How to Trade in Forex? A Useful Guide

26 September 2022

Forex is the process of exchanging one currency for another for numerous reasons including trading, commerce, or tourism. EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, and NZD/USD are the major currency pairs that forex traders trade worldwide. Read on to learn all about online forex trading and currency pairs. Find out the factors affecting their price changes.

What is a currency pair?

All currencies are typically exchanged in pairs when trading forex. A currency pair quotation is made up of two currencies. The Euro and the US dollar, for instance, are the first and second currencies in the currency pair EUR/USD. The first currency is the base currency whereas the second currency is the quote currency. Consequently, if a trader is trading this pair, it means that they sell euros CFD’s to buy dollar CFD’s.

Likewise, if the value of currency changes, it always does in relation to the other currency. If the euro, for example, rises in value it means that it has appreciated in relation to the dollar or that the dollar has depreciated. As a result, it will cost more dollars to buy a euro.

The EUR/USD and USD/JPY are two popular liquid currency pairs for traders who are new to forex trading. These are offered by numerous forex trading brokers online. Additionally, these traders invest a lot of time studying the market and the currency pairs they are interested in by analysing technical charts and keeping an eye on economic data. It is crucial to select the best forex trading strategy, practise discipline, and put emotion aside. You can choose the best time to trade based on your schedule and lifestyle, which will also influence the type of trading you do swing trading, day trading, or scalping.

Factors affecting currency pairs’ value

Macroeconomic data, central bank interest rate decisions, and geopolitical events all have an impact on currency pairs. For instance, by raising or lowering the discount rate, the Federal Reserve promotes financial stability. The Fed establishes the target interest rates at which banks should lend to one another overnight, as well as the discount rate—the rate at which banks should be able to borrow money from the central bank.

If the Fed boosts interest rates, borrowing becomes more expensive, which slows the economy. On the other hand, the Fed lowers rates to boost economic growth by making borrowing more affordable and promoting investment and credit-related consumption.

Economic data releases from major nations, including CPI (inflation) statistics, Nonfarm payrolls (US employment data), GDP, retail sales, purchasing managers index (PMI), and others, can affect a currency’s value and cause volatility. Political tensions can affect the forex market due to trade wars, elections, corruption scandals, and changes in policy. For instance, notable events in recent years that had an impact on both the political and financial sectors were Covid 19 and Brexit.

Steps to trading forex

Once you sign up with a CFD forex broker, you can easily follow the 4 simple steps below to make your first trade.

Why get into online forex trading?

Being one of the most actively traded markets around the world, if traders understand its advantages, it will be simpler to understand why to trade forex as well.

The foreign exchange market

The trading week starts on Monday morning in Australia and moves west, from Tokyo to London, before closing on Friday evening in New York. Traders are able to benefit from extremely volatile periods when markets intersect, act upon any trading opportunity that emerges internationally and trade at their convenience.

Remember that there is a lot of risks involved with forex trading. Do your homework and identify the market that best satisfies your trading requirements and style.

Forex trading tips

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