Buying and selling foreign exchange in the currency market, also known as foreign exchange trading, can be a very exciting hobby and may also bring a lot of investment income. From a macro point of view, the daily trading volume of the securities market is 22.4 million US dollars; while the foreign exchange market’s trading volume is about 5 trillion US dollars a day. Your initial investment is not too much, and predicting the market direction may be a very real shock. You can buy and sell foreign exchange online in many ways.
One, learn the basics of foreign exchange trading
1. Understand basic foreign exchange terms.
The currency you are spending or selling is the base currency. The currency you are buying is called the quote currency. In foreign exchange trading, you sell one currency to buy another.
The exchange rate tells you that you want to burn the denominated currency to buy the base currency. For example, if you want to buy some U.S. dollars with British pounds, you might see an exchange rate like this: GBP/USD=1.589. This exchange rate indicates that you are going to spend 1.589 dollars to buy 1 pound.
Long position indicates that you want to buy the base currency and sell the quote currency. In the above example, you want to sell USD and buy GBP.
A short position indicates that you want to buy the quote currency and sell the base currency. In other words, you would sell pounds and buy dollars.
The buying price is the price at which your broker is willing to buy the base currency with the quote currency. The bid price is the best price at which you are willing to sell the denominated currency in the market.
The selling price, or asking price, is the price at which your broker is willing to sell the base currency to buy the denominated currency. The selling price is the best price you are willing to buy from the market.
Spread is the difference between the buying price and the selling price
2. Looking at a foreign exchange quotation, you will see 2 data on a foreign exchange quotation: the buying price is on the left and the selling price is on the right.
3. Decide which currency you want to buy or sell.
Forecast the economy. If you believe that the U.S. economy will continue to weaken and is not good for the dollar, then you may want to sell the dollar to buy the currency of a strong economy.
Look at the trade situation of a country. If a country has many goods in demand, then the country may export a lot of currency and make money. Such trade advantages will stimulate the national economy and push up the value of international currencies.
Considering political factors. If a country is holding elections, if the winner of the election has a responsible fiscal agenda, then the country’s currency will benefit. Similarly, if a country’s government deregulates for economic growth, the currency may also appreciate.
Read the economic report. For example, a report on a country’s GDP or a report on other economic factors, such as employment rate and inflation, will affect the value of the country’s currency
4. Learn how to calculate profit.
point is used to measure the value change between two currencies. Generally, 1 point is equivalent to 0.0001 of the value change. For example, if your EUR/USD transaction changes from 1.546 to 1.547, your currency value will increase by 1 point.
Multiply your account change points by the exchange rate. This calculation will tell you how much your account amount has increased or decreased.
2. Open an online foreign exchange brokerage account
research different brokers. Consider the following factors when choosing a broker:
Find a company that has more than 10 years of experience in this industry. Experience shows that this company knows what it is doing and how to care for its customers.
Check whether this broker is under the regulation of the main supervisory agency. If your broker takes the initiative to accept government supervision, you will feel at ease about the broker’s credit and transparency. Some monitoring agencies include:
United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
UK: Financial Services Authority (FSA)
Australia: Australian Securities and Investments Commission (ASIC)
Switzerland: Swiss Federal Banking Commission (SFBC)
Germany: German Federal Financial Supervisory Authority (BaFIN)
France: Authority of Financial Markets (AMF)
See how many products this broker can provide. If this broker also trades securities and futures, for example, then you know that this broker has a larger customer base and a wide range of business.
Read some comments but be careful. Sometimes, unethical brokerages will enter review sites and write reviews to improve their reputation. Comments can give you an idea of the broker, but you should always look at it with reservations.
Visit the website of this broker. The website should look professional and the links should be effective. If there is something like “Open Now!” or other unprofessional content on the website, avoid this broker.
View transaction fees for each transaction. You should also look at how much your bank charges when sending money to your foreign exchange account.
Focus on the basic elements. You need good customer service, convenient transactions and transparency. You should also be inclined to choose a broker with a good reputation.
Consult information about opening an account
You can open a personal account or choose a shared account. With a personal account, you can implement your own transactions. With a shared account, your broker will implement the transaction for you.
fill in all required documents
You can request to mail or download documents, usually in the form of PDF files. Make sure to check the cost of making money from your bank account into your brokerage account. These expenses will reduce your profits.
activate your account
Normally, the broker will send you an email with a link to activate your account. Click this link and follow the instructions to start trading.
Three, start trading
Analyze the market
Technical analysis: Technical analysis includes viewing charts or historical data to predict the direction of the currency based on past conditions. You can usually get charts from your broker or use a common platform like Metatrader 4.
Basic analysis: This analysis involves looking at a country’s economic foundation and using this information to influence your trading decisions.
Sentiment analysis: This analysis is mainly subjective. Basically, you try to analyze market sentiment to determine whether it is “bearish” or “bullish.” Although you cannot change market sentiment, you can often make more accurate estimates and influence your trading.
Determine your margin
Depending on your broker’s policy, you can invest a little money but still be able to make large transactions.
Lieutenant, if you want to trade 100,100 with a one-percent margin, your broker will ask you to put $1,000 into your account as a guarantee.
Your gains and losses will increase or decrease the value of your account. Therefore, the usual rule is to invest only 2% of the cash for a certain currency pair
place an order, you can place different kinds of orders:
Market order: For a market order, you instruct your broker to execute a buy/sell transaction at the market exchange rate.
Limit orders: These orders instruct your dealer to execute the transaction at a specific price. For example, you can buy when the price of a currency reaches a certain price, or sell when it drops to a certain price.
Loss Limit Order: Loss limit order is to choose to buy currency on the market price paper (predict its value will increase) or sell currency below the market price to stop loss.
look at your profit and loss
The most important thing is not to be emotional. The foreign exchange market fluctuates frequently and you will experience many ups and downs. The important thing is to continue your research and stick to your strategy. Eventually, you will see profit.
Before you invest in real money, use a virtual account for foreign exchange transactions. In this way, you will have an understanding of this process and decide whether foreign exchange trading is right for you. When you always make good trades on a virtual account, you can start trading with a real foreign exchange account.
Limit your loss. Suppose you invested 20 US dollars in EUR/USD. Today, your total loss is 5 US dollars. You could have avoided the loss. The important thing is that you only use about 2% of your assets for each transaction, and set a stop loss order for this 2%. Having enough assets to avoid downside risks allows you to maintain your trading seat and see profits.
Try to focus on using only about 2% of your total cash. For example, if you decide to invest $1,000, try to invest in currency with only $20. Changes in foreign exchange prices are drastic, and you want to make sure that you have enough money to avoid losses.
If your currency portfolio goes against you and you don’t have enough money to cover this period, your transaction will be automatically cancelled. Make sure you don’t make such mistakes.
Remember that the loss is really a loss only when the transaction stops. As long as your position is still there, the loss can only be counted as a loss when you choose to end the transaction.