How to trade forex

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It is comforting to know that it doesn’t take a genius when placing a trade in the foreign exchange market.  

Let us start with the buying and selling of currencies. The primary aim of a trader when exchanging currencies is that the currency the trader chose to buy should increase in value compared to the sold currency. In this case, the speculation game comes into play. The more accurate the trader’s speculation of the currency price movement, the more chances he has to profit in the exchange.

 So the rule of thumb in forex trading is pretty simple: buy the currency pair if you speculate that the base currency will appreciate relative to the counter or quote currency, and; sell the currency pair if you speculate that the base currency will depreciate relative to the quote currency. 

How to trade forex for beginners

After getting a teaser in the currency exchange, forex beginners must be able to visualize the bigger picture of forex trading to learn how to trade forex successfully. 

Here are the simplified steps of trading forex:

Pre-Trading Step/Ground Zero: Choose a forex broker.

There is a wave of forex brokers that have sprung from nowhere to introduce you to the forex world. Choosing the right one is imperative.

Once you have chosen the broker that will bring you to the largest financial market, go on with the following:

Step 1: Take a pick of your peg currency pair.

There are over 60 currency pairs available in the market as of the date, so pick the best currency to boost the trade opportunity that will best work for you. To help you decide, consider the amount of price volatility that comes with the currency pairs that will eventually lead you to a haven and reduce your trade risks.

Step 2: Choose which currency to buy and which currency to sell.

The speculation of currency prices movement must have been carefully done to choose the currency you are now about to buy and sell. 

In the forex world, you take a long position if you buy the base currency and take a short position if you sell the base currency and repurchase it at a lower price.

Since currencies are always in pairs, the forex quotes have two prices: the bid price and the offer/ask price. The bid price is the price that the broker wants to buy the base currency in exchange for the quote currency. The bid price is the price that the trader will sell it to the market. Selling or taking short means that your broker will buy it from you at the bid price. 

On the other hand, the offer price will be the price that your broker will sell the base currency in exchange for the quote currency. So, when you buy a currency, your broker will sell it to you using the offer price.

Now, if you take the difference between the bid and the offer/ask price, that is called spread. So the amount the trader gains or loses from the trade is based on the spread during the trade.

Step 3: Add your orders to manage your trade gains and losses.

In trading, an order can mean stop or limit to hold your profit gained from the exchange or stop the loss incurred from the trade.

A stop-loss order means closing out the trade at a price lower than the current level on the market and is used to reduce losses.

A limit order, on the other hand, is to close out the trade at a price that is higher than the current price on the market and is used to lock in price targets.

Stop-loss order and limit order can be imposed when placing your trade.

Step 4: Moderate your trade.

Moderating your trade is tracking the market prices as your trade profit and trade loss will fluctuate as the market price moves. You can do the tracking and check on updates about open positions through your chosen trading platform that comes from the forex broker you have decided to go for.

Step 5: Close your trade.

When you open trades, you also have to close them. Closing your trades means taking good care of your gains and losses as they are immediately indicated in your trading account balance.

These five easy steps will surely be a good read for beginning traders to pick up the know-how of how to forex trade and push their trading luck to the max.