How to Trade Forex

How to trade Forex?

 

Forex is the most widely traded market in the world, with more than $4 trillion being bought and sold every single day. You can speculate on the future direction of currencies, taking either a long or short position depending on whether you think the currency’s value will go up or down.

How does FX trading work?

When it comes to trading FX, most currencies come in pairs. Take for example GBP/USD (sterling vs US dollar) – the fluctuations in the exchange rate between these two is where a trader looks to make their profit.

In our example, a trader believes that GBP will strengthen (or ‘appreciate’) against the USD and therefore buys GBP. By buying GBP, they’re also simultaneously selling USD on expectations that the exchange price will rise in value.

Should their expectation be proved right, the trader’s profits will rise in line with every increase in the exchange price.

The trader then decides to close the position, selling GBP; in this case with the exchange price higher than when they first bought it, netting them a tidy profit.

Conversely, if the trader is proved wrong and GBP depreciates in relation to USD, the GBP/USD exchange price will fall. This leaves the trader sitting on a loss, as each fall in the exchange price below their open level will net them a loss.

We give you the option of buying or selling currency pairs, so you can make a profit no matter which way the exchange price between the two currencies is moving. Instead of buying GBP, as in the above example, traders can sell GBP should they think its value will fall or that the USD will strengthen, potentially making them a profit if the exchange price then falls.

How can I trade FX?

  • MT4 is one of the world’s most used FX trading platforms and comes with enhanced features. Trade FX with expert advisors, customisable leverage by market symbol and price tolerance.

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Let’s say that EUR/USD is trading at 1.3360/1.3361.

Investors remain worried about the impact of the sovereign debt crisis and you expect the euro will fall against the US dollar. You decide to sell (go short) €10,000 on EUR/USD at 1.3360.

For this trade, you choose a leverage scale of 20:1. This requires an initial deposit of (€10,000*1.3360/20) $668.00.

You were right. Euro depreciates against the dollar to 1.3251 and you decide to close your trade and take your profits. Our new price is 1.3250/1.3251 and you buy to close at 1.3251.

Result: You sold at 1.3360 and bought at 1.3251, a fall of 109 pips, giving you a profit of: (1.3360 – 1.3251) x 10,000 = $109.

Alternative scenario: If however, a weaker dollar across the board overnight had pushed the Euro up by 130 points to 1.3490, you would have lost (1.3490 – 1.3360) x 10,000 = $130.

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