Back to Basics: Trading Forex

By Adinah Brown

If you are new to the world of currency trading it may look complicated, but in truth it’s not too hard to get your head around. Using the Sirix trader platform, we’ll walk you through the basics of trading forex. So sign up to the platform and join us, as we walk you through it.

First there is a trading platform that you need to get familiar with. Via the platform you will be able to analyze the price movements of different currencies and execute your trades. Most trading platforms offer a demo version, if you login what you’ll see is an exact replica of a real trading platform, but with the ability to trade fake money. Using a demo platform is a great way to learn as it will allow you to develop skills at no risk.

On the left side of the screen you’ll find a variety of the most popular currency pairs. They are called the Majors, the less traded currency pairs are called the minors. The value of a currency is a set a rate and it is determined by its comparison to another currency. So for example, if we look here at the AUD/DAC currency pair, the Australian Dollar is the base currency which if you sold to buy the equivalent amount in the Canadian Dollar you would pay 0.987c, or if you chose to sell it, you would get 0.988c.

All forex trades involve the simultaneous purchase of one currency and sale of another, but the currency pair itself can be thought of as a single unit, an instrument that you can either buy or sell.

Spread

The spread is the amount that is gained or lost in the difference between the bid and the ask price of the currency pair. So going back to our example of the AUD/CAD, let’s say you bought the forex pair at the bid price of 0.9813 and then sold it later in the day for the ask price of 0.9850. The spread is the difference between the 2 values, which in this case would have made you a nifty profit.

Some brokers charge their fees in terms of the spread, where if they operate as a market maker, they will take their profit from the spread. Other brokers will just charge a commission on the transaction instead.

Candlesticks

As soon you come on to the page you will see a chart that looks something like this. Each of those little squiggly lines is called a Japanese candlestick the purpose of which is to visually depict the value changes of the currency pair.

If you can zone in you’ll see that each of the candlesticks looks more or less like a rectangular box with sticks poking through the top and the bottom. The two ends of the box represent the open and close price of the forex pair, while the edge of the two sticks represent the highest and lowest points that were reached.

Periodicity

Like any chart, forex charts are made up of the dependent variable which is the price and the independent variable which is time. The periodicity relates to the time interval that you want to select in order to analyze the charts.  If you select a 1 minute periodicity, each candlestick will reflect the price movements within that 1 minute duration of time.

Those looking to execute short term trades, should analyze trades with a relatively short periodicity of say 1 minute or 5 minutes, while those looking to execute long term trades, should select a longer periodicity of 1 week or 1 month. In that way the relevant trend can be analyzed and understood.

Leverage

Lastly, the most important thing to know about trading is leverage. Simply put, leverage is a ratio of the trader’s equity to the amount that is borrowed. The purpose of leverage is to help traders amplify the value of their positions. So that if the trader wants to leverage their position by 1:10, this means that instead of just trading $10, they are now trading with $100. While this has the potential for the win to be multiplied by $100 so too is the loss. Therefore traders need to be aware that trading with leverage is not without its risks.

About the Author:

Adinah Brown is a professional writer who has worked in a wide range of industry settings, including corporate industry, government and non-government organizations. Within many of these positions, Adinah has provided skilled marketing and advertising services and is currently the Content Manager at Leverate.