How to Place a FOREX Trade
Foreign currency, or forex, trading is popular for individuals to trade on the changing currency values. The currency exchange markets are driven by international banks and corporations, but currency brokers and dealers offer accounts for individual traders. Some brokers offer stock and futures trading as well as forex, but most traders work with a dedicated forex broker.
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Instructions
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Select an online forex broker. There is a large number of brokers to choose from so compare the features of several. Important considerations are the deposit required to open an account, sizes of trades allowed, trading spreads and the brokers trading system. Some offer downloadable software, and others are web-based platforms.
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Apply for a trading account, and fund it with your starting money for trading. For the new forex trader, the broker should allow 10,000 unit trade sizes and a minimum account balance of $250 to $500.
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Familazarize yourself with the broker's trading platform. Forex trading is done with currency pairs and their relative value. Popular pairs are the EUR/USD for the euro and U.S. Dollar, USD/JPY for U.S. dollar and Japanese yen and GBP/USD for British pound and U.S. dollar. Each pair will have a bid and an ask price that changes with the market quotes. You sell at the bid and buy at the ask.
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Decide which currency pair you want to trade and what direction you think it will move. Forex traders analyze global financial news and currency technical factors to predict currency rates. Forex trading uses the same currency pair to trade either currency in either direction. For example, using the EUR/USD pair, if you think the euro will go up, use a buy order, if you think the dollar will go up, use a sell order.
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Place the forex order by selecting Bid/Sell or Ask/Buy on the trading screen. You will get a confirmation box with the size of the order, the margin requirement and the current price. Click on submit or confirm to place the order. The margin requirement is how much cash you need in your account to place the order.
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Tips & Warnings
Most forex trading is done at 100 to 1 leverage. This means if you want to trade a $10,000 contract, you put up $100 in margin. For a $100,000 value trade the margin requirement is $1,000.
Forex prices are quoted to four decimal points or pips. Each pip on a $10,000 contract is worth $1.00. On $100,000 a pip is $10.00.
Most online forex brokers offer free practice accounts. Use the practice account to learn how to trade and implement your strategies.
The high, 100 to 1 leverage allows forex traders to trade a large amount of currency with a small margin deposit. A 100 pip move is a one-cent change in the currency value but will double or wipe out your margin requirement. It is possible to lose significantly more than your invested money trading forex.
References
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