How Does Online Forex Trading Actually Work?

29th June 2017

Making a quick buck is always tempting, but what is the best way to do so? In growing numbers, people are turning to the foreign exchange (forex) markets. Statistics from the autumn of 2016 revealed that a staggering $5.1tn is traded in forex every day, so the money is there, but how does it work?

The basic principle of forex trading is guessing whether one currency will either rise or fall in value against another one. For each trade, you need to pick two currencies and either go long (buy – increase in value) or go short (sell – decrease in value). Known as a currency pair, you need to choose wisely.

As an example, let’s choose the US Dollar and the GB Pound. If you think the Dollar will increase against the Pound, go long. If you think otherwise, go short.

The Research Phase

Research is vital for forex trading. Knowledge of the value of at least some major currencies is needed before you can just dip your toe into it. Look at historical data, detailing the rises and falls that currencies experience. Also, you should consider news stories that have a major impact on the currency values – GDP and inflation reports, for example.

Take a few minutes each day to read up on the latest financial news. Anything involving currencies, GDP figures or political developments should be taken into account before trading.

Next up, there is knowing how to action a trade. First, choose a forex trading platform that is simple to use and open an account. Trading with Hantec Markets gives you a head start. Then, look at the currency pair you want to trade, pick go long or go short and then you can open your trade.

Open and Shut

Once you open the trade, determine the margin you want to trade on. Forex is leveraged, which means that for every point one half of a currency pair goes up, your profits/losses multiply. You decide which percentage of the cash you deposit should be traded e.g. 2% of $200 – $4.

Finally, there is the tricky part of knowing when you want to end each trade. Whether you are satisfied with the profit you stand to make or minimise your losses, you need to click on the ‘close’ option in your trading platform.

Some platforms have stop loss orders, which allow you to prevent losses from trading to become too great. Use them if you feel the need to. As for profits, if you trade right, you stand to make significant amounts of money. Start off small to be on the safe side.

Corey is an all round tech guru who has worked at some major blue chip companies. He started Poweronemedia to share his views and knowledge with the rest of the blogging world.