Similar to any other business, forex trading has become a fast adaptable industry for both investors and entrepreneurs. Fortunately, not much is needed to kick start this business venture. The only prerequisite required to begin forex trading is money.
This article will provide insights on a few things you need to do before you begin foreign currency trading and how to do forex trading.
Get familiar with the common terminologies used
Similar to any other niche, forex market also has its own set of terminologies capable of intimidating inexperienced traders. It is necessary to get familiar with the jargon used before initiating any foreign currency trade activities. A few of these terminologies include:
This is the greatest amount a brokerage will allow you to trade with, in reference to the amount deposited in your account. For instance, if a brokerage firm allows you a leverage of 1:150, this means that for every $1 you deposit, you are allowed to trade with a maximum of $150.
- Price Interest Point (PIP)
Traders will often closely observe the slightest change in exchange rates. These slight changes can mean huge losses or splendid profits, especially to large-scale investors. Price Interest Points (PIP) is the least and most basic units of change that traders observe prior to making a buy or sell decision.
Should you consider engaging in foreign currency trade, getting to know terminologies used in the forex market are paramount to any successful investor. Learning and understanding the basics puts you a step closer to knowing how to do forex trading. This way, you can now begin your journey into forex trading.
That said, let me show you how to do forex trading
- Identify and read a forex quote
One of the most important steps in knowing how to do forex trading is to identify and read a forex quote. This is because forex markets always present their currencies in pairs. Basically, each exchange-rate quote from left to right is identified by the terms “base currency” and “quote currency” respectively.
For example, picture a Dollar Yen rate USD/JPY=113.755. The USD can be identified as the base currency and the JPY as the quote currency. Also, the Dollar-Yen rates further tell the trader that in order to buy one unit of the base currency, which in this case is $1, they have to pay 113.75 units (Yen) of the quote currency.
- Do you want to buy or sell?
When you identify and read the desired forex quote, the next step is to decide whether you want to buy or sell. From our Dollar Yen rate example above, a trader might consider buying, which actually means they are selling Japanese Yen (quote currency). The trader’s main agenda is to acquire the base currency (USD) for now and sell it later at a higher price.
Assuming the trader decides to sell, it means they are “disposing of” the base currency (USD) for them to acquire the quote currency (JPY). The natural lingua used in the forex market is having a “long” or “short” position.
- Profit or loss?
Once you make the call whether to buy or sell, sit back, relax and wait for the outcome. In order to make tremendous profits and minimize losses, you need to buy or sell in small margins. Stick to your strategy and make minimal adjustments only when necessary. This way, you will be on the safe side.
Always remember to update your vocabulary and get familiar with the common terminologies used in the forex market. Regardless of the outcome, a successful trader will observe keenly and learn from their mistake too.