How to Trade Forex
Ever wondered if it pays to invest in Forex Trading? Well, there are some who make a very good living from trading in currencies but then again, they are professionals that do this for a living. Having said this with the advancement in technologies nowadays anyone can try their hand at trading in the foreign exchange market and you could make quite a comfortable income if you know what you’re doing. Even if you’re not an expert, some of the online trading platforms that exist today will allow you to follow Forex experts and carry out the same trades they do. In this article, we will show you how to trade Forex directly from the comfort of your own home or anywhere else for that matter.
Forex Trading: What does that mean?
Before starting and understanding how to invest in Forex and start trading, let’s explain briefly what it is. Forex is an abbreviation commonly used for “Foreign Exchange”, and generally it describes the purchase and sale of currency in the Foreign Exchange Market, in particular by investors and speculators. The familiar expression that is commonly used is “buy low and sell high”, and this certainly applies to currency trading. A Trader on the Forex Market will be able to buy currencies that are undervalued and then sell them when they increase in value, just as a stock trader buys shares that are undervalued and sell shares that are overvalued.
How to Trade Forex: The Essentials
To invest in Forex it is important to use both fundamental analysis and technical analysis to determine the trend of currencies. As mentioned, Forex Trading is based on the exchange of currencies, and the task of the Trader will be to predict the future performance of one currency compared to another and try to profit from the movements of value. Obviously, if their analyzes are right they will make a gain otherwise they will make a loss on the trade.
You always need two currencies to make a trade, that is why we always talk about ‘Currency Pairs’. To understand the trend of the value of the currency it will be necessary to know the factors that will determine an upward or downward trend of the currency pairs. In summary, it can be said that the value will be determined, in the first place by the decisions of the Central Banks, and their influence when determining the quantity of the circulating currency notes and the interest rate of the currencies, i.e. the cost of money.
In essence a high cost of money will result in low demand, while low cost will prompt more demand.
These two factors alone however are not enough to determine the increase or decrease in the value of a currency. You will need to analyze other economic and global factors that effect the valuation of the currency in relation to other currencies. For example, a low cost of money will eventually support the recovery of the real economy of a country this in turn lead to an increase in the value of the currency. Other economic and regulatory factors will also affect the value of the currencies, for example, data relating to the employment and unemployment rate, inflation and deflation, GDP, imports and exports, and so on. Basically all those elements relating to the economy of the countries in which a given currency circulates have an effect on the currency valuation.
Another determining factor concerns economic policy and therefore all decisions made by governments that can give support or hinder the country’s economy will determine whether a currency grows stronger or weaker. In general, it can be said that an increase in the demand for a given currency will lead to its appreciation, while a decrease in demand will lead to depreciation. On the contrary, an increase in supply will lead to depreciation and in turn will favor exports, while a limited offer will lead to an increase in the value of the currency itself. To be able to make gains with Forex Trading it will therefore be necessary to try and understand in advance the moves that can come from the Central Banks and from the various governments. For this it is essential that we follow closely the economic calendar, that is, the dates were relevant statistical data is revealed. For this reason, many Forex brokers offer Traders such a service, that is, they warn when there will be a statement or a press release from the governors of the Central Banks or when the statistical institutes are going to disclose the data on inflation and deflation, on unemployment, import and export figures, and so on. It is very common that in conjunction with these declarations there are movements in currency values and also substantial changes in trends.
Types of Analysis required to Trade in the Forex Market
The Fundamental Analysis
The economic calendar and the statistical data that comes out from government entities we mentioned previously are part of what Currency Traders refer to as the fundamental analysis. This is an analysis aimed at determining the probable performance of a currency based on data from the real economy. Now doing this analysis and transforming it into relevant signals can be quite daunting, especially for beginner Traders, and for this reason, it’s recommended to get Forex Trading signals based on a fundamental analysis carried out by professionals. These signals, in some cases, will be offered free of charge by the Brokers, while others will provide them for a fee and send them to you either by E-mail or SMS. Relying on the fundamental analysis to invest in Forex will not guarantee 100% certainty of the outcome from a trade, but it will certainly give you greater chances to make a profit from your Forex trades.
The technical analysis, on the other hand, will be simpler to carry out, it is based on the principle of the cycle of economics, that is, the repetition of certain conditions will also repeat the trends.
