The Online Forex Brokerage Account
Once an individual decides to begin trading forex online, the first step is opening a forex brokerage account. There are similarities to the equity market because a trading account is necessary. The services and specifics of each account vary, so the account should have everything of interest for the trader.
There are two basic types of trading in the foreign currency market. The first is to buy and sell currency pairs, the idea being to go long on one currency, then short the other. The second is to buy derivatives to track the specific movements of a currency pair. Both techniques have similarities to those of the equities market. Any individual familiar with purchasing and selling stocks will already understand the technique. The forex trader buys a currency pair in the hopes the value will favorably change. When the trader goes long on a currency pair, the best scenario is for the value to increase. A good example is a trader who took a long position on a USD/CAD pair. If the value increases, the trader makes a profit. If the value decreases, the trader will lose money. When the value of the United States dollar increases against the Canadian dollar, the value of the pair will increase. This means the forex trader has bet on the United States dollar.
Derivative products include futures and options, and the profit is made when the value of the currency changes. When a forex trader purchases an option for a currency pair, the trader has gained the right to make the purchase at a specific rate before a predetermined point in time. When the currency pair must be purchased before a predetermined point in time, this is called a futures contract. These techniques are generally only used by advanced forex traders, but understanding them is important for all forex traders. A new trader should not attempt derivative products until becoming familiar with the techniques.
The Order Types
When a trader chooses to open a new position, the options are either a limit order or a market order. Both order types are established in the same way as when employed in the equity markets. A forex trader gains the ability to buy currency at the markets current exchange rate for trading with a market order. A limit order gives the trader the ability to establish a specific entry price. Many forex traders will try to lock in a profit with a take-profit order. This is a good strategy when the trader already holds an open position. A good example is a forex trader with confidence the GBP/USD rate is going to increase to 1.7800, but is not certain if the rate is capable of increasing any further. A take-profit order can be used by the trader, and their position will close automatically once the rate has reached 1.7800. This will lock in the profits of the forex trader.
A stop-loss order is another effective tool for forex traders holding open positions. This gives the trader the ability to decide how much the rate can decrease before their position will be closed. This prevents the accumulation of further losses. A good example is if the GBP/USD rate starts to decrease, the forex trader can use a stop-loss to close their position at a specific amount to stop any further losses. The most crucial aspect for any new forex trader is to understand the different types of strategies and orders available online. This will provide guidance for the first trade, increase the chances to make a profit, and the experience will be more enjoyable. The second most important aspect to take into account is the quality of the platform used when trading. Both MetaQuotes and SpotOption are considered fintech giants, who produce state-of-the-art trading softwares.