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How To Trade Forex: A Beginners' Guide


Are you wondering how to trade Forex? This article helps you through the insights of the Forex market. FX is one of the largest financial markets in the world involving the buying or selling of different currencies. The FX market amongst other locations is conducted in Hong Kong, Tokyo, London, and New York.

Forex trading is considered a very popular form of investment since the volatility on the market is high and prices change every second, which allows Forex traders to try to take advantage of short-term price movements. Plus, the trading volume on the market is huge. There are millions of people around the world willing to buy and sell major and minor currency pairs, and the foreign exchange market’s circulation was $6.6 trillion per day, as of April 2019.

It may seem that the foreign exchange market is the place where you can receive a quick profit. However, Forex trading may come with a high risk of losing money due to volatility. Since currency prices fluctuate depending on the major economic and political events, the exchange rate of your selected currency pair may change in a split of a second. Those who do not want to lose money when trading need to craft optimized trading strategies, learn how to trade on the market, find out how CFDs work since it is a popular way to trade Forex pairs, and many more. This article will cover areas like - what is Forex trading, how the market works, benefits and risks of the FX markets, currency trading strategies, trading CFDs on Forex, as well as some mistakes to avoid while trading.

Comport yourself while you find out what it takes to trade on the FX market. 

What is Forex trading? 

Forex trading means the practice of buying/selling currencies to try to profit from the value differential. Some major currencies you can either buy or sell include GBP, AUD, USD, and CAD. To trade Forex in the traditional sense, you can buy one currency for another. Foreign exchange markets provide instant delivery, meaning you get a real currency right away. If you consider that the dollar, for example, will get stronger in the near future, you can buy a certain amount of this currency at a current price. After the dollar price rises, you can sell it to receive potential profits.

If you are not willing to buy or sell actual assets, you can trade Forex via derivatives, such as contracts for difference. CFDs are complex instruments and come with a high risk of losing your money. Traders need to understand how CFDs work and be aware that they can lose money when trading Forex CFDs due to leverage. Forex brokers usually encourage to consider whether you understand the risks and advise not to invest more money in CFD trading than investors can afford to lose.

The major available currency pairs

In Forex trading, two currencies are always traded one against another. One currency is always quoted in relation to another since traders buy one and sell another. The first currency in the Forex quotation is always a base currency. For example, in the most actively traded Forex pair – EUR USD, the euro is the base currency. A quote currency is the second one in the quotation. The U.S. dollar is this currency in the example.

To trade Forex, a trader can go either long or short. Traders need to determine which currency in the Forex pair they believe to rise in price and which one to fall. When going long, a trader hopes for a base currency’s value to go up. In our example with EUR USD, the euro should rise to anticipate a potential profit. When going short, traders hope for a quote currency (the U.S. dollar in the EUR USD pair) to go up in price.

It is essential to choose the right currency pair if you want to succeed as a Forex trader. Find below the major currency pair that you trade. 

The currency pairs mentioned above are the most traded in the world. However, traders can also invest in minor or exotic Forex pairs. A minor currency pair does not include the U.S. dollar. An exotic currency pair includes the currencies of developing countries. The choice of currency pairs for your trading strategy depends on your financial goals and skills. A minor or exotic Forex pair is harder to deal with. It may have lower liquidity, and spreads can be much higher.

What are the benefits of trading Forex? 

Forex trading brings numerous financial opportunities when executing trading strategies well-prepared. Retail investors should not only consider the risks that can be causes of losing your money but also benefits that can suggest an optimum time to buy and sell currencies, which Forex pair are worth adding to a portfolio and many more. Those advantages can be helpful for both traditional Forex trading and trading CFDs on currency pairs.

With so many Forex enthusiasts hitting the market on a daily basis, there are so many benefits of trading Forex. Let's take a look.

When choosing a financial service provider to trade with, you should consider its regulation. A regulated Forex broker can ensure fair pricing, a secure environment, transparent trading conditions, and proper customer service. Forex traders can focus on their strategies without worrying about data privacy and the safety of their deposits. They can also withdraw their funds the moment they need their money.

What are the risks of trading Forex CFDs?

Trading on the Forex market is risky, especially with CFDs. The high volatility on the market is the cause of frequent asset price change. Prices goes up and down every second. Plus, many global events can change the direction of currency price movements to the opposite than predicted. Political and economic unrest, natural disasters, terrorist attacks, global pandemic, changes in interest rates, inflation, deflation, and other factors may affect the Forex market and harm your investments.

