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Guide to forex trading

There are many good reasons to choose currency as an alternative to traditional investing and daytrading in the stock market. This forex trading guide will help you succeed in the foreign exchange market.

Guide to forex trading

Ready to start trading in FX? See this list of Popular forex brokers.

The benefits of forex trading:

  • No Fees: Unlike the stock market, there are no fees or charges in foreign exchange trading. You do not pay any fees for currency broker, no fees to the government or state. Currency Brokers are compensated for their services with something called " buy-sell spread " (" bid-ask spread). The spread is the difference between the buying price and the selling price.

  • No costly intermediaries: You can trade directly in the spot market via your currency broker.

  • Low initial capital requirements: You really need not be rich before you can start currency trading. A mini - currency account or micro - currency account with a Forex broker, you can open a deposit of around $ 25 - $ 100 dollars.

  • Cheap to buy and sell: Currency broker normally takes no more than 1 per thousand (0.1 %) of the buy-sell spread (difference between buying price and selling price).

  • Hour market: from the markets open on Monday morning in Australia, it closed Friday night in New York, the currency market is open for trading. You can shop at night, morning, night on weekdays - when it suits you best.

  • Meaty market: Since the currency market is so large, it's never a problem to sell or buy a currency (good liquidity), even if you are sitting on very large positions can sell or buy instantly. The size also means it will be impossible to manipulate the foreign exchange market (as opposed to equity markets where manipulation is almost commonplace).

  • Easy to start with forex: The admission fee is something everyone can afford to pay. The elementary exchange market is easy to understand. If you want to practice, there are many possibilities with free demo accounts everywhere.

  • Valuable knowledge: What you learn in foreign exchange is also useful in other financial disciplines. Be good at foreign exchange trading, and you can achieve success in any financial market.

Best brokers for online trading

We'll leave it up to you to choose the currency broker, and have no intention of appointing a single trading platform, since every trader has their own preferences. However, we have taken the liberty to pick out the ones we think are the best online brokers for forex trading.

easyMarkets is the world-leading forex broker. This is a classic, and for many their online foreign exchange platform is preferred solution for foreign exchange trading. Trading platform their suit everyone. Despite the fact that it is easy to use, it nevertheless Enjoy big platform with a lot of functionality. A service you as a trader can grow and develop with.

Social trading: Largest online investment netowork

eToro is the world 's largest social investment network, and is currently one of the most popular services for currency trading over the internet for beginners.

Key currencies and currency pairs

Your probably are familiar with some currencies already, such as your local currency which you are using every day.

Here is the largest and most important currencies in the world:

  • USD (USD) - United States - Dollar

  • EUR (€) - Euro countries (not all EU countries!)

  • JPY (Yen) - Japan

  • GBP (£) - UK

  • CHF (Swiss francs) - Switzerland

  • CAD (Canadian Dollars) - Canada

  • AUD (Australian Dollars) - Australia

  • NZD (" Kiwi dollar ") - New Zealand

Symbols for currencies, such as " EUR " and " GBP " is often used, at least on paper or when printing. The abbreviation of a currency is always 3 characters. In everyday language used otherwise the currency name, such as " euro " or " pound ".

Currency Pairs

There are a number Currency pairsyou can trade in. We have the " big 7 " that they are being traded in the greatest volume. Common to these seven currency pairs is that they all include USD:

  • EURUSD - Euro countries / USA

  • USDJPY - U.S. / Japan

  • GBPUSD - UK / USA

  • USDCHF - U.S. / Switzerland

  • USDCAD - U.S. / Canada

  • AUDUSD - Australia / USA

  • NZDUSD - New Zealand / USA

USD is the largest currency in the world, accounting for over 60 % of the market. This is because the U.S. has the largest economy in the world and the most liquid markets, and because many countries have foreign exchange reserves in dollars. USA is also a military superpower.

The euro is the second largest, but only by about 25 % of the market.

Currencies are traded in pairs always

When you trade currencies, you buy one currency while selling another currency. For example, GBPUSD (USD = USD and GBP = Great british pounds).

In the currency market, if you buy a currency, it means that you have to sell another currency. And if you sell a currency, it means that you have to buy another one.

Exchange rates change constantly. Think of two different currencies in a football game that never ends. Things can happen all the time, in one moment, one team at defansiven, and as conditions change becomes more -offensive. The results change constantly.

As a beginner it is best to concentrate on just one currency pair. No two couples, nor more pairs, but only one currency pair. Since the currency market is so large, it is also quite complex. By focusing all on one currency pair, you can specialize just in this pair. Although many of the pro traders act only in one currency pair.

