Forex can be an exciting and profitable activity, more than 22 billion securities are traded daily and forex trades up to 5 billion.
But taking your first steps in this fascinating world is not easy, the purpose of this guide is to help you start trading by analyzing, one by one, the things to do and makes you evaluate before you invest money and start outlining your skills to become a pro trader.
Understand the basic terminology of forex
It is essential to know the terminology behind forex, all technical words will become your daily bread.
For example, just to mention the most frequent, remember that the spread is the difference between the offer price and the demand price, or even the fee of the broker who executes the order.
The bid price is the price at which the broker is willing to buy the base currency in exchange for the quote currency, while the bid is the best price at which you are willing to sell the quote currency in the market.
For more information read the Forex Glossary.
Decide which currency to buy and which to sell
The choice to be made is based on the forecasts that are made and the study of markets, which change quickly.
If you believe that the U.S. economy will continue to weaken, so the U.S. dollar will lose value, then you will probably want to sell dollars in exchange for a currency from a country where the economy is strong.
If a country has a lot of goods in demand and increases exports then probably the value of the currency will increase.
In making predictions you have to consider politics, the economy and all socio-political phenomena that affect the economy.
Read the economic reports. Reports on a country’s GDP, for example, or news of other economic factors, such as employment and inflation, that will certainly have an effect on the value of the country’s currency.
The pip measures the change in value between two currencies, as well as the last decimal place of a quote and with it is measured the profit or loss.
For example, if the EUR/USD trade moves from 1,546 to 1,547, the value of the currency is increased by 10 pips.
At this point you have to multiply the number of pips changed according to the exchange rate. This calculation will tell us how much the initial capital has increased or decreased.
Open an online account with a forex broker
Start selecting the brokers you are interested in, for a list of the best brokers in Italy click here.
To make sure you choose the right insurer that answers the following details:
The broker must be licensed and controlled by specially appointed bodies such as the following:
- United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
- United Kingdom: Financial Authority Conduct (FCA)
- In Australia: Australian Securities and Investment Commission (ASIC)
- Switzerland: Federal Banking Commission (SFBC)
- Germany: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)
- France: Autorité des Marchés Financiers (AMF)
Check which products are offered. It checks, for example, whether the broker trades in securities but also commodities, and what assets it offers.
Read the reviews, but be careful of the less truthful ones, become an active member of the forums and ask yourself the questions
Visit the broker’s website which should look professional, easy to use and always be active.
Check the transaction costs for each trade.
Focus on the essentials, such as the quality of customer service, facilitated transactions and transparency.
Open an account
Once you have chosen the broker to use, you will have to open an account.
It is usually possible to open a personal account or a managed account. With a personal account, you can personally execute your own trades. With a managed account, the broker will execute them for you.
Activate your account
After submitting the appropriate documentation you will receive a link to activate your account and you can start trading.
Analyze the market
You can try different methods:
- Technical analysis: Technical analysis involves revision charts or historical data to predict the currency’s trend based on past events. Brokers usually offer these tools to their clients.
- Fundamental analysis: This type of analysis is the study of factors (economic data, news, balance sheets) that can have an impact on the performance of an index or currency against others.
- Sentiment analysis: This type of analysis is largely subjective. Basically, you try to analyze the mood of the market to see if it is a “downturn” or are just unjustified items.
- This analysis is based on euphoria, optimism or pessimism, which leads to grasping the direction to take in trading.
Determines the margin
Depending on the criteria of your broker, you can invest and earn as much but you can also lose as much as you have.
A good general rule is to invest only 2% of the money in a particular currency pair.
Make your first order
You can operate with different types of orders:
Limit Orders – Orders instructed to the broker to execute a trade at a specific price. For example, you can buy currency when it reaches a certain price or sell currency if it drops to a particular price.
Stop Order – Choose to buy currency above the market price (waiting for its value to rise) or sell the currency below the current market price to reduce losses.
See your profits and also losses
The forex market is volatile. What matters is that you continue to do your research and define your strategy. Eventually, in the long run, you will see the profits.
Tips and Tricks
Try to focus on using only about 2% of the total in cash.
For example, if you decide to invest $1000, try to use only $20 to invest in a currency pair.
Forex prices are extremely volatile, and you have to make sure you have enough money to cover the down side.
Start trading forex with a demo account before investing real capital. Remember that losses are not losses unless the position is closed. If the position is still open, losses are only counted if you choose to close the order.