Posted by forex at 6:37 AM
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1. Select a currency pair to trade and determine its exchange rate. For instance, if you are interested in trading the US dollar against the euro, your currency pair will be EUR/USD. Rates are specified to four decimal places; this is known as 'percentage in point', or pip, pricing. An example EUR/USD rate of 1.4947 denotes that 100,000 euros can be exchanged for 149,470 dollars.
2. Enter an order size. A standard contract is 100,000 units of the base currency---in our example, the base currency is the euro. Accounts that are set up for mini-contracts can place 10,000-unit orders, and flexible accounts can be used for any size order.
3. Select a level of margin, if applicable. Some brokerage accounts allow you to specify on a trade by trade basis the amount of margin you want to use, whereas other accounts provide a fixed margin percentage. Margin is the amount of cash or other collateral you must provide to execute a trade -- the remainder of the trade amount is lent to you by your broker. Margin levels up to 100:1 are available, but prudent traders may limit their leverage to 5:1 or less.
4. Choose whether your entry order will be a purchase or a sale---i.e. a long or short position, respectively. You profit from a long position if the value of the base currency increases relative to that of the counter currency. Conversely, a short position on a currency pair profits from a weakening of the base currency.
5. Enter your desired entry price, 'if-done' trailing stop-loss percentage and take-profit price. Your order will execute if market prices 'touch' your entry price, at which point your trailing stop-loss and take-profit order will automatically activate. The trailing stop-loss specifies what percentage loss you will tolerate before your position is closed. When your take-profit price is reached, your position will be closed at a profit.