Foreign exchange market: Better than the stock market?

Unlike the stock market, where shares are bought and sold, the money in the currency market itself being traded.

Just like the stock market, the foreign exchange market determines prices. Market reviews of a currency is reflected in the exchange rate.

Currency trading can think a little like stock trading. You do not buy stocks, but currencies. And value is the one monetary unit used in one or more countries.

If you buy Australian Dollar, it's a bit like buying shares in the economy of Australia. Buy Australian dollars if you think it will go well with the economy where " down under ". Later, you can sell your Australian dollars, and hopefully achieve a profit on this sale (if the Australian dollar has strengthened as expected).

Exchange market has no physical origin, such as the Oslo Stock Exchange or the New York Stock Exchange. It is a Decentralized market, unlike the stock market which is centralized with a stock as an intermediary between buyer and seller.

Market is open continuously 24 hours a day, and is powered by a huge network of banks ("interbank market" or "OTC" = "over the counter").

The Foreign exchange market

Participants, there are private traders like you and me, as well as everyone else who buys currencies, such as banks and companies.

Fact that speculators who account for over 90 % of turnover in the foreign exchange market. Commercial and financial transactions are of course also for a significant portion of sales, but there is speculation that drives the market.

This is the foreign exchange market:

  1. Speculators are those that account for 90 % of turnover in the foreign exchange market. These include hobby speculators, professional daytradere, super rich traders as well as poor students. All they play a role in the world's biggest financial market.
  2. Large banks - the biggest banks in the world. They act on behalf of their clients, but also between other large banks (the interbank market).
  3. Cap - trades in currency market to make transactions. For example, if Dell to buy electronic parts from China, they may exchange U.S. dollars to Chinese yuan before they can complete the transaction.

How to trade currencies?

There are many different ways to buy and sell currencies:

  • Spot trading - (" spot ": instant) You act immediately. This is the currency in its simplest form.

  • Futures trading - (" futures " = future) It buys or sells a contract. The contract consists in having to buy or sell a currency at a specified price on a future date.

  • Option trading (' option' = select / option) Unlike futures, which you MUST fulfill the contract (ie you need to buy or sell the currency stated in the contract), you will be in an option given the opportunity to buy or sell a currency at a future date, but you are not obligated to buy or sell anything.

  • ETF (Exchange traded funds) are funds made ​​by banks or financial institutions, and traded in the same way as shares. Instead of buying a stock, you buy a fund that is. The fund may consist of a set of both stocks or currencies, or just a part.

How to make money in forex

The objective of currency trading is to exchange one currency for another, with the expectation that the currency you are buying to increase in value relative to the currency you bought with.

Note: The exchange rate simply indicate how much of one currency you may get a different value.

Base currency and the counter currency

Currency pairs, for example GBPUSD, consists of two currencies. For years we shall have an exchange, we must always have two currencies, and obviously well even why. The value of a currency must be compared to anything, and the currency, we compare one currency with another.

Always there is the former currency is the base currency. The latest currency in the currency pair is always counter currency.

To buy for example GBPUSD, says the exchange rate how much money you have to pay the counter currency to buy one unit of the base currency. For example, the GBPUSD is 5629 that means you have to pay 5629 Dollars for $ 1.

Currency pair NOKUSD is the opposite, here is enough base currency and USD is the counter currency.

Base currency is the currency you are buying or selling. If you køjper GBPUSD may translate to " Buy USD and pay with enough ". If you sell GBPUSD means " Sell USD and get paid enough."

Make money regardless of market direction

In currency trading you can make money in both rising and falling markets. Most certainly realize now how to make money in a rising market.

For example, when you buy GBPUSD (when you buy USD and sell enough), you want the base currency to rise in value so you can sell it back at a higher price. This is called "going long", or just "long".

You can also make money when the market falls. For example, you can sell GBPUSD (when you sell USD and buy enough). When you hold a short position, you go "short". This is called shorting. More on that later.

An exchange has two prices: Buy and Sell

Exchange comes with two awards:

Price of purchase, and a price to sell. For example, the selling price of GBPUSD be in 5627 and the purchase price of 5629.

Purchase price is the price you have to pay for the base currency.

Sales Price is the price you can sell the base currency.

So in the example above you can sell dollars at 5.627 million, and the purchase of 5.629 million.

Note the difference between the sale and purchase of 0.002 million. This difference is known as spread.

