How to trade Forex
Financial market - is a generic name. It is divided into thematic areas: metal market, stock market, bond market, futures market, etc. But the most popular is the currency market - Forex (Foreign Exchange).
Let us consider it as an example. It will help to understand the principle of making transactions on the trading platform (software that shows a chart of price changes in real-time and allows you to make transactions for buying and selling).
So, in the Forex market, the price of the national currency is a reflection of how the market perceives the current — also future position of the economy of a particular country (for example, America).
Most often, if positive economic news/statistics are published, currency quotations start to rise. Although this is not always the case, you can open a deal (by clicking the Buy button on the platform) and wait for the price chart to rise, you can close a contract with a profit, which will immediately affect your trading account. However, if additional factors influenced the quotes at the moment of the news publication, the chart may well surprise traders and go down. If you make a mistake with the forecast, the deal may end with a minus. To minimize losses, you should either close your position with your hands in time or set a restrictive level of Stop Loss immediately.
Open the trading platform (for example, MT5 and cTrader can be opened directly in your browser, without installing on your computer).
The currency pairs and numbers next to them that you see on the platform are nothing more than the value of one currency - in units of another.
In the Forex market, when you open a trade on a currency pair, you buy one currency and sell another. Just like in a bank exchange office, when you sell roubles, you buy euros on them. For example, the rate at which you purchased the European currency - EUR/RUB quote.
Forex pairs consist of national currencies of the most influential countries in the world.
Major currency pairs, as a rule, include two major world currencies: EUR/USD, GBP/USD, USD/JPY, EUR/GBP, USD/CAD.
Major currency pairs are very liquid because of their popularity, and therefore the cost of trading on them (i.e. spread) is lower than on other pairs.
Other currency pairs are divided into two groups: "minor (minor)" and "exotic" pairs.
You can see the classification of each instrument in the specifications section on the FxPro website or the trading platform.
To understand this, look at the rate of the other currency pair - EUR/USD (how much USD is currently worth 1 EUR): EUR/USD=1.07407.
The rate of EUR/USD pair shows that 1 EUR equals 1.07407 USD. It means that you need 1.07407 USD to buy 1 EUR, or that by selling 1 EUR you can get 1.07407 USD.
EUR, in this case, is the base currency (the price of which we want to determine), and USD is the quote currency (in which the price is expressed).
Now you should always keep in mind that the base currency is the basis for buying or selling.
So, back to your online platform:
When you press the Buy button, you open a EUR/USD Buy deal.
When you press the Close button, you close the trade (as if selling EUR/USD, although you do not need to do this extra action).
It turns out that each of your deals is a link in an endless chain of buying and selling. Someone has sold you - you have purchased. You closed the deal (sold) - someone bought it at that moment. And so on.
We remind you that you join the price changes of a currency pair and physically do not buy currency packs.
A Buy deal on a currency pair is called a long position (Long).
A Sell deal is a short position (Short).
What is Bid/Ask, and what is the difference between them?
Take a second look at your trading platform. In it, you will find a "table" with two columns, in which quotes are continually changing, highlighted by two colours.
For example, for EUR/USD it can be so:
A Bid is a price at which your trade will start if you decide to open a Sell position and press Sell. This quote is located in the left column.
Ask is the price at which your Buy deal will start. It is located in the right column. In the exchange office, you face the same thing: you are offered to sell the currency at one price and to buy it at another.
Thus, your transaction will start with a small minus until the chart passes the difference between the Bid and Ask prices, which is called the spread. The lower it is (already), the more profitable it is for the trader. In exchanger or bank this spread reaches 3%, and when trading through a broker - it is less than 0.015% for popular currency pairs - more than 200 times!