Using services provided by forex brokers is quite easy. Everything is handled automatically, you register and log in to a platform and that platform allows you to trade currencies. Of course, individuals can still buy or sell currencies through banks and exchange offices, forex brokers provide many benefits, like tools that allow you to make analysis, charts, as well as a certain degree of leverage which allows you to engage in more lucrative trading.
With FX trading, what you basically do is buy one currency and at the same time sell another.
Naturally, you do that when you expect the value of one currency to grow and of the other to fall, respectively. In this case it is only important how the two currencies in question are paired one against the other, and not in general.
Trading forex may seem too simple to some, whereas others may view it as rather complicated. The truth is probably somewhere in the middle. It is definitely not too complicated and you don’t have to be a financial expert in order to be a successful trader, but you’ll need to learn and understand the basics, that’s for sure.
The first thing that you’ll need to do is choose a forex broker. Once you do that you’ll need to make a deposit, optionally claim a trading bonus and then you’re good to go
The currencies which are offered is only one aspect of the whole trading process. Another very important factor is leverage.
With leverage, you won’t need to have capital worth $50,000 in order to trade $50,000 on the forex market. If the leverage is at least 50:1, you will be able to trade $50,000 with a capital of just $1,000.
The leverage provided by forex brokers is much higher than the leverage provided by other brokers, like equities and futures market leverage. Equities leverage often is only as high as 2:1.
Always bear in mind that trading with leverage is risky, although it is not as risky as it may seem. 100:1 sure does sound like a lot, but the value of conventional currencies usually doesn’t change dramatically in the course of one day.
In fact, fluctuations on most days usually don’t exceed 1%. The leverage allows you to earn a lot more than you usually would if you were to simply purchase currency units, but it also increases your potential losses. When the currency value moves in a course contrary to what you assumed, you may lose a lot more.
In order to prevent huge losses, brokers offer instruments like ‘stop’ and ‘limit’ which allows traders to set an automatic limit that would prevent them from losing too much money. Make sure that you understand how leverage works, as well as the instruments that might prevent large investment losses.
When it comes to lot sizes, you should probably start with smaller sizes first. The standard size usually includes 100,000 currency units, but there are also smaller sizes called mini, micro and nano, which contain 10,000, 1,000 and 100 currency units respectively. Some operators offer separate standard and micro accounts, where the latter are suitable for people who want to trade smaller amounts.
- Be careful about leverage and don’t trade with leverage until you are sure you understand how it works.
- Use the automatic instruments that would stop you from losing more money than you’ve invested.
- Only trade lot sizes which you can afford.
A pip (abbreviation from price interest point) is the smallest change of the value of traded currency. If you’re trading US dollars, the pip is usually $0.0001. An increase of 1 pip is a very small change, which wouldn’t make a particular impact if you’re trading a small number of currency units, but if you trade, say 10 lot sizes worth 100,000 units, than an increase of one pip could yield a profit worth $100.
The pip is usually the fourth decimal place for major currencies, expect for pairs which include the Japanese yen, in which case it might be the second decimal. Some brokers set the pip at the fifth and third decimal spot respectively. Often a unit smaller than the pip is also offered, called a pipette.
- When making an estimate that a currency is going to grow against another, try to predict by how many pips, at least roughly, will it be. That way, you’ll be able to calculate the expected gains, which will help you decide what leverage you should use and what lot size you should trade.
- Always remember that in times of crisis or expected market fluctuations, the value of currencies may change significantly, even in the course of one day.
- Some currencies are generally more volatile than others and if you’re thinking of trading them, beware of that.
You will notice that most forex brokers offer more than one trading platform. But, we’re not talking about download and web-based platform, we’re talking of platforms that include different trading options and features. Generally, you can expect one platform to be simpler and more straightforward and another which includes more complex options.
Essentially, the basic, simpler platform is designed for rookie traders, who are still new to forex trading and aren’t well familiarised with the more complex aspects of the trade process. For example, this platforms often include so called floating spreads. Floating spreads offer you a chance to get better bid and ask price throughout the day, but the risk is also increased, as the value of the floating spreads may change rapidly.
- Begin with platforms that have simpler features and are easier to use.
- Make sure that you understand every element or option, its advantages and disadvantages before you use it.
- Read some of the provided learning materials, or watch the provided tutorial videos before you start trading on a new platform.
When you claim a bonus at a forex broker, whether it is a Welcome Bonus, or some other promotion, you should know that the amount of the bonus isn’t the only thing that matters. The small print often says a lot more. Bonuses usually come with a trading volume requirement. This means that you would have to trade through, usually a pretty large amount of money before you are allowed to cash out your bonus, i.e. the money you earned with it.
- If you’re planning on depositing a larger amount of money, then claiming a bonus is probably a good idea.
- No Deposit Bonuses are generally a good idea, as you don’t risk anything.
- Always read the bonus terms and conditions before claiming it, and make sure you understand the requirements.
Forex Trading Online currency trading is a process that uses the internet based forex trading account in predicting the value of the currency and how far it can vary accordingly in relation to another foreign currency. On predicting them correctly you’ll get profit. On the other side you’ll get into loss when you predict them incorrect.
During the time you trade forex you tend to buy a currency and sell the other currency. It is when trading a currency online with UK traders you have to choose a ‘currency pair’.
For instance, you might want to buy the USD against the JPY expecting the value of the dollar will increase in value relatively to the Japanese yen. If the US dollar rises in value compared to the Japanese yen during the time of your trade, you will obviously gain. On the other side you’ll get a loss.