To carry out a technical analysis, it will be necessary to examine the graphs of trends that have occurred in the past.
When carrying out the technical analysis, it will first be necessary to identify the level of support and the level of resistance.
- The resistance level is the highest price point, or value, in the period taken into consideration, and in theory technical analysis can also be made on the basis of the previous day’s data,
- The support level represents the minimum price value reached in the period taken into the examination.
At this point, it will be necessary to trace the progress of the negotiations and determine whether the trend will be upward or downward. A trend does not exclude that there may be oscillations in the opposite direction, but these exceptions will not always determine a change of course. Even in the technical analysis, there will be trading signals and once again these signals will not guarantee earnings, because one can never completely eliminate the risk from Forex Trading. It will however give you better odds of making more profitable trades than losing ones.
One can never completely eliminate the risk in Forex Trading
To increase your chances of ending with Profitable trades we, therefore, recommend trying to use data signals from both technical and fundamental analysis, by combining and coordinating the results to get the most likely outcome. It is important to know that in Forex Trading you will not only gain from an increase in the value of one currency compared to another but also from a loss of value. By performing the correct analysis and predicting when a currency is at its weakest, you could also make a profit, if it turns out that the currency can be exchanged in the future at a much higher value, in which case it will be better to buy it now at the minimum value.
How to Trade Forex with Leverage
Among the many advantages of Forex Trading, there is also the possibility of investing very little and keeping the risk of losses under control. In this regard, it is good to underline that in order to operate it will obviously be necessary to pay the minimum value as established by the various online brokers. For example, there will be those that will allow you to operate by starting with just $/€ 20. Also, the minimum for the individual transaction is fixed by the Broker, therefore it is advisable if you want to risk little, to look for a Broker that will allow you to act with low sums, this is especially true for beginner Traders, because it will be essential to be careful of the ratio of Leverage, or simply the Leverage.
The leverage is a mechanism through which the gains and losses will not be calculated on what is invested, but on an exponential sum.
For example, if the Broker will propose a leverage ratio of 1: 100, and if the Trader decides to invest just 1 euro, it will count as if 100 euros had been invested. How’s that? Well for every $1 that the Trader puts in, the Broker will put $99 of their own, so if there’s a 10% gain from the trade, the $100 will become $110 and $99 will be returned to the Broker and the Trader will keep all of the remaining $11 gains. Therefore with Leverage, a trader can make good money by investing only a small portion of the total trade value. In the previous example if the trader only traded with the 1 euro he initially deposited then the gain would have been of only 0.10 cents. Sounds too good to be true? Well, that’s because there is a catch. The leverage works the same way even in cases that the trade is unfavorable and is loss-making. So, once again, looking at the above example, if the transaction turned into a 10% loss instead of profit, then the leveraged trade would result in a $10 loss. The remaining balance of $90 would go in full to the broker and the trader would have lost his entire $1 invested. On the contrary, if the trader invested the $1 without using leverage then he would have lost only 10%, which is 0.10 cents and would still have 0.90 cents left. In this example, the amounts are ridiculously low and you might be thinking what’s the big deal if I lose $1, but when you start trading with leverage you can trade much higher amounts, running into thousands and therefore a loss-making Leveraged Forex transaction would mean you can lose hundreds or thousands in one go.
Broker Leverage Ratio
Beginner Traders are advised to choose Brokers that will not have an excessively high Leverage ratio because of the fact that the mechanism works even in the event of a loss. In this way they will not make as much money on a gain, however, they will also not lose too much on a loss. So, the margin is connected to the Leverage ratio, in fact, when you invest a certain sum on a position, you will notice that not only the funds invested will be blocked, but also a margin share. This amount will serve to cover any losses and will be calculated precisely on the basis of the ratio of Leverage, this makes it clear that the losses may be higher than what was invested. If you want to understand the leverage relationship, its mechanism, and also the related risks, we recommend you practice Forex Trading through a Demo Account first, before you try your hand with real money. Plus500 is an online broker that offers a good demo account. A demo account is an account that most online broker platforms offer to their users, where you can use virtual money instead of real money and perform Forex trading transactions in the real market with these virtual funds. You will obviously not gain any real money if you make a profit with a Demo account, however, you will also not lose any money.
