Today, we are going to discuss some core principles of Forex Trading that will help you how to get going in this business.
First, let’s see some commonly-used words in trading:
- Base currency: The base currency is the currency against which exchange rates in a given currency pair is quoted. Examples: US dollar / JPY, US dollar is the base currency ; EUR / US dollar, EURO is the base currency.
- Quote Currency: The second currency in the currency pair. Example: EUR / USD - USD is the quote currency.
- Bid price: This is the price your broker will be willing to “bid” or “buy” the base currency you are holding.
- Ask price: This is the price you broker will “ask” you for buying your quote currency of choice. Note: the ask price is always higher than the bid price.
- Spread: The difference between the bid price and the asked price.
- Pip: The measurable value of the currency movement. Pip means “PERCENTAGE IN POINT”.
There are two important characteristics you have to bear in mind:
● Leverage is the ability to control large amounts of capital using very little of your own. It makes your margin; the higher the leverage, the higher the level of risk. Leverage can be seen as a benefit in Forex trading, but it could be negative too, for if a trade moves against you, your losses are amplified - thus creating the chance you lose more than you invested.
● Commissions and fees allow you to deal directly with brokers and the fees are associated with every trade that you're going to make.
When we start trading on a platform, there are some topics to consider since several entities have a completely different approach and purpose for operating in the financial market, and those who are known as other participants in the global financial market; that’s your competition.
1. Retail traders: who operate to invest their capital and their main goal is profit.
2. Central banks: Provide stability for relevant countries by controlling reserves of cash.
3. Banks: They handle FOREX transactions in high volumes that often determine the movements of the financial market.
4. Other financial institutions include investments funds and insurances companies. They tend to execute their transactions through a broker with institutional solutions or banks.
Some Useful Forex Advice
● Choose the right broker
If you work with a reputable broker, you will find the differences between profiting from your trades and losing money between the bid and the ask price. Don’t be afraid to look for reviews of the wide amount brokerage firms.
● Choose a suitable trading strategy
Although you trade with a reputable and high-quality broker, you will always need some strategies which help you to reach what you are looking for.
● Money management
There is a golden rule: always set your stop-loss first. You just have to risk a small fraction of your trading capital on every trade. Once you have set your Stop-loss, decide how much you can risk on a trade. Never overlook your own money management.
When we talk about “psychology” we are referring to your own education on how to trade. Trading is a complex science, so you need to collect as much information as you could. A good trader always goes back to the most basic information and techniques.
If you go through these steps, you will have a great start in Forex trading. Your success will depend only on how keen and ambitious you are.
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