Now that you have learnt a little more about forex, in addition to having done some practices on a demo trading account, we will take you through a closer look at the steps involved in making your first trade. After opening an account with a forex trading firm, you need to go through a few steps.
- Choose a currency pair
The nature of forex trading is to exchange the value of one currency for another. This basically implies that as you are buying one currency, you will be selling another simultaneously. As a result, you will always trade a pair of currencies.
It is worth noting that a number of new traders begin by trading the most frequently presented pairs of currencies. However, you can trade any currency pair available, as long as you have enough resources in your account.
Analyze the market
It is vital to carry out thorough research as well as analysis, which will form the basis for your trading undertakings. Without the two aspects, your trading endeavors are largely based on sentiments, which may characteristically not end well. It doesn’t matter whether you are trading forex or options trading, analysis is very vital.
In the course of carrying out your research, you are likely to come across a vast wealth of resources, a situation which may be overwhelming at the beginning. However, as you do your research on a specific currency, you will come across valuable resources that are outstanding when compared to others.
On a regular basis, you have to look at up-to-date as well as chronological charts. This is in addition to monitoring news for fiscal announcements. You will also need to consult indicators and also carry out other analysis activities.
There are different types of analysis used in forex trading. These are fundamental analysis, technical analysis, and weekend analysis. Fundamental analysis is usually when analyzing changes in the forex market by monitoring a number of factors such as the rate of employment, interest rates, as well as gross domestic product (GDP).
On the other hand, technical analysis comes in the form of both manual and automated systems. The weekend analysis are usually used when you want to set trading plans for the coming week.
- Read the quotes
In most cases, you will notice two prices being indicated for all currency pairs. The first rate is normally the price at which you can sell the currency pair, with the second rate being the price at which you can purchase the currency pair.
The difference between the first and the second rate is known as the spread. It is basically the amount which a dealer charges for enabling the trade. In most cases, spreads vary among dealers, with each dealer offering competitive spreads on a myriad range of currency pairs provided.
Pick your position
In case you have traded stocks, bonds or other fiscal products before, most likely you know that you are usually in a position of speculating on a specific direction of the market, which is up.
It is worth noting that forex trading is to a certain extent quite different. This is due to the fact that while you are buying and selling another simultaneously, you will be in a position of speculating on up and down movement in the market.
Generally, with a buy position, you are of the view that the value of the base currency will rise when compared to the quote currency. In case you are buying the EUR/USD, you believe the price of the Euro will strengthen against the dollar. This means that you believe the Euro will be bullish, with the US dollar being bearish.
On the other hand, with a sell position, you believe that the value of the base currency will plummet in comparison to the quote currency. In case you are selling the EUR/USD, you believe the price of the Euro will weaken against the dollar. This means that you are of the idea that the Euro will be bearish, with the US dollar being bullish.