If you’ve decided to venture into trading, you have to find a broker that’s right for you. And, after you’ve picked your broker, you’ll need to open your trading account. If the broker offers you a demo account, take it. Opening an account is actually easy, and it may or may not mean installing software on your computer or device.
When you open a demo account, be sure to practice the platform, doing several free-of-risk simulated trades. Once you feel comfortable doing this, open a real account. After you’ve done this, you’ll need to have an approved funding source to make that first trade.
Choosing the right broker
There are several important factors to remember when you’re looking for a Forex broker. After all, you are giving a broker money to care for.
- You need to know what recourse you have if they prove to be unreliable. You want to work with a highly reputable and experienced market professional, ensuring their services show high levels of stability. You also want them to be regulated in at least one, if not two, countries.
- Trustworthy brokers make sure your investment is secure and that there’s a jurisdiction for dealing with appeals if the broker goes bankrupt. Bear in mind that brokers often have a significant number of employees that can meet your needs when you put an order in.
- How legitimate is the broker, as you don’t want to give your money to unscrupulous folk.
Once you’ve decided which brokers you should consider getting into business with, look at what their offers or perks are. Are they giving you more value with the investment you are making? Make sure you go with a broker that’s got an easy-to-use and understand platform that has features you like.
What is automated Forex trading?
This kind of trading lets you trade currencies via an analysis-based software program, developed to assist people in coming up with the best decisions regarding the buying and selling of currency pairs. You’ll need to inform the automated trading software how to choose when it should trade based on the technical tools and analysis information.
The software provides signals similar to what you see with a binary option robot. The signals will ensure the software decision on when to buy and sell a certain currency pair. When you use this kind of software, you take away your intuition and instincts about the trade.
Special note: even extremely sophisticated and precise automated trading systems make costly mistakes, misinterpreting information you may see as important due to other information you may have seen before.
Should you get a demo account?
If you’ve never done Forex trading or any kind of trading before, attaining a demo account is the sure-fire way to get the basics down without risking your investments. Why should you consider a demo account?
You can familiarize yourself with the features of the trading platform. You can test various trading strategies out to see what style fits you best. Most demo accounts have real-time market prices and complete functionality, all of which without a risk to your investment and lets you practice your trading.
These accounts let you get to know the Forex market safely.
What novice traders need to know about Forex trading
Forex trading is based upon selling and buying pairs of currencies. If you purchase a currency paid of USD/EUR, you’re first buying the USD and then selling the EUR. If you sell that same pair, you’re selling the USD and purchasing the EUR.
When the demand to buy the pair increases, the USD gains strength, while the EUR loses it. When the demand to sell it increases, the USD will experience a decline in strength, while the USD will see a rise in strength. This is why the exchange rates seem to decrease and increase as they do.
Currency symbols and names
Currencies have a three-letter abbreviation to them. The letters used will note from which country the currency comes from, along with the currency name. For instance, USD stands for United States Dollar. For AUD, it would be Australian Dollar. CAD stands for Canadian Dollar. With the Forex market, traders tend to focus more on certain currencies.
These currencies are known as majors, and tend to be the most widely traded of all. When it comes to the Forex market, major pairs should never be thought as majors. Major pairs include currencies that are paired with USD. Pairs without the United States Dollar are not seen as major. The base currency is usually the pair’s first currency.
Understanding longs and shorts
Looking at things in a simplified way, if you do a trade on the assumption that a currency pair’s price is going to increase, you’ll be trading on the long position. However, if your trading is done on the thought the pair’s price is going to drop, you’re trading on a short position. This is what’s called “longs” and shorts” in Forex markets.
You establish the position when you start your trade. If buying, you take on the long position. If selling, you have a short position. A good way to ensure you know what you’re doing is to remember the phrase, “sell short”. When it comes to the Forex market, buying and selling can be extremely confusing since mistaking one for the other is entirely possible.
To ensure you understand it all, you need to remember that sell and buy positions are based upon the pair’s first currency. You’re either buying or selling.
When it comes to leverage and the Forex market, it means you borrow money to go toward the investment. Rather than raising the money, people will attain it from other people – basically, not going the conventional route to attain the initial investment money. This borrowed money in the Forex market comes from the broker.
Forex trading is worthwhile in giving higher leverage when looked at through the preliminary margin requirements. Traders are able to build and maintain control over large amounts of money. If your leverage calculation is going to be based on the margin, you just need to divide the transaction value from the margin amount that’s needed from you. Corporate or individual investors can use leverage, boosting their investments’ available returns.
