Forex has a lure that very few people can resist. The natural alluring quality of foreign exchange trading combined with the marketing it receives and its success stories make it one of the most desirable fields on the planet. However, despite all the qualities of forex trading, the one thing that makes it so attractive to people is its potential for profits.
It is likely that you have also become interested in forex because you have heard how profitable it can be. You should also know, however, that FX trading is not that difficult. Here is the most basic step by step guide on how you can trade on the foreign exchange.
The first thing you will need to do is choose a currency pair that you want to trade in. You would initially find yourself tempted to trade in your own currency. However, after a little research you will find that it is more profitable to trade in major currencies like the American Dollar, the European Euro, the British Pound and the Japanese Yen.
Type of Trade
After you have chosen the currency pair you want to target, you would have to decide the type of trade that you would invest in. You would have to choose between going short i.e. selling before buying and going long i.e. buying before selling. You choice would depend on the market conditions.
Next, you would have to decide how much you can invest in forex trading. You should know that the more you invest, the better your profits will be. Even so, you should not invest anything more than your risk capital which is the money you have set aside specifically for investment.
Fortunately, even if you do not have a lot to invest, you can increase your purchasing power with the help of leverage. Leverage is basically borrowed money that forex brokers would lend to you so that the size of your investment is bigger. You should keep in mind that more leverage means more profits but also higher losses.
Now, you would come to special orders. Stop loss is the most important because it is designed to help you minimise risks. Stop loss is basically a forex rate point that you will set and if your currency pair slides downwards and touches this point then your position would be automatically closed to save you from big losses.
Take profit is another special order. This is designed to help you ensure profits. Just like stop loss, you set a take profit point and when the currency appreciates and touches that point, your position would be closed. This would ensure that you make a profit.
Making the Trade
You have got all the settings right and now it’s time to make the trade. You will open your position and either wait for your special orders to kick in or track the position until you are ready to close it. Needless to say, you close a position to either minimise losses or realise profits.
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