Forex Trading: How to Trade Forex?

forex trading

Forex Trading: How to Trade Forex?

Forex trading is the biggest volume business. I will explain terms that are important in forex trading. These will be helping you learn how to trade forex and how does it works. I will start with the definition of forex trading and then explaining other forex terms. These are important to trade forex. Some key points of today’s discussion are:

how to trade forex

Key Points:

  • What is Forex Trading?
  • How to trade forex?
  • Spread in Forex Trading
  • Lot size in Forex Trading
  • Time Frame in Forex Trading
  • Stop-loss indicator in Forex Trading?
  • Graph Candle
  • Buy and Sell Order
  • Conclusion

What is Forex Trading:

Forex is the collection of two words ” Foreign Exchange”. It is a global decentralized and over-the-counter (OTC) market for the trade of currencies. Its job is to determine the rates of every currency in the world. This rate is Foreign Exchange Rate(FER). It is:

Buying Selling and exchanging all kinds of currencies for business purposes.

Forex for beginners is knowing that Forex trading is buying a product and selling it for profit. The product in this case is Currency it can be USD, PKR, EUR. The people who do trading are Forex traders or Investors. These people have the expertise to determine which currency will be good for the future. The main stakeholders in Forex are the international banks. They permit the conversion of currency from one to the other. Some of the characteristics which make Forex and Forex Trading Unique are:

  • Forex has the advantage of the largest trading volume in the world. This makes it a big opportunity for the world and has high liquidity.
  • It is globally accepted.
  • Forex Beginners has many ways to earn like copy trading and Forex Signals.
  • It keeps up for 24 hours except for the weekends.
  • The cost of transactions is very low.
  • Selling and buying of currency in pairs.

How to Trade Forex?

Forex Trading or Trade forex is nothing but buying and selling of currency between buyers and sellers. This does not work like shares or stock exchange. It rather happens between two parties unlike exchanges in the case of stocks. The types of forex trade are:

Spot Forex Market:

The currency is exchanged exactly at the time of the trade. It is the on-spot exchange of currencies. For example, We exchange gold with USD at the current price of the gold.

Forward Forex Market:

Two parties agree to buy or sell currencies at a specific price at a specific time in the future or maybe many times in the future. For example, a party agrees to sell crude oil at a specific cost for a specific period of time in future.

Future Forex Market:

It is like a forward-trade market but it has legal bindings. The agreement is to buy or sell a specific amount of currency at a specific price in future,
Every transaction happens based on one of the above rules of the forex market. The seller wants to sell and the buyer wants to buy. They come to an agreement and transfer currencies. This is the one way of understanding forex. The other way around is, investors predict the potential of the currency based on analysis. He then buys or sells the currency to make a profit. Let’s understand terms that are important to trade forex:

Spread in Forex Trading:

A forex pair is the pair of two currencies that are being exchanged to buy and sell. The spread is the difference between buying and selling price of the forex pair. Like in a Stock exchange, you are presented with prices when the market opens. One is buying price and the other is the selling price. The buying price is always a little bit higher than the selling price at any time. If you want a long term investment and trade, you buy. If you want short term trade, you sell.

Lot size in Forex Trading:

Trade happens in lots. Lot is the batch of currency that is standard for forex trading. Normally trade happens in very small which units which can be very costly to transfer due to their large amount. This is why a lot system is used which is a minimum of 10000 units. As an individual does not necessarily trade with 10000 dollars or any base currency, that is why all forex trading is leveraged.

Time Frame in Forex Trading:

The timeframe is the period of time in which a trader opens or closes his position in the market. It can be selling or buying a currency. These positions of time frame can be long-term, medium-term and short-term. The chart trading timeframe can be of 1M, 15M, 30M, 1H and so on. Below is the image of time frame in forex.

time frame example in Metatrader chart M1 and Daily chart

Stop-loss indicator in Forex trading:

Stop-loss is a feature available from the broker to minimize the loss in trades. In the initial surveys, it was obvious that traders were losing more than they were earning. So stop loss is introduced to tackle this problem. Stop-loss is a money management strategy to stop trade when certain conditions are met like when the price of a currency reaches a specific price. This helps people to manage money even if they are not active in the market.

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