July 29, 2014

FX trading tips

These FX trading tips should help you understand the basics of Forex trading and potentially lay you with the foundations to conquer the $4 trillion dollar a day currency market;

  1. Realize the Forex market doesn’t sleep - Unlike the stock market which has certain opening and closing hours, the Forex market is awake for 24 hours a day. Currencies are always valued in pairs (base / counter currency), so it’s important to understand what announcements are forthcoming which could affect your FX trade.
  2. Understand the factors that drive the value of currencies - Just like most assets, the value of currencies depends on supply and demand. So if a currency is viewed as less safe, demand will fall and so will its value.
  3. Get a feel for what causes the value of a currency to rise and fall – While supply and demand is the overall determinant for the value of a currency, one should understand the factors that feed into that. A whole host factors can impact the value of a currency, such as growth of an economy, interest rates and political issues. Some may also find value in technical charting.
  4. Look out for FX trading costs - When looking for a provider, always consider any possible commissions they demand, exchange fees as the bid-offer spread.
  5. Take note of the PIP - A Pip is the profit or less you will make on an FX trade. Just as stock indexes move in points, Forex moves in ‘pips’. So let’s say the GBP/USD has risen from 1.3001 to 1.3009, that would equate to a rise of 8 pips. Standard accounts usually equate £1 or $1 dollar to each pip, however trading lots can be increased so that the pip equates to a greater amount of pounds.
  6. You’re trading with more money than  you actually have – FX trading is underpinned by leverage, just like with financial spread betting. This means you are trading with far more money than you actually have, and losses can actually exceed your deposit. So while being able to profit from ‘going long’ or ‘going short’ is appealing, it can induce more loss than your originally thought possible if you go the wrong way.
  7. Use free demo accounts - Many FX trading providers allow you to have a free demo account and get a ‘feel’ for not just their platform, but FX trading in general. Always trial with these until you are totally comfortable  to trade for real.
  8. Read, Read and Plan – If you have decided on the currencies you want to trade with, it is thoroughly important to read all about them and understand what factors have affected them and will potentially affect their value in the future.