Forex Trading

Forex Trading

Before you learn to trade in Forex trading, you have to determine your preference for online trading. Do you have the patience to stay in for the long haul or does your stomach twist into a knot when you’re still in a position after several hours? You have to learn a Forex trading system with realistic goals, and this includes being honest about your personal style.

Types of Traders

In a currency trading course you’ll lean there are basically two types of traders on the Forex market: consumer traders and speculative traders. The consumer trader is interested in holding a position for the long-term and does not get overly excited about daily price fluctuations. On the flip side, a speculative trader is only concerned about the daily price movements since that’s where they can make their gains. They are looking to scalp a profit quickly in the small price variations.

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• Consumer traders enter the currency market and stay in for a week, months or years.

• Speculative traders use Forex systems to get in and get out after 5 minutes, a half hour or a few hours within a 24-hour period.

Trading Fees

Don’t be bamboozled by brokers offering foreign exchange systems insisting there are no costs to Forex trading because there are no commissions. There definitely are expenses. You will have to pay to get access to the Forex markets and this is known as the spread. This is the difference between the buy price and the sell price of a particular currency.

Think of it this way…

You’re at an auction where there a several people bidding on a specific item. The auctioneer has all intentions of selling it for $20.00 and has now opened up for bids. Someone from the audience offers $5.00. The difference between the $5.00 bid and the $20.00 asking price is $15.00 – this is the spread. The closer the bidding gets to the asking price, the tighter the spread becomes. When the bidding reaches $19.95 the spread is $.05. When the bidder agrees to buy it for $20.00 and the seller is in agreement, you have a transaction.

All major world currency pairs traded have spreads between them, averaging 3 to 6 price interest points or pips. There is a G7 Forex system based on seven of the world’s leading countries, but the major world currencies are considered to be:

•    the U.S. dollar [USD]
•    the British pound [GBP]
•    the Japanese yen [JPY]
•    the European euro [EUR]
•    the Swiss franc [CHF]

How Brokers Make Their Money

The average value of a pip is $10.00. Currencies from small countries, called off-brand currencies can have spreads as high as 500 to 1,000 pips. The broker retains the spread, and this is how they make their money. When you enter a trade and should it not go your way, upon execution of the trade spread it is deducted from your account.

For example, if you end up with a selling price 3 pips ($30.00) less than your buying price because the trade has not gone in your favor, you lose 3 pips or $30.00. You could break even if the market moved up 3 pips. You could make a profit if the market moved more than 3 pips in your direction.

How You Make Your Money in FX Forex Trading

Typically, price interest points (pips) are expressed in decimals. The pips are usually the last numbers of the decimal depending on the pairs of currencies being traded. They are measured when the fourth digit after the decimal point moves up or down. For example, if you buy at 1.2300 and sell at 1.2350, you are up 5 pips or $50.00. The pips you gain are converted into dollars.

Most Forex trading strategies involve leverage, which is borrowing or using the broker’s money to trade. You post a bond or a deposit with the Forex broker, who permits you to trade using the broker’s money. When you execute a trade, you are buying or selling units of currency known as lots. These are a set amount of money. There are two primary types of lots you will trade:

• Forex trading with a regular lot – $100,000 unit

• currency Forex trading with a mini-lot – $10,000

When you trade a regular lot you get paid $10.00 a pip. On a mini-lot you get paid $1.00 a pip. The average minimum deposit for using leverage to trade is 1%. It means that for every $100,000 you trade you are required to have $1,000.00 actual cash in your margin trading account with your Metatrader brokers. You would need to deposit $100.00 in your margin account to trade mini-lots with your currency fund.

Forex Trading Systems Training

The best Forex systems teach you three basic skills you’ll need as you monitor price movement against time. These skills are critical and without them, you will flounder helplessly.

1. Determining the current trend. When you watch the charts used by foreign exchange systems for monitoring price movement, you will begin to recognize trends. The price movement is displayed on a graph. You can view charts in various time frames – from a minute up to years. The graph shows you the trends on the currency. It can go any of three directions – up, down or sideways.

2. Developing a consistent entry strategy. When you enroll in a Forex trading system course you will learn how to make an appropriate entry into the market, based on several factors. The trend plays the most important role in your timing.

3. Developing a consistent exit strategy. Prior to executing a trade with any Forex trading system you must have a plan on paper to avoid making irrational or emotional decisions. Forex trading robots are used to bypass reactive decisions. Each time you enter the market you risk losing your money. This is part of investing but you have the option of minimizing your risk. Knowing when to exit the market reduces your loss. Alternatively, it gives you the best shot at fair gains.

Once you have mastered these skills following a Forex trading system you’ll be in the position to earn money. Forex trading offers the best profit potential in the financial market.

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