How to Know What You'll want to buy or sell?

There are many methods for determining what is a good idea to buy or when to sell.

These methods will come back a little later, but for now, let 's assume that you use a method called fundamental analysis. This method of analysis is to study the economic conditions. For example, for currency pair GBPUSD, it is important to look at the U.S. economy versus the economy of Spain.

Example:

Let 's take the currency pair GBPUSD that as enough once. If you think that the U.S. economy is going to improve markedly in terms of plenty, so you buy GBPUSD.

How do you get to the assumption that the U.S. economy (or another country's economy) will improve, we shall see more later. But if you think that the U.S. economy will weaken compared to the economy, you should sell GBPUSD.

Margin Trading: The secret to making money fast in FX?

Margin trading is the secret ingredient that allows some traders to go from having a normal economy to become obscenely rich in just years, months or weeks...

Margin trading is also a sure way to ruin, if you do not know what you are doing.

So what exactly is margin trading?

Suppose you want to invest in USD. You do not buy just $ 1, it would have been pointless, as well as impossible by most online brokers. You must buy "lots" of a certain number of units, for example, 1 mini lot is the same as 10,000 units.

What is PIPS?

Pips is a central concept in foreign exchange trading. Thankfully this is pips with easy to understand.

A pip is a unit that shows the change in exchange rate (ie the change between two currencies).

Example:

GBPUSD changes from 5.6000 to 5.6001. This is a change of 1 pip (5.6001 to 5.6000).

Pip In other words, the fourth decimal place in an exchange.

An exception is the Japanese yen, which is pip the second decimal place. This means that all currency pairs containing JPY (Japanese Yen) has only two decimal places, for example USDJPY could be 85.25.

You do not calculate pip values ​​themselves, it makes your broker for you.

What is a lot?

In the " old days " were only the biggest and richest who ran with foreign exchange trading. This is because there was something called micro lots or mini lots. Had you not afford to buy a standard lot of 100,000 units, could you just forget about currency trading.

Today we have several levels of lots, usually divided as follows:

  • 1,000 units (micro lot)

  • 10,000 units (mini lot)

  • 100,000 units (standard lot)

In addition, there are some online brokers also offer nano lots, which is only 100 units.

Since currencies are measured in pips (the smallest change in an exchange rate) must act fairly large sums before it will be possible to create a substantial profit on the trading.

Leverage How best to explain leverage? With an example... Imagine that your broker is willing to provide € 100,000 to trade for, but all you have to pay to be allowed to trade for this wonderful amount is only a fraction of this, say € 1000 - this amount keeps online broker as collateral for the hundred thousand euros you receive.

In the above example, the requirement for leverage of 100:1, that requires your broker that you only have 1% of the amount you wish to trade for.

Try forex trading without risk

Try Forex ririkofritt and free with a practice account from any online broker. Such a demo account gives you valuable experience and cost nothing to enter.

It is obvious why it is free to create a demo account and use that as much as you want. For online broker is a great way to showcase what services they can offer. For you it is a brilliant way to learn forex trading without risking your own money.

Want to start right now? See this list of forex brokers.

A demo account is win -win for both you and your broker: You have zero risk and gain experience without having to pay anything, and your broker gets promoted their services for free.

One of the main principles of currency trading is to never invest more than you can afford to lose. Of course, the aim of foreign exchange to Make Money, but this is speculation, and it could easily go the other way too.

Best tool to prevent ugly losses in foreign exchange market experience and knowledge. A demo account can give you a lot of this, and before you know it you are an experienced currency spectroscopy rugged, even without having lost anything.

Short, there to trade via a demo account is brilliant if you are a beginner. You will not make money with a demo account, but not lose money. Zero risk, and much valuable experience.

Warning: "The get rich quick in forex scam"

Exchange market offers many wonderful opportunities. Here one can, in theory, get rich overnight even with fairly modest investment.

Frivolous online brokers may promote that you can get rich quick in foreign exchange trading. There is a partial truth.

If you are lucky you can get rich on both the currency and the lottery. Now, however, so it's not luck that will be the core of whether you achieve success in the currency market.

Reality is probably rather like this:

  1. Success in the foreign exchange market does not come overnight.

  2. All traders experience periods of loss sometimes even pro traders.

  3. To succeed you need to practice. A demo account can give you valuable experience without having to risk your own money first.

  4. There are no shortcuts.

  5. Skilled traders can make good money in forex.

Which online broker is best for currency trading?

See this list of popular forex brokers.