Posted by forex at 8:14 AM
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1. Learn about the currency markets by fundamental analysis. Understand the role of the trade deficit, economic growth, inflation, interest rates and central bank policy. In general, an economy's currency value will improve when it meets several criteria. In particular, a country with improving economic growth, high interest rates, low inflation and strict fiscal and monetary policy will have the strongest currencies. Fundamental investors can use this information to predict currency price movements.
2. Understand the particulars of the FOREX markets. A pip is one tick value of a FOREX currency pair. It equals 1/10,000th of a standard contract. In the case of the euro to U.S. dollar, it would equal $10. This is also the minimum change in price of a contract that occurs on a second-to-second basis. Traders use a short-term loan of 50-to-1 in order to control enough currency to engage in these transactions.
3. Choose a platform and broker to trade the FOREX markets. Popular companies include Forex.com, Oanda.com and FXCM.com. Compare the spread in pips that are charged to enter into a trade. The lowest number in pip spread is the best. Analyze the speed (or latency) that trades can be completed. The quicker the better. Finally, use the most intuitive and easy-to-use platform based on the demos that are freely available to try (see Resources).
4. Learn how to execute FOREX trades by entering them correctly on the platform. Every trade must include a stop loss and profit target. These prices automatically exit the investment when they reach a certain level, either profit or loss. The target is set depending on the time frame of the investment. A 15-minute trade sets the stop loss at 10 to 20 pips from the price. A day trade can set the stop at 50 pips away.
5. Engage in disciplined trading strategies. The most common strategy is to cut your losses short and let your winners run. In other words, exit your investments that are losing quickly and keep the ones in which you are winning. This takes a lot of discipline, as the market is quite volatile and will force every trader to lose a significant percentage of his trades.