The Basics Of Forex Trading

By Jeremy C. Winters

Forex stands for foreign exchange and Forex trading means trading currencies of different countries against each other. For instance, in America the currency in circulation is called the US dollar (USD) while the currency in Europe is called the Euro (EUR). An example of a Forex trade transaction is to buy Euros and sell US dollars at the same time. The Forex market is open 24 hours from Monday to Friday and you can earn money either by going long or by going short. Going long means to buy a currency pair and sell it at a later time while going short means selling a currency pair first and buying it later.

Normally, Forex trading is done through a broker. As a trader, you have the freedom to choose the currency pair you expect to change and take your trading position accordingly. If you think that a currency pair, say EUR/USD, will increase after some time, you can place a long position and buy the pair. After a period of time, when you see a rise in the pair, you can sell the pair and earn profit. It must be noted that the currency pairs move upwards and downwards in terms of points known as pips. If your predictions turn out to be true, you profit from the trade. However, there are equal chances of loss in a Forex trade. Therefore, it is very important to trade Forex in a disciplined manner.

First of all, choose a Forex broker who has a very good reputation with years of experience in the field. Now choose the currency pair you want to trade. In the beginning, it is better to choose EUR/USD to trade Forex. Later on, you can also go for other highly volatile pairs like USD/JPY.

Since the Forex market is unpredictable and volatile, it is always advisable to start trading with a practice account for at least one month before trading with real money. This will help you in getting experience in the Forex market. The price movements and statistics in a practice account are real time; hence, you will be able to get hands-on knowledge and experience with the practice account. This will also boost your confidence when trading with real money.

While trading with a practice account, develop your own strategy with the help of current news, charts and patterns available on the trading platform. Learn important indicators like moving average price, moving average convergence divergence (MACD), candle stick patterns and parabolic SAR. These are very important indicators and you must develop your trading strategy based on these indicators. This will increase your chances of earning decent money from the market. It is recommended to trade during the busiest hours of the market between 13:00 GMT to 16:00 GMT when the London session and the US session overlap to earn maximum profit. But be careful as there are equal chances of loss as well.

After getting experience with your practice account, start with a small investment. Start trading with the help of indicators and current news events. Don´t panic and stay focused even if you lose initially. Analyze your strategy periodically and make necessary changes. Over a period of time, you will be able to earn decent money through Forex trading.

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