5 basic steps to Forex Trading
1. Choose a currency pair
Decide which currency pair you wish to trade.
We recommend that you take your time to understand the amount of price volatility associated with the currency pair to help manage your risk.
2. Decide to buy or sell
Once you have picked a currency pair, you need to decide whether to buy or sell this currency pair.
All forex is quoted in terms of one currency versus another. Each currency pair has a ‘base’ currency and a ‘quote’ currency. The base currency is the currency on the left of the currency pair and the counter currency is on the right. Put simply, when trading foreign currencies;
BUY a currency pair if you believe that the base currency will strengthen against the quote currency, or the quote currency will weaken against the base currency.
Your profit will rise in line with every increase in the exchange price, or with every fall in the exchange price below your open level, you will experience a loss.
SELL a currency pair if you believed that the base currency will weaken in value against the quote currency, or the quote currency will strengthen against the base currency.
Your profit will rise in line with each point the exchange price falls, or with every increase in the exchange price above your open level, will net you a loss.
3. Select the trading volumes
Choosing the right amount of trading is critical to managing your investment risk.
The selection of trading volume needs to consider your trading experience, investment risk preferences, the risks of trading products and the margin in your account. For example, beginners will choose smaller trading volumes, and experienced traders will choose larger trading volumes.
4. Set up Stop Loss and Take Profit
Given the volatility in FX markets using and understanding risk management tools such as stop-loss orders is essential.
The stop loss is an instruction to close out a trade at a price worse than the current market level and, as the name suggests, is used to help minimise losses.
The Take Profit is an instruction to close out a trade at a price that is better than the current market level and is used to help lock in price targets.
The Stop Loss and Take profit are free to place and can be implemented in the positions when you first place your order, and you can also add them to existing open positions.
5. Monitor and close your trade
Once open, your trade’s profit and loss will now fluctuate with each move in the market price.
You can track market prices, see your unrealised profit/loss update in real time, making an adjustment to your open positions and add new positions or close existing positions from your computer or app on your smartphone and table.