How To Trade Forex

Forex trading involves buying and selling of currency pairs similar like investment to predict the movement of currencies based on fundamental and technical analysis. The trading is done through a broker who will execute the trades and there is no physical buying or selling and somehow exchanges were done electronically through a network of banks. It is the most challenging and exciting way of generating perpetual income because unlike stock exchange, the market is highly volatile and it could mean huge profit and gains in a short amount of time. As a forex broker I’ve come across different trading styles and techniques which are used by traders. Some traders were successful with their approach while others who are mostly new often fail during their initial startup. Therefore, the article here is meant to share some of the knowledge and understanding of the basic principle on how to trade forex.

Currencies are all quoted in pairs. What the figure actually means is that, the first number represents the bidding price whereby the dealer is willing to buy the quote currency at that price while the second represents the ask price in which the dealer is willing to sell back to you. For example, take USD/CHF pair quoted at 1.0420/1.0425. If you were a trader with the intention of investing in Swiss economy, what you would do is to sell USD and automatically by doing that, you are in fact purchasing Franc from the dealer. And because you are selling USD, you will take the first quote price which is at 1.0420 that represents the price the dealer is willing to buy from you. On the other hand, if you believe the US economy is going to recover soon and therefore would like to invest in dollar, then you should sell Franc instead and the rest should work the same except in the opposite direction.

One of the advantages about forex trading is that it allows you to perform margin trading. What it actually means is that you will only need to credit a small amount of starting capital and that will be used as a form of security that allows you to trade currency lots in larger amounts. Some forex brokers offer up to 100:1 leverage and in actual terms what it means is that you are given the option to control currency amount worth 100 times compared to your initial deposit. So back to the example that we’ve mentioned earlier, now that you’ve decided to sell USD and you have an initial deposit of 100 dollar, then the dealer would allow you up to sell up to 10000USD in order to buy 10420 Swiss Franc. Sound complicated isn’t it? But once you’ve grasped the whole idea, everything should be easy to understand.

Well, understanding Forex basic principle is not that difficult but rather to become a profitable trader, that is really a tough challenge. First of all, nobody is able to predict currency movement correctly and there is no such thing as 100% accurate. Sometimes it is not just the matter of reading the news and following others’ advice but basically you will also need to do your own homework and research. Remember, learning how to trade Forex is pretty much straightforward but how to actually trade and earn from Forex is a different story.