Editor’s Note:
How Online Forex Trading Works
The basic idea behind Forex trading is that it allows you to speculate on the moves of the exchange rate between two currencies. The exchange rates between currencies are fluctuating all the time. Many different factors go into the fluctuations of the exchange rate such as the state of the economy, retail sales, interest rates, real estate sales, and a lot more.
When you want to make money in the Forex market, you have to buy one currency and sell another. Every time you place a trade, you are doing just that, these are called “Currency Pairs”. You are therefore “Long” on the currency you bought and “short” the one you sold. If the currency that you buy goes up in value compared to the one you are short, then you make money. Conversely, if the currency that you are long goes down in value compared to the other one, then you lose money. Of course one of the currencies can be your own home currency. So if you are dollar based you can be long a currency you feel will appreciate against the dollar.
Opening an Online Forex Account
Once you are ready to start trading Forex online, you’ll need to gain access to it through a broker. There are hundreds of different Online Forex brokers out there in the market that you could choose to work with. Some of them are better than others (or at least more suitable to your individual needs).
After you choose a broker to work with, you’ll need to open an account. This is done by completing an application and providing some basic personal information about yourself. Once the broker opens the account for you, you’ll need to deposit money into your account. Although many will allow you to trade “virtual” or pretend money to practice before risking real money. Many of the online accounts execute these “virtual” trades in real time and actually match your trade with a real trade to ensure as much realism as possible.
Trading Online
After you have a brokerage account opened, you can begin trading. Most online Forex brokers allow you to download a piece of software to your computer so that you can trade from your computer. Prices are transmitted over the Internet but the analysis is done locally on your PC. The other option is to use a Web-based platform provided by the broker. This has the advantage of being hosted on the broker’s system so trades may be faster but there may be a slight lag in the analysis. So which system you use depends on your personal preferences and what your broker offers.
With the trading platform, you should be able to look at charts, price quotes, and a lot of other important information that you can use to base your trades on. When you are ready to place a trade, you can typically do so directly from the chart. You also have the option of clicking on the buy or sell button at the top of your platform.
Using the Right System
Once you have figured out the basics of how to actually place trades in the Forex market, you need some kind of system to guide your trading. There are hundreds of different trading systems that you can use depending on your trading style. Some trading systems use a scalping strategy that aims to take only a few pips out of the market at a time. Others use a more long-term trend following strategy that aims for hundreds of pips per trade.
According to Investopedia:
The smallest price change that a given exchange rate can make. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point – for most pairs this is the equivalent of 1/100 of one percent, or one basis point.
Where exactly do you get these trading systems to work with? Many people buy them from professional traders. Others get Online Courses or Books or simply develop them on their own. Regardless of where you get your trading strategy, it is important to stick to the rules. A trading strategy will not work if you do not follow the rules that are set forth by it. A lot of traders try to get into more trades by bending the rules of their trading system. The entire purpose of using a system is staying out of bad trades and focusing only on the good opportunities.
Money Management
When you trade in the Forex market, you can control a large sum of money with your deposit thanks to leverage. If you want to be able to maximize your account balance, you need to learn how to work with this leverage. In order to avoid losing your investment capital, it is important to use money management strategies. For instance, many experts recommend that you only risk a maximum of one to two percent of your capital on any one trade. If you’ll stick to this rule, you will live to fight another day and keep your investment capital.
If you have a good broker, a solid trading strategy, and strict money management rules to follow, there’s no reason that you cannot make good money in the Forex market.
About the Author:
Chris Keenan is a blogger for Link High, a new jersey it support also specializing in support to nj internet video advertising agencies.
See Also:
- Key Factors of Forex Currency Markets
- Using Forex Charts
- Forex Trading Software
- Determining Currency Trends in the Forex Market
- Candlestick Patterns
- Use The Same Trading Principles That Major Banks And Hedge Fund Managers Use Everyday To Make Millions!
- What are You Really Buying in the Forex Currency Market?
- Do You Know Your Currency Pairs?
- Elliott Wave Forex Trading Video: It’s Not The News That Matters
