1. Understanding a currency pair
In forex trading, you trade currency pairs, like EUR/USD, GBP/JPY, etc. This means you buy one currency and sell the other simultaneously.
Example of EUR/USD pair:
EUR = Euro (the currency you are buying).
USD = United States Dollar (the currency you are selling).
If the EUR/USD pair is at 1.10, this means that for every euro you buy, you pay 1.10 dollars.
2. Choose a trading platform
There are several online trading platforms that allow you to buy and sell currency pairs, such as MetaTrader 4, eToro, or Binance. Sign up on a platform of your choice.
3. Market analysis
Before opening a position (buy or sell), you need to analyze the markets. This is done using two types of analysis:
Fundamental Analysis: Studying economic news that can affect currencies, such as interest rates or economic reports.
Technical Analysis: Using charts and indicators to spot trends and price signals.
4. Place a trade
Once you have chosen a currency pair to trade and analyzed the market, you can place a trade. Let's say you think the euro will rise against the US dollar.
Buy (long): If you believe the euro will strengthen, you buy the EUR/USD pair. For example, if you buy at 1.10 and the value of the pair rises to 1.12, you can sell for a profit.
Sell (short): If you believe that the euro will depreciate, you sell the EUR/USD pair. For example, if you sell at 1.10 and the value falls to 1.08, you can buy back at 1.08 and make a profit.
5. Use a stop-loss
A stop-loss is an automatic order that closes your position if the market moves in the opposite direction of what you expected. This helps limit your losses if the market does not move in the direction you expected.
Example: If you buy EUR/USD at 1.10 and place a stop-loss at 1.08, the platform will automatically close your position if the price drops to 1.08.
6. Track and adjust your position
Once you have initiated your trade, monitor the market fluctuations and adjust your position if necessary. If the market moves in your favor, you can move your stop-loss to lock in your profits.
7. Close the position
When you feel you have made a good profit or want to limit your losses, you can close the position. If you bought at 1.10 and the pair is now at 1.12, you make a profit of 0.02 per unit of the pair (minus the transaction fee).
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Concrete example:
Let's say you start with a deposit of €500 and trade the EUR/USD pair.
Purchase Price: You buy 1,000 EUR at 1.10 USD/EUR, or 1,100 USD for your 1,000 EUR.
Sell: The price rises to 1.12. You sell your 1,000 EUR for 1,120 USD.
Profit: You make a profit of $20 ($1,120 - $1,100).
This simple process will help you understand how currency pair trading works. Remember, it is essential to understand the risks before you make any large trades.
