What is forex trading?
Forex trading is the buying and selling of currency pairs on-line. The major pairs include:
• Eur/USD Price is quoted as the value of 1 Euro to 1 Dollar
• USD/Yen Price is quoted as the value of 1 Dollar to 1 Yen
• Euro/GBP Price is quoted as the value of 1 Euro to 1 Pound
• GBP/USD Price is quoted as the value of 1 Pound to 1 Dollar.
- What is the difference between the buy and sell rates?
The difference between the buy and sell rates – known as the pip spread, is the amount you pay to the dealer for laying and administering your trade.
e.g. If the quoted prices for the Euro/USD are: buy 1.1796 and sell 1.1799 – there is a spread of 3 pips or 3 one hundreds of a cent. Thus you pay 3 hundreds of a cent for every Euro or Dollar you buy or sell in this currency pairing. For each 10k you buy or sell, you pay the dealer $3 for laying and administering the transaction.
Note: for many of the cross currencies the pip spread may rise to 10 or more.
Am I also charged commission?
TodayFx does not charge any commission on forex trades placed. Today’s forex market is very competitive and you should not pay any commissions. TodayFx and its primary brokerage firm are compensated through the bid/ask price spread. You should also be looking at the value of the service you are getting from your broker or intermediary, and not settle for anything less than a comprehensive value-added professional service.
What is a stop loss and when should I place one?
A stop loss is a loss floor or ceiling a trader places on their order. A trader should always place a stop loss on every order. If the market moves against the trader, at least with a stop loss a trader can limit the damage and balance slippage on their account.
Example of stop loss:
A trader buys 100k Euro/USD at a price of 1.1796 believing that the market will favour the Euro and that we will see an appreciation in the value of the Euro. He places a stop loss at 1.1780. This stop loss means that the maximum he can lose is a total of 18pips – or $180 dollars for a 100k lot. If he failed to place a stop loss and the market moved against him to say 1.1750, this means that he is carrying an equity loss of 46 pips – or $460 for a 100k trade on his account.
What is a limit order?
A limit order is a cash-out point on a trade. If our trader makes an order believing the market is going to move in his direction, he may place a limit – which is the point at which he wishes to exit the position and cash in. No trader knows exactly where any market is going to finish and it is optimistic to the extreme to believe that one can earn 100% of market movement. Markets fluctuate all the time, so at least with a limit placed on a position, the trader cashes in before the market reverses and erodes his gains.
Example of limit order:
Let’s assume this is the same trade as under number 4 above. Our trader buys 100k Euro/USD at 1.1796. He believes the price may move all the way to 1.1900 before it might reverse, but he are not sure. Therefore he places a limit order at 1.1870. If he is correct and the market moves up as far as 1.1890, then his position will automatically close at 1.1870, for a gain of 74 pips – or $740. If he failed to place a limit order and the market were to reverse at 1.1890 and move down to 1.1820, our trader is sitting with only a gain of 24 pips or $240 in his equity balance. This is what his total gain will be if he were close the position manually at this point.
Alternatively, a trailing stop could be used to track the market, if the market moves in our favour. A trailing stop of 50 pips will move a stop loss 50 pips, every time the market moves a total of 50 pips in our favour. So for the same Euro/USD trade, if a trailing stop has been entered at the market entry point of 1.1796, with a stop loss of 1.1780, it means that when the market reaches 1.1846, the stop loss will automatically move to 1.1830. The trader is guaranteed to gain on the trade, for if the market were to now reverse downwards, his position would automatically close at 1.1830 and he would have made 34 pips or $340.
6) What if the price is not at the trader’s desired market entry level?
We can create an entry order in advance and thus only enter the market when the price is at our desired level.
As an extension of the above example, let us assume that Euro/USD was in an upward momentum and was currently at 1.1860. The trader may believe that it will not go higher than 1.1890 before the market will reverse, but that 1.1860 is too early to enter. As our trader will not be at the computer to watch the market, he places a ‘create order entry’ to sell Euro/USD at 1.1883 (remember when the buy price is at 1.1880 the sell price will be 1.1883, in a 3 pip spread trading environment). The trader places a stop loss at 1.1900 and a limit order at 1.1833. If the trader is right, his position will automatically open at 1.1883 and if the market reverses as per previous examples, then he stands to gain 50 pips or $500, as the transaction will automatically close at 1.1833.
Note: When using a create order entry, ensure that in the event of it not been activated when you desire, you delete the order entry so that it may not be activated at a later time, when the market and your view of the market movement has changed.
Should I trade?
If you have no experience trading, then you should spend plenty of time learning about it and operate a Demo account to apply what you have learned. A Demo account plugs you into the real market – while the money is not real, everything else is. TodayFx offers a Demo account and you can use it for up to 30 days for free.
You should also follow the chat and discussion forums and learn from fellow beginners and more experienced traders.
Different traders trade different strategies and sharing of strategies, no matter how brilliant one believes their strategy may be is not going to fool or bust the market – believe us!
• If you don’t know what you are doing – don’t trade!
• If you believe this is a get-rich-fast system – don’t trade!
• If you think you were right and the market was wrong – stop trading!
• If you can’t take losses – stop trading!
Disclaimer Notice : Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Becoming a successful Forex trader is an ongoing process. It has a beginning but no end. In every walk of life there are achievers, yet only 2 – 3% gravitate to become WORLD CLASS PERFORMERS.
Research shows that those who carry and maintain the title have or have had a parent, guardian, coach, or mentor who has taught them, pushed them and held them accountable for their actions and performance. Kenya Forex Firm LTD. will become your coach and mentor. We can teach you, push you and hold you accountable, empowering you with the ability to become a WORLD CLASS Forex TRADER!