How to Do Forex Trading
Forex trading involves purchasing and selling currencies from across the world. Exchange rates fluctuate based on various factors ranging from geopolitical events to natural disasters; by placing trades based on your belief that one currency will increase against another, you can make a profit. Although trading may involve learning curves and risk, forex can be profitable when approached correctly (but be prepared for possible losses!).
To start forex trading, it’s necessary to open an account with a broker. Many online forex brokers provide both demo and live accounts so you can practice before investing real money. When selecting a broker it is crucial that it prioritises safety over profits when choosing.
Once you open an account, deposit funds to get trading underway. How much you need will vary depending on the broker you use; most accept ACH bank transfer, wire transfers, credit cards and debit cards (with verification). After your account has been funded you’re ready to place trades; typically this means buying and selling currency pairs based on supply and demand (common examples being EUR/USD, GBP/USD or USD/CAD pairs – there are over 170 options to select).
Each currency pair features a quote that displays how much one unit of one of the listed currencies is equivalent to in terms of another listed currency, known as its base and counter currencies respectively. Since currencies are always quoted in pairs before trading begins, it’s essential that traders understand how each pair works before trading takes place.
Fundamental and technical analysis are fundamental to successful forex trading, providing essential insight into the market. Learning to read charts is an essential skill, while many of the same technical analysis techniques used elsewhere can also be applied with some minor adjustments to forex trading.
Understanding the relationship between two currencies is also vital, which is where pips come into play. A pip refers to the smallest change in price that any currency can experience and it’s calculated as a fraction of a percentage point. Pip amounts vary based on the lot size that you trade, so it’s essential that you are aware of this before placing your first trade. A typical lot size for retail forex trading is 100,000 currency units. There are various lot sizes available, which can make a big difference in terms of how much capital is necessary for trading a specific pair. This can be very disorienting to new traders as over-leveraging may lead to large losses if managed incorrectly.