When you trade forex, you are speculating on the price of one currency against another. This is known as a currency pair. As currency prices are constantly changing, this gives ample trading opportunities on the forex market every day. This is one of the reasons why it is the largest market in the world with trillions of dollars in daily trading volume from currency traders all over the world.
The foreign exchange (forex) market is open 24 hours a day and has no physical location or central exchange. It trades via a global network of businesses, banks and individuals. When trading currency pairs, you can take either a long or short position depending on whether you think the currency’s value will go up or down. You will need a forex broker to trade forex online.
In order to trade forex online the first thing you will need is to open a demo or real trading account with a forex broker. These accounts will give you access to the markets where you can then place and manage positions on forex currency pairs.
There are differences between broker accounts such as the minimum deposit required, currency pairs offered, spreads, commissions, tools and more. You should open an account that meets your individual needs.
Forex Trading Platform
You need a forex trading platform to analyse currency pairs for opportunities and to place and manage your forex trades. One of the best trading platforms used by millions of traders around the globe is MetaTrader 4. It is well known for being very user friendly and has plenty of built in tools for efficient forex trading. You can view currency pair charts and trade from your desktop, web browser or mobile device. Your forex broker will provide you with the trading platform when you open an account with them.
Forex Trading Steps
Now that you have a forex broker and a forex trading platform, you are ready to start trading forex online. These are the steps to follow:
- Choose a currency pair – With hundreds of currency pairs to choose from, you will need to decide which currency pair you wish to trade. This could be a major currency pair such as the EURUSD and GBPUSD or a more exotic pair such as the USDDKK and USDSGD.
- Analyse the currency pair – Now that you have chosen your currency pair, you can analyse it on different time frames and charts using the technical and fundamental research tools in your forex platform. This will help you to find potential trading opportunities that are catered to your style.
- Buy or Sell – Once you find a trading signal based on your trading strategy, you can enter a buy or sell position on the currency pair. If you believe the price will rise, you would look to enter a long position (buy). If you thought the price would decrease, you would enter a short position (sell).
- Manage trade position – Now that you have an active position on a currency pair, you may look to place a stop loss and take profit. A stop loss will minimise the potential loss whereas a take profit is the price target you are aiming for. Some traders may also use trailing stops and break evens to manage their positions. It will depend on your money management strategy.
- Exit trade position – Once your stop loss or take profit has been reached, the trade will close either for a profit if it went in your favour or in a loss if it went against you. You can also manually exit a position at any time.
How To Trade Forex Summary
Hopefully you now have a clear understanding on how to trade forex online and are ready to open a forex trading account with a forex broker and download a forex trading platform. Please see my best forex brokers for the brokers that I think are worth consideration.