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How to Trade Forex

Learning to Trade Forex

The decision to trade forex is not something that you should take lightly.  There is a lot of information that you need to know about before you trade forex or even decide to trade forex.  It is important that you know about this information and only then determine whether or not forex trading is the best option for you.

The Forex Terminology

Before you start trading you should learn the basic terms that are often used:

  • The rate that you can get for a currency when exchanged for another is the ‘exchange rate.’  An example of this is if you wish to purchase UK pounds and you have US dollars, the rate will be shown as GBP/USD=1.55.  This means that to buy one pound you would have to spend $1.55.
  • The currency you are spending is the ‘base currency.’  The currency you are buying is the ‘quote currency.’
  • The ‘bid price’ can be explained as the price your broker is willing to buy your base and give you your quote currency.
  • When you want to buy base currency, while at the same time sell quote currency, you are going ‘long.’
  • When you want to buy quote currency, while at the same time sell base currency, you are going ‘short.’
  • An ‘offer’ or ‘ask’ is the price at which your broker will sell base in exchange for your quote currency.  This is your best price that you will consider to buy at.
  • The ‘spread’ is the difference that is available between the bid and the ask price.

The Currency Pairs You Use

When you trade forex online, you need to make a decision regarding the currency pairs you intend trading.  For your choice to be effective, you need to:

  • Keep a close watch on the currency country’s trade position
  • Be able to effectively predict potential economy shifts
  • Remain up to date on various economic announcements and reports
  • Keep in mind the political climate of a specific country

Opening An Account with a Forex Broker

Your next step would be to open a broker’s account.  You should be aware of a few factors to consider when you choose a suitable broker:

  • Find out if the brokerage is active in trade in other financial commodities.  This will give you an idea as to the size and strength of its client base
  • It is best to find a large broker with at least 10 years practical experience in this market
  • Ensure that the broker is regulated in the country of incorporation
  • Obtain reliable, genuine reviews on the brokerage.  You should take care when you use online sites for review as some of the sites are scam review sites
  • Visit the broker’s website.  Make sure that all the links on the site are active.  Is the website a professional looking one?
  • You should check the transaction fee charges of the broker.  Check if your bank will charge fees when you transfer funds to your broker’s account
  • The paperwork that you need to complete should be available for access on the broker’s website.  If it is not, you can request it.
  • Make a decision as to whether you want a managed account or a personal account.  You will be able to undertake your own trades if you have a personal account, whereas with a managed account, your broker will trade on your behalf
  • Finally, you can activate your account.



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