To successfully trade on the Forex market (Forex), you need to understand that…
Now I am likely to disappoint many beginners: 90% of traders in the Forex market, one way or another, drain their first deposit. This is because those who start trading have little idea what they are dealing with. When using a large, high leverage (you will learn later what it is), working in the Forex market can be compared to driving a Formula 1 car. As a rule, those who start, getting into a Formula 1 car, try to immediately press the gas pedal, not really understanding how to steer and what the instruments on the control panel show. Don’t feel the “dimensions”. Just like in real life.
So, let’s go. The trader works in the market through a broker.
Eg. You have chosen a broker. Registered on the broker’s website. Thus, you have created your personal account on the broker’s website. Now you need to create an invoice. (Register and create a Demo or Trading Account with a broker, for example, Alpari, RoboForex, Cerich, Forex Club.) A broker usually has the ability, in addition to several types of real trading accounts, to create and use a demo account. It is quite clear that first you need to open a demo account. This account has virtual money. But the terms of trade are as close to “combat” as possible. You can choose a large deposit. And feel, so to speak, the scale. The speed of both winning and losing. And volumes. On a demo account, you can experiment as you want. The money is virtual.
In the future, it will be clear to you that when choosing an account, you need to choose its characteristics very carefully. The account and currency pair have their own internal characteristics.
Now, of course, you need to download the trading platform from the broker’s website and install it on your computer. For example, MetaTrader 4. This is a very common and fairly simple and democratic trading platform. A brief description and basic skills of working with the platform are described in the chapter below.
When you open an account, the broker gives you the account number and password. After installing the platform and launching it, you need to connect to your chosen account in MetaTrader 4. (Enter its number and password in a special window). In our case, this is the number and password of our demo account.
Are we ready to trade? No. We still need to open the chart of the selected currency pair. In the open window of a currency pair or Forex instrument, we see a quote chart or quotes. Or, they say, the exchange rate of the currency pair. A little later, we will understand how to make deals and how to make money on it. And now a small excursion. To choose the right direction of the transaction, buy or sell, we need to analyze the movement of the exchange rate on the chart in the MetaTrader 4 platform. What should we be guided by?
You can list them. Indicators of movement. Technical and fundamental analysis of the chart. Other, similar currency pairs. To know what are the transaction, the market or pending. Know the characteristics of the transaction. What lot will the deal be opened with? You should know that the trade has two closing orders. One is for limiting losses, called a Stop Loss. And the other is for profit-taking, called Take Profit. What kind of deal to choose a stop loss. What to follow when choosing.
Transactions are also called orders in another way. There are market orders and pending orders. Market orders are executed immediately. They are executed at the current BID price-the sale price or ASK price-the purchase price, which is usually slightly higher. And sets them for you by your broker. In contrast, pending orders can be placed at any price and will be executed when the exchange rate reaches this price. Now let’s understand what we are buying or selling and what we are looking at on the trading platform.
Bid, bid – the selling price of the base currency for the quoted one. In the currency quote, it is indicated on the left.
Ask is the price at which the purchase of the base currency is made for the one quoted on Forex.
Spread – the difference between the best prices of sell and buy orders at the same time for an asset.
Let’s imagine this situation: you opened an account in rubles (RUB) with a broker, put an amount in rubles (RUB) there, and for some part of rubles (RUB) you want to buy euros (EUR) for dollars (USD) on the euro-dollar (EURUSD) pair. That is, you need to change rubles (RUB) at the USDRUB exchange rate to dollars (USD) and already buy the coveted euros (EUR) with the dollars (USD) you have earned. This is the essence of the deal. All this will be done for you by the broker on your command, that is, when you click the appropriate BUY/SELL button (BUY/SELL), indicating how much (LOT) USD.
The exchange rate is indicated on Forex by the symbol XXX/YYY, where XXX is the base currency and the quoted currency. For example, EUR / USD – euro-dollar, USD/RUB-dollar-ruble. In the first case, USD is the quoted currency, in the second case, USD is the base currency.
Let’s understand how the price of the currency exchange rate of the instrument is formed.
The Forex currency. The Bid and Ask prices
Those who trade in Forex are not alarmed by the difference in prices between the best Ask buy price and the best Bid sell price. It happens the other way around. The absence of a spread, the so-called zero spread, is alarming. Because it becomes unclear who forms this zero spread. The presence of a spread, the difference between the best buy price and the sell price – is a natural process rather than an artificial one.
And yet, many call the spread the broker’s earnings. Yes. If not from the commission, then from the spread, the broker earns on us on each of our transactions. I think that the spread exists and it is constantly changing, it is not wise to blame brokers. Let’s try to disassemble this mechanism and see what’s inside :).
Let’s go to the market and go to the stalls where they sell apples. Behind the counter, sellers – in front of the counter, buyers. And if it’s a wholesale market, it’s even more interesting.
It is clear that sellers want to sell more expensive, and buyers want to buy cheaper. So much for the price difference. So much for the spread. And all are standing. Posted their prices. Nobody buys anything.
This state can be called a little differently: everyone posted their pending orders.
But now there is a buyer who urgently needs to buy some apples on the market, namely all that the seller has, but at any nearest cheap price, i.e. 75 kg at 101 rubles. No more expensive.
I bought. The market situation has changed. The seller left satisfied with 75 kilograms for 101 rubles.
The price went up and the cheap seller left.
The best selling price has changed and increased. Now it is 101 rubles per kilogram.
That is, the activity of a market buyer who wants to urgently buy a product, buy, as they say in Forex from the market, provoked an increase in prices and a change in the spread.
Now let’s assess the situation in which the seller urgently appeared ready to sell all his goods at any nearest price that the buyer will offer.
Availability of a seller from the market
We are looking at how the market situation will change after this action.
From the market seller, prices dropped
The spread increased and the best price to buy Ask decreased and became