How to Trade Forex

How To Trade Forex

In understanding how to trade forex, the first thing to know is that simply put, you are speculating on the value of one currency against another. Unlike buying stocks you don’t actually buy the currency to keep – its a risk calculated bet that you think that one currency is going to rise or fall against the other. You buy one and sell the other simultaneously.

how to trade forexYou trade major currency pairs – one against another. These pairs are indicated using the currency abbreviations and matched together like this: USD/EUR, which is a US Dollar against Euro pair. Most of the action is in US dollars against other major currencies – the Japanese Yen, for example or the European Euro. Other currencies in Europe are traded as well as those from Canada, Australia and New Zealand.

You will certainly need to get to grips with the forex trading basics – It’s a huge market. There’s over $2 trillion of action per day – that is way in excess of the worlds stock markets and it is open 24 hours per day. It’s like a “follow the sun” type of market with three main sessions around the world. The more you learn how to trade forex the more comfortable you will become with one particular session.

The Asia-Pacific session represents about 21% of the total value. It then moves on to the largest market which is the European/London session and this holds about 50% of the transactions on a daily basis. Following that the North America session comes into play and is a similar size to the Asia-Pacific session with about 22% of the business running with it.

Another factor that makes it such an exciting market to be in is that there is very little restrictions on trading. The reason for this is that the major economies simply don’t want to interfere with the flow of global capital – it wouldn’t be in their long term interests. This is good news for the forex trader like you and me.

To understand the forex market it helps to have a forex trading guide and you really need to become familiar what causes the variations between the currency pairs and this means understanding what affects currency rates. Although there are quite a number of factors that dictate currency rates there a a few which have a fundamental affect and these key measures are the ones to be aware of.

The first ones are the flow between countries of trade and investment – the building blocks of international business. The next is key economic data for that country. As you would expect, this has a direct impact on the value of its currency. We’ve all seen a set of terrible unemployment figures being released by the government and the markets react badly to it.

Interest rates in another key indicator – it makes sense that this is going to have an impact on the value of the currency. And finally factor aligned with that is the monetary policy of the country and how well that is being applied to impact the countries economy.
The actual mechanics of forex trading are quite simple. Once you have decided on your currency pair and have identified the type of trade you want to do the next thing is to target your entry point. Traders spend a lot of time trying to find the exact time to enter a trade and it is probably the biggest area that causes doubt in people’s minds. This is understandable because once you are in the trade then you are committed, at least for the short term.

In reality, the entry point is not nearly as important as the exit point. That may go against the grain of most peoples thinking but just stop for a moment and consider it. Your optimum entry point could be met many times a day on a particular trade. You cannot see into the future so you don’t really know how the price is going to go. Obviously you have planned the trade and have a good reason to get into it but once you have placed the trade the biggest factor that will make it a success is where your exit point is.

If the market is volatile and prices are surging up and down then you need to be on top of the movement. Getting out for a small profit may be better than hanging on in the hope that a losing position will recover. Your stop loss may take you out when only a short time before you trade was in profit. Your exit point defines the amount of profit or loss you will make on each trade. Focus more on your exit strategy and this will give you the best returns in the long run.

There are plenty of trading platforms available now but they don’t all appeal to everybody. You need to decide what suits you best. Some people like to see their active trades displayed in numbers, others prefer to see them on a graph showing movement against a number of indicators. These usually show moving averages and the momentum of price action.

Some people use multiple screens to show other data – usually news from the business or economic sectors to track other activity and this can be important as it is going to influence price in a big way. The key is to have an uncluttered work area. You really need to be able to easily see the key data that will affect your position at any one time. It’s important you don’t have screens showing fun information that will just get in the way of your decision making.

You will need to keep focussed on your live trades and also be aware of other potential trades that have bee on your watch list. Some kind of triggered alert system is really useful here and you will find that many automated forex trading software packages will have these sorts of features built in as standard. Either way you need to be in a position that allows you to meet your trading objectives and carry out your trading plan in an effective way.

It seems complicated to keep an eye on all these factors when you are starting off with your trading strategy. The important thing to be aware of is that the currency rates will be driven by these economic factors so you just need to keep an eye out on the key indicators on how to trade forex and watch out for major news within your sector.

How To Trade Forex

Forex Trading Systems