Forex Trading Tutorial

Investing in the foreign exchange markets has traditionally been the domain of large institutions and corporates to reduce currency risk.

However, the foreign exchange markets have evolved and increasingly are being seen as a source of returns for investors.

1. Practise before you start to trade with real money.

You wouldn't drive a car without learning so why would you trade the forex without experience. Use a demo account to get used to a platform and if it suits your trading style before you commit real money.

2. Understanding strategies.

As a trader you need to be aware of three crucial forex trading strategies which are often used by currency traders. The Carry, Momentum, and Value trade.

The Carry strategy sees investors selling currencies with low interest rates and buying those with high rates: Momentum tracks the direction of currency markets: and the Valuation strategy takes a position based on the investor's view of a currency's value. You must decide own your own trading strategy.

3. Know what moves currency markets

Like any asset class, there are a number of factors that drive currency performance. A country's macro economic situation can be very influential - economic data releases, policy decisions and political events can change an economist's outlook on the country, and therefore the currency.

There are also technical factors such as interest rates, equity markets and international trade which may have an impact. Be aware of all of these.

4. Risk management

Make use of FX trading strategies such as Stop Losses or Limit Orders. As with any investment you must decide on what risk you are willing to take. If losing on a certain position makes you uncomfortable you must rethink your trade. Do not risk more than you can afford to lose. Again, mitigate your downside risk.

5. Keep it simple

You must stick to what you know. There are hundreds of currency pairs that can be traded, each of which have there own characteristics and considerations to understand and analyse. It is better to concentrate on a few pairs and commit to thorough and robust research on those, rather than superficial research on many.

Key things to consider when analysing a currency pair are its liquidity, transaction costs (the spread) and its volatility. Generally, major currencies usually have better liquidity, tighter spreads and lower volatility, whereas emerging market currencies have poor liquidity, wide spreads and volatile movements.

6. Plan your trade - trade your plan.

Have a plan and execute it. Don't get caught up in the moment - the markets are fast moving and in the short term can be unpredictable. Keep your emotions in check. Don't make rash and irrational decisions to make up for a loss earlier in the day. Review your overall strategy and approach before pressing the 'execute' button.

Don't expect to win on every trade - even the most successful forex traders don't. Have a robust plan and do your research. Use an online provider that gives you up to the minute data and statistics. Preparation and research will bring rewards.


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Miles Carmichael, Professional Forex Trader of 10 experience and success. Proprietary Trader. Happy to share my knowledge and experience to help other traders.

http://www.betsandthecity.com

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