3. How to Trade Forex

what is forex

Many people may have the interest of trading in Forex, but they lack the basic idea and skill of how to go about it. The main idea behind Forex trade is to speculate the future of different currencies on whether to expect a shoot up or a drop in their value. This can always be based on either a long or short period. From the latest statistics, it is evident that Forex sales and buys per day can average to $5.3 trillion as it is the most widely traded world-wide.

 

How does Forex Trading work?

This is the question you need to ask yourself when you hear of about $5.3 trillion being bought and sold daily. Forex trading involves at looking at a pair of currency and the fluctuation in the exchange rate between these currencies will give you, your profit as the trader. For example, when you compare between the GBP and USD, you can either choose to buy the USD or GBP. This should be based on which one you think will appreciate in value to the other. When you think that GBP is likely to strengthen against the USD, then you need to buy the GBP and in turn sell the USD as you need to expect that the exchange price will definitely shoot up. In case your prediction is right, you will earn more profit as your profit will increase with every increase in the exchange rate. The trader is likely to get a lower profit in he/she decides to close the position, selling the GBP. This is because he will be forced to sell at a lower price than he bought them.

What should you expect in case the GBP depreciate against the USD? This will be a loss to the traders. This is because the exchange rate of the GBP/USD will definitely fall and this implies that for every fall in the exchange rate lower than the initial rate will lead to a loss. Despite the loss or profit that you may experience during the trade, you still have the chance of making profit irrespective of an appreciation or a depreciation. This is possible as you will be given the option of selling or buying currency pairs. For example, when you compare GBP/USD, you can opt to sell the GBP instead of buying them. This is when you think that USD will strengthen against the GBP or the value of the GBP to fall. With this, you will get a profit in case of a fall in the exchange prices.

How can I trade Forex?

After knowing the trend on when to make profit or a loss, you must be very eager to get started. For a great start, then the Etoro, who was the winner of the Forex provider of the year, according to the UK Forex 2014, provides you with three elementary ways to trade FX. These are the oCFD trading, oSpread betting and oMT4. With the oCFD, you will not have to pay for the stamp duty, though the gains are only liable for CGT in the United Kingdom. This trade is very perfect as it allows you to fully speculate on the Forex markets without any limitations based on the expiry date. 

The oSpread gives you the advantage of profiting from a tax free money in the UK. You, therefore, need to take the advantage of tight and a single pip as you have the opportunity to speculate the markets the entire day and night.

The oMT4 provides the traders some of the ultimate and improved features that are exclusive to all Etoro clients. This is because the number Forex trading platform being used world-wide. In this platform, you will enjoy trading with customisable leverage by market symbol, expert advisors and tolerance. 

Despite having three different types of FX trading platforms provided by Etoro, you will always enjoy unlimited advantages as long as you choose to trade with them. Some of the benefits include an award winning range of apps and platforms, 24-hour trading and low margins. Get started with any of these three available options and you will make huge profits from your FX trades. 

 

An example of Forex Trading

Foe a better understanding on what you need to do, we have provided you with an example of how you can trade on Forex. You need to be informed that we have a fixed spread of 1.5 pips as from 8am to 6:30pm GMT on GBP/USD, but for this example, we have used a pip of 2 instead of 1.5.

Let 1.5600/1.5602 be the current GBP/USD trading price on the 1st day of the month.

In the US, most traders have expectations of the level of actual non-farm payrolls coming in worse than estimated by the economists. This is due to the employment situation in the US. 

Since you expect the GBP to strengthen against the USD in this case, you decide to buy 10,000 at 1.5602 on GBP/USD. 

You then choose a leverage scale of 50:1 and the trade size is in units of the base or first currency in the pair. This, therefore, will require an initial deposit of $312.04 (10,000*1.5602/50). 

In case the GBP strengthens just as you predicted and decides to cash in your profits when it reaches 1.5664 and with our new value being 1.5662/1.5664. You finally decide to sell at 1.5662.

Results

You will get a profit of $62.00. This is because you bought at 1.5602 and sold at 1.5662, then (1.5662-1.5602) x 10,000 = $60.00.

How about when the actual non-farm payroll data had come better than it was estimated by the economists? This will have led to the USD strengthening against the GBP. 

Assume that the GBP has fallen to 1.5604, then you would have expected a loss of $66, (1.5662-1.5604) =$58.00.

Note that the profit/loss is always calculated in the counter or second currency of the pair. This is the difference between the closing price and opening price, the value multiplied by the size of the trade. As one of the Etoro clients, you will have an added advantage as they have simplified the trading process. This is by automatically converting the trading profit and loss into the client’s dominated account currency according to the prevailing market rates when the trade is closed. Begin FX trading today with Etoro and you will get the best trading experience ever.

EUR/USD

Let’s assume that EUR/USD is trading at 1.3240/1.3241 during July.

Due to the sovereign debt crisis, most investors are worried and expects the EUR to depreciate against the USD. You then decide to sell 10,000 on EUR/USD at 1.3240 at a leverage of 20:1. This implies that you will require an initial deposit of (10,000*1.3240/20) =$662.00

In case the EUR depreciates against the USD, to 1.3201 and finally decide to close the trade, you will earn a profit of (1.3240-1.3201) x 10,000 = $39.00.

This is how simple it is to get started and make huge profits from FX trade. With etoro, you will earn even more as you enjoy more benefits. Trade with them today on any of their three platforms and you will definitely love it.

 

 

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