Since a CFDs trade is set up with leverage, it can also be a risk for your invested funds. Sure thing, leverage is used to increase your buying potential. However, it can also magnify losses if your predictions on price movements are not correct. When trading with leverage, Forex traders should not invest more funds, than they can afford to lose.

Let's now see how to trade Forex and trying to avoid mistakes. 

What are the mistakes to avoid when trading Forex? 

Below you can see some common mistakes made by Forex traders. One thing is likely to happen if you make these mistakes - you will lose your hard-earned money.

How do I trade CFDs on Forex with ROInvesting? 

CFDs are complex instruments and come with a high risk of losing money. However, they can offer advantages for many traders who do not want to buy or sell actual currencies. Today traders actively using CFDs for a trading strategy of their choice. They deal directly with a Forex broker and make a prediction on the price movements of various currency pairs.

The main features of trading CFDs:

To get started with CFD trading, a trader can choose two currencies (one is a base currency, another is a quote currency) he wants to trade one against another (EUR USD, USD JPY, GBP USD, AUD USD, or others). Then a trader can make a prediction on the currency pair’s exchange rate in the future. With CFDs, a trader can open a position for either a rising (long position) or falling (short position) price to anticipate potential profits. If the prediction is correct, a trader gets his rewards from Forex trading. If not, he may lose money when trading.

Prices on the Forex market are extremely volatile, which is one of the riskiest factors of trading Forex CFDs with leverage. Traders should understand they take the high risk. A trade can fail because of unpredictable price fluctuations. And since trade is leveraged, a Forex broker will require paying a fee for financing provided. Many Forex traders lose money when trading CFDs.

Find below an outline on how to trade CFDs on Forex with ROInvesting:

To get started Forex trading via CFDs with ROInvesting,you can follow the instructions mentioned above.

Why trade CFDs on Forex with ROInvesting? 

ROInvesting is a popular financial service provider that offers CFDs on currency pairs. It provides competitive conditions for online Forex trading and brings numerous financial opportunities to its clients. Wondering why you should jump on a trade with ROInvesting? Read on to find out:

If you want to buy or sell CFDs on currency pairs, the trading platform equips you with:

Trading strategies for Forex CFDs

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. In order to avoid some risks, traders need to understand how CFDs work. They can do that thanks to learning materials that can be found online.

When your knowledge base is already solid, you can start crafting a Forex trading strategy. It can help you to calculate the risks you can afford to take, decide which currency pair you want to use for your trade, identify entry and exit points, adjust to market behavior, manage your capital, etc. Some of the most popular trading strategies for Forex trading are below.

Day trading

Day trading is one of the most popular strategies for online Forex trading. It implies speculation on short-term currency pair’s price movements. To perform this approach, traders buy CFDs on a currency pair, hoping the exchange rate will be favorable (the base currency needs to rise in price for a long position, the quote currency needs to go up in price for a short position). The difference between the opening and closing prices can be their potential profits.

Day traders tend to perform several deals during a single trading session. They can trade 24 hours a day to accumulate small profits. To craft optimized strategies, they can employ technical analysis and use various indicators such as Relative Strength Index, Stochastics, MACD, Bollinger Bands, and others to make forecasts about future prices of preferred currency pairs. Day trading can also be boosted by fundamental analysis. Forex traders can read financial news to evaluate the world’s political and economic situation and other factors that influence currency prices. 

The day trading strategy does not guarantee success. Prices on Forex markets fluctuate each second. They can turn in an unpredicted direction at any moment. Thus, traders may experience a high risk of losing money when trading CFDs on currency pairs.

Swing trading

Swing trading also allows Forex traders to speculate on a currency pair’s price movements to capture short-term gains. Unlike day trading, this approach can take from two days to several weeks. Less often, traders can hold their open positions for several months. Traders wait for several trading sessions before closing their positions. This method is also risky due to the same reasons as day trading. Traders should consider if they are ready to take the high risk of losing money in case predictions turn out wrong.

Swing traders try to catch considerable price changes, while chasing potential rewards. However, potential profits from this short-term method for Forex trading are incomparable to those traders can anticipate from long-term strategies. That is why swing traders also tend to accumulate small potential profits.

Technical analysis is the focus of swing Forex trading. Based on historical price data received from it, traders can develop optimized strategies and choose EUR USD, USD JPY, GBP USD, AUD USD, or other currency pairs to trade CFDs on them.

