|How to trade in forex?|
What is forex trading? How should we enter this market? In the foreign currency exchange market, traders exchange different currencies against each other. Trading in forex is easy. Forex trading basics are far simpler than other financial markets such as the stock market. Therefore, if you have experienced trading in financial markets before, you will learn forex trading pretty quickly. Even if you haven’t participated in any financial markets, learning forex would be easy for you.
The main purpose of forex trading is to exchange one currency against another one. Many traders participate in this market to make money. For example, if one person buys a currency and the value of that currency rises, this trader has made a profit.
Quotation in forex
Foreign currencies are often traded in the form of currency pairs. For example, GBP/USD and USD/JPY currency pairs can be traded in the forex market. Each currency pair has an exchange rate which shows the value of one currency against another one.
The reason why currencies are traded in the form of currency pairs is that in each forex trade, one currency is sold and another one is bought. Now how should we know that which one is sold and which one is bought?
When you have an open position in the forex market, you are in fact trading one currency against another currency. Each currency is quoted against another currency. An example is given below, in which you can see the exchange rate of GBP against USD. In the following figure, the currency at the left is the “base currency” and the one at the right is the “quote currency”.
When you buy a currency pair, the exchange rate shows the amount of quote currency you should pay to buy a unit of base currency. In the above example, you must pay 1.21228 U.S Dollars to be able to buy a unit of Great Britain Pound.
On the other hand, when you sell a currency pair, the exchange rate shows the amount of quote currency you get if you sell a unit of the base currency. In the above example, if you sell the currency pair, you would get 1.21228 U.S Dollars for each GBP you sell.
In fact, the exchange rate of a currency pair shows how much of the quote currency is equal to a unit of the base currency. For example, if you buy EUR/USD, this means that you have bought the base currency and sold the quote currency. To be able to speculate in forex, you should:
- Buy a currency pair, if you think that the value of the base currency might rise against the quote currency.
- Sell a currency pair, if you think that the value of the base currency might fall against the quote currency.
Trading in the forex market
First, you should specify which currency pair you want to trade. If you want to buy, you are in fact hoping that the value of the base currency rises against the quote currency. In this case, you can buy the currency pair at the current exchange rate and sell it when its price has increased.
On the other hand, if you want to sell a currency pair, you are in fact hoping that the value of the quote currency rises against the base currency. In this case, you can sell a currency pair and buy it back when the price of the currency pair has dropped.
How to trade EUR/USD
EUR/USD currency pair is one of the most popular currency pairs in forex, and it is considered a major currency pair. Two of the largest currencies are traded against each other in this currency pair. Therefore, the most amount of liquidity also belongs to this pair.
Steps of trading EUR/USD
The first thing you ought to do is to register to a reliable forex broker. After you have registered, you should create a trading account based on your trading strategy and start trading. To trade EUR/USD follow the below steps:
- Check the amount of leverage in your account. This amount could be equal to 1:50, 1:100 or even as high as 1:200
- Refer to FX/CFD in trading instruments
- In this part, choose EUR/USD pair and proceed to buy or sell after specifying your trading volume.
- Specify your stop loss and take profit.
- Choose Sell or buy.
- After you have opened the position you want, you can monitor it and close it whenever you want.
The best time to trade EUR/USD
Forex market is active 24/5. However, this doesn’t mean that you can trade whenever you want. It is recommended to trade when the liquidity is high enough, and large volumes are traded. Therefore, it is recommended to trade EUR/USD in the following trading sessions:
- New York trading session, from 12:00 to 20:00 GMT
- London trading session, from 07:00 to 16:00 GMT
Best trading strategies for EUR/USD
You can benefit from three useful strategies when trading EUR/USD.
- Selling or buying in pullbacks
Price always moves in the form of zigzag waves in EUR/USD market. However, each movement can come to an end with changes in the level of supply and demand. The pullback strategy takes advantage from price movements to specify resistance and support levels. These levels are usually formed at prior highs and lows.
- Selling or buying at breakouts
The exchange rate of EUR/USD usually goes up and down between specified levels. This causes trends and ranges to form in this pair’s price chart. Traders can usually gain low risk profit from these movements. This happens when a resistance or support breaks and prepares the market for the formation of a new trend. If you can trade in time, you would be able to reap some handsome gains from these breakouts.
- Trading in short ranges
Sometimes, EUR/USD starts to move up and down in a narrow price range. This pattern informs us about a possible breakout. Some traders use this strategy and place their stop loss in a way that it would prevent further loss if the market moved in the opposite direction.
If you want to start trading forex, the first thing you should do is to register in a reliable forex broker. Aron Groups Broker provides its clients with access to over 500 global financial markets including forex, cryptocurrency, energy, commodity, precious metals and etc.
You can even start trading in a demo account first, to evaluate your strategies and practice trading. This way, you won’t need to risk your real assets before completely learning how to trade in forex.
Written by: Mohsen Mohseni (Aron Groups).