How to start out in forex trading, from EagleFX
Forex, often shortened to FX or the
foreign exchange, is a global decentralized market for the trading of a wide
variety of currencies.
The forex market is the largest in
the world, with billions of dollars being traded daily. Once you’ve selected a
broker, whether it be a top brokerage such as EagleFX or a
different brokerage option, the next step will be to create and fund a trading
The information that follows will
provide you with clear expectations of what to expect (and what to do) in the
minutes that follow the completion of these steps.
Currencies are always traded in
pairs, and it will be up to you to predict whether one currency will climb or
fall in opposition to another. The GBP/USD pair, for example, measures the
value of the Pound against the value of the United States dollar.
Currency pairs, as well as other
assets, can be trade as CFDs. Contract for Difference contracts represent the
price action of a variety of financial assets, such as currency pairs,
commodities, cryptocurrencies and more.
Within each asset class are
underlying assets. An example here would be Apple, which falls under the stock
group of assets.
I Go Long or Short?
One of the advantages of contract
for difference trading is that you can opt to either go long or go short. Where
standard, traditional investing centers on purchasing and holding an asset (you
purchase an investment, hold onto that investment until its value rises, and
then sell it off at a later time for a price that exceeds the price that was
paid), CFD trading is different.
When trading CFDs with EagleFX, you
can enter into a ‘Buy’ trade or go long. This means that you’ve opened the
position in the hope that the underlying asset’s value is going to climb and
that you will be able to exit the position, or sell at a higher price.
There is also the potential to
trade with the expectancy that the value of a specific underlying asset will
decrease in value. In this scenario, you would enter into a ‘Sell’ position or
go short. Here, you would close the position, buying back the contract at a
In doing this you would generate a
profit on the price difference. Regardless of whether you’re trading with long
or short positions, if your trade goes as planned and the asset price moves in
the predicted direction, you will earn money.
If the opposite happens and the
market moves against you, you’ll take on a loss. The benefit of this type of
trading is that you can earn money from price movement in either direction and
will not be limited to only earning if the price increases.
Another benefit to forex, or CFD
trading is leverage. In conventional investing, your earnings are limited by
the amount of funds that you have to invest. It’s pretty simple, actually. If
you have $1,000 to invest, you can purchase up to $1,000 in assets.
There are no freebies and no broker
will give you more than you can afford. CFD, or FX trading is leveraged
trading, which means that you can trade using amounts of money which exceed the
total amount of funds that you have actually invested.
For example, when trading with
EagleFX, clients can access leverage up to 1:500. This means that it is
possible to stretch a deposit up to 500 times its base value when trading.
Sounds wonderful, right? Well, it
can be. However, it is important to remember that both profits and losses can
be magnified when leverage is being used. The level of potential reward
increased when leverage is used, but so too does the level of potential loss.
Avoid any broker that doesn’t tell
you that it’s possible to lose more money when leverage is used. A reputable
broker such as EagleFX will be clear and upfront with clients when it comes to
making the risks that are associated with trading very clear.
Last but not least, do be mindful
of the costs associated with trading. Forex brokers do profit from spreads, so
seek out a broker that offers low spreads. EagleFX is one such example, as they
offer spreads starting at 0.1 pips and averaging 0.3 pips.
Swaps and commission charges are
also relatively standard within the industry, so keep this in mind as well. The
best trader is a well-prepared trader, so be certain that you’re completely
prepared for those exciting first five minutes!
This article was submitted by EagleFX.