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Forex Trading Step by Step Guide

Forex stands for the foreign exchange market. It is the largest market with regards to liquidity and trading volume. If you want to leverage it, there's a need to develop an efficient trading strategy. 

Fortunately, an online forex trading platform makes it very simple for you to engage in it. Using it, you can analyze your account performance and discover opportunities to trade profitably. 

Understanding Forex Orders

A Forex Order can accomplish the following:

    • Buy order – If you think the currency pair would rise, use a buy order, executed at the Ask price. It is closed at the Bid price. 

    • Sell order – If you think the currency pair would fall, use a sell order executed at the Bid price. It is closed at the Ask price.

The five common order types you can use to exit and enter a position in the market are:

    1. Market orders – They are developed to open a trade at the best market price. Use them for both buying and selling.

    2. Limit order – It is for opening trade at a particular price and an expiration date. It guarantees that your trade will be conducted at your desired price.

    3. Stop order – You use it to buy when the trigger price is over the current market price and sell when the trigger price is less than the current market price.

    4. Stop-loss order – It is to restrict your losses. If you are purchasing and the exchange rate plummets, this order will liquidate your position and prevent loss.

    5. Take profit order – You close a profitable trade with it.

    1. Open an Account

From a trading platform, you can access the entire Forex market. If you don't want to wait for a specific exchange rate to be reached for starting your first trade, you can command your platform to open it at the existing price level. 

You can also command your platform where your stop loss, profit, and the amount you want to trade. Your online forex trading platform will do everything else. 

Obviously, you will want to make a profit. For it, the market should go up after you have purchased. The vice versa is also true in the case of you having shorted the market.

    2. Understand Your Margin Requirements

When you open a trade, you need to put a specific portion of your balance as collateral. It's called margin requirement. It depends on the following:

    • Instrument of trade – It can be anything like GBP-USD, EUR/USD, or USD/JPY. 

    • Position size – It is the amount you purchase or sell, measured in lots. 

    • Leverage – It enables you to control vast sums of money through borrowing from your FX broker. It helps you to enhance your Forex trade profit. 

    3. Calculate Forex Margin

Calculate Forex margin through the below-mentioned formula.

Margin requirement = (contract size x lot size x price) / Leverage

If you wish 0.8 lots of USD/EUR at 1:1150, which is the current market price, and for it, you use a leverage of 1:100, you should have $892 for opening that position. 

Here the margin requirement will be calculated as (100,000 x 0.8 x 1.1150) / 100 = $892.

    4. Pay Attention to Factors Influencing Forex Exchange Rate

The value of a currency is influenced by: 

    • Country's economy

    • Government stability and geopolitical factors

    • The monitory policy of the Central Bank

    • Rates of interest

    • Economic data

    • Demand and supply. 

Now that you have a gist of Forex trading, you are better placed for making your first trade.

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