Thursday, 15 August 2019

6 Easiest Steps to Trade Forex



Trading Forex
Unlike most financial markets, the OTC (over-the-counter) foreign exchange market has no physical location or central exchange and trades 24-hours a day through a global network of businesses, banks and individuals. This means that currency prices are constantly fluctuating in value against each other, offering multiple trading opportunities.
At City Index, you can speculate on the future direction of currencies, taking either a long or short position depending on whether you think the currency’s value will go up or down. The below images shows you how to trade the EUR/USD currency pair with CFDs.
FX Trading steps
1. Choose a currency pair
Decide which currency pair you wish to trade. With over 65 currency pairs to choose from, picking a trading opportunity that’s right for you is important.
City Index’s technical and fundamental research tools can help you spot currency trading opportunities to suit your trading style. We recommend that you take your time to understand the amount of price volatility associated with the currency pair to help manage your risk.

2. Decide on the type of FX trade 
There are three ways to trade forex with City Index Spread Betting, CFD or Forex Trading. Each has its particular stake size:
  • In spread betting you trade pounds per point movement
  • In CFD trading you trade a quantity of CFDs in the unit of the base currency (currency on the left). For example if you trade GBP / USD your stake would be in Pounds, while in USD / JPY your stake would be in US Dollars
  • In Forex trading you buy lots, in the unit of the base currency (currency on the left)
  • For example if you trade GBP / USD your stake would be in Pounds, while in USD / JPY your stake would be in US Dollars (the minimum stake size is 1000)
3. Decide to buy or sell 
Once you have picked a market, you need to know the current price it is trading at, which you can do by bringing up an order ticket in the platform. All forex is quoted in terms of one currency versus another. Each currency pair has a ‘base’ currency and a ‘quote’ currency. The base currency is the currency on the left of the currency pair and the quote currency is on the right. Put simply, when trading foreign currencies, you would:
BUY a currency pair if you believed that the base currency will strengthen against the quote currency, or the quote currency will weaken against the base currency. 
Your profits will rise in line with every increase in the exchange price.
Every fall in the exchange price below your open level, will net you a loss.
SELL a currency pair if you believed that the base currency will weaken in value against the quote currency, or the quote currency will strengthen against the base currency.
Your profits will rise in line with each point the exchange price falls.
Every increase in the exchange price above your open level, will net you a loss.
Spread - FX pairs have two prices. 
The first price is the sell price (known as the bid) and the second price is the buy price (also known as the offer).  The difference between the buy price and the sell price is known as the spread, and is basically the cost of the trade. 
4. Adding orders
An order is an instruction to automatically trade at a point in the future when prices reach a specific level predetermined by you. You can utilise stop and limit orders to help ensure that you lock in any profits and minimise your risk when your respective profit or loss risk targets are reached.
While not compulsory, given the volatility in FX markets using and understanding risk management tools such as stop loss orders is essential.
A stop loss order is an instruction to close out a trade at a price worse than the current market level and, as the name suggests, is used to help minimise losses. There are two types of stop loss orders - standard and guaranteed. 
standard stop loss order, once triggered, closes the trade at the best available price. There is a risk therefore that the closing price could be different from the order level if market prices gap. 
guaranteed stop loss however, for which a small premium is charged upon trigger, guarantees to close your trade at the stop loss level you have determined, regardless of any market gapping.
A limit order is an instruction to close out a trade at a price that is better than the current market level and is used to help lock in price targets.
Standard stop losses and limit orders are free to place and can be implemented in the dealing ticket when you first place your trade, and you can also attach orders to existing open positions. 
Learn more about risk management here.
5. Monitor and close your trade
Once open, your trade’s profit and loss will now fluctuate with each move in the market price. 
You can track market prices, see your unrealised profit/loss update in real time, attach orders to open positions and add new trades or close existing trades from your computer or app on your smartphone and tablet. 
6. Closing your trade
When you are ready to close your trade, you simply need to do the opposite to the opening trade. Supposing you bought 3 CFDs to open, you would sell 3 CFDs to close. By closing the trade, your net open profit and loss will be realised and immediately reflected in your account cash balance. 
Please note that City Index Spread Betting and CFD accounts are FIFO - to read more 

Forex Trading example
Forex trading allows you to speculate on price movements in the global foreign exchange market. Currency values rise and fall in relation to each other and in response to national and international economic, financial and political events.
When trading forex, you would buy a currency pair if you believed that the base currency will strengthen against the counter currency. Alternatively, you would sell a currency pair if you believed that the base currency will weaken in value against the counter currency.
You can choose to trade FX through CFDs, spot FX and spread bets.
Learn more about the type of FX trades available here.
Selling (going short) GBP/USD as a spread bet
Traders are bracing themselves for Brexit. You expect the pound to depreciate against the US Dollar, i.e. the US Dollar will strengthen against the pound, and decide to sell (go short) £5 a point at 1.22262.
Note: in this example the margin as well as the p&l are calculated in pounds.
The winning trade
You were right about your suspicions, and the Pound drops against the Dollar. The rate drops to 1.22045, at which point you close your trade, netting 108.5 in profit.
The losing trade
You market didn’t move as you expected, and instead Brexit has revitalized the Pound and pushed it higher. The Pound climbs to 1.22489 before you decide to close your position.
Buying (going long) GBP / USD as a CFD trade
The jobs market in the US appears to be stalling and you expect the level on Non-farm Payrolls to come in below analyst’s estimates.
You believe that the US dollar will weaken and the British pound will strengthen against the US dollar, and decide to buy (go long) 1 CFD (per 0.0001) on GBP/USD at 1.2300.
Margin and Profit/Loss are calculated (and denominated) in the second, or counter currency of the pair.
The winning trade
Good news, Non-farm Payrolls came in weaker than expected and the dollar slumped sending GBP/USD higher. GBP/USD is now trading at 1.2380 / 1.2382 and you decide to sell to close at 1.2380.
You bought at 1.2300 and sold at 1.2380, a rise of 80 pts. This gives you a profit of $80
City Index automatically converts trading P&L into the client’s denominated account currency at the prevailing market rate at the time that the trade is closed.
Losing trade
Let’s look at what would have happened if the actual non-farm payroll data had come in better-than-expected, the US dollar would have strengthened against the pound, sending GBP/ USD lower.
If GBP/USD fell and you sold to close at 1.2250 you would lose $50.
A sell trade (going short) on EUR / USD as a spot FX trade
Investors are concerned about the upcoming elections across Europe and you expect the euro to fall against the US dollar. You decide to sell (go short) €20,000 at 1.0650. 
In forex trading, the trade size is in units of the first, or base, currency in the pair
EUR/USD has a margin factor of 3.33%
The margin as well as the p&l are calculated in dollars, the counter currency of the pair.
Winning trade
The euro drops against the dollar as political event risk increases and you decide to buy €20,000 at 1.0570 to close your trade with a profit of $160.
City Index automatically converts trading P&L into the client’s denominated account currency at the prevailing market rate at the time that the trade is closed.
Losing trade
Supposing a weaker dollar across the board pushes the euro up by 50 points and you buy to close at 1.0700 you would have lost $100.
Note: in this example the margin as well as the p&l are calculated in pounds.

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