You can perform a forex trade 24 hours a day and five days a week. However, choosing the right account could help you get closer to earning a profit. Here is a guide on how to get started with forex trading.
What is forex trading?
Forex trading is a high-risk investment, and you could lose more amount than your deposit.
Look for a broker
You need to have a forex account with a broker as they will give you a platform that you could use to trade on.
Here is an example of two brokers and their bid and ask exchange rates for the EUR/USD:
|Broker||Bid exchange rate||Ask exchange rate||Spread|
Going for the broker with the lowest spread implies that the exchange rate must only make a smaller movement before you can earn a profit, for example:
- To earn a profit with broker A, the exchange rate must move by 1.1 pip or more in your favour.
- To earn a profit with broker B, the exchange rate must move by 2.1 pips or more in your favour.
Forex trading chargers
Even though most forex brokers combine the costs in the spread that they give you, some could charge you for the following:
- Inactivity fee: When you stop trading for a period, such as one or two years, your broker could charge you until you begin using your account again, for example, £12 per month.
- Adding/withdrawing charge: Brokers charge if you add money to your account or withdraw from your account. This is ordinarily a set fee, such as £5 for every £200.
- Overnight trading: For leaving a trade overnight, some forex brokers charge you for interest. For example, 1.5% of the price of any open trades.
Open an account
After you pick a forex broker, you must complete an online registration form with them.
You will need to provide them with the following information:
- Full Name
- Email Address
- Mobile Phone Number
Your broker will then send a link via text message or email to validate your details.
You may also have to confirm your account by giving your driving licence or passport number. The name on your forex account must match the name on your ID.
If your selected broker owns demo account, make use of it to so that you can be familiar with their forex trading system before you begin using your own money.
Make a trade
You can trade in forex Monday to Friday, 24 hours a day, which means you can trade on currency pairs more frequently compared to other markets, such as commodities or indices.
Performing a trade is also called opening a position, and if you earn a profit or loss is based on the performance of the base currency as compared to the counter currency that you trade with.
The first currency is the base currency in one pair, the counter currency, on the other hand, is the second, for example, EUR/USD has a euro base currency, and a US dollar counter currency.
The exchange rate is the amount of the counter currency that you can purchase with the base currency. As an example, if the EUR/USD had an exchange rate of 1.12 you can earn $1.12 for every euro.
If the rate increases to 1.13 ($1.13 for one euro), this means that the euro’s value has increased against the US dollar as you can receive more of the counter currency for the base currency.
Forex trading tools
If you would want to manage your trades without watching them regularly, there are a few trading tools you could make use of:
- Limit order: You pick the exchange rate your trade closes at. This allows you take a profit when the rate reaches a level you have set.
- Stop loss: You pick the exchange rate your trade closes at. However, this does not guarantee further losses as brokers cannot always close the trade at an exact rate.
- Guaranteed stop loss: You pay a fee to the broker, and they will close your trade at the same exchange rate you choose.
- YBuy limit: Your broker will open a trade when the exchange rate reaches your chosen value. If the rate is not reached, the broker never actions your trade.
- Margin call: If your losses come near your margin, your broker will ask you to add more money. If you do not, your broker will then close your trades to stop further losses.
Close your trade
Before you close your trade, also known as closing your position, you can review if you are earning a profit or a loss by studying the active trades on the platform of your chosen broker.
If you are ready, choose the trade you want to close from your active trades tab and click on the close trade button.
You are then required to verify if you want to close your trade. Then you are shown how much profit or loss you have earned.