Your Forex guide. Everything you wanted to ask but didn’t know where
When someone wants to make money on the Forex market, he or she comes across some concepts and definitions. At first, all this seems confusing. Learning new information can be much time- and energy-consuming.
I want to help you cut the way of trials and errors short. So, I wrote a brief guide to the Forex trading basics and tricks, which a newbie will come across at the very beginning. The success of this way mainly depends on the first step. The most important is to take a step in the right direction.
So, you have registered a personal profile on the LiteFinance website, pressed on many different buttons, and became a virtual millionaire. To start real trading, you need to choose the type of your real trading account.
The forex broker offers two trading account types. The ECN (Electronic Communication Network) account is usually recommended for professional traders. The Classic one is suitable for all investors.
Both types are real trading accounts forex, which enables you to trade in the foreign exchange market. There are not so many differences between them. However, the ECN account allows a trader to use the copy trading service, which provides extra profits from copying successful traders’ trading behavior.
Once you select the account type, you need to define the leverage size. It can be from 1 to 500. Which leverage ratio will suit you depends on your trading style. So, I do not recommend you to make hasty decisions and think it over thoroughly.
What is Forex leverage?
The LiteFinance company offers several options for the leverage amount, varying from 1 to 500. However, you need to understand what financial leverage is before you make your choice. I’ll try to explain it in simple terms. Leverage is the funds you borrow from the Forex broker to increase your potential return.
It is like a bank loan, but you do not need to submit any additional documents, and it is interest-free. You can choose the leverage ratio, where 1 (1:1) will mean you do not take any money from the broker. A 500 leverage (1:500) means that your own funds on the account are multiplied by 500.
Example. I have my own deposit of 1000 USD. If I use a 1:1 leverage, I can operate only with my own money. If I use leverage 1:500, I can already enter a trade of 500,000 USD!
I want to warn you to be cautious. With great money comes great responsibility. If you use the maximum leverage, you can lose all your deposit if the price makes the slightest swing in an unfavorable direction.
Experienced traders usually have Forex leverage ranging between 1:30 and 1:200, the standard leverage is 1:100. The leverage of 1:100 is so popular because it is convenient. You can quickly calculate your own funds needed as a margin to open and maintain a position.
So, you have selected the trading account type and the Forex leverage size. Now you need to choose the equipment to buy and sell currencies.
In the past, when the technology was not as developed as it is now, traders made transactions on the phone. In earlier times, they used the telegraph. But now we have the Internet and various trading terminals, including mobile versions and the trader personal profile.
How to choose a trading platform?
There is no accounting for taste. Everything depends on personal preferences. However, I want to note some features of using trading terminals.
Trading terminal in the trader’s profile has a standard set of options allowing open and close trading positions and track the account state. It has the necessary tools of technical analysis to identify the price trend direction. It will perfectly suit a beginner trader, but you should not expect to find any super functions in the standard trading platform. Besides, this terminal’s great benefit is that you can trade directly in the trader’s profile without setting special apps.
Mobile trading terminals based on iOS and Android will suit active people who do not always have a desktop at hand. Mobile versions have all the necessary tools for Forex trading and standard technical analysis indicators. The main flaw of mobile trading platforms is the small size of mobile gadgets. Their screens do not allow one to thoroughly analyze the current market situation, resulting in a wrong trading decision.
Trading platforms MT4 and MT5 or online version?
If you are willing to become a successful trader, a desktop trading platform will suit you. MT4 has everything you need to make money successfully. Some traders believe it to be a perfect tool for analysis and trading.
There are many built-in technical indicators for the price chart analysis. You can test your own trading strategies here.
It has a simple programming language. So, you can create a trading algorithm or order a professional to write an Expert Advisor for you. A user-friendly interface in different languages can satisfy the most fastidious trader.
The MT4 platform is time-tested, simple, and reliable as a Swiss watch. MT4 is the real choice of professionals.
The MT5 platform got all the best from its "elder brother.” Besides, you can trade not only in the Forex market but also operate with other assets, including stocks and futures. The platform has an extended range of the market analysis periods, called timeframes, and other advantages.
However, the most significant drawback of the MT5 platform is its limited functionality when using custom indicators created for the MT4.
