Foreign Currency Exchange How-Tos For New Traders

Forex

Until you learn how to leverage your foreign currency exchange trades correctly, only use a “demo account”. Leverage is how you can make a tidy profit in forex trading. It’s also how you can burn a hole in your cash account. What most people will never tell you is that high leverage ratios should only be used for short-term “day trading”, since such a trading style has you in the marketplace for very limited amounts of time, thereby limiting your downside risk. All other forms of trading should use ratios of 100:1 or lower, particularly anything that appears to be “trend trading” (where you could be in the market for days on end).
Use an “Average True Range” indicator – on a daily chart – to judge the volatility of any currency pair that you’re thinking of trading. Some currency pairs are fairly mellow (e. g., the EUR/CHF, courtesy of the Swiss National Bank’s EUR/CHF 1.20 “floor” and the billions that it has spent defending such a concept), but others are not.

How To Use Leverage To Profit From Foreign Currency Exchange

Leverage implies that a relatively small amount of cash is controlling a very large trading position. Done correctly, this allows for far more profitability than would otherwise be possible. For instance, if you use a leverage ratio of 100:1 to secure a trade position, then this means that $1 in cash is controlling a $100 trading position. Thus, a change of only 1% in pricing is needed to produce another $1 (in profit). Depending upon how fast a currency pair is moving, the profitability of this kind of trading is amazing. For instance, the average daily trading range of the euro is only 100 pips, but that is equal to 1%, if you are using a leverage ratio of 100:1.

How To Minimize Risks With Foreign Currency Exchange Trading

When trading, you can minimise the amount of risk you take on by either adjusting the structure of your trade or by changing the currency pair that you want to trade – or, by doing both. In terms of structuring, you can reduce the amount of leverage that you’re using. You can also reduce the number of contracts that you’re trading at 1 time and/or tighten up your stop losses. With regard to which currency pair you might want to trade, it’s best to use an Average True Range indicator, on a daily chart basis, to discover how much volatility is in the market – before you initiate a trade. Some pairs are known high-flyers (e. g., GBP/AUD); stay away from them.

The Tactics Professional Foreign Currency Exchange Traders Use To Make Money

Most experienced traders refrain from trading over a weekend. Some will even go so far as to not trade on Fridays. This limits their financial participation to doing “swing trades” or day trading. Some refuse to do swing trades because they don’t like being in the markets more than a couple of hours. Others are willing to commit to a “long-term trade” (i. e., something that might go overnight) only if they see the bottom of a very established range hold (e. g., AUD/USD 0.8800, during the summer of 2013). In addition, different currency pairs engender different strategies. Many traders, for instance, favour only doing day trades with the EUR/USD, due to the high degree of politics surrounding the pair.

 

 

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