How to Trade Forex
Forex trading instruments are comprised of Trading Pairs. The most commonly traded Forex pair is the EUR/USD EUR is the Euro, & USD is the US Dollar). When trading Forex, you trade the change in value of one currency versus another.
In our example of the EUR/USD if the price is 1.30, that means that the value of €1 = $1.30 (this is also known as the exchange rate). If the rate rises to 1.3100, than the Euro has strengthened against the Dollar as €1 is now worth $1.31. Traders who bought the EURUSD when the price was 1.30 will have profited as the price rose to 1.31.
If a trader believes that the Dollar will strengthen against the Euro, than they believe that the EURUSD exchange rate will drop. Such a trader would sell the EURUSD and profit when the EURUSD drops to 1.29.
Prices of the exchange rate will rise and fall based on supply and demand for each currency. To measure supply and demand, Forex traders can use Fundamental and Technical analysis. Fundamental analysis includes economic reports like employment figures, central bank policies, and inflation data (more on Fundamental analysis). These news releases reveal the health of a country's economy and can determine whether demand will rise for its currency. Technical analysis includes indicators and mathematical formulas that measure when a Forex pair is experiencing an increase of demand or supply (more on Technical analysis).
In order to help you learn Forex trading, we offer several education and training programs. Once you grasp the basics of currency trading online and have tried your hands on our demo account, you should be ready to go!
You can begin with SMI Markets's mini account, which requires a small deposit and allows you to minimize your risk.