Foreign exchange trading (also known as Forex trading, or simply FX trading) is a process of buying and selling foreign currencies for profit. While you are learning the art of predicting the value of a currency compared to another currency, you are becoming a more successful forex trader. But it is not that easy, and, similar to many other financial activities, FX trading has its own risks. No one can be 100% certain about the currency rates (like Euro to United States Dollar rate – EUR/USD) in any given moment of time in the future. So how can you make a profit by trading currencies in this case? The answer is simple. You will make money in the same way as many other people who practice forex trading daily. Let’s look into the secret of successful Forex trading.
Predicting currency rates just a little bit better than the majority of market participants
Because Forex is an open market, thousands of people and institutions all around the world participate in currency exchange trading every day. When people make decisions about exchanging their currency, they do not necessarily act rationally. Sometimes, emotions take over. Because of the fear of missing out, or the over-exaggerated sense of risk, people make some irrational Forex trades. Imagine, someone trains themselves to trade emotionless. Moreover, the same person predicts where the currency rate will go just a little bit better than the majority of other Forex traders (and ordinary currency exchange market participants). So, it is exactly the type of person who makes a profit out of Forex trading.
What is the simplest way to trade Forex?
You would probably agree that it is much easier to predict whether one currency is going to be more expensive at some point of time, than trying to predict the exact rate between two currencies at that point of time. That’s why a particular kind of Forex trading called “options” is pretty popular among new traders. Options trading does not require you to buy and sell currency; it requires you only to indicate the direction of the movement. In fact, Forex trading for beginners is almost always binary options trading.
When trading binary options, you make a profit each time when your prediction (whether the currency is going to move up or down) appears to be correct. “Binary” means that you have only two choices – UP or DOWN. No wonder that this type of Forex trading is often recommended to newbies. The world’s most popular Forex and binary options trading website (IQ Option) claims that a few million people use their website daily to trade currencies. That website is a good place to start your Forex trading journey.
Binary options are an easy way to start, and it can get you high returns, but the risk is high too. The traditional way of FX trading also requires you to choose the direction, but when you decide to quit the trade (called “close your position”), your profit or loss is calculated depending on how far is the final price (at the moment you close your position) compared to the initial price (when you opened your position).
Tips and tricks for beginner currency traders
Before you start trading Forex, you need to note that predicting currency movements is a job. The more effort you put in analyzing the foreign exchange market, the better results you will achieve. If you want to know how to predict where the currency rate is going to be in the long-term, then you need to spend months and even years practicing the Forex trading. Be prepared to discover that the exchange rates are very volatile. High volatility means that the currency fluctuations (movements) can be very significant.
When you start trading Forex or binary options, you may not immediately start earning money. There may be some bad days when your predictions are not precise. You need to have an internal strength to overcome frustration and move forward. If you think you can do it, then let’s talk about some tips and tricks for beginner Forex traders:
- when you focus on your local expertise and the currency pairs that you understand well, you usually achieve better results;
- popular currency pairs like EUR/USD or USD/JPY are impacted by many factors and types of traders, thus their foreign exchange movements are usually less predictable;
- “news trading” is more about predicting how the other traders going to react than about the actual impact of this piece of news;
- never trade with the money that you can’t afford to lose, because even the most reliable prediction may suddenly fail;
- fluctuations in currency exchange rates can be due to the actual monetary flows as well as by expectations of changes in monetary flows – it means the price change may come before the actual announcement;
- create your Forex trading plan and stick to it – the strategical analysis that you do in advance is more precise than what you think during an emotional trading session;
- before putting in your money, practice on a free Forex demo account (we will explain how to open it below);
- be realistic: don’t expect something unusual to happen today only because you want it.
How to start trading Forex
To start trading Forex from home, people often choose the simplest and the most practically convenient way – a Forex provider (also called Forex broker). If you are new to Forex trading, we recommend you to start with the world’s most popular retail trading broker called IQ Option. This platform is easy to understand, it has video lessons in multiple languages, and it offers a free demo account, which means you can practice Forex or options trading for free before putting any of your own money into it.
So, first, visit this Forex provider’s website. It will ask you to fill in your name and email address, and that’s all you need to open a Forex trading account with IQ Option. After you log in to the broker’s website, you will be able to choose any of the popular forex trading platforms: it can be web-based (basically all Forex trading happens in your web browser), it can be a desktop application or even a mobile app.
Now all set up and ready to go. You will quickly notice the list of currency pairs, which will look like this:
After you choose the currency pair you want to trade (in this example EUR/USD is selected), your FX trading platform will look like on the screenshot below:
As you can see in the example above, $1 is selected as an amount to invest. The next step is choosing your Multiplier and whether you want to BUY or SELL. If you think the currency rate will go up, you press BUY button, otherwise, you press SELL button. Then you wait as long as you want and close your position. Now let’s talk about Multiplier.
You can trade Forex pairs on leverage, meaning that if your own money in a trade, let’s say 1%, and you choose 100x Multiplier, then you are entitled to the same gains or losses as if you invest 100%. The broker pays the rest money (99%), so you can have 100 times higher profit on this trade. With the Multiplier 500x, your trade is $500, with only $1 of them invested by you personally. The risk of taking a high Multiplier is that in case the price of the currency goes in the opposite direction, you will have minus profit and need to pay off your loan back to the broker (it will be automatically deducted from your balance). To make sure that you don’t lose more than intended, you need to use a Stop Loss function, which allows you to set up the maximum loss you can afford.
When the price reaches the point that you set up with the Stop Loss or Take Profit functions, your position will be closed automatically. You can also close your position manually at any time. To do this, choose the trade that you want to close in the drop-down list located in the top right corner of your trading interface. Anyway, if something is not clear, make sure you check out your broker’s video lessons, live chat with other traders, or contact the broker’s support team – it is all free, so don’t be afraid to open your account and join the lucky home-based community of Forex traders today!