The forex market, or international currency market, is a global marketplace for the exchange of currencies. Trading on this market allows participants to buy, sell and speculate on changes in exchange rates. Let’s take a look at the basic steps of forex trading.
Selecting currency pairs
Forex trading operations are carried out by currency pairs. Such pairs usually consist of base and quoted currencies. For example, in the EUR/USD pair the base currency is the euro and the quoted currency is the US dollar. Traders choose currency pairs depending on their strategies and market analysis.
Market Analysis
Traders analyse the market before opening a position. It can be technical, fundamental or combined. Technical analysis is based on charts and indicators, fundamental analysis is based on economic and political events, and combined analysis combines both approaches.
Opening a position
After analysing the market, a trader decides whether to open a position to buy (long) or sell (short) a currency pair. This is done through the trading platform of the Forex broker, where the trader specifies the volume of the transaction and the desired level of stop loss and take profit.
Position monitoring
After opening a position, the trader monitors the changes in the market. He monitors price movements, news and other factors that may affect his trade.
Closing a position
When the price reaches a predetermined Stop Loss or Take Profit level, the trader closes the position. The position can also be closed manually if the trader decides to change his strategy or due to other circumstances.
Evaluation of results
After closing a position, the trader analyses the results of his trade. He identifies the reasons for success or failure in order to learn lessons for future trades.
Thus, forex trading requires a trader to understand the basic principles of market functioning, analytical skills and the ability to make decisions in a rapidly changing environment.