I strongly advise beginners to try using the LiteFinance browser terminal version, based on MT4. Its interface is simpler, more intuitive, and user-friendly; it does not require installation and works through a browser on any device.
Well, you have selected your trading tools and equipment. It is time to clarify some concepts and definitions used in the Forex trading and trader community.
A bonus – you can show off your knowledge. The matter is that traders use their own trading slang. If you do not know it, you just won’t be able to communicate with other traders.
Trading terms and definitions
Forex currency quote is the price one currency expressed in another currency. It is written as a fraction. For example, the EUR/USD means the value of one euro in dollars. The currency quote where the first currency is any currency, and the US dollar is in the second place is a direct quote.
In an indirect quotation, the USD is first, which means the US dollar value is expressed through some other currency. For example, USD/JPY is an indirect quote.
There are also cross rates, which are currency pairs that do not include the US dollar. The most popular cross rates are EUR/JPY and GBP/JPY. However, I do not recommend beginner traders to trade cross rates before they feel confident dealing with major currency pairs.
What is a lot in trading? A lot is the size of the trading position. In the forex market, a standard lot size is 100 000 (a hundred thousand dollars, euros, pounds).
Imagine that you enter a trade of a standard lot using a 1:100 leverage. In this case, you must deposit at least 1000 units of the base currency (it is the first in the currency pair).
The LiteFinance trading conditions allow you to enter the fractional lot size trade, starting from 0.01 lots. If you use a 1:100 leverage, it will be 1000 currency units. So, you need only ten units of the quote currency as collateral.
For example, if you enter a EURUSD trade of 0.01 lots, your trade will be 1000 euros. You will need 10 euros as collateral. If you enter a transaction of 0.1 lots on the same currency pair, the trade size will already be 10,000 euros. So, you will be required a collateral of 100 euros, which isn’t a big sum. But you still should consider it in your trading plan.
I gave the figures for the trading account whose currency is the euro. In other cases, these values will be converted into account currency.
What are pips in forex? A pip measures the amount of change in the exchange rate for a currency pair and is calculated using the last decimal point. For example, if the EUR/USD exchange rate is 1.23456, a pip is 6.
Let me give a short explanation of what is swap.A swap Forex trading is a fee that you pay to keep your position open overnight. A trader can make any number of transactions in day trading.
However, If he/she wants to roll the trade over from one trading day to another, the broker will charge a fee. This fee is called swap.
A swap results from the change in the exchange rate. It occurs when a trader uses borrowed funds and the currency different from the account currency.
Important! You need to remember that a swap is a bad thing in most cases.
What is spread in Forex trading? The spread is the difference between the bid (sell) price and the ask (buy) price of a currency pair. It means the difference between the demand and the supply. The spread size depends on the current market conditions; it can range from zero to several pips.
The more traders want to buy and sell a currency pair, the narrower is the spread. There can also be a fixed spread value, set in the currency pair specification in advance.
What are Stop-Loss and Take-Profit? A stop loss is pending order set to close a losing position. It works out to limit your loss at a particular level fixing the value you can afford to lose. I recommend you to always set your stop.
A take profit is a pending order that closes the position at a specific level to fix the expected profit when it is reached. To take profit means to close a position when the expected gain is achieved.
Margin call. Nobody wants to receive a margin call. A margin call is a notification from the broker that you must add money to the margin account to meet minimum capital requirements.
It means that a trader has lost all the funds and must either close the position or top up the account. I hope you will never know in practice what a margin call is.
Of course, the above terms are not all the trading concepts you will come across in Forex. But they will be enough for a start. I wish you success in trading! Take care of yourself and your money!
P.S. Did you like my article? Share it in social networks: it will be the best "thank you" :)
Useful links:
- I recommend trying to trade with a reliable broker here. The system allows you to trade by yourself or copy successful traders from all across the globe.
- Use my promo code BLOG to get a 50% deposit bonus on the LiteFinance platform. Simply enter this code in the appropriate field when funding your trading account.
- Telegram chat for traders: https://t.me/litefinancebrokerchat. We are sharing the signals and trading experience.
- Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders https://t.me/litefinance
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
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