Forex is short for foreign exchange with the underlying asset being currency. The FX market is by far the largest global market and operates around the clock. Currencies float freely against each other, meaning that the intrinsic value of each one varies greatly, this is where you can make money.

It’s very simple, the aim of any trader is to make a profit, but FX trading is slightly different. You can almost bet on whether the value of a currency will rise or fall, allowing you to make money on either result, unlike conventional trading.

Forex trading works as follows: Say you ­want to buy the AUDUSD (Australian Dollars/American Dollars) currency pair. If you were to buy the AUDUSD pair at 1.0715 and it then moved up to 1.0800 then the trade was close, you would make a profit on the trade of 85 pips. Alternatively if the pair had moved down in value to 1.0700 at the time the trade was closed, you would have made a loss of 15 pips.

Currency trading is a macroeconomic endeavour. A currency trader needs to have a solid understanding of various economies and the role they play on each other in order to grasp the fundamentals that drive currency values

Trading Tips

Stick to what you understand

As a rule of thumb, if you’re unsure of what you’re doing then back away. It’s also wise to avoid trading on the basis of rumours or hearsay, ensuring that you understand both the positive consequences, and the adverse results that may result from any given trade.

Planning

Before you start on any journey it’s obvious that you need to know where you’re going and how you’ll get there. Whether you’re aiming to achieve financial independence or just to generate some extra income, it’s wise to outline a plan for at least the start of your trading career. Knowing what you constitute as failure and define as success is imperative to gaining the insight necessary for successful trading.

Keep it simple 

Forex trading isn’t rocket science, however overcomplicating things can make it feel like it. You needn’t be a maths genius or economics wiz to be successful. Clarity of vision alongside well-defined, carefully chosen goals and techniques offer the best path to a successful career.

Never add to a losing position

While this seems to be common sense, many people have fallen victim to this when trying to claw back a loss. It’s impossible to know how a currency pairing will shift during any given time frame. You can always calculate an educated guess, but you’ll never have a solid knowledge of where a price will be even in a short amount of time. Therefore, however tempting, it’ never wise to pump more money into a losing position.

Don’t go against the markets

As a beginner you’d never be advised to trade against the market. Joining trends allows you peace of mind. Fighting the trends, is a one way street to constant stress, fear and significant losses, they are trends for a reason. As a rule of thumb, never go against the markets unless you have the patience and financial resilience to stick it out as part of a long term plan.

Forex trading is simple to grasp but exceeding difficult to master. Years of practice are required to master the craft but sticking to a simple set of rules, abiding by a plan and being sensible with your trading will ensure you enjoy your trading and hopefully remain profitable! If you’d like to find out more about FX Trading then visit ETX Capital.