Learn What is Online Forex Trading and How You Can Start Trading Forex

What is Online Trading

Online trading is the buying and selling of currencies online using a Forex trading software known as a forex trading platform. The buying and selling is carried out by retail investors, speculators and traders.

The Forex trading software used to trade Forex currencies is provided by Forex brokers. Forex brokers are companies that connect retail forex traders to the online forex market; so that traders can trade and place currency trades in this online exchange market. Every trader must trade with a forex broker.

To trade Forex, a currency trader only requires to have a computer with an internet connection and then connect to their forex broker through the forex trading platform software. For this reason forex trading has gained a lot of popularity among forex traders.

Forex Trading is the exchange of one currency for another and this exchange is carried out by traders who want to make a profit from the currency market moves. Traders will make a profit when they buy a currency at a lower rate and then sell the same currency at a higher rate.

In Forex a trader only needs to choose a currency they want to buy, the lot size of the currency that they want to buy and they can make the trade through their trading platform. The trader will also choose when to close a trade. The forex market is the most liquid market in the world and this means a trader can open and close trades on any currency at any time of the day.

Leveraged Forex Trading

In trading if a trader were to buy only a few Dollars or a few Euros and wait to make profit it would take a long time to make profit because forex currencies move less than 1% every day. For this reason forex is traded in contracts known as standard lots and one standard lot is equivalent to $100,000 units of currency. With $100,000 units of currency the least amount of movement in a currency which is equal to 1 pip is equal to $10 profit. 1 cent is equal to 100 pips, therefore if a trader trading one standard lot opens a trade and the currency moves 1 cent in his favor, then the trader would make a profit of 100 pips and for 1 contract the profit per pip is $10. Which means the trader would make a total of $1,000 profit from this trade. That is $10 dollars profit per pip multiplied by 100 pip movements. This is how profits are generated in Forex.

However, not many traders can afford to buy $100,000 units of currency, that is why brokers provide leverage to traders so that traders can borrow money to trade with through leverage. For example a broker can provide a trader with leverage of 100:1 which means that a trader can borrow up to 100 times their capital. Which means that a trader with $1,000 dollars capital can borrow up to 100 times their capital using leverage 100:1, therefore their total capital that they will control after leverage is $1,000 multiplied by 100 is $100,000 dollars. After using this leverage a trader can then be able to buy 1 standard lot when trading Forex. Some brokers even provide leverage as high as 400:1 which means a trader with $1,000 can open trade position of 4 standard lots, but traders should not use this high leverage and should learn about money management rules before trading with leverage.

How to Open a Forex Trade

Once a trader chooses which currency pair to trade and the lot size to trade, the trader can then place a buy or sell order through their trading platform.

1.If a trader predicts that a currency pair price will rise then the trader can open a buy trade of this currency pair.

2.If on the other hand a trader predicts that a currency pair price will fall then the trader can open a sell trade of this currency pair.

The profit will then be calculated in pips and traders can decide to close the trades any time.

How to Start Trading

Once as a trader you learn the basics of trading currencies and the strategies of trading forex then you must decide when to start trading and what capital to start trading with.

Forex trading requires that a trader starts trading with at least $1,000 if they want to be trading micro lots and $100,000 if they will be trading standard lots. If as a currency trader you do not have the required capital it is best to start saving until you reach the amount of money that will help you open a well capitalized forex account. This will increase your chances of success when it comes to trading forex currencies.