Forex trading is a very interesting endeavor, but you need to know how to trade before you ever venture into it. The Forex market is one of the most dynamic markets in the world and you need to learn consistently so that you can keep at the same pace with the dynamism. There is so much to learn in the Forex market and no one can reach the end of it, which is one of the reasons that no one had ever developed a 100% winning Forex trading strategy before. Are you a newbie in Forex trading and you want to make some cool money for yourself? You will find some of the tips discussed in the course of this write-up to be useful in guiding you about how to trade Forex.
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Choosing a currency pair
Your Forex trading activities begin with choosing the right currency pair. There are more than 65 currency pairs in Forex trading and you need to choose carefully so that you can get the desired outcome from that particular pair you choose. Some tools make this easy for the traders, one of which is the Currency Strength Meter that is designed to tell traders about the strength and weakness of each currency pair at any particular time.
Some traders do this manually, by opening several charts at the same time. They can minimize or reduce the size of each of the chart windows to make space for many chart windows on their computer screens. An understanding of the price volatility of each of the currency pairs will help you to determine which currency pair should be traded at any particular time.
What type of FX trade to choose?
Forex trading is of different types; you can trade Forex via any of the three methods highlighted below:
- Spread Betting, in which you will trade pounds per point movement.
- CFD, in which you will trade any quantity of CFDs using the unit of the base currency, which is the currency on the left side of the pair. If you are trading USD/EUR, for example, your stake will be in US Dollars.
- Forex Trading, in which you buy lots using the unit of the base currency.
Each of the methods above has its specific stake size.
Make buy or sell decisions
After you have chosen the type of FX trade you prefer and also chosen your preferred currency pair, it is time to make the buy or sell decision. First of all, you should know the particular price at which that currency pair is trading.
You can buy a particular currency pair if you feel the base currency will become stronger against the quote currency or you feel the quote currency will become weaker against the base currency. Your profit will increase with an increase in the exchange price of that base currency; on the other hand, you will record a loss when there is a decrease in the exchange price of the base currency.
You can sell that particular currency pair if you think that the value of the base currency will become weaker against the quote currency. You will make a profit if there is a reduction in the exchange price and will also make losses if there is a rise in the exchange price.
There are some adding orders that you need to know in Forex trading, and they are highlighted below:
- Stop-loss order: It is a way of giving the trading platform an instruction to close that particular trade when the exchange price reaches a particular level preset by you.
- Take profit order: The trade will close in profit once the exchange price reaches that preset level.
- A limit order: The close will be triggered once the exchange price reaches the preset level.