How to Trade Forex

When trading forex you are exchanging the value of one currency for another. In other words, you will always buy one currency while selling another at the same time. Because of this, you will always trade currencies in a pair.

Most new traders will start out by trading the most commonly offered pairs of major currencies, but you can trade any currency pair that we have available as long as you have enough money in your account. For this walkthrough, we’ll look at EUR/USD (Euro/ U.S. Dollar).

Research and analysis should be the foundation of your trading endeavors. Without these, you’re operating on emotion. This doesn’t typically end well.

When you first start researching, you’ll find a whole wealth of forex resources – which may seem overwhelming at first. But as you research a particular currency pair, you’ll find valuable resources that stand out from the rest. You should regularly look at current and historical charts, monitor the news for economic announcements, check indicators and perform other technical and fundamental analysis. We’ll talk more about specific types of research later on.

You’ll notice two prices are shown for currency pairs. For example, a quote for EUR/USD may look like this.

The first rate (1.21280) is the price at which you can sell the currency pair. The second rate (1.21291) is the price at which you can buy the currency pair. The difference between the first and the second rate is called the spread. This is the amount that a dealer charges for making the trade. Spreads will vary among dealers.

If you’ve traded stocks, bonds or other financial products, you know that you can usually only speculate on the one direction of the market: up.

Forex trading is a little different. Because you are buying one currency, while selling another at the same time you can speculate on up and down movements in the market.

ENTERING A BUY POSITION

The current price for EUR/USD is 1.21227/1.21236. You believe that the euro is bullish, so you decide to enter a buy position for one lot of the EUR/USD. Because you are buying, your trade is entered at the price of 1.21236.

ENTERING A SELL POSITION

Let’s imagine that you believe that the euro is bearish. You decide to enter a sell position for one lot of EUR/USD. Because you are selling, your trade is entered at the price of 1.21227