Anytime you borrow money, you are subjected to an interest rate, a charge for using that money. For the Forex market, this rate can make an impact on trading pairs because the return rate becomes higher. The interest accrued is on the invested currency. It actually leads to profit that comes from the investment.
This kind of Forex trading is basically an exercise in purchasing currencies that have a low interest rate so you can purchase currencies that have higher rates. It’s called “carry trading.” With this technique, the risks that are tied to the currencies’ variability could negate any gains the interest had. It generally happens when higher rate currency suddenly drops under the other’s rate.
Understanding Forex correlations in relation to the stock market
In a financial sense, correlation is regarded as a statistical measure that indicates how two diverse securities move in relation to each other. With the Forex market, correlation is used to assist in determining the correlation coefficient – with a value going from -1 to +1. It’s important to note that +1 coefficients are rare and are caused by the perfect positive correlation. When a value’s security rises or falls, the other security is going to follow it.
In the same token, a negative correlation, marked as -1 makes sure that one security’s price rises or falls in tandem with the other.
Any 0 correlation coefficients mean the movements are totally random and have no correlation. It’s rare for securities to have perfect correlations. And, they should never be exclusively relied on for buy/sell signals. Rather, correlations need to be used along with other indicators.
A look at trends within the Forex market
How the market or asset moves is known as a trend, which could be either a long-term or short-term direction. Trends could also be in intermediate range. When trends are noted, it can be extremely lucrative, as the trader can use it to boost their returns.
Trading trends in the Forex market is usually the easiest and most lucrative method for profits. If you notice an asset or market is on a mostly upward trend, it’s a good idea not to invest when it’s reversed. Trend trading is regarded as one of the most effective Forex trading strategies and is extremely useful for novice traders.
When the market has resistance or support
A resistance level happens whenever a stock or price fails to surpass a certain point. This resistance level is often called a ceiling, as prices are trapped under it. Prices that never fall under a certain point are regarded as support or floor, as it keeps the asset’s price from falling under that price point.
Both floors and ceilings are significantly important indicators of an asset’s price, but they still need to be used with other indicators to determine what its possible future price and market movement will be.
A moving average is an extremely useful indicator that can smoothen an action’s price by serving as a filter to eliminate the background noise of erratically inconsistent prices. It’s noted that moving averages are not great gauges to follow trends using the previous prices.
There are two kinds of moving averages often used:
- Simple moving average (SMA) – simple averages of securities are made over a certain time period
- Exponential moving average (EMA) – a formula is used to provide added weight to the recent prices
Moving averages are often used to recognize the trends’ direction, along with figuring out the support and resistance level.
A look at the general trend trading method
Trading based on trends is a technique in trading that looks to boost returns by looking at what a specific asset’s momentum is to come up with its direction. When trading with the trend, traders need to get involved with the long position when the price is heading upward. The short position should be taken when the trend heads down.
The idea behind it is to use the principle suggesting that asset prices will continue their direction for a short time. This method can be tried with binary options brokers such as 24option and Banc de Binary.
Once traders take a short or long position, they keep that position until there is a trend reversal. When this happens, traders need to take steps to make sure they don’t lose their investment.
The relative strength index
The technical momentum indicator relative strength index (RSI) allows people to make assessments between the current gains and losses to decide what assets are oversold or overbought.
Traders who use RSI need to remember that large price increases and drops in assets can result in the generation of false buy and sell signals.
It is, however, a useful complementary tool that should be used with other tools to pick your stocks. Some indicators that should be in tandem with the RSI include:
- Market trends
- Support levels/resistance levels
What is carry trading?
You may have heard of carry trading, which involves the sale of certain currencies because of their low interest rates and the purchase of other currencies because of their high interest rates. These profits are noted by identifying the difference in these rates, which could be potentially a lot of money, especially given the kinds of leverage being used. The risks that come with carry trading are centered on the ambiguity exchange rates present.
If one currency in a pair drops below the other currency’s value, the trader could lose the investment. These types of transactions are generally carried out by using a significant amount of leverage, which means small move rates could lead to big losses unless it’s been well circumvented.
How to manage risk
When dealing with the Forex market, you need to manage risk, which means identifying, researching, and either accepting or alleviating uncertainties that come with making decisions about the investment. For fund managers and serious investors, this is extremely important, as it attempts to calculate possible losses and take action based on the objectives for investing and tolerating risk.
Inadequate risk management often results in huge losses and penalties that are harmful for both individuals and businesses. A good chunk of the 2008 recession can be linked to inadequate risk management, where credit was given to borrowers who weren’t actually qualified. There are two key steps to managing risk:
- Know what the investments risks are
- Put techniques in place that meet your outlined objectives