Posted by forex at 9:42 AM
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1. Review how currencies are quoted. It is the convention in forex to provide price quotes in pairs. The first currency in the pair is referred to as the transaction currency and the second currency is the payment currency. The quote tells the trader how many units of the payment currency are needed in order to buy one unit of the transaction currency.
2. Understand currency price movements. Currency moves in a similar way to most assets. If the quote for GBP/USD is 1.9000, this means that one GBP is exchanged for 1.9000 USD. A price movement to 1.9010 means the GBP is getting stronger and the USD weaker. However, a price movement to 1.8990 is indicative of a falling British pound and a stronger U.S. dollar.
3. Review the major currencies traded. Most traders only trade in the major currencies. These are: EUR/USD, USD/GBP, USD/JPY, USD/CHF, USD/AUD and USD/CAD (that is, the U.S. dollar against the euro, British pound, Japanese yen, Swiss franc, Australian and Canadian dollars, respectively).
4. Choose a broker. Look for low bid-ask spreads, a quality institution registered with the Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC), and an extensive tool set offering. Try the free demo in order to test the tools and research provided by the trading platform.
5. Define your strategy. Most forex traders use a mixture of both technical (charting) and fundamental analysis; however, technical analysis is the most common strategy used by forex traders. Fundamental analysis is about predicting long-term trends by looking at forward-looking indicators such as non-farm payroll and the purchasing managers index (PMI). Technical analysis uses tools such as pivot points, moving averages, Elliot Waves, and Fibonacci studies to help traders decide on when to enter and exit a trade.
6. Start with a demo (paper trade) account. A demo account will help you to learn two vital things before risking your money: (1) the trend is your friend and (2) never trade on emotion.