Price action strategy

The price action trading strategy is for those who believe that prices on the Forex market changes randomly. Traders make predictions on the future currency price fluctuations based on the past market price trends and patterns. They can use technical analysis for Forex trading with this strategy but rarely opt for the fundamental one. Those following this trading strategy actively use various charts, the most common is Japanese candlesticks.

Trend trading strategy

Trend trading focuses on the market momentum and pays attention to the current strength of price trends. A trend trade implies that a currency price will move in the direction the trend shows when opening a trading position. Forex traders, who believe that the Forex market is a predictable place, often use this strategy. Unlike Forex strategies mentioned above, trend trading is a form of long-term investment.

Technical analysis is a common option for forecasting to start a trend trade. Traders use moving average, relative strength index, average directional index, and other indicators to analyze market trends and identify market momentum.

Position trading

Position trading for Forex is also considered a long-term strategy since traders hold their open positions during a long timeframe. It is a passive method of investment that focuses on macroeconomic indicators to identify historical patterns of positions. When day and swing traders actively open and close their positions, position traders wait till the currency price moves in a favorable direction. Both fundamental and technical analysis can help traders to craft a position trading strategy. They can be used in a combination.

Although all strategies can boost your market performance, as a Forex trader, you should always consider whether you understand the risks and whether you can afford to take them. Forex trading can come with a high risk of losing invested money, especially when trading with leverage.

Conclusion 

Trading Forex comes with a lot of excitement, especially if you are trading with a reputable broker. Forex trading requires high levels of meticulousness, discipline, understanding of how to trade on a trading platform, and the ability to follow simple strategies. It also requires understanding the market and the knowledge of using trading tools to your advantage.

However, a Forex trade with CFDs comes with the risk of losing money rapidly due to leverage. Traders should figure out for themselves whether they are ready to take the high risk before entering the market.

At ROInvesting, we have a long list of trading tools powered by one of the most popular trading platforms – MetaTrader 4. You can use them to boost your trades. We use cutting-edge technology in securing our trading platform, thereby ensuring your peace of mind.

Advantages provided by ROInvesting:

ROInvesting offers not only CFDs on currency pairs, such as EUR USD, USD JPY, GBP USD, AUD USD, etc. You can add CFDs on various other assets to chase trading opportunities on financial markets. 350+ underlying assets are available for any of our clients. Besides the foreign exchange market, we offer to enter the following marketplaces to trade CFDs:

The necessary things for you to start trading Forex is not much. You need a smartphone or a laptop and a strong internet connection. You also need to read lots of articles and watch video tutorials to understand the behavior of the market and how to pull back when the market is going south.

To open a live trading account, you need to complete 3 steps:

Lastly, as a beginner, never start trading with a live account right away. Doing that means you are exposed immediately to the markets, and you risk losing your money. It’s recommended to start with a demo account. With a demo account, you can make all the mistakes and learn from them. Still not sure how to trade Forex? No worries, reach out to us and we would gladly be of help. 

Frequently asked questions 

Can I make money from Forex trading? 

You can potentially make money trading Forex; however, this is not guaranteed as the risk of losing your invested capital always exists. If you do your due diligence very well and arm yourself with the right trading tools, not forgetting trading with a regulated broker, you have better possibilities. If you just hit the market without any preparations, you are likely going to lose your hard-earned money. 

Can I trade Forex with 200 Euro? 

Of course, you can start your online Forex trading journey with as low as 200 Euro. In fact, some Forex brokers do not even have a minimum deposit to start trading. However, before you open a trading account with a broker do your research to know about their minimum deposit. 

How do I know if a broker is regulated? 

Before you start trading Forex, it is important to determine whether or not a broker is regulated. Trading with a regulated broker like ROInvesting comes with peace of mind knowing that your account is in secured hands. So, to determine the regulation status of a broker, check with the market regulator in the country where you live. The market regulator would give you the details of their regulation. 

Can I teach myself to trade Forex?

Forex trading requires expertise, especially with CFDs. You cannot trade CFDs on a currency pair by making random predictions. This is why you should learn a lot about Forex trading before entering the market. Luckily, many Forex brokers offer educational resources, and anyone can study them online. ROInvesting also provides its clients with a wide array of VODs, e-books, courses, and tutorials.

With the ROInvesting education center, you can find out about:

A Forex trade with currency pair CFDs entails risks. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Therefore, you should consider whether you understand those risks and learn more about them to find out if you can afford to take them.


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