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how to trade forex
The aim of trading Forex is to make a profit by speculating on currency price movements. As a Forex trader, you will be the one making the speculations.
For example, is the euro losing or increasing value at the moment? Would an election in the U.S. make the value of the dollar rise or fall? There are so many factors on which you can base your predictions.
THE FOUR FACES OF FOREX
Find your trading style and get an idea of how other people trade. If you’re not sure which type of trader you are, give one a try and see how you get on – you’ll soon discover what one fits your style.
Known for holding smaller trades for short timeframes – sometimes for a matter of seconds. Scalpers are technical analysts but rapid and financially ruthless during peak trading times – committing a large proportion of their day to trading.
Known for taking each day as it comes, Day Traders open their eyes with the opening of the markets and close their book with the final bell. They are also unlikely to hold a trade overnight until the following morning to avoid any additional risk. Perfect for those who live for the now, but not by the nanosecond.
Known for looking to long-term investments over a quick return, Swing Traders keep their trades for weeks, months, and even years. They are not distracted by pricing fluctuations; they like to spend time understanding market fundamentals to keep their eye on the end goal to ensure they buy at ‘swing lows’ and sell at ‘swing highs’ (or vice versa if going short).
Known for being ready to act at a moment’s notice, News Traders eat the global news for breakfast, lunch and dinner to feed their trading strategies. Reactive and proactive, they monitor breaking headlines and current events to have a clear view on what could impact and affect the currency markets. The more informed they are, the faster they can act.
The study of past prices and patterns to determine future price movements.
Technical analysis is watching the price activity and other data over time, to try and predict future price movements.
Technical indicators for Forex include:
Simple Moving Average (SMA) – help you get an idea of price trends and are common indicators of changes in price behaviour.
Retail Strength Index (RSI) – determine a market’s accelerating or decelerating direction and evaluate whether a currency is overbought or oversold, potentially signalling an imminent reversal.
Find out more by watching
our short videos on:
Fibonacci Retracements
Stochastic Indicator
Moving Average Convergence Divergence (MACD)
Bollinger Bands
Elliott Wave
The study of the factors that drive valuation such as economic and political trends and activity.
View our learning resources
to find out more about:
Interest rates & interest rate projections
Inflation rate
Monetary and fiscal policies
Economic statistics
Central bank intervention
Preparation always pays off. Being constantly switched on to the world’s news and events, and how they can influence the currency market prices will help you to spot the best opportunities to buy and sell. The more you read, research and review the more ahead of the markets you can be.
All Forex transactions involve the purchasing and selling of two currencies called currency pairs – a base currency and a quote currency.
When an order is placed for a currency pair, the first listed currency (base currency) is bought while the second (quote currency) is sold.
The EUR/USD currency pair is considered the most liquid currency pair in the world. The USD/JPY is the second most popular currency pair in the world.
Have an understanding of both currencies you are trading as part of the currency pair.
This will help you to take emotion out of your trades and predetermine your entry and exit strategies. This approach to trading keeps trades consistent and emotions out of the deal.
Learn from each trade, what worked and what didn’t. Always listen to what your book, the experts and the market is telling you, never your heart.
You want a reliable trading platform, offering the latest technology, and the best in customer service to give you the best trading experience.
A forex quote is the price of one currency in terms of another currency in the pair. Both currencies will generate a price and you will also be able to see the spread or difference between the two prices.
There are three charts that you can view these positions on:
This chart is used most often as it gives traders the most informed view of the market. Each candle wick shows the range of high to low.
Each candle body shows if the closing price was higher or lower than the opening price. If the candle is filled it also tells you that the currency pair closed lower than it opened (vice versa, when unfilled).
This chart is helpful to review contraction, expansion and the overall price ranges.
Each bar displays the opening, closing, high and low of the currency pair’s prices. The lowest paid price is at the bottom and the highest at the top, all shown within a specified time period. The horizontal lines on the sides show the opening and closing prices.
This chart is great for Forex beginners as the line connects one closing price to the next to show the general price movement of a currency pair.
Following the line going up or down it makes patterns easy to identify and the market clearer to read.
BEFORE YOU FOREX
Never trade emotionally. There will be ups and downs; wins and losses. Stick to your plan.
Set your limit on how much you’re willing to invest (and risk). Know when you’re going to enter the market and when you’re going to leave.
Managing your risk parameters will ultimately help you manage your success.
Our video tutorials will help you get to grips with the fundamentals of both MetaTrader 4 & 5.
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RISK WARNING:
Trading leveraged products such as Forex and CFDs may not be suitable for all investors as they carry a degree of risk to your capital. Please ensure that you fully understand the risks involved, taking into account your investments objectives and level of experience before trading, and if necessary, seek independent advice. Please read the full Risk Disclosure.
As part of our efforts to safeguard our clients, Eurotrader offers extra protection through Civil Liability Insurance, covering traders for up to €2,000,000.
Risk warning: FX and CFD trading involves a high risk of loss. You should consider whether you can afford to take the risk of losing your money.
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.2% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
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