Then there are several steps that you will need to follow to learn how to trade forex.
First, let’s start by taking a look at what trading is really about. Forex trading involves speculating on the price of one currency vs another. For example, if the US dollar (USD) drops in value against the euro (EUR), you could open up a short position for $100 on EUR/USD 1.3374. If your speculation turns out correct, then when it comes time to exit the trade, you will have made $100.
Opening an account
Opening up a forex account is easy nowadays; you can open an account within minutes via your computer or smartphone. But, before you do so, there are questions that you’ll need to ask yourself to determine which broker is best for you:
- What types of currencies will I want to trade?
- How much will I risk on each trade?
- What are the costs associated with opening and maintaining my account?
From here, it’s time to choose a broker. You can choose a recommended broker based on your answers to the questions above, or you can do your research using online forex forums.
Now that you have an account open and ready for action, it’s time to start trading. Saxo provides ample opportunities to trade. Let’s check out some of the different types of trades that are possible:
- Market order – is executed immediately at the current market price. Due to its immediacy, market orders usually receive reasonable fill prices. However, because it doesn’t allow for error, market orders tend to be less profitable.
- Limit order – This type of trade involves specifying a maximum or minimum price that you are willing to buy/sell to limit losses and lock in profits.
Executing Orders and Strategies
When the time to execute your trades comes, there are two ways that forex brokers offer it: via the dealing desk or through STP (straight-through processing). Dealing desk brokers essentially act as counterparty when executing trades; they place orders on your behalf at their prices filled by other banks and market makers. On the other hand, STP brokers act as a third party; they will send your order to another bank’s dealing desk, where it will be executed.
Managing Cash and Emotions
Now that you’re starting to get into trading forex, several things need to be taken into consideration for long-term success:
- Keep emotions out of it – Successful traders focus on probabilities and statistical data rather than on feelings and opinions. Human emotions like fear and greed tend to cause irrational decisions, which leads to losses.
- Set achievable goals – You should set realistic expectations for yourself. Forex trading is not the right place for you if you’re looking to make a quick buck. It’s a long-term game where patience and consistency are key.
- Keep good records – Up-to-date documentation of all activities is essential to ensuring that trades are correctly executed, and tax obligations are met.
At some point, your trades will come off their original course to enter into new ones. Whether this means closing an open position or taking our profits from winning trades, there are three main ways that traders go about doing so:
- Market orders – Placing a market order for closing would work like the one you used to open your position. It’s an order to close the current position at the best possible price. Depending on how well prices move against you once your order is placed, it could result in either a gain or loss.
- Limit orders – Another way of exiting trades is by placing an order that will only take effect if/when certain conditions are met (price hit or passed, time expired).
- Stop-loss orders – These are the most commonly used method of closing trades. If you have a losing trade, it’s usually advisable to cut your losses early rather than let them grow out of control by hoping for a better result.