Many people find forex trading, which is the exchange of foreign currencies, complicated. Starting out with forex is actually as easy as creating a forex account and get going within a timespan of a single afternoon.
Follow the following steps to be well on your way to trading foreign instruments.
Step 1: Understand the Language
First of all, make sure to familiarize yourself with the language of foreign exchange. Learn some of the most frequently used terms, as a firm grasp on these will help you and make your first trade that much simpler.
Below are some of the words and phrases that you will encounter on a continuous basis:
- Pip: The pip is the smallest value that can be measured in the movement of currency. The word “pip” itself stands for “percentage in point,”. One pip is equal to one hundredth (1/100th) of 1% of a currency. As an example, should the value of the USD rise by a single pip, it would mean that it increased in value by $0.0001.
- Bid price: The bid price is the price your broker is willing to “bid” or “buy” for the base currency you are willing to sell.
- Base currency: The currency you are wanting to sell or are holding. If you’re from Britain, your base currency is most probably the GBP (Great Britain pound).
- Quote currency: This is the currency that you’d be willing to purchase.
- Ask price: The ask price is the price your broker is asking for in exchange for buying your quote currency. The ask price is always higher than the bid price.
- Spread: The spread is calculated as the difference between the bid and ask price. The spread is normally retained by the broker as commission.
Once you are familiar with most of the trading language, you would then be able to pick up a couple of forex books or take a few online forex courses. Although forex books might seem a bit dry, the authors in most cases do their level best to made them as entertaining and fun as possible.
Step 2: Choose the Right Broker
Before you can start trading forex, you need to sign up with a broker. The broker will help you place your trades, plus they also offer a ton of additional financial services.
When working with a trustworthy broker, it can make a difference between whether you will make money from your trades or lose money on those trades.
Before settling for the right broker, take the time to thoroughly research and read reviews on a number of possible brokerage firms.
Since not all brokerage firms offer forex trading, it is best to make sure of that fact before you open an account with any of them.
As a beginner trader, it is best to work with a broker that offers different outlets for customer service. If you’re still not sure what broker to use, rest assured, as we have compiled a list of the best forex brokerage firms out there.
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Step 3: Analyze the Economy of The World
In order to make money trading currencies, you have to be able to predict very accurately what movements the global economies are about to make.
As a profitable forex trader, you have to change your base currency into a quote currency which is about to rise in value. Then you have to change your quote currency back into the base currency when the value rises.
The best type of research you can do is that associated with the trading positions, the political climates as well as the GDP (Gross Domestic Product) of the different countries you are interested in purchasing currencies from.
Doing this will give you a great jump forward in knowing exactly what quote currencies are worthy of investing in and also what countries have economies that are growing. TradingView has a customizable widget called Forex Heat Map, which is a great place to start.
Step 4: Make Your First Trade
Now that you’ve decided the quote currency, you’d like to purchase you can go ahead and place your first trade. A good brokerage firm will provide online trading software in order to buy or sell currencies.
Once you’re logged into the trading software, you’re ready to place a market order with your broker.
Although the specifics of the layout of your broker’s platform may vary, they all have the same basic functions. Also, to remember that many brokerage firms use Metatrader 4 or 5 to trade from.
After placing an order, you can relax and wait for the order to fill.
In order to prepare yourself better before you place an order, it is advisable that you read up on forex news that is currently trending. In this way you will understand the risks that are associated with trading currencies. What’s more, doing so will ensure that your wallet will not get depleted. If you don’t have the time for trading then opening forex managed accounts might be the best option for you!