Complete Guide to Online Forex Trading

Online forex trading can potentially be a lucrative business for many traders across the world. It involves trading in currency pairs wherein different strategies can be followed. Every trader or investor builds their own trading style taking some defined parameters into consideration. To fully utilise the potential of the capital invested, you should stay on top of the market trends and news, especially the relevant ones.

Let us discuss more about trading in forex, getting substantial revenue from the intended trades, and what should always be considered before jumping into the forex market.

Steps to Forex Trading

As discussed earlier, for you to get into trading forex, there are certain things you need to know for how to go about in the forex market. Once traders download the MT4, which is the best online trading platform for beginners, there’s a standard set of steps to initiate your first trade:

• Choose a currency pair

There are many popular currency pairs to choose from. The most important aspect of the choice is for the selected pair to have good movement and high liquidity. Some of the highly traded currency pairs are EUR/USD, USD/JPY, GBP/USD.

• Choose a forex broker/platform

There are multiple brokers online who cater to different geographical locations and offer a wide range of services. Still, the essential factor is what they’re charging and how comprehensive their charting features are. It plays an important role in technical analysis. Also, the chosen broker should ideally be reliable and offer good customer support.

• Read the charts right

It is crucial to understand what strategy to deploy at the given movement regarding the charts and what to expect out of that movement. The speculation works only when you are experienced to foresee the price movement through charts. Otherwise, it becomes like an arrow shot in the dark.

• Define your strategy before entering the trade

Once you know where the price is expected to move, you should finalise on a strategy and stick to it. Deviating from a strategy mid-trade usually does harm than any good. Although pragmatism helps in trading, that requires a lot of experience and is definitely not suggested for amateurs. The ideal case for most beginners is to just employ one of the proven strategies of expert traders.

• Take a position

Once you’ve decided on the strategy to be deployed, now is the time to identify the exact price for entering the market, as this sets the stage for everything you get out of a trade. Whether you’re speculating on the fall of a currency pair’s price or its rise, you need to have enough pips of movement to make a trade profitable by covering your expenses and fetching the profit margin. The margins and leverage should be well calculated and aligned with your risk appetite.

• Place a close order

As you enter the trade, you see the profit dwindling in front of your eyes. Experienced traders are used to massive movements resulting in gains or losses, but this could be really overwhelming for beginners. Hence, it’s best to decide on an exit plan and put it in place to manage your emotions. Your risk appetite will usually tell you what profit margin is most suitable for you.

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Forex trading involves buying one currency and selling another. The overall ‘price’ of the currency is the exchange rate which fluctuates as per the demand and supply of the underlying currency. Hence, currencies are always traded in pairs and the market does not set the ‘absolute value’ of a currency but rather determines its ‘relative value’ that it would fetch if paid for another. For instance, 1 USD equals 0.76 Pound Sterling and hence the values of both the currencies are provided in ‘relative’ means rather than in absolute. The most common way of trading in the forex market is through CFD trading. A Contract for Difference is a type of derivative trading which takes advantage of the price movement of the underlying asset without actually owning it, and by depositing only a small margin percentage.

A major part of forex trading is carried out by institutional traders. Forex traders use forex trading to speculate on the price movement of a currency or to hedge their risks. The trade is facilitated through a network of banks and financial institutions, like a CFDs broker, rather than by a global currency exchange. Companies that have significant exposure to international trading also take account of the forex market as an integral part of management operations.

Common forex terminology

There are some commonly used terms in the course of trading in currency, which are briefly discussed below:

Margin and leverage – Forex brokers lend funds to trade a financial asset, which is called a margin. It is usually represented as 100:1, for a trade of $100,000, with a margin of 1% that is a $1000. This is very risky as there is a possibility of substantial loss, depending upon the chosen currency pair. Leverage is again offered by brokers to increase traders’ exposure to the market by allowing them to pay less than the real value of the investment. Therefore, leverage allows them to trade a bigger amount than what they have initially deposited in their trading account.

Pip – Also known as “percentage in point” or “price interest point”, a pip is the smallest price move in an exchange rate. It is calculated in the fourth decimal place of a currency’s market value. Say for example the current value of yen in terms of $1 is ¥114.04, then the product of this value with 1 pip which is 0.01 will give us the current quote of its exchange for USD.

Long/short positions and bid/ask prices – Placing a trade in forex is about speculating on a currency pair’s value where you are either bullish or bearish towards one currency in comparison to the other. The bullish position is called a ‘long’, while the bearish position is called a ‘short’.

‘Bid’ price is the one that the buyer is ready to pay to buy a currency whereas the ‘ask’ price is the one that the seller is ready to accept for a currency they hold. Traders usually open an account with an online brokerage and download MT4 for online trading to get to know all of the above.

Traders usually open an account with an online brokerage and download MT4 for online trading to get to know all of the above.

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This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.