If you are a beginner trader, a demo account will help you understand exactly how Forex works, develop strategies, understand your strategy errors. In essence operate in real market conditions, using practice money, with the advantage of not risking anything.
How to Trade with Spread in Forex
Spread trading, also known as “Pair trading”, appears to be on the margins of financial practices as it is not yet well known and only a very small number of traders use it frequently. This particular trading technique is usually used when dealing with investment funds. Dealing with large sums, the trader needs some tools to protect himself. Thanks to spreading trading, you do not expose yourself to a high disproportionate danger when you aim to grow your fund. As we know, it is of primary importance to know how to put one’s investments in a favorable condition, since the financial market is very risky. Now trading on foreign exchange markets is similar to trading in stocks. Those who invest in the stock market acquire the shares which they believe will experience an increase in value in the future. Vice versa, they sell the shares which, according to them, will suffer a loss of value. The difference is that those that trade in Forex do not buy shares but currencies or, more precisely, currency pairs which, according to their forecasts, will suffer an increase in the exchange rate compared to the other currency. For example, when the Euro is deemed to begin to lose value against the Dollar, the trader who owns the Dollar/Euro Currency Pair will sell Euros (known as going SHORT) and buy Dollars (aka going LONG). Spread trading derives from the experience of trading, but at the same time it turns out to be a much more refined practice. This happens because in addition to typical elements of trading there are also typical hedging characteristics.
Hedging against Trade Losses
The “Hedging” practice involves operations that are aimed at the protection of the investment. The biggest disadvantage of the financial market is precisely that of being particularly risky, hedging is used precisely to try to neutralize this risk, or at least to reduce it to a minimum. Precisely because it deals with minimizing the risks related to the same financial activity, this practice is widespread and used not only by normal traders but also by private investors and companies who obviously have every interest in protecting themselves from foreign exchange transaction risks with any means possible. Obviously minimizing the risk of an investment will entail a price to pay. Just like insurance, you pay a small price to ensure you do not incur a big loss. So those who decide to take advantage of the hedging practice, considering it appropriate to have protection, will also choose to give up a part of the profits they could potentially have earned. They consider this a reasonable cost to pay in exchange for seeing their whole investment go up in smoke!
Would you be able to keep a PC on for 24 hours with the bot always running and keeping on making profits? It’s true, you are faced with a tough question. Many people try to make money from the Forex market. But, and I don’t want to scare you, remember that it’s not easy to make money by sitting comfortably at home. 90% of those who make transactions on the Forex market lose money. Investing and succeeding in the currency market is not so easy. The worst enemies of a trader are the desire to earn more and more and the lack of experience, especially under certain market conditions. But, sometimes, you can even be afraid of what may happen. If you want to increase your chances to win or at least not to lose money, rely on Expert Advisors. They are “Robots”, if you allow me to use this term, that are able to open and close positions on the basis of our guidelines, while maintaining the right market strategy. The Expert Advisor uses technical indicators to enter and exit the market, and operates 24 hours a day. It’s a fully automated system that can ensure a successful trading. You have to do only one but very important thing. If you give the correct “commands” to the “robot”, you can ensure yourself some good successes at the end of the day and in the long run. Now, though, let’s see what the drawbacks are of committing a PC to the MetaTrader with EA for automated trading. Trading only with a desktop computer or only at a specific physical location If you have a desktop PC, not a laptop, you could have the big problem of having to interrupt your trades when you have to obligatorily turn the PC off. Why not continuing to earn even while you are not physically at your workplace? Today we don’t live in the Middle Ages and, therefore, we can easily buy a laptop, or rely on a broker that also supports mobile commerce. What if you just didn’t like the interface of the mobile version of the broker or your trusted broker didn’t offer an online trading platform yet? Simple, let’s rely on a VPS (Virtual Private Server). In the next section we will explain better what it is about. So, you can have access to your favorite trading platform wherever you are, in a hotel or internet cafe, as long as you have a network connection. Trading on your PC while you are doing other things If your trades are automatic, you can continue to operate even if you are not at the PC and you’re doing something else on your computer. If the automated system works well even without your monitoring, you can let it continue to make money for you. Even if you are not focused on it and you are not online.If you trade at any time of the day, even though when you are not confined to your own