long-term trends, so they buy currencies while they are cheap to sell them after appreciation. If depreciation (loss in value) is expected, a trader may sell what they have to buy more of the same currency following the drop.
These two approaches are implemented through Long and Short positions, respectively. There are also Stop Loss and Take Profit instruments, which means your trades are executed automatically once a pre-set price level is achieved.
It is also possible to delegate decision making to an appointed expert. As a client, you may choose a strategy manager based on performance reviews on the brokerage site. The copy trading scheme will connect their account with yours. All positions and orders they execute subsequently will be replicated (copied) in your account as if you were pursuing identical strategies. This saves time and helps novices lower their risks. However, it is no less attractive for experienced traders who are simply pushed for time.
Where to Begin
Do basic research on your local provider to protect yourself against fraud. A legit broker is officially licensed to operate in the area, and its operations are subject to scrutiny by state authorities.
Start by practicing with a risk-free demo account. While profits will not be made, you will have ample opportunities to hone your skills before putting any real money at stake. As you gain experience in practical trading, you may further diversify your financial portfolio with stocks, CFDs, or commodities.