Forex trading can be very complicated, but if you are dead set on becoming a forex
trader there are some simple rules that, once understood, can make the whole thing
somewhat easier and a whole lot exciting. In learning how to trade forex or currencies,
one will definitely need some tools in order to survive. Majority of the forex traders
on the Internet are quite average, in fact most will lose money trading forex than
win. This is a simple and a well known fact in the forex industry, however, you
can set yourself apart from the majority by using discipline, setting rules and
using all the tools that are made available to you, all the while keeping a clear
view of the market.
Understanding the Risk
Trading currencies can be very risky not because of the market fluctuations but
because of the use of leverage that can magnify those fluctuations. Forex market
is not very volatile in itself, where currencies (Majors) will move an average of
10% or so, as compared to stock markets where the percentage moves of stocks are
much larger. What makes the currency market risky is high use of leverage by clients.
When trading Forex one must understand that you don’t have to utilize all the leverage
that is made available to you, which will only put your account in unnecessary risk.
Also, when trading on margins you have to keep a closer eye on the markets and since
foreign exchange market is open 24 hours a day, not using conditional orders like
stops and limits can also put your account in jeopardy when you are not looking.
We strongly recommend for new traders to open a demo account and learn more about
leverage and margin trading, and other features such as stops and limits before
trading with real money. Additionally, trading should only be done with “risk capital”
which is simply the money that you can lose without it affecting your lifestyle.
Gadgets and gizmos a-plenty: The things that you need in
order to get started with foreign exchange trading
Sure, everyone needs to have some financial savvy and a good head for numbers in
order to make it in the game. But you also need some technological help. Apart from
computing numbers faster than you can ever do manually, technological help can give
you a better assessment whether or not you are making a sound trade. And to make
the trading game more manageable, software tools are a must. These work to make
trading procedures automatic and protect you against a number of losses. But before
you make full use of these tools, a substantial amount of information about the
market and the current exchange rate is needed – which includes historical data,
political and economic standings, etc. Not to worry though – most of this information
can be freely viewed on the Internet, and available on our website. A forex trader
needs to analyze this information in order to determine his first and succeeding
moves in the money market.
Other tools that can be used by the forex trader would be the RPC or risk probability
calculator, pip value calculators and pivot points calculators. The RPC can help
you find out which trades can give you more successes and which ones have smaller
losses, as well as knowing which exit points are needed for a trade to end. The
pip calculator (forex speak for the smallest unit by which a currency moves) can
be determined by the pip so you will know the actual figures of profits
and losses that you might incur (most of this is already built into our trading
platform). And the pivot point lets you know if the prices are falling above or
below the normal trading range. It is not necessary that these tools have to be
used for successful trading, but the point is to use these tools or any other tools
to create some discipline and methodology in your trading decisions.
Keep in mind that the figures, program for analyses, cost computation and other
data processing are done so in an automated way and are based on industry set standards.
This point is highlighted for your assurance that while not all calculators, analysis
tools and indicators or foreign exchange software are created equally (as some may
have far more advanced functions), all of them are grounded on the basic foundations
of financial information and statistical data.
Understand the Pairing
As a side note, it is crucial to remember some simple yet vital information about
currency trading. A currency exchange rate, for example, must always be quoted for
a pair of currencies using code abbreviations from the International Standards Organization
(or the ISO). To illustrate, the US Dollar and the Japanese Yen are two currencies
that can be referred to as USD and JPY, and together as USD/JPY. When you buy on
the trading platform, you are always buying the currency on the left and simultaneously
selling the currency on the right and vice versa when you sell (selling the left
and buying the right)
The ratio of one currency’s value pitted against another is called the exchange
rate. The first one is what you call the base currency, while the second is called
the quote or the counter currency. Remember that if you are buying, this exchange
rate will determine how much of the other currency you will need to pay in order
to obtain a single unit of the other. If you are selling, on the other hand, the
opposite of the principle will apply. Keep this in mind as you start on with your
trading. The more trading that you do in the future, the more vital information
you will discover. But for now, these ones will do.
The Rules of the Game
The basic rule in trading forex is that all trades whether big or small will always
result in both buying and selling of currency at the same time. However, the objective
of forex trading is to swap the weaker currency for the stronger (buy strong, sell
weak) with the expectation that stronger currencies market rate will become higher
in value now or in the future, and you can profit from it once it has been sold.
If this is what happens, then you can pat yourself on the back and be proud of your
first profits. On the other hand, if the currency you bought ends up becoming lower
in value (depending on a number of political and economic factors), then you
will end up with your first taste of a loss. Depending upon how much leverage you
may have utilized you my have to keep a close eye on the market fluctuations. If
you find yourself looking at your open position Profit & Loss (PNL) more than
looking at the market, that is a sure sign that you may be over leveraged. As the
saying goes in the trading community “trade the market… not your PNL)
Getting on with the trade
Once you have logged into your account and done some analysis and are ready to trade,
enter the exact amount that you want to trade and how much of the base currency
you are willing to risk. On our regular platform the minimum trade size is 10,000 units of the base currency. Not all brokers provide you with this option as some
will have higher or lower minimums. After placing the trade, place Stop and Limit
orders if you are going to be moving away from the screen. If you find difficulty
in understanding anything, please feel free to call us or chat with one of our representatives
who will be happy to assist you 24 Hours of the day in the trading week.