Now that you’ve familiarized yourself with the theoretical forex trading basics concepts, you should understand the fundamentals of how to actually trade on the forex market. The forex market is one of the most liquid financial markets in the world, with an average daily turnover of some $1.6 trillion, and trades twenty-four hours a day, five days a week. This means that you can trade at any time, even after you come home from your day job. The twenty-four hour trading day of currency markets also reduces the problem of gap risks, or price movements that happen while the market is closed and no trading is going on.
Forex Trading Basics – Opening a Trading Account
In order to start trading in the currency markets, you will have to open an account with a currency broker. The broker will be the one to actually implement your trades based on your orders, providing you with an online trading platform for the purpose of buying and selling currencies. These platforms also offer other services such as charting tools to help the trader make trading decisions. Many traders may also use trading robots or automatic trading software that makes their trading decisions for them.
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In order to open a trading account with a broker, you will have to make an initial deposit into the account. Some brokers may also offer the option of a managed account, which means the broker will do the actual trading for you. However, you will typically have to make a higher deposit in your account if you choose this option.
Before you activate a live account, experts recommend that you first open a demo account that will allow you to make paper trades without having to risk real money. This will allow you to familiarize yourself with how to trade forex and how the trading platform works, as well as practicing your trading strategies before risking actual money.
Forex Trading Basics – Types of Orders
There are several types of orders that you can set with your forex broker that will not only allow you to make trades but control them as well. These are:
- Market orders. These are orders used to open or close a trade.
- Limit orders. These orders will close your position when the market price reaches a certain level, allowing you to lock in your profits without the risk of losing money. The proceeds will then automatically be deposited to your trading account.
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- Stop loss orders. These are the opposite of limit orders in that they are used to control losses. A stop loss order closes your position when a certain level of loss is reached. Stop losses can also be used as limit orders by closing your position when the trade starts to become profitable.
- Entry orders. This order initiates a trade when the market reaches a certain price. Traders usually place this type of order if they cannot be in front of the computer all the time monitoring the market.
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Familiarizing yourself with these different types of orders is an essential forex trading basics skill that you need to possess before you start trading.
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