A lot of ideas float around the concept of currency trading, and even though the internet is full of data, there is not much to answer the simplest of questions. Even the ones that are there are flushed with technical terms; this makes it quite impossible for laymen to understand.
So here is an attempt to help them understand the very basics of currency trading and the unanswered questions that spring up in our mind.
Question 1: What is leverage and why does Forex give humongous profits?
Answer: Leverage is the amount of trading money one borrows from their broker. This allows one to score huge profits.
For example, if one invests dollar $10 at 10 x leverage, then the trade carries $100. If profit is made, the trader will receive $100 and will have to risk the same in case of loss. However, one can stop this from happening by setting a stop loss and minimizing profits?
Question 2: What are indicators and how do they work?
Answer: Indicators are basically algorithms that analyze price movement according to mathematical calculations and try to make it easier for traders to buy or sell currency pairs.
There are many types of indicators, and all are based on different algorithms like stochastic, MACD, Bollinger bands, etc. Traders often use indicators complimentarily in combinations to help in currency trading.
Question 3: How do we buy currency pairs in Forex?
Answer: The foreign exchange market values currency pairs against each other. This is how the market derives pips; it is the ratio between the value of one currency and the other.
For example, if the EUR – USD pip shows 1.6800, then it means that at the current moment, 1 Euro is equal to 1.6800 USD. With the continuous trading of each currency pairs all over the world, the prices are constantly shifting making profits and losses according to buy and sell orders.
Also, most nations in the world value their currencies against the USD; this also includes gold.
Questions 4: What are Forex time frames?
Answer: Traders do currency trading in different time frames depending on how long we want our trades to last. For long-term traders, it could go on until weeks and months while traders perform high-frequency scalping in less than seconds using HF scalping auto traders.
Question 5: How to start Forex trading?
Answer: For new traders to start Forex training, all they have to do is download Meta Trader broker version 4 or 5 depending on their PC configuration. After completion, traders can open a demo account and start trading different currencies using leverage, indicators, etc.
Now that one knows the answer to all the basic questions of Forex that are quite hard to find or quite difficult to understand, currency trading should become more simplistic. Also, once one gets the idea of how online traders work, they can start using advanced indicators. For the time being, however, downloading Forex bots to help them make profits and understand simultaneously is a great idea.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.