desk, by entrusting to a VPS (Virtual Private Server), you can trade from anywhere. In addition, since the system can perform tasks even if your computer is off, you might conclude excellent trades while you are asleep. Lots of safety The VPS (Virtual Private Server) offered by the best companies guarantee maximum safety. The servers used are regularly checked to ensure that they work. Moreover, most of them offer an uptime of 99.9 percent. What’s more, you could also receive, included in the package, antivirus and other tools to ensure that the system is not vulnerable and, therefore, that it’s safe. More speed And if someone did the work for you? Maybe faster? It would make no sense to do tasks manually, now that trading is highly automated. A VPS can perform a task faster than you or your pc can. The VPS provides greater speed and therefore more profit possibilities. And above all, it guarantees fewer errors in executing the trading operation. As we all know, the “slippage” costs money, often a lot, and, therefore, we are dealing with a great way to reduce losses and unpredictability. VPS – Virtual Private Server But fortunately there is a solution, and it’s called VPS. The Virtual Private Server is a virtual machine hosted by a web farm accessible from any computer connected to the Internet, regardless of the operating system. A good provider able to offer a VPS dedicated to trading is Hosting Stak, which provides us with access to a comprehensive product for Forex Trading with expert advisors. However, remember that the components of each VPS (band, RAM memory, hard disk size) may be increased and the cost rises progressively with the add-ons that you may buy. There are no limits in creating profit. On the VPS it is possible to run multiple platforms simultaneously (the more expensive and performing the VPS is, the more platforms may be run) and the platform should not necessarily be the MetaTrader 4 or 5. ForexStak ForexStak by Hosting Stak is a high performance Forex VPS. A system that will allow you to trade with more confidence, without being afraid of losing money or even drying your account out, and above all to devote much more time to you and your family. It’s provided with root access, to guarantee greater speed and compatibility with most popular FX software, support, Windows 2012 r2 Essentials, a big network and secure datacenters monitored 24/7. Moreover, Hosting Stak guarantees downloads and uploads at very high speed around the world and anytime during the day, with a 8 TB bandwidth. The control panel is web-based with unlimited access to manage each VPS instance. Hosting Stak servers have a 99.9% uptime. In addition, Hosting Stak ensures that any type of disruption will be resolved in the shortest time possible. You don’t have to fear for safety with Hosting Stak, because there is a complete separation between the different VPS. In addition, the Forex VPS are equipped with Anti-DDoS and Raid Protected.
Trade size is an important aspect of every trading plan. Traders quickly forget this to their own peril. Many traders are not reaching their trading goals because their trade size was too large for their account equity which leads to reluctance of letting go of losing trades.This article will present an easy way to determine what trade size is appropriate for your account.When trade size gets out of hand and too large, all the analysis in the world is worthless. The risk can quickly outweigh the benefits. Because of this, having a formula to manage your risk is of extreme value for your trading career. If you’re not a math major, no worries at all. A simple formula is provided at the end of the article for you apply moving forward.Here is a visualization of the risk you take based on your trade size from Mark Douglas’ Trading in the Zone. To borrow his analogy on trade size, imagine there is a large valley much like the Grand Canyon that you are about to cross. The width of the bridge you will cross is directly related to the number of lots you will trade. As you can imagine, if you’re about to cross the Grand Canyon on a 10 lane highway bridge, you’re not going to fear walking across. You know the potential of pain is small because the bridge below you is steady. Now, the larger trade size you open in relation to your account, the smaller the road below you shrinks. Using the utmost leverage available, you’re essentially walking a tight rope. As you can imagine, the smallest fluctuation in the market can throw you over board.Now, let’s walk through the application in finding the right trade size for you.*Examples below will be filtered through the eyes of a $10,000 account with 2% max trade risk rule to determine trade size.Here are the two aspects you’ll need to answer before determining appropriate trade size:* Percent risk you’re willing to accept per trade –We recommend less than 2%* Where do you want your stop in terms of pipsPercent risk you’re willing to acceptThis will have nothing to do with the market and everything to do with your account balance. You determine your risk, not the market. Your money management system will tell you where to get out of every trade. We recommend you limit your risk per trade to less than 2% of your account equity. Noting this before you enter a trade is being proactive and will prevent you from increasing your exposure based on how good a set up looks to you. All good traders look to limit risk and most poor traders neglect this.Many good traders will keep a trade journal that will have their current account equity updated and how much they should risk on any one trade. Our $10,000 account example with the 2% max trade risk tells us that before we look at the charts, we are only willing to lose $200 on a single trade. For most traders, this relieves stress by itself.Converting that risk into Trade SizeNow that we know how much is at risk, we next decide the best trade size for us based on our pip based exit. Here is a simple formula to use to determine your trade size:Proper Trade Size Formula:Your three inputs will be your account balance, what percentage you want to risk, and the number of pips you are willing to allow the market to go against you before you exit the trade. Account balanceX% risked / stop loss distance in pips = maximum value per pip Using our example above and plugging into the formula, here are the three inputs.Account balance = $10,000Percent Risk = 2%Stop loss distance = 100 pipsPlugging them into the formula:$10,000 X 2% / 100 pips = $2 per pipIf you want a larger trade size, we recommend you find another trade that better suits your account size or add more funds to your account.Why do we advise limiting your trade size?DailyFX recently went through 12 million live trades to find the common traits of our successful clients. Leverage was a main focus because many traders know what amount of leverage is available but few knew what was amount was best. Many new and inexperienced traders over expose themselves and when the market went against them, a large percentage of their account dissipated. Successful traders in our study consistently stayed under 10 X effective leverage and were often closer to 5 times effective leverage.Here is a graph from the study to show you profitability percentage and it’s correlation to lower effective leverage. We encourage you to always define risk specific to your account and limit your leverage to assist in the longevity and success of your trading business.
Forex Trading The foreign exchange or Forex market is the world's largest financial market. The Forex market plays a vital role in the global economy. Everyday trillions of dollars are being traded from one currency to another. Currency exchange is essential for international commerce and the global Forex market makes this happen. Forex market participants include governments businesses and of course Investors. There is no company or central bank controlling Bitcoin, so it cannot be inflated like the dollar. In fact, the embedded code has been predetermined so that no more than twenty-one million Bitcoins will ever be in circulation. To make sure that the distribution is at a steady rate, Bitcoin production is modelled after gold-mining just like mining for gold grows increasingly difficult overtime so does creating new Bitcoins. The sheer size of the Forex market means it can persuade other asset classes such as bonds, stocks and commodities. One change in the Forex market can have an undulate effect across several markets. The Forex market can influence other asset classes because the Forex market is the world's largest financial market. It also sets the base for how other asset classes perform. The Forex markets widespread authority may appeal to investors who are interested in global money matters. Businesses can participate in the Forex market in order to facilitate international trade. Businesses need the Forex market to trade payments for services and goods bought overseas or to exchange payments from international customers into their preferred currency. Advanced investors use the Forex market to contemplate on the recent changes in currency prices. Currency values vary almost constantly during the week for the reason that the Forex market is open 24 hours a day apart from weekends. During the week the Trade market has to be open around the clock because of the global nature of the economic system. The trade investors profit when they purchase a currency and its price increases. Investors can also sell or short of currency in anticipation of a price decrease.Bitcoin Trading kBitcoin is digital money used directly between people anywhere in the world to buy online goods and services.To get started you need to download the Bitcoin wallet. Like a real wallet, it stores your Bitcoins and is used to remit and accept payments using unique addresses. Anytime a transaction is made between the Bitcoin users, it gets recorded on a publicly shared log called the block chain. All of these transactions are checked and confirmed by miners. Miners are basically people with potent computers that use Bitcoin software to verify that transactions are correct. Thanks to the splendid work done by the miners and Bitcoins large network, no coin can be reproduced or double spent. Cryptography is used to make it impossible for anyone to spend funds from any another user's wallet and could be used to encrypt all it so that it can't be used without password. This type of protection is also ensured for electronic bank transfers and credit card transactions.Bitcoins Future Right now 25 Bitcoins are produced every 10 minutes. This pace will be halved every four years until the final Bitcoins are created, in 2140. No central bank can add trillions more to the system for their own advantage and destroy its value. One way to get Bitcoins is by mining them. But since that require specialized equipment and time, most of us buy them. Several exchanges exist online where you can buy Bitcoins and cash out your Bitcoins for major currencies. There are currently 50,000 Bitcoin transactions per day. Over a thousand online stores accept them as payment. The Bitcoin market has exploded from fifty million dollars to 1.2 billion in only a year and these numbers are growing.