How to start out in forex trading, from EagleFX
Forex, often shortened to FX or the foreign exchange, is a global decentralized market for the trading of a wide variety of currencies.
The forex market is the largest in the world, with billions of dollars being traded daily. Once you've selected a broker, whether it be a top brokerage such as EagleFX or a different brokerage option, the next step will be to create and fund a trading account.
The information that follows will provide you with clear expectations of what to expect (and what to do) in the minutes that follow the completion of these steps.
Currencies are always traded in pairs, and it will be up to you to predict whether one currency will climb or fall in opposition to another. The GBP/USD pair, for example, measures the value of the Pound against the value of the United States dollar.
Currency pairs, as well as other assets, can be trade as CFDs. Contract for Difference contracts represent the price action of a variety of financial assets, such as currency pairs, commodities, cryptocurrencies and more.
Within each asset class are underlying assets. An example here would be Apple, which falls under the stock group of assets.
Will I Go Long or Short?
One of the advantages of contract for difference trading is that you can opt to either go long or go short. Where standard, traditional investing centers on purchasing and holding an asset (you purchase an investment, hold onto that investment until its value rises, and then sell it off at a later time for a price that exceeds the price that was paid), CFD trading is different.
When trading CFDs with EagleFX, you can enter into a 'Buy' trade or go long. This means that you've opened the position in the hope that the underlying asset's value is going to climb and that you will be able to exit the position, or sell at a higher price.
There is also the potential to trade with the expectancy that the value of a specific underlying asset will decrease in value. In this scenario, you would enter into a 'Sell' position or go short. Here, you would close the position, buying back the contract at a reduced price.
In doing this you would generate a profit on the price difference. Regardless of whether you're trading with long or short positions, if your trade goes as planned and the asset price moves in the predicted direction, you will earn money.
If the opposite happens and the market moves against you, you'll take on a loss. The benefit of this type of trading is that you can earn money from price movement in either direction and will not be limited to only earning if the price increases.
What About Leverage?
Another benefit to forex, or CFD trading is leverage. In conventional investing, your earnings are limited by the amount of funds that you have to invest. It's pretty simple, actually. If you have $1,000 to invest, you can purchase up to $1,000 in assets.
There are no freebies and no broker will give you more than you can afford. CFD, or FX trading is leveraged trading, which means that you can trade using amounts of money which exceed the total amount of funds that you have actually invested.
For example, when trading with EagleFX, clients can access leverage up to 1:500. This means that it is possible to stretch a deposit up to 500 times its base value when trading.
Sounds wonderful, right? Well, it can be. However, it is important to remember that both profits and losses can be magnified when leverage is being used. The level of potential reward increased when leverage is used, but so too does the level of potential loss.
Avoid any broker that doesn't tell you that it's possible to lose more money when leverage is used. A reputable broker such as EagleFX will be clear and upfront with clients when it comes to making the risks that are associated with trading very clear.
Last but not least, do be mindful of the costs associated with trading. Forex brokers do profit from spreads, so seek out a broker that offers low spreads. EagleFX is one such example, as they offer spreads starting at 0.1 pips and averaging 0.3 pips.
Swaps and commission charges are also relatively standard within the industry, so keep this in mind as well. The best trader is a well-prepared trader, so be certain that you're completely prepared for those exciting first five minutes!
This article was submitted